Financial Report 2019

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Combined Management Report

2 Business and background

12 Current situation in the EWE Group

20 Group non-financial statement

21 Report on anticipated development and significant opportunities and risks

36 Current situation of EWE Aktiengesellschaft

Consolidated Financial Statements

40 Consolidated income statement of the EWE Group

41 Consolidated statement of comprehensive income of the EWE Group

42 Consolidated statement of financial position of the EWE Group

44 Consolidated statement of changes in equity of the EWE Group

46 Consolidated statement of cash flows of the EWE Group

48 Notes to the consolidated financial statements of EWE Aktiengesellschaft

Further Information

148 Responsibility statement

149 Independent auditor’s report

155 Supervisory Board report

EWE Financial Report 2019 1

Business and background

The EWE Group rural areas of northwestern Germany. Furthermore, we operate several drinking water networks and, as an energy Organization and basis of reporting group with strong regional roots, we also operate in the waste water business. In the reporting year, the total We are an energy group with core activities in the fields of volume of waste water purified was 16.1 million cubic energy, telecommunications and information technology meters (previous year: 16.1 million cubic meters). (IT). In accordance with International Financial Reporting Standards (IFRS), we have presented our business activi- In the Gas Storage business area, we construct, acquire ties in Turkey as discontinued operations until their sale in and operate systems to store as well as inject and with- the first half of 2019. We operate energy grids, are active draw gaseous and liquid fuels, such as high-pressure natu- in renewable energies and tap the joint potential of ener- ral gas, hydrogen, liquefied petroleum gas and comgy, telecommunications and IT. The EWE Group comprises pressed air, and provide all corresponding services. In this EWE Aktiengesellschaft (“EWE AG”), a stock corporation business area, we operate a total of 38 underground under German law, and its subsidiaries. Our Company’s chambers in locations throughout northern Germany, such headquarters are located in Germany with group head- as in Rüdersdorf near Berlin, and sell storage capacity to quarters being located in Oldenburg. In fiscal year 2019, internal and external customers. With a total storage the Group (excluding Turkey) had an average of capacity of 2.0 billion cubic meters, we are one of the 8,831 employees (previous year: 8,508 employees). largest operators of gas storage chambers in the German- European natural gas market. Description of business activities Sales, Services and Trading segment Renewables, Grids and Gas Storage segment The Energy and Telecommunications business area com- In the Renewables business area, we plan, build and oper- bines the sale of energy and telecommunications prod- ate wind farms to generate renewable power, often under ucts. The focus of telecommunications sales lies primarily investment and partner models. We market our expertise in northwestern Germany, parts of Brandenburg, on the in the construction and operation of offshore wind farms island of Rügen and the region of East Westphalia-Lippe. internationally. We increased power generation capacities We support commercial customers nationwide. Through (including our share in capacities from investments the establishment of additional business activities, such as accounted for using the equity method) from 338.1 mega- power storage, light contracting and energy audits, we are watts to 507.0 megawatts in the fiscal year. currently transitioning into a service provider which – in addition to the conventional products of power, gas, heat In the Grids business area, we operate power grids and and telecommunications – can provide customer-specific natural gas networks in the Ems-Weser-Elbe region of services and solutions, thereby creating new business Germany as well as natural gas networks in Brandenburg, opportunities. on the island of Rügen and in North Western Pomerania with a grid length totaling 140.0 thousand kilometers We are also working on numerous innovations currently at (previous year: 139.1 thousand kilometers). Thanks to varying degrees of maturity to develop a portfolio of new very low susceptibility to failure, our distribution grids are business models with a sharp digital focus and are pene- some of the safest in Europe: compared with power out- trating new target groups and markets with new offerings ages of an average of 14 minutes per customer in Germa- that go beyond our current business segments. These ny in 2018, outages at EWE NETZ GmbH, Oldenburg (EWE activities pertain to areas such as mobility, distributed NETZ), average just 4 minutes. We also operate a wide generation and storage, and highly data-driven business telecommunications network of 51.9 thousand kilometers models in the platform economy. They are rounded off (previous year: 41.3 thousand kilometers). The Company is with investments in start-ups, from which both sides continuously striving to expand broadband access in the derive mutual strength thanks to close cooperation.

2 EWE Financial Report 2019 Combined Management Report

The Information Technology business area includes IT Internal management system consulting services with an integrated approach, particularly for the energy and telecommunications industries, The EWE Group uses a multilevel management system the public sector, industrial companies and service pro- which makes it possible to decentralize corporate respon- viders. Our key areas of expertise lie in consulting, system sibility. The internal management system differentiates integration, and applications and system management. In between the Group and the segment level. The operative this context, we place a focus on energy-related software segments Renewables, Grids and Gas Storage; Sales, Ser- products. vices and Trading; International; and swb form the basis of the internal reporting structures and external reporting The Trading business area encompasses a variety of ser- (segment reporting). Internal and external reporting are vices related to procurement and sales of power and gas. based on the same management information system. This Furthermore, the Trading business area optimizes the technological platform enables the use of a uniform data- entire energy portfolio of the EWE Group and offers its base for a variety of reporting needs and ensures that customers and partners a broad range of portfolio and information is consistent between reporting levels and balancing group management services. The Trading busi- within one reporting level. ness area also supports operators of wind and solar farms nationwide in directly marketing their electricity. More- As the parent company, EWE AG has defined target values over, the Trading business serves to provide market access for measuring and controlling company performance to to our Group’s sales and generation activities. safeguard the long-term success of the company. Integral components of this overarching objective include long- International segment term value creation, ensuring adequate financing and In Poland, the distribution and sale of natural gas is a key stabilizing the Company’s external rating. The EWE component of our business activities. Until its sale in the Group's target values are represented by corresponding first half of 2019, the Turkish business was reported as a key figures. discontinued operation and is therefore not included in the International segment. Earnings before interest and taxes is of key importance, represented by the leading key performance indicator swb segment operating EBIT. Operating EBIT represents earnings before This segment essentially encompasses our activities in the interest and taxes adjusted for special effects such as cities of Bremen and Bremerhaven. swb and its subsidiar- valuation effects from financial instruments, impairments ies are active in the fields of power, natural gas, heating, and reversals and special effects resulting from changes in drinking water and telecommunications. This segment the basis of consolidation as well as those resulting from also encompasses the Conventional Generation and Dis- restructuring measures and from irregularly recurring posal business unit which is contained exclusively within matters affecting comparability. the swb segment. At the level of operative segments, the main key perfor- Group Central Division mance indicator operating EBIT is complemented by spe- EWE AG manages the EWE Group as its holding company. cific metrics. Furthermore, capital expenditure and their Its duties lie in the strategic and cross-market develop- distribution across the segments represent a further focus ment of the business areas as well as strategic planning of Group management. and ensuring the Group’s financing. In addition, EWE AG performs centralized corporate services for the Group’s Internal and external group reporting is continuously companies. adjusted to meet the operating requirements of managing the EWE Group as well as current legal requirements.

EWE Financial Report 2019 Combined Management Report 3

Research and development Most of the energy required will be locally generated. The quarter design, called “energetic neighborhoods,” brings Project enera “Smart Energy Showcases – Digital Agenda together generators and consumers that are located in for the Energy Transition” pursues a systemic approach to close proximity to one another. Their excess energy will be demonstrate the pervasive digitalization and technical converted into other energy forms and stored or supplied flexibilization of the energy system. The four-year project directly, allowing this energy to be used immediately by will end on 31 December 2020. Since completion of the neighboring consumers. As a consortium partner of this conceptual work, the project has been at the end of the funded project, EWE NETZ is involved in designing and rollout phase. In preparation for the forthcoming test and planning the power supply system including e-mobility, evaluation phase, the installation of modern grid technol- the transfer of heat to the electricity sector and the ener- ogy and automation solutions in defined test areas was gy self-sufficiency of the precinct, and is evaluating the largely completed and thus forms the basis for the evolu- planned infrastructure in terms of the extent to which it tion of EWE NETZ into a Distribution System Operator 2.0 can be deployed in other regions. BTC is involved in de- (DSO 2.0). The installation of smart metering and commu- signing and developing the Smart City Service platform nication modules for recording end customer consump- and is implementing IT services for digitalizing the pre- tion data will be continued into the final project year and cinct. delivers the data for various applications and value-added services demonstrated on the Smart Data and Service With the “Green Access” project we are investigating just Platform. In 2019, trade in flexibility for grid management how smart a grid needs to be to absorb a maximum of (from power generators, loads, storage facilities and pow- electricity from renewable energies at a low cost. For this er-to-X technologies) was facilitated for all network opera- purpose, together with partners from industry and sci- tors participating in the project on completion of the ence, we are testing intelligent distribution grid automa- enera market platform, which is operated in cooperation tion in order to test the extent to which it can prevent with the European Power Exchange EPEX SPOT SE, Paris, limiting bottlenecks. Components and management solu- France, and will be optimized in the further course of the tions for energy grids are being enhanced and linked in project. Thanks to activities launched in the area of flexi- such a way that they communicate and operate meaning- bility utilization in 2016, the Group has built up substan- fully with each other. We are deploying solutions for the tial know-how, from which EWE NETZ in particular will automation of medium and low-voltage grids in a field benefit in the context of the planned redispatch activities test in order to identify practicable approaches, focusing in the distribution grid. The federal government is sup- on compliance with grid and system technology as well as porting enera with a total of up to 50 million euros under information and communication technology require- its funding program, while the companies participating in ments. The project is evaluating the efficiency of the the project (EWE AG, EWE NETZ, EWE VERTRIEB GmbH, measures on the basis of reliability analyses including a Oldenburg (EWE VERTRIEB), and BTC AG, Oldenburg (BTC), metrics system. The results of the project will be collated as well as a further 28 partner companies) are investing and evaluated when the project is completed in 2019. up to 120 million euros in the model region. Together with Hitachi Chemical Co. Ltd., Tokyo, Japan, As part of the “Energetic Neighborhood Quarter” project Hitachi Power Solutions Co. Ltd., Ibaraki, Japan, and NGK (ENaQ), a new housing subdivision is being developed Insulators Ltd., Nagoya, Japan, EWE built a stationary according to a quarter-of-the-future design to be built on hybrid storage facility in Varel that was successfully com- the site of the former air base in Oldenburg. The project missioned in 2018. Most of the project funds of 27 million will entail a new infrastructure design that bundles elec- euros required to build the battery storage system were tricity, heating / air conditioning and electro-mobility and provided by the “New Energy and Industrial Technology integrates them in a cross-sectoral supply network. This Development Organization” (NEDO), an administrative will be supplemented by a service platform for digitalized body of the Japanese Ministry for Economic Affairs. The quarter services and intelligent load and procurement newly established company be storaged GmbH, Olden- management for the quarter currently being developed by burg, operates this storage facility and, in the future, will project planners. The future quarter will serve as a real- also offer battery storage solutions in the commercial and world laboratory for smart city technology where further industrial sectors, in particular planning, building and projects can also be trialed in the future.

4 EWE Financial Report 2019 Combined Management Report operating stationary battery storage systems. The mar- In a first step, in connection with the “HyLand” funding ket’s increased involvement in self-consumption solutions call by the National Innovation Program Hydrogen and and e-mobility is expected to result in a rise in demand for Fuel Cell Technology (NIP 2), the “Hyways for Future” such solutions. project will lay the foundations for establishing a sustainable hydrogen infrastructure. The focus here will initially The project “Light wave” is developing procedural, organi- be on (heavy-duty) mobility including filling station infra- zational and IT capabilities for EWE NETZ and EWE TEL structure and purchasing of hydrogen cell vehicles for GmbH, Oldenburg (EWE TEL), in order to successfully local public transport systems, waste disposal, logistics ensure connections to the fiber-optic network for the and fleet vehicles. In turn, this will kindle the expansion of joint venture of EWE and Telekom – Glasfaser NordWest. renewable hydrogen as a fuel for the entire transport The project is also further developing processes for EWE’s sector in the Ems-Weser-Elbe region of Germany. own and funded fiber optic expansion in line with market requirements. The project will run until 2020. Overall, the project “Hyways for Future” will first focus on the use of hydrogen-based electromobility in the cities in Market activation the model region. In addition, the experience gained and infrastructure will be used to expand the use of buses, “Hyways for Future” is a market activation program for commercial vehicles, trucks, passenger cars, and maritime establishing of green hydrogen in transport in the metro- and logistics applications to the region’s various adminis- politan region of the North-West and to pave the way for trative districts and municipalities. At the same time, the a cross-sector and cross-border hydrogen society. Its ob- project “Hyways for the Future” will act as a catalyst for jective is to develop the transport sector as a sales market and promote the establishment of hydrogen as an energy and establish green hydrogen as an alternative to oil- carrier in the Ems-Weser-Elbe region, thereby laying the based fuels. The use of upstream piped hydrogen supply foundation for further major technology projects at feder- infrastructure in combination with central hydrogen gen- al, regional and EU level. eration at locations in the region with underground chamber reservoirs will enable significant economies of The model region as a whole has a high level of willing- scale at the various stages of the value creation chain, ness to invest in hydrogen technology. Declarations of including hydrogen generation, transport and storage. intent for the purchase of 6 MW electrolyzers, five filling stations, two hydrogen trailers, several special applica- The primary objective of the planned project “Hyways for tions (e.g., CHP plants) and more than 250 vehicles, in- Future” is to bring together the region’s main stakehold- cluding passenger cars, buses, trucks, scooters and refuse ers to establish a green hydrogen infrastructure across the trucks have been signed in the recent past. Furthermore, entire value chain from generation and transport through numerous other stakeholders have signaled great interest to users from all transport sectors (road, rail, sea, air) and in investing in other vehicles and in shipping (shrimpers, industries and to position the cities of Bremen, Olden- inland waterways transport) and logistics (port logistics). burg, Wilhelmshaven, Cuxhaven and Bremerhaven as well as the entire region as a hydrogen model region. The The overarching aim is to foster connectivity and establish project will prepare for a market ramp-up of hydrogen green hydrogen in the energy, port and tourist region of technology, which will massively reduce CO2 emissions in the North-West and to expand into the northern Nether- the region and the rest of Germany. lands as well as the Ems-Weser-Elbe region. The long-term aim of the project is to establish the north of Germany and the Netherlands as Europe’s hydrogen repository.

EWE Financial Report 2019 Combined Management Report 5

Economic environment The front-year contract for power (base load) in Germany (Base Cal 20) started on the European Energy Exchange Market development (EEX) at 50.74 EUR/MWh on a settlement basis. The highest settlement price of 53.12 EUR/MWh was reached in EWE’s business development is shaped much more mid-July, while the lowest price of 41.30 EUR/MWh was strongly by developments in the energy and telecommu- also the last settlement price recorded on 27 December nications sectors than by general global economic devel- 2019. opments. As such, the section below will also focus on the energy and telecommunications market. The TTF front-year contract for gas showed a similar development. After starting at 19.83 EUR/MWh, the annual Energy market and prices high of 21.28 EUR/MWh was hit in mid-January. The last International commodity prices, particularly of oil, gas and price for the year of 13.13 EUR/MWh was also the lowest coal, as well as the prices of CO2 certificates are the pre- price. dominant factors that affect price trends on the power and gas markets. The crude oil market is a leading indica- The front-year contract for steam coal (API2 Cal 20) start- tor. The price of the front-month contract for North Sea ed at 82.15 USD/t and rose briefly to up to 86.95 USD/t. Brent crude started at 54.91 USD/bbl on a settlement This was followed by sideways price movements until the basis in 2019. The contract reached its annual high of end of the half-year. The price then fluctuated sideways at 74.57 USD/bbl at the end of April followed by a decline in prices between 62.00 and 72.00 USD/t. At year-end, the the price to an annual low of 56.23 USD/bbl at the begin- contract fell again to a final trading price of 56.40 USD/t. ning of August. After this, the price recovered again to close out the year at 66.00 USD/bbl on 31 December 2019.

EUR USD Power, Gas, CO2, Oil and Coal 120 120 Power (Base load / front-year) in EUR/MWh Natural Gas (front-year / TTF) in EUR/MWh 100 CO2 emission certificates (Dec. 2020) in EUR/t 100 Coal (front-year) in EUR/t Oil Brent (front-month) in USD/bbl 80 80

60 60

40 40

20 20

Source: EEX, Intercontinental as of 31 Dec 2019 0 0

6 EWE Financial Report 2019 Combined Management Report

The market for CO2 emission certificates fluctuated Telecommunications market strongly during the entire year. After starting at Revenue in the German market for telecommunications 25.86 EUR/t, the price decreased to 19.20 EUR/t in mid- services came to approximately 58.4 billion euros in 2019, February and then increased to 30.20 EUR/t in mid-July. 0.5 billion euros higher than in the previous year. Of this The last price in 2019 was 24.64 EUR/t. amount, 25.6 billion euros (previous year: 25.1 billion euros) was generated from mobile communications and According to preliminary calculations by the Working around 32.8 billion euros (previous year: 32.8 billion euros) Group on Energy Balances [“Arbeitsgemeinschaft Energie- was generated from landlines including the cable net- bilanzen”: AGEB], energy consumption in Germany works. As in the previous year, the year-on-year growth in decreased in 2019 by 2.3 per cent compared to the 2019 is therefore attributable to the mobile communica- previous year. Primary energy consumption totaled tions business and is due to the significant increases in 437.3 million tons of coal equivalent (million TCE) in the data tariffs. reporting year and 447.5 million TCE in the previous year. This decrease is primarily due to substitutions in the The landline revenue of Telekom Deutschland GmbH, energy mix, improvements in energy efficiency and lower Bonn (TDG), was comparatively stable at 13.7 billion euros energy consumption in the industry sector. These effects (previous year: 13.7 billion euros). The cable network were partly offset by a rise in consumption due to operators and alternative providers also reported stable weather conditions and population growth. AGEB expects revenue of approximately 6.0 billion euros and 13.1 billion a decrease in CO2 emissions by a good 7.0 per cent. euros, respectively. The situation was different in mobile communications: here, TDG’s revenue grew by 0.2 billion Natural gas consumption increased by 3.6 per cent to euros to 8.2 billion euros in 2019, and competitors’ reve- 109.2 million TCE, mainly due to the increased use of nue increased by 0.3 billion euros. natural gas in power plants. The rise in consumption is also attributable to higher heating requirements in Comparing the segments in which revenue was generated, the cooler spring season. Comprising 25.0 per cent of it is apparent for the market as a whole that there were total primary energy consumption, natural gas slightly hardly any changes in the business customer segment. increased its share compared to the year before (23.6 per Here the revenue of both TDG and its competitors stabi- cent). lized. Growth on the prior period results exclusively from the private customer segment. Both TDG and the alterna- In contrast, power from renewable energy sources tive providers reported growth in this segment. increased its share by a total of 4.0 per cent to 64.4 million TCE. The feed-in of power from wind turbines Since providers are increasingly unwilling or unable to pay recorded an increase of 14.9 per cent, hydro-electric for the dramatically increased investments for their own power feed-in an increase of 4.6 per cent and biomass infrastructure, dependency on TDG’s upstream services energy feed-in an increase of 1.6 per cent compared with is growing further. This resulted in steadily increasing the previous year. By contrast, solar energy feed-in rose wholesale revenue for the fourth consecutive year. by just 1.0 per cent. As a result, the share of the total energy mix from renewable energy sources increased In terms of investments, 2019 was shaped by the expan- slightly to 14.7 per cent (previous year: 13.7 per cent). sion of the fiber-to-the-home (FTTH) and fiber-to-the- building (FTTB) network. Investments in the market as a The increased feed-in of power from renewable energy whole increased to approximately 0.7 billion euros, sources and the increased natural gas consumption had a 0.3 billion euros of which was attributable to the alterna- negative impact on the consumption of coal (down tive providers and 0.4 billion euros to TDG. This reflects 20.5 per cent) and lignite (down 20.7 per cent). The the fact that the number of HFC (hybrid fiber coaxial) and decrease in lignite consumption was also driven by further FTTH/B connections is growing at a significantly faster rate lignite-fired units going into standby mode for back-up than the number of DSL connections. purposes, the lower volume of lignite mined at the sur- face mine in Hambach and the increase in the number of power plant maintenance works compared with the previous year.

EWE Financial Report 2019 Combined Management Report 7

Political and regulatory environment Internal Market in Electricity Regulation The Internal Market in Electricity Regulation is part of a Europe broader package of initiatives called “Clean Energy for All New European Parliament Europeans.” It contains provisions governing the future The members of the 9th European Parliament (EP) com- feeding-in of renewable energies and cross-border coop- menced their work at the beginning of July. There have eration to ensure supply security (including rules on ca- been changes in the political make-up and majorities in pacity mechanisms). Furthermore, the EU legislator has the new EP, making it more difficult to organize a parlia- defined general principles for a market-based, cross- mentary majority. The Christian democratic conservative border power market. The rules will have an effect in and social democratic groups have lost large numbers of particular on the Group’s trading activities, the power seats and can no longer combine to form a majority. The distribution grids and renewable energy business. The European greens and liberals have gained a lot of ground Internal Market in Electricity Regulation became effective as have euroskeptic and right-wing nationalist parties, on 4 July 2019 and is immediately applicable for German although the latter did not gain as many seats as initially law. forecast. Whether or not the required majorities will be able to be organized will depend largely on the votes of Regulation on the Cybersecurity Agency (ENISA) and on the liberals and greens. Public debate on climate change Information and Communication Technology dominated the election campaigns and new composition Cybersecurity Certification (ICT) of parliament and was a contributing factor in its polariza- The European Regulation became effective on 27 June tion. Climate and energy policy will be of key significance 2019 and is immediately applicable for German law. ENISA in the next parliamentary term and will also determine will be equipped with better resources under the new law the political framework for EWE. and endowed with a permanent mandate. In addition, the EU legislator has introduced voluntary certification of ICT New European Commission products and services in an EU certification framework. The new European Commission commenced its work at The purpose of a European system for cybersecurity certi- the beginning of December. In addition to a new struc- fication is to attest that ICT products and services meet ture, the German President of the Commission Ursula von certain cybersecurity requirements to block access to der Leyen has outlined six political priorities for the work sensitive, stored, transmitted or processed data or ser- of the Commission. Over the next five years, the EU’s vices. As an operator and buyer of products used to pro- climate and energy policy will be a key focus as will the tect its critical infrastructure, a binding interpretation of further expansion of the European digital single market. the issue of the liability of manufacturers of cybersecurity As part of her European Green Deal, the President of the products would be positive for EWE. At the same time, if Commission announced that the goal of making the EU the purchase of products were only to be binding with a carbon neutral by 2050 would become legally binding. The corresponding certificate despite there being no cyberse- sustainability targets will be at the core of the EU’s policy- curity economy, this would be a negative development. In making activities. To complete the European digital single such a case, high costs would prevent a product with a market, further legislative proposals in the areas of data high security level from being offered. management as well as information security and data privacy are expected in connection with the Digital Ser- vices Act.

8 EWE Financial Report 2019 Combined Management Report

EU mobility package Transition from low-calorific gas to high-calorific gas In May 2019, the EU adopted the Regulation setting CO2 Due to the declining reserves of low-calorific gas in Ger- emission performance standards for new passenger cars many and the Netherlands, the transition from low- and for new light commercial vehicles. Under this legisla- calorific gas to high-calorific gas is currently underway in tion, manufacturers must reduce fleet-wide CO2 emissions our supply area. In Bremen, the market transition com- of new passenger cars by 37.5 per cent from 2030 onward menced in 2017 and will be completed in 2021; in the compared with 2021. The Regulation does not need to be EWE service area it began in 2018 and is expected to be transposed into German law and will apply from 1 January completed in 2027. This will assure supply security in the 2020. In February 2019, the European legislators also market regions that up until now have been supplied with agreed on fleet-wide CO2 emission limits for heavy-duty low-calorific gas. Following several earthquakes in the vehicles, setting a target of a 30 per cent reduction in Groningen province, the Dutch government and the Dutch emissions from 2030 onward compared with 2019. The parliament decided to discontinue natural gas production Regulation setting CO2 emission performance standards in Groningen from fall 2022. The Netherlands have for new heavy-duty vehicles became effective in August resolved various measures to uphold supply, including for 2019. The new Clean Vehicles Directive requires public Germany, in order to compensate for the reduction in bodies to implement significantly stricter CO2 emission Groningen low-calorific gas production and meet their requirements when commissioning and ordering road supply commitments. The EWE Group is currently investi- transport vehicles and contains national minimum targets gating whether and what potential additional measures for light commercial vehicles and heavy-duty vehicles as might be taken by EWE to support the approach by the well as buses. The Directive became effective in August Netherlands. In this connection, we are observing the 2019 and must be transposed into German law by the political situation and are engaging in constructive dialog beginning of 2021. The three legislative packages are with political representatives and authorities in both aimed at reducing CO2 emissions in road transport. EWE Germany and the Netherlands. In addition, EWE is mem- welcomes the decarbonization of road transport and ber of a newly founded task force “Market Conversion believes that it may have positive effects on many of the Monitoring” which includes representatives from Germa- Group’s business segments including in the Sales and ny, the Netherlands, France and Belgium. Grids segments.

Directive on the Re-use of Public Sector Information The directive from 2003, which became effective on 4 July 2019, aims to ensure that third parties obtain easy access to data and documents collected by public sector bodies. The recast directive has the following main new content: first, the scope was expanded to include public undertakings and companies that provide services for public undertakings. Second, in the future, public undertakings will also be required to give third parties access to high- quality data for commercial and non-commercial purposes free of charge. The scope extension and enhanced duties to provide data will have an effect on EWE’s current and future digital business models as well as on EWE as an operator of critical infrastructure.

EWE Financial Report 2019 Combined Management Report 9

Germany Grid Expansion Acceleration Act Climate Protection Act The Act on the Acceleration of Energy Supply Line Expan- The Federal Climate Protection Act [“Bundes-Klimaschutz- sion [“Gesetz zur Beschleunigung des Energieleitungsaus- gesetz”: KSG] took effect on 19 December 2019. This act baus”: NABEG] became effective on 17 May 2019 and establishes a legal standard for Germany’s climate protec- contains numerous planning law exemptions for the swift tion targets and translates the sectoral targets in the Cli- expansion of the transmission system. The new provisions mate Action Plan 2050 into annual emission levels for the also include tools for managing grid congestion, including energy, industrial, mobility and building sectors. The fed- in particular redispatch. Redispatch, which was only used eral ministries responsible for the respective sector are in the past for conventional generation facilities, is now tasked with ensuring compliance with the annual emission also being used for storage facilities and plants producing levels. electricity from renewable energy sources and with combined heat and power (CHP) technology. The minimum Emissions trading size of plants that can be used for redispatching has also In Europe, 12,000 industrial and energy plants take part in been lowered. Consequently, from 1 October 2021, all emissions trading. Together, they are allotted a maximum plants that generate or store electricity with a rated out- amount of greenhouse gases that they can emit. This total put of 100 kilowatts or more will be subject to a uniform amount is reduced from year to year, currently by legal framework for redispatch. Renewable energy and 38 million tons a year. The total amount will be reduced CHP plants are normally connected in the voltage levels of by 48 million tons a year from 2021. The amendment to the distribution networks. For distribution grid operators the German Greenhouse Gas Emissions Trading Act such as EWE NETZ, these new rules are therefore of par- [“Treibhaus-Emissionshandelsgesetz”: TEHG] that became ticular interest. The amendments to the redispatch pro- effective on 18 January 2019 transposes this European cess will also serve to clarify key aspects of the future reform into German law. At the same time, the approach distribution of roles between transmission system opera- safeguards the international competitiveness of the ener- tors and distribution grid operators as well as issues relat- gy-intensive industries in the EU because a certain volume ed to system responsibility (DSO 2.0). Furthermore, the of emissions certificates will continue to be allocated free new legal framework will also affect generation facilities of charge in the fourth trading period from 2021 to 2030. from the Renewables business in the EWE Group in the swb Erzeugung AG & Co. KG, Bremen, anticipates that it future. will be allocated around 35,000 free certificates at the start of the trading period from 2021 (forecast for 2020: Act Amending the Energy Tax Act and Electricity Tax Act around 58,000 certificates). The amendment to the Energy Tax Act [“Energiesteuerge- setz”: EnergieStG] and the Electricity Tax Act [“Strom- LNG Ordinance steuergesetz”: StromStG] came into force as of 1 July In June 2019, the Ordinance to Improve the Conditions for 2019. In the future, the new electricity tax exemptions will Expanding the LNG Infrastructure in Germany came into apply especially to electricity generated in power plants effect and is aimed at improving the legal framework for with a rated electrical output of up to two megawatts LNG facilities in Germany. Under the new ordinance, from renewable energy carriers or by means of combined transmission system operators will be required to connect heat and power technology and self-consumed as well as LNG facilities to their networks and operate the connect- to electricity from renewable energies generated by larger ing pipelines. 90 per cent of the costs are to be borne by plants with more than two megawatts if the electricity is the network operator and 10 per cent by the grid user. consumed where it is generated and not fed into the grid. The Ordinance also contains rules on preparing for and implementing grid access and the option to apply for investment grants for LNG connection pipelines. On the distribution side, EWE’s gas sales will benefit from greater market liquidity due to LNG.

10 EWE Financial Report 2019 Combined Management Report

Act Amending the Energy Services Act Efficiency comparison for the third regulatory period The amendment to the Energy Services Act [“Energie- In May 2019, EWE NETZ received notification of an effi- dienstleistungsgesetz”: EDL-G] came into force in Novem- ciency value for its gas network of 94.66 per cent. At the ber 2019. As in the past, it requires large companies like beginning of January 2020, the final resolution confirmed EWE to perform energy audits. EWE also performs these the preliminary value. The procedure for determining the audits for in-scope business customers as an energy ser- efficiency values for electricity grid operators for the third vice. The amendment now allows EWE to implement regulatory period was formally completed in May 2019. As mandatory energy audits of smaller, energy-intensive a result, an efficiency value of 100 per cent was set for group companies as a group audit. EWE NETZ for the third regulatory period plus an additional maximum super-efficiency bonus of 5 per cent. Fuel Emissions Trading Act [“Brennstoffemissions- handelsgesetz”: BEHG] Default metering point operator The act introducing a national emissions trading system EWE NETZ registered as a default metering point operator in the heating and mobility sector became effective in [“grundzuständiger Messstellenbetreiber”: gMSB] pursu- December 2019. The act implements the introduction of a ant to the Metering Point Operation Act [“Messstellenbe- CO2 pricing model from 2021 planned by the federal gov- triebsgesetz”: MsbG] in its own service area as of 30 June ernment as part of its German Climate Protection Program 2017. In its function as gMSB, EWE NETZ must replace all 2030. Companies such as EWE that put the fuels diesel, conventional electricity meters with modern metering gasoline, natural gas and heating oil on to the market equipment and smart metering systems by 2032. Around must take part in the emissions trading system. 200,000 customers with an annual consumption of over 6,000 kWh of electricity and generation facilities with Returns on equity confirmed for the third regulatory more than 7 kW of installed capacity will be provided with period a smart metering system in the future. The installation of Following a legal complaint filed by the Federal Network the systems will commence with a delay because no certi- Agency [“Bundesnetzagentur”: BNetzA] against the deci- fied smart meter gateways (SMGw) are currently availa- sion by the Düsseldorf Higher Regional Court to stipulate ble. The rollout of the smart metering systems is expected new returns on equity, the Federal Court of Justice [“Bun- in 2020. If the annual consumption or installed capacity is desgerichtshof”: BGH] confirmed the returns on equity below these values, EWE NETZ will replace the conven- stipulated for power and gas grid operators at the begin- tional meter with modern metering equipment (mMe). ning of July 2019. The proceedings initiated by EWE NETZ This will affect approximately one million meters in the are still pending before the Higher Regional Court. It does EWE service area until 2032. EWE NETZ is cooperating not share the opinion of the BGH. The returns on equity with wesernetz in the rollout of the mMe in its role as originally stipulated continue to apply in the interim. gMSB. Under a business processing outsourcing (BPO) arrangement, EWE NETZ will provide the complete process service including installation and operation for wesernetz. The planned investment volume amounts to approximately 7 million euros in 2020, which is above the volume of investments made in 2019.

EWE Financial Report 2019 Combined Management Report 11

Current situation in the EWE Group

Presentation of business activities in Turkey

In accordance with International Financial Reporting  In the previous year, the Turkish business was com- Standards (IFRS), we have presented our business activi- bined in the items “Assets classified as held for sale” ties in Turkey as “discontinued operations” until their sale and “Liabilities classified as held for sale” in the con- in the first half of 2019. Specifically, we proceeded as solidated statement of financial position. follows:  The Turkish business is reported as a discontinued operation and is not included in the International  In the consolidated income statement, we showed segment. the business activities in Turkey in condensed form  We report the cash flows from discontinued opera- under “Profit or loss from discontinued operations.” tions separately in the statement of cash flows. By The consolidated figures for revenue, operating EBIT, contrast, the statement of cash flows in the manage- financial result and income taxes relate solely to our ment report relates solely to the continuing opera- continuing operations. In line with our approach for tions. The latter also applies to the presentation of personnel expenses, the disclosures on headcount investments. are likewise restricted to continuing operations.

Overall assessment of business performance

Overall, the Board of Management of EWE AG can look back on a successful fiscal year 2019 despite a difficult market environment. The consolidated profit for the period of 127.5 million euros is lower than in the previous year.

Forecast deviations

Operating EBIT in millions of euros 2018 2019 target 2019 % achieved

Renewables, Grids and Gas Storage segment 361.9 -5 % to +5 % 360.0 -0.5 Sales, Services and Trading segment 52.1 +5 % to +25 % 99.6 91.2 International segment 0.8 0 % to +50 % -0.4 <-100 swb segment 34.3 +75 % to +120 % 68.1 98.5 Group Central Division -72.0 -71.4 0.0 EWE Group 377.1 +10 % to +25 % 455.9 20.9

The operating EBIT generated by the EWE Group for fiscal payments in telecommunications, reversals of provisions year 2019 of 455.9 million euros was within the range and the recognition of energy sales revenue on an accrual forecast. The Renewables, Grids and Gas Storage segment basis. and swb met the forecast. The International segment’s result was lower than the The Sales, Services and Trading segments’ results were forecast corridor due to the generally difficult conditions higher than forecast corridor due to increases in operating in the energy sector in Poland and the recognition of a earnings in the fields of telecommunications, energy trad- provision for potential losses in the electricity business. ing and IT as well as special effects such as one-time

12 EWE Financial Report 2019 Combined Management Report

Financial performance Significant changes to the consolidated income statement The ability of the EWE Group’s normal business operations to generate earnings over the long term is of par- In fiscal year 2019 our Group generated revenue (exclud- ticular importance to both internal governance as well as ing electricity and energy taxes) of 5,659.3 million euros the external communication of the current and future (previous year: 5,617.1 million euros) which, like the cost development of the Group’s earnings. Operating EBIT is of materials, was on a par with the previous year. The an adjusted earnings figure which is used to track and ratio of cost of materials to revenue improved marginally manage financial performance. To calculate operating from 69.1 per cent to 68.3 per cent. EBIT, EBIT is adjusted for special effects such as valuation effects from financial instruments, impairments and Personnel expenses increased by 36.4 million euros, in reversals and special effects resulting from changes in the line with collective wage agreements and due to a rise in basis of consolidation as well as those resulting from headcount of 3.8 per cent. restructuring measures and from irregularly recurring matters affecting comparability. The balance of other operating income and other operating expenses (including changes in inventory and own The following table illustrates the reconciliation to the work capitalized) totaled -216.9 million euros (previous consolidated profit or loss for the period: year: -236.3 million euros). The changes on the previous- year period largely result from the decrease in lease expenses due to the first-time application of IFRS 16 in millions of euros 2019 2018 (-27.8 million euros). The absence of income from the reversal of provisions recognized in the previous year Operating EBIT from continuing (-21.7 million euros) had the opposite effect. operations 455.9 377.1 Derivatives -85.2 -22.7 Total amortization, depreciation and impairment increased Fair value measurement of other from 428.4 million euros to 516.9 million euros due to the financial instruments 37.6 3.0 first-time application of IFRS 16 and higher impairments Reversals of impairments 0.0 16.9 on property, plant and equipment, in particular in the Impairments -73.2 -11.2 areas of Renewables and swb (generation). Equity investments 0.3 0.0 Restructuring 0.8 0.2 Profit / loss from equity investments increased by Transaction costs / treasury shares -2.9 0.0 15.9 million euros to 37.6 million euros. This is due to a EBIT from continuing operations 333.3 363.3 positive effect from the valuation of equity investments at Net interest income / expense -118.5 -117.9 fair value (34.6 million euros) offset by the positive effect Income taxes -61.6 -56.5 included in the previous year from the reversal of an Profit / loss from continuing impairment loss on an investment accounted for using the operations 153.2 188.9 equity method (16.8 million euros). Profit / loss from discontinued operations -25.7 -21.6 The net interest expense totaling -118.5 million euros Profit / loss for the period 127.5 167.3 resulted primarily from interest on bearer bonds (public- sector bonds), bonds (private placement), interest on current liabilities to banks and from the unwinding of the discount on non-current liabilities. The figure is largely unchanged year-on-year.

Profit / loss from discontinued operations includes the profit / loss of the Turkish business which was held for sale until its disposal in the first half of 2019.

EWE Financial Report 2019 Combined Management Report 13

in millions of euros 2019 2018 Change in %

Revenue (excluding electricity and energy taxes) 1) 5,659.3 5,617.1 0.8 Cost of materials 1) -3,862.5 -3,879.9 0.4 Personnel expenses -753.3 -716.9 -5.1 Other income and expenses 1) 2) -216.9 -236.3 8.2 Impairment losses / gains pursuant to IFRS 9.5.5 -14.0 -14.0 0.0 Amortization, depreciation and impairment -516.9 -428.4 -20.7 Income from equity investments 37.6 21.7 73.3 EBIT from continuing operations 333.3 363.3 -8.3 Net interest income / expense -118.5 -117.9 -0.5 Profit / loss from continuing operations before income taxes 214.8 245.4 -12.5 Income taxes -61.6 -56.5 -9.0 Profit / loss from continuing operations 153.2 188.9 -18.9 Profit / loss from discontinued operations -25.7 -21.6 -19.0 Profit / loss for the period 127.5 167.3 -23.8

Thereof attributable to: Owners of the parent 122.3 168.8 -27.5 Non-controlling interests 5.2 -1.5 >100 127.5 167.3 -23.8

1) Previous year's figures adjusted

2) Including changes in finished goods and work in progress and other own work capitalized

Segment performance

The following chart illustrates the changes in the segments’ operating EBIT and external revenue:

External revenue Operating EBIT in millions of euros 2019 2018 Change in % 2019 2018 Change in %

Renewables, Grids and Gas Storage segment 839.9 806.7 4.1 360.0 361.9 -0.5 Sales, Services and Trading segment 3,647.5 3,757.4 -2.9 99.6 52.1 91.2 International segment 65.7 49.5 32.7 -0.4 0.8 <-100 swb segment 1,103.8 1,001.4 10.2 68.1 34.3 98.5 Group Central Division 2.4 2.1 14.3 -71.4 -72.0 0.8 Total 5,659.3 5,617.1 0.8 455.9 377.1 20.9

14 EWE Financial Report 2019 Combined Management Report

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

in millions of euros 2019 2018 in millions of euros 2019 2018

Operating EBIT 360.0 361.9 Operating EBIT 99.6 52.1 Fair value measurement of other Derivatives -72.0 -18.6 financial instruments 16.0 2.6 Fair value measurement of other Reversals of impairments 16.9 financial instruments 0.7 Impairments -45.0 -3.9 Impairments -6.1 -7.0 Equity investments 0.3 Restructuring 1.0 0.0 Restructuring 0.2 -0.2 EBIT 22.5 27.2 EBIT 331.5 377.3

In our Sales, Services and Trading segment, we registered In our Renewables, Grids and Gas Storage segment, exter- year-on-year a decrease in external revenue by 2.9 per nal revenue in the reporting period increased by 4.1 per cent to 3,647.5 million euros (previous year: 3,757.4 mil- cent year-over-year to 839.9 million euros (previous year: lion euros). This is the result of the trading strategy of the 806.7 million euros). This increase in revenue is primarily EWE Group, which is resulting in a significant increase in due to increased charges in connection with the remarket- inventory turnover for the traded energy volumes. The ing of gas storage facilities, the transfer of renewables offsetting effect is higher owing in particular to the plants from the swb segment and the acquisition of new increased use of billed exchange products. As such, this onshore wind farms. As such, this segment contributed segment contributed 64.5 per cent to the Group’s total 14.8 per cent to the Group’s total revenue in the reporting revenue in the reporting period (previous year: 66.9 per period (previous year: 14.4 per cent). The segment’s cent). The segment’s operating EBIT improved to operating EBIT totals 360.0 million euros (previous year: 99.6 million euros (previous year: 52.1 million euros). In 361.9 million euros). The decrease in the gross margin in energy sales, this is due in particular to lower material the energy sector from the distribution networks and the costs and out-of-period effects (reversals of provisions absence of income generated in the previous year from an and adjustments to accruals and deferrals) despite the out-of-court settlement on the delay in connecting the weather-related decrease in gross profit. In the area of IT RIFFGAT offshore wind farm to the grid had a negative services, earnings improved due to the sale of a loss- effect on earnings. The remarketing of the gas storage making business division, the absence of a risk provision facilities and absence of the billing correction from a recognized in the area of outsourcing in the previous year, waste water contract recognized in the previous year had better results from subsidiaries and the expansion of the an offsetting effect. basis of consolidation. Positive effects also stem from optimization in the flexibility portfolios in energy trading. Due to the higher impairments, EBIT was below the previous-year level at 331.5 million euros (down 45.8 million In addition to the abovementioned effects, EBIT contains euros). In 2019, impairments related to the Renewables the loss from derivative financial instruments and impair- area, largely property, plant and equipment of the RIFF- ments of specific equity investments. The increase in GAT offshore wind farm. The positive change in fair value derivatives is mainly the result of higher trading activity in relates to another equity investment from the telecom- energy trading and the development of the market price munications networks area. at the end of the period.

EWE Financial Report 2019 Combined Management Report 15

International segment contributed 19.5 per cent to the Group’s total revenue in the reporting period (previous year: 17.8 per cent). The segment’s operating EBIT totaled 68.1 million euros in millions of euros 2019 2018 (previous year: 34.3 million euros). The year-over-year increase is mainly due to the higher network access Operating EBIT -0.4 0.8 charges for power and gas at wesernetz due to volume EBIT -0.4 0.8 effects at the high voltage level. On the other hand, the operating EBIT of the grid operators was under pressure in the previous year due to regulatory requirements, partly The Turkish business is reported as a discontinued opera- compensated by the reversal of a provision for power tion and is not included in the International segment. generation in 2018.

In our International segment, we recorded an increase in Furthermore, EBIT contains losses on derivative financial external revenue of 16.2 million euros to 65.7 million instruments and positive effects from fair value changes euros (previous year: 49.5 million euros). The increase is of equity investments in municipal utilities. An impair- attributable to the electricity and gas business which ment loss was also recognized on a power plant block in recorded growth in customers and sales volumes. This the generation area. segment contributed 1.2 per cent to the Group’s total revenue in the reporting period (previous year: 0.9 per Group Central Division cent). The segment’s operating EBIT comes to -0.4 million euros (previous year: 0.8 million euros). The decrease compared with 2018 is primarily due to negative effects in in millions of euros 2019 2018 the electricity business. Operating EBIT -71.4 -72.0 swb segment Derivatives 0.0 2.4 Fair value measurement of other

financial instruments -0.4 -0.3 in millions of euros 2019 2018 Impairments -7.7 Equity investments -1.5 Operating EBIT 68.1 34.3 Restructuring 0.0 0.1 Derivatives -13.2 -6.5 Transaction costs / treasury shares -2.9 Fair value measurement of other EBIT -83.9 -69.8 financial instruments 22.0 Impairments -14.4 -0.3 Equity investments 1.5 Our Group Central Division only generates a low level of Restructuring -0.4 0.3 revenue. The operating EBIT totaled -71.4 million euros EBIT 63.6 27.8 (previous year: -72.0 million euros). These earnings resulted from the holding function and the other equity investments it holds. In our swb segment, external revenue in the reporting period grew 10.2 per cent year-over-year to 1,103.8 mil- EBIT contains non-operating effects, primarily from an lion euros (previous year: 1,001.4 million euros). In the impairment loss on property, plant and equipment and Grids business area, this is mainly the result of an increase transaction costs in connection with the sale of treasury in the revenue cap compared with the previous year and, shares. in Sales, price increases for electricity and gas, and the acquisition of major customers. As such, this segment

16 EWE Financial Report 2019 Combined Management Report

Assets and liabilities

Assets in millions of euros 31 Dec 2019 in % 31 Dec 2018 in %

Non-current assets 7,075.0 70.8 6,466.7 69.3 Current assets 2,912.4 29.2 2,869.3 30.7 thereof assets classified as held for sale 375.7 Total assets 9,987.4 100.0 9,336.0 100.0

Equity and liabilities in millions of euros 31 Dec 2019 in % 31 Dec 2018 in %

Equity 2,668.5 26.7 2,243.8 24.0 Non-current liabilities 4,749.7 47.6 4,747.7 50.9 Current liabilities 2,569.2 25.7 2,344.5 25.1 thereof liabilities classified as held for sale 333.0 Total equity and liabilities 9,987.4 100.0 9,336.0 100.0

As a result of its business activities, our Group has a high The equity ratio increased to 26.7 per cent year-over-year proportion of non-current assets in its total assets with due to the sale of treasury shares (594.3 million euros). the associated capital commitment. Due to the first-time application of IFRS 16, total assets increased in fiscal year Non-current liabilities were unchanged on the previous 2019. Leases in which the Group is a lessee increase both year and primarily encompass construction subsidies, (non-current) assets and (non-current) liabilities. pension provisions, bonds and bank liabilities. In addition to the first-time recognition of lease liabilities (158.1 mil- The increase in non-current assets is mainly attributable lion euros), the rise in non-current liabilities compared to additions to property, plant and equipment and meas- with 31 December 2018 was largely the result of an inter- urement-related fair value adjustments in other financial est-related increase in pension provisions (242.9 million assets. In property, plant and equipment, 174.4 million euros) and an increase in the rehabilitation provisions euros relate to the first-time application of the new lease (72.9 million euros). The reclassification of bonds (down standard. The fair value adjustments in other assets 362.2 million euros) due to maturities had the opposite amount to 114.2 million euros and relate to equity and effect. debt instruments. The rise in current liabilities (up 224.7 million euros) pri- The ratio of current to total assets decreased slightly to marily results from derivatives (543.6 million euros). The 29.2 per cent. In absolute terms, however, current assets reclassification of bonds from non-current to current (up increased. Other financial assets increased due to the 362.2 million euros) contrasted with the repayment of a purchase price receivable due from the new minority bond (down 372.4 million euros). shareholder by 594.3 million euros and the increase in derivative financial instruments by 179.5 million euros. Liabilities classified as held for sale were derecognized This was offset by the sale of securities (down 149.4 mil- after the sale of the Turkish business in the first half of lion euros) and the decrease in cash and cash and cash 2019. equivalents (down 227.4 million euros). Assets classified as held for sale were sold in the first half of 2019 (sale of the equity investments in the Turkish companies).

EWE Financial Report 2019 Combined Management Report 17

Financial position (from continuing operations)

in millions of euros 2019 2018 Change in %

Cash flow from operating activities 489.0 301.7 62.1 Cash flow from investing activities -336.0 -349.9 4.0 Cash flow from financing activities -386.8 -139.4 <-100 Change in cash and cash equivalents -233.8 -187.6 -24.6 Currency translation and changes in the basis of consolidation 6.6 1.2 >100 Cash and cash equivalents at the beginning of period 364.2 550.6 -33.9 Cash and cash equivalents at the end of the period 137.0 364.2 -62.4

Cash flow from operating activities represents a key ele- Bonds, promissory note loans and registered debt securi- ment of our financing. In fiscal year 2019, EWE posted ties represent another key component of EWE’s financing. cash flow from operating activities totaling 489.0 million As of 31 December 2019, unsecured bonds quoted in euros. euros with a total nominal value of 929.2 million euros (previous year: 1,301.6 million euros) were outstanding. The cash flow from investing activities mainly comprises In addition, promissory note loans and registered debt investments in the Group’s infrastructure (especially grids securities of 200.0 million euros (previous year: and broadband expansion). 200.0 million euros) are outstanding. The abovementioned financial instruments have terms expiring between Cash flow from financing activities is shaped by year-over- 2020 and 2032. They earn interest at fixed rates between year higher repayments of financial liabilities of -491.1 mil- 1.26 per cent and 5.25 per cent. lion euros (previous year: -97.0 million euros) which was partially offset by the raising of largely current financial liabilities of 143.8 million euros (previous year: 27.0 million euros).

Our Group’s financial flexibility is secured with bilateral lines of credit and, in particular, through the existing syndicated revolving credit facility of 750.0 million euros, whose original five-year term was extended by one additional year to November 2023 through the exercise of the second and final renewal option. This credit line serves to provide general working capital. As of 31 December 2019, a total of 50.0 million euros has been drawn on from this credit line (previous year: 0.0 million euros). The value of bilateral credit lines available as of the reporting date totaled 463.9 million euros (previous year: 582.7 million euros). Of this amount, 192.2 million euros (previous year: 209.5 million euros) was drawn on in some form, including as guarantees.

18 EWE Financial Report 2019 Combined Management Report

Non-financial performance indicators Employee development

CO2 emissions We aim to strengthen EWE’s future viability by providing In order to effectively support the energy transition and our employees and executives with continuous training further reduce the carbon footprint of the energy sector, opportunities. We see the provision of training courses for we are expanding the share of our power generated from our employees, in combination with the further develop- renewable energy sources. Specifically, we are focusing ment of our corporate culture, as an important lever for a our activities on expanding the use of wind energy culture of lifelong learning. Our strategy also encom- onshore. EWE plans to invest one billion euros in the passes more agile forms of working relationships, some of expansion of renewable energies – particularly wind ener- which are already being put into practice. This is primarily gy – in the coming decade. In 2019, however, opportuni- the case in projects in which interdisciplinary teams work ties to implements these plans were adversely affected by together temporarily to improve processes, find new the ongoing political debate on minimum distances from approaches or develop business models. settlements and general energy transition targets. This presented considerable challenges for the industry and Vocational training and young talent recruitment are the EWE. remit of our training departments. Group management, entities and executives are actively involved in the training The expansion of our power generation activities from activities. EWE implements programs for knowledge man- onshore wind energy and our shift away from refined coal agement and lifelong learning with offerings targeted to as a source of energy will help to further significantly specific groups. The respective training requirements are decrease our specific and absolute CO2 emissions in the identified locally by the operating entities. EWE AG’s per- coming years. sonnel and organizational development department supports employees and executives with advice and strategic The specific CO2 emissions from electricity production organizational and personnel development activities, such came to 496.6 grams of CO2 per kilowatt hour in 2019. As as future personnel requirements analyses. The group- a result, the specific CO2 figure has been reduced by wide EWE Academy program is open to our executives 40 per cent compared with 2005. The goal defined in 2014 and talents. of a 40 per cent reduction was thus met. In addition, we plan to prepare a comprehensive climate balance sheet In fiscal year 2019, EWE employed an average of and define new targets in 2020. 403 apprentices throughout the Group (previous year: 414 apprentices) in 25 different vocations and cooperative Changes in the number of employees study programs (previous year: 26 different vocations and cooperative study programs). Each year, EWE recruits During fiscal year 2019, our Group had an average of university graduates as trainees to cover its requirements. 8,831 employees (previous year: 8,508 employees). In 2019, an average of 21 trainees were employed (previous year: 23 trainees). They take part in a two-year program which prepares them for their future roles as young Number of employees by segment 31 Dec 2019 31 Dec 2018 professionals and executives in the EWE Group.

Renewables, Grids and Gas Storage 2,308 2,198 Sales, Services and Trading 3,498 3,389 International 119 122 swb 2,221 2,142 Group Central Division 685 657 Total 8,831 8,508

EWE Financial Report 2019 Combined Management Report 19

Gender quota Group non-financial statement The EWE Group has a major interest in further increasing the percentage of women in management positions in The group non-financial statement for fiscal year 2019 is future years. EWE wants to offer women and men the made available in a separate combined non-financial same opportunities when filling management positions. statement within the legally prescribed period on the For example, there is a special support program for female following website: executives and high potentials aimed at encouraging more women to become managers and increase the percentage www.ewe.com/en/investor-relations/publications of women in management positions. We attach importance to gender-conscious and gender-inclusive language in our for ten years after publication. The separate group non- job ads and recruiting communications. In addition, our financial report is combined with the separate non- in-house day-care center offers a comprehensive range of financial report of EWE AG. childcare services to support work-life balance.

In light of this, in 2017, target quotas were specified pursuant to the German Act on Equal participation of Women and Men in Executive Positions in the Private and Public Sectors.

Some of the target quotas were exceeded in 2019 as a result of our unwavering commitment to greater diversity and the different support measures in place. These suc- cesses are motivation for all stakeholders to continue to steadily increase our percentage of women beyond the statutory target quota.

Target percentages for the Supervisory Board and Board of Management of EWE AG

Percentage of Target Board or level of women (as of percentage by Defined management 31 Dec 2019) 30 Jun 2022 by:

Supervisory Board 20,0 % 15,0 % EWE AG Board of Supervisory Management 20,0 % 20,0 % Board

Target percentages for the top levels of management of EWE AG

Percentage of Target Level of women (as of percentage by Defined management 31 Dec 2019) 30 Jun 2022 by:

Department heads 15,8 % 12,5 % EWE AG Board of Team leaders 19,6 % 24,4 % Management

20 EWE Financial Report 2019 Combined Management Report

Report on anticipated development and significant opportunities and risks

Forecast report and the Regulation on Risk-Preparedness in the Electricity Sector. The directives are yet to be transposed into na- Development of political and regulatory conditions tional law; the regulations from the legislative package have already become effective. Europe European Green Deal Renewable Energy Directive On 12 December 2019, the European Commission pre- The Renewable Energy Directive became effective on sented the European Green Deal. The announcements set 24 December 2018. In the recast directive, the EU law- new targets for cutting carbon emissions in Europe’s makers set a target of 32 per cent of renewable energies economy and society. The Green Deal is not a legislative in gross total energy consumption by 2030. The recast package, but sets out an initial roadmap for key strategies directive contains guidelines on subsidies for power from and measures for making the continent climate-neutral by renewable energy sources, on the opening of subsidy 2050. This goal will form the assumption underlying all schemes to other member states, on self-generation and subsequent legislative proposals for climate protection. self-consumption of power from renewable energy For example, the emission reduction target of 30 per cent sources, on approval procedures, on the use of renewable by 2030 will be raised to up to 55 per cent. Many energies in cooling and heat generation and in the measures are due to be elaborated by the Commission in transport sector, on cooperation between member states the coming months and new laws proposed. The revision and with non-EU countries as well as on guarantees of of the internal market in gas regulations announced for origin and on sustainability criteria for bioenergy. This 2021 with a focus on sector coupling will likely incorpo- European framework will have a significant influence on rate this goal. Currently applicable legal provisions are investment conditions and on our business activities in already being reviewed and adjusted in line with the new the field of renewable energies. The Member States have targets in this context. As an energy supplier, EWE wel- until 30 June 2021 to transpose the requirements into comes the Green Deal, however it is also aware of the national law. In Germany, a major reform of the German challenges facing the sector as a result. Renewable Energy Act [“Erneuerbare-Energien-Gesetz”: EEG] is expected in spring 2020, which could result in new “Clean Energy for All Europeans” package conditions for EWE’s renewables business segments. n November 2016, the European Commission published the legislative package “Clean Energy for All Europeans” Energy Efficiency Directive as part of its bid to implement the EU’s energy and cli- The Energy Efficiency Directive took effect on 24 Decem- mate targets for 2030. The core elements of the package ber 2018. The directive specifies a joint framework for are the EU targets for 2030 and reliable instruments for measures to promote energy efficiency within the Euro- achieving these targets. The requirements defined in the pean Union in order to ensure that energy efficiency is package will have a major direct influence on EWE’s busi- increased by 20 per cent until 2020 and by 32.5 per cent ness. At the end of 2018, after two years, the EU lawmak- until 2030. The new directive contains further rules on the ers formally approved the first half of the comprehensive removal of barriers in the energy market and the correc- legislative package comprising the Renewable Energy tion of market failures limiting the efficiency of energy Directive, Energy Efficiency Directive, Energy Performance supply and consumption. The provisions will lay down the of Buildings Directive and Governance Regulation. At the framework for year-to-date invoicing and consumption beginning of 2019, the EU lawmakers also approved the information provided to end consumers, which for EWE second half of the package consisting of the Internal Mar- are energy and water customers. The Member States must ket in Electricity Directive and Regulation, the ACER Regu- ensure transposition of the directive by 25 October 2020. lation (“Agency for the Cooperation of Energy Regula- tors”)

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Energy Performance of Buildings Directive standstill. At present, the legislative act is not expected to The revised Energy Performance of Buildings Directive be completed before the end of the current parliamentary became effective on 9 July 2018. The Energy Performance term. of Buildings Directive is aimed at implementing the abovementioned targets in the building sector since build- New Deal for Consumers Directives ings account for 40 per cent of total energy consumption In early 2018, the European Commission proposed the in the EU. The directive forms an important basis for tech- legislative package “New Deal for Consumers” which is nical specifications in residential and non-residential composed of two legislative acts. The amendment to the buildings. The Energy Performance of Buildings Directive Directive on representative actions for the protection of will affect the conditions under which the Group’s sales the collective interests of consumers aims to facilitate companies in particular operate. The directive took effect redress for consumers by allowing representative actions. on 24 December 2018. The EU Member States have until The legislative procedure is still ongoing and work will be 10 March 2020 to transpose the directive into national continued in the new legislative period of the European law. The federal government has implemented the Parliament and the Council. Consumer rights will also requirements in the Energy and Buildings Act [“Gebäu- undergo fundamental revision making them easier to deenergiegesetz”: GEG]. enforce in the future. The Council of the EU and the Euro- pean Parliament have reached an agreement on the new Internal Market in Electricity Directive law and the legislative act has now been completed. The Internal Market in Electricity Directive took effect on However, the adopted legislative text will need to be pub- 4 July 2019. The new directive for the internal market in lished in the Official Journal of the EU before the recast electricity defines the legal framework, including for the directive can take effect 20 days later. Transposition of the roles and rights of consumers as well as for self- directive into law is expected in Germany by 2021. generation and aggregators, and explains the tasks and duties of transmission system operators and distribution Reform of the EU Emissions Trading System (EU ETS) grid operators. For instance, energy consumers will be To achieve the target of reducing EU greenhouse gas able to demand a dynamic energy tariff, i.e., a variable emissions by at least 40 per cent by 2030 (compared to energy tariff adjusted to the time intervals of the whole- 1990 levels), a structural reform of the EU ETS took effect sale market, from their energy supplier, conclude con- in the EU for the 2021 to 2030 trading period in April tracts with aggregators without the approval of other 2018. Thus the annual reduction factor of existing certifi- market participants and switch supplier free of charge. In cates will be increased to 2.2 per cent from 2021 and the addition, consumers will be entitled to consume and store replenishment rate and possible distribution volume of self-generated power and sell it in all market segments. the market stability reserve will be doubled (from 12 to The directive is a comprehensive new law which may 24 per cent) over the period from 2019 to 2024. At the impact almost all of the EWE Group’s power-related busi- same time, the measures required to protect industrial ness areas. The Member States have until 31 December competitiveness in Europe through a conditional free 2020 to transpose the Internal Market in Electricity allocation for sectors at risk of carbon leakage will also be Directive into national law. maintained. In some cases, the structure of the Emissions Trading System is having considerable impacts on the Regulation on Privacy and Electronic Communications costs of conventional generation and of energy-intensive (ePrivacy Regulation) industries as well as on the investment conditions for low- The objective of the ePrivacy Regulation is to align the CO2 technologies. A potential expansion of the EU ETS or previous provisions on privacy rules for electronic com- a different, more far-reaching CO2 pricing model in other munications with the EU General Data Protection Regula- sectors is also currently being debated on all political tion (EU GDPR). In addition, it will introduce in rules for levels. It is currently still impossible to predict whether a data processing in companies. As an energy supplier, EWE holistic solution at a European level is realistic or whether falls within the scope of the new regulation, e.g., by col- parallel systems will initially be set up in the different lecting and further processing data through end devices, countries. such as smart meter data. The negotiations in the ordinary legislative procedure have come to a partial

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Action plan on sustainable finance Act to Implement the Climate Action Program 2030 in On 24 May 2018, the European Commission published an Tax Law action plan on sustainable finance. With this package of The Act to Implement the Climate Action Program 2030 in measures, the EU aims to support the transition to a low- Tax Law [“Gesetz zur Umsetzung des Klimaschutzpro- carbon, more resource-efficient and sustainable economy. gramms im Steuerrecht”] contains, among other aspects, It contains legislative proposals for a voluntary, unified EU tax relief for home owners who refurbish their buildings classification system, the disclosure of information relat- to make them more energy efficient. This will also affect ing to sustainable investments and a regulation amending services provided by EWE VERTRIEB. The Federal Council the benchmark regulation. The key action of the package approved the new law on 20 December 2019. The new is the proposal for a unified EU classification system (tax- provisions become effective as of 1 January 2020. onomy) for defining sustainable economic activities. Fol- lowing on from the taxonomy, EU labels for green financial As part of the conciliation procedure by the Federal Coun- products, such as green bonds, could be established. The cil on this act, agreement was also reached on higher CO2 taxonomy will contain a list of economic activities that can prices, with the proceeds to flow into reducing electricity be considered environmentally sustainable for investment prices. The federal government plans to introduce purposes. Depending on how the technical criteria, the amendments to the BEHG in spring 2020 in order to im- proposal for a unified EU classification system could have plement the new prices for carbon emissions. an effect on the future provision and aggregation of project funding. Charging Infrastructure Master Plan On 18 November 2019, the federal government adopted Germany the Charging Infrastructure Master Plan. The measures Climate Action Program 2030 contained in this plan are designed to drive forward the On 9 October 2019, the federal government adopted the expansion of public and private / commercial charging Climate Action Program 2030, which contains measures to infrastructure. They include planned improvements in the ensure that Germany’s climate policy target of reducing legal environment, funding measures and coordination greenhouse gas emissions by at least 55 per cent com- between the federal and state governments, local councils pared with the 1990 level by 2030 is achieved. One of the and industry. EWE views the master plan as essentially overarching elements is the introduction of CO2 pricing in positive and supports many of the initiatives set out, such the heating and mobility sectors. This will be flanked by as financial support for charging infrastructure and great- measures aimed at specific sectors including energy, er involvement of municipalities. The legislation could buildings, mobility and industry. Some of the measures, have positive effects for the EWE Group, e.g., for its elec- e.g., to promote combined heat and power or strengthen tromobility sales activities. electromobility, could have a positive effect on the Group’s business segments. Commitment to the objective Amendments to the Combined Heat and Power Act of increasing the share of renewable energies to 65 per (“Kraft-Wärme-Kopplungsgesetz”: KWKG) and the EEG cent by 2030 is also a positive take-away. In terms of We expect landmark policy decisions regarding the long- the expansion of onshore wind energy, the announced term planning and investment horizons for CHP plants and 1,000 meter minimum distance between wind turbines the networks that distribute heating in the form of a com- and residential homes represents a risk. However, the prehensive amendment to the KWK in 2020. An amend- government’s highlighting of the necessity of removing ment to the EEG has also been announced for the coming hurdles to the planning and approval of onshore wind year. farms and ensuring that enough land is available for new turbines is a positive development. Some of the measures of the Climate Action Program 2030 were implemented in 2019 with more planned in 2020.

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Act to Phase Out Coal Act on Tax Incentives for Electromobility The Act to Phase Out Coal [“Kohleausstiegsgesetz”] will Parts of the act on additional tax incentives for electro- implement the recommendations of the “Growth, Struc- mobility and amending further tax provisions took effect tural Change and Employment” commission. A core ele- on 18 December 2019. The new law includes special ment of the legislative proposal are provisions governing depreciation for purely electric delivery vehicles and a the phase-out of hard coal-fired power generation by reduced tax rate for electric or hybrid company cars of 2038. The phase-out will be achieved on the basis of invi- 0.5 per cent of the list price. It also stipulates that em- tations to tender from 2020. From 2027, laws will require ployers offering free recharging of electric vehicles will plants to be decommissioned with the operators entitled not pay tax on this until 2030. Electromobility is a central to compensation payments provided certain conditions tenet in the bid to reduce CO2 emissions from traffic and are met. In addition, the draft Combined Heat and Power its market ramp-up could have potential positive effects Act extends financial support for cogeneration until on various business segments of the Group, including the 31 December 2029. Various bonuses are also planned, Sales and Grids segments. Consequently, EWE welcomes including for integrating heat from renewable resources in the political initiatives to promote electromobility. innovative CHP systems and a “coal substitute bonus” that will be granted if a new CHP plant replaces an existing Night identification of wind turbines CHP plant that generates electricity based on refined coal Within the scope of the Energy Collection Act [“Ener- or lignite. The future provisions will be of key significance giesammelgesetz”: EnSaG], an amendment to the German for swb’s coal-fired power and heating generation, and for Renewable Energy Act [“Erneuerbare-Energien-Gesetz”: sales. Currently, the draft does not contain any provisions EEG] was resolved in the previous year under which wind on the phasing out of lignite-fired power generation. turbines must be equipped with a system for the night Other new provisions with regard to renewable energy, identification of aviation obstacles. In October this year, such as rules on minimum distances for wind turbines and the BNetzA extended the deadline for this to 30 June 2021. the abolishment of the respective expansion caps for This affects facilities operated by EWE ERNEUERBARE offshore wind energy and photovoltaics, have been delet- ENERGIEN GmbH, Oldenburg, and its subsidiaries as well ed from the legislation for the time being and postponed as EWE Offshore Service & Solutions GmbH, Oldenburg. until a later date. Evaluation of Landlord-to-Tenant Power Supply Energy and Buildings Act Promotion In October 2019, the Federal Cabinet passed a bill for a In 2017, the German Tenant Power Supply Act became law to consolidate the Energy Conservation Act, the Ener- effective which subsidizes the supply of solar power from gy Conservation Regulation and the Renewable Energy a building’s own roof or from the roof of a neighboring Heat Act. With the Energy and Buildings Act, the Federal building with a landlord-to-tenant power supply premium. Government aims to harmonize and streamline the regu- The premium applies to solar systems with an installed lations governing thermal energy in the building sector capacity of up to 100 KW that are installed on, next to or and implement the EU Energy Performance of Buildings in a residential building. The electricity generated by Directive. For example, photovoltaic energy produced these systems must be supplied to end consumers and be close to buildings will be given greater consideration as an consumed within the same building or in residential build- option for complying with energy efficiency standards. ings or ancillary facilities directly adjacent to this building This option will also apply for biomethane. In the future, a without the electricity being fed through a grid (exemp- new standardized system of requirements that combines tion from network access charges and network-related efficiency and renewable energy will apply to newbuilds. surcharges). According to studies conducted by the Feder- The calculation method used for the primary energy valu- al Ministry for Economic Affairs and Energy, only a very ation of CHP heat in heating networks will be retained. small number of the landlord-to-tenant power plants The overarching objective is to reduce primary energy planned by the federal government have been installed to requirements and increase the share of renewable energy date. Revisions to the current legislation are therefore without compromising on efficiency. planned for the future.

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Amendment to the Telecommunications Act Digital Master Plan for Lower Saxony The European Electronic Communications Code (TC Code) The state government of Lower Saxony is setting itself the effective from December 2018 creates the framework for ambitious goal of rolling out a one-gigabyte internet ser- the development of the European telecommunications vice across the federal state by 2025. To this end, the state sector over the coming years. As part of implementing this government has adopted a financing plan for the digital code at the national level, major amendments to the innovation fund, which includes investments of up to Telecommunications Act [“Telekommunikationsgesetz”: 850 million euros until 2023 to implement the strategy TKG] are pending. In February 2019, the Federal Ministry presented in the Master Plan for the gigabyte expansion for Economic Affairs and Energy [“Bundesministerium für and digitalization of Lower Saxony. From 2019, a total of Wirtschaft und Energie”: BMWi] and the Federal Ministry 15 million euros will be made available in the form of a of Transport and Digital Infrastructure [“Bundesministe- three-year digital bonus to promote the digitalization of rium für Verkehr und digitale Infrastruktur”: BMVI] pre- medium-sized and craft businesses. EWE will stand to sented key points to implement the TC Code in national benefit from this through its services and products from law in the form of a recast TKG. Several topics are relevant the telecommunications and broadband segment in par- for the business of EWE TEL, including in particular, rights ticular. to access infrastructure of incumbent market players, rights to access infrastructure of non-incumbent market Law to strengthen residential quarters through private players (symmetric regulation), co-laying duties for com- initiatives panies under public-sector ownership, regulatory treat- The state government of Lower Saxony intends to help ment of co-investment and open-access models, and end towns and communities by providing them with an addi- consumer rights. A preliminary draft is expected in the tional instrument for innovative urban development. In first quarter of 2020. September 2019, the state cabinet published a draft law of Lower Saxony for the strengthening of residential quar- Regional level ters through private initiatives. This legislative proposal Lower Saxon Law on the Promotion of Climate Protection aims to make use of a liberalization clause in the German and Adapting to the Consequences of Climate Change Federal Building Code, which will enable the federal states (NKlimaG) to introduce rules on private initiatives for urban devel- In early 2019, the state government resumed discussion opment and on funding such initiatives. The law aims to on the draft of the Lower Saxon Law on the Promotion of facilitate improved coordination between private initia- Climate Protection and Adapting to the Consequences of tives and towns and communities in order, through vari- Climate Change [“Niedersächsisches Gesetz zur Förderung ous measures, to increase the attractiveness of town and des Klimaschutzes und zur Anpassung an die Folgen des urban district centers, and other residential quarters. Klimawandels”: NKlimaG]. The first draft contains provisions on low-emission mobility, the availability of space for renewable energy and the establishment of a climate competence center. Throughout 2019 and beyond, this planned legislation led to heated debates in the state parliament of Lower Saxony and within the federal government. A decision on the new legislation is currently expected in the first quarter of 2020. Compared with the first draft, is expected to prioritize the responsibility of the state government for managing its own state affairs. However, no concrete measures with regard to means for reducing carbon emissions are discernible at the current time. The effects on EWE will not be quantifiable until the supporting measures of the action plan have been adopted.

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Expected industry development Power Decarbonization of the sectors will foreseeably result in Competition in the energy industry is still shaped by a increased demand for electricity overall, which efficiency high level of rivalry in the area of standard products and measures will only be able to partially offset. What is product bundles across all customer segments. Competi- more, nuclear power and now also coal-fired power are to tors from other industries are also increasingly crowding be phased out and the co-generation of energy in the into the energy sector. In addition, major changes in the energy, heating and transport sectors is high on the politi- competitive situation are looming from 2020 as a result of cal agenda. It remains to be seen whether the new poli- the realignment of the business of the two companies cies succeed in creating consistent and fair CO2 prices E.ON SE, Essen, and RWE AG, Essen. E.ON will focus on across all sectors in the medium term. At the same time, activities in the fields of networks and customer solutions political pressure in Germany is high to continue the in the future. RWE will take over the renewable genera- planned expansion of renewables in order to achieve the tion activities of E.ON and innogy SE, Essen, and will also ambitious climate targets for 2030. The sluggish expan- become the single largest shareholder of E.ON. Overall, sion of the transmission system that has led to substantial this will result in increasing consolidation in the German inefficiencies in the electricity market over the last energy sector and will further increase competitive and 10 years and has negatively impacted EWE’s service areas price pressure in the industry. in particular due to high reductions in subsidized wind feed-in (redispatching) continues to be of concern. The Moreover, there will be a convergence of various other debate that has recently flared up among the population developments in the political and regulatory environment, surrounding acceptance of the construction of new wind which alongside ongoing digitalization will create greater farms, more stringent rules on minimum distances from pressure to innovate. The Climate Protection Act adopted settlements and height limitations is continuing to impede to reduce greenhouse gas emissions will ultimately result the wind energy sector. in a gradual increase in taxes and other duties, including for consumers in the gas and heating market, until 2026. In 2019, Brussels adopted the initiative “Clean Energy for At the same time, the federal government intends to All Europeans,” which is the fourth EU internal market provide relief to private consumers and businesses by package aimed specifically at the electricity sector since gradually reducing the EEG surcharge. The federal minis- 2009. Germany has until 2020 / 2021 to transpose it into tries are also keenly aware of their obligation to ensure German law or amend existing legislation to incorporate that the annual emission targets are complied with in the the new requirements. various sectors in the future, i.e., in the energy industry, industrial sector, for buildings, in mobility, agriculture and The generation of power from renewable energy sources forestry, and in the waste management sector. This will will continue to grow and replace conventional power inevitably lead to an increase in demand for correspond- stations. Since the resolved phase-out of coal will require ing services, products and solutions in the energy sector, back-up power stations based on gas to ensure an unin- giving rise to numerous opportunities for EWE. terrupted supply and potentially increased imports of electricity into the EU for a transitional period, gas re- There will be a growing need to transform conventional quirements and trading prices for electricity are expected business models in the electricity and heating segments of to increase in the medium term. Volatile distributed elec- the energy sector. The energy sector will increasingly turn tricity produced through photovoltaics and onshore wind, to new, largely digital and platform-based business mod- the expansion of offshore wind and sector coupling re- els to boost profitability in a competitive environment. quire a massive grid expansion, in particular at the level of distribution networks, as well as technical measures to ensure network stability (smart grids). The increase in the volatility of energy generation requires greater flexibility to ensure network stability. Flexibility options include electricity wholesale with 15-minute products, CHP

26 EWE Financial Report 2019 Combined Management Report plants, power storage units, regional flexibility markets, or building new terminals for liquefied petroleum gas demand-side management or the Europeanization of (LPG), e.g., in Wilhelmshaven or Brunsbüttel, enabling electricity trading via market coupling and diversification deliveries of LPG to be accepted from the US or Qatar. In of the renewables portfolio in Europe. Power-to-gas and the coming years, clearly defined sourcing strategies, e.g., power-to-heat, i.e., transforming green electricity to hy- for hydrogen imports, will also need to be developed. drogen, natural gas or heat, is currently being discussed as a further feasible flexibility option. The flexibility markets Transport segment is therefore set to grow, while the development The transport sector is also facing considerable challenges of the respective market shares is uncertain. Economies of in connection with the energy transition. The market for scale in the area of plant engineering as well as adjust- e-mobility is expected to be ramped up in the short term. ments to the regulatory framework and incentives are Battery-powered electric vehicles or plug-in hybrid vehi- required for a relevant market share in the power stor- cles will dominate the transport sector at first. In a second age / power-to-gas / power-to-heat segment. phase, hydrogen-powered vehicles could well achieve a relevant market share in the mobility sector if the manu- Heat facturers offer this drive option in series production vehi- Despite the increasing use of heat pumps and solar hot cles. The required infrastructure and electromobility will water generation in newbuilds, the effects of the energy open up new growth opportunities for energy suppliers. transition will be felt more slowly than originally expected in light of the current refurbishment rates on the market Customer focus for heating. The additional national CO2 pricing model to Against the backdrop of the growing pressure on margins, be introduced from 2021 through the Climate Protection the trend toward self-generation and the development of Act with effect until 2026 will not bring about any funda- mature technical solutions to increase self-sufficiency, the mental changes to this situation. However, under the end customer and prosumer are moving increasingly into Climate Protection Act, oil-fired boilers must be replaced focus. In addition to conventional sales of power and gas, in Germany. This will open up an opportunity for EWE to customers can be offered innovative solutions for energy offer alternative solutions in the next coming years. efficiency, power storage, smart home applications, electromobility, telecommunications, heating, etc. Companies Beyond the German Climate Protection Act, there are are currently evolving from energy suppliers into one-stop already signs of further changes pending in 2020 and 2021 service providers for all aspects of building technology, at the European level in the form of the “EU Gas Package” energy and transport. In the future, companies that put currently being prepared as part of the “EU Green Deal.” the needs of customers first and address these needs with Essentially, this will involve intensive discussions about innovations and solutions will be successful. The energy further decarbonization (including in the heating sector) industry must therefore see the customer as a partner at the European level including adjustments to the climate who not only buys power, but also produces it. targets for 2030 and 2050. Digitalization The market for heating in existing buildings, in particular The trend toward digitalization of the energy sector will in the end consumer market, will continue to be dominat- continue going forward. Access to data on consumption ed by natural gas. However, hydrogen or methane pro- and utilization by end customers will become a key factor, duced through power-to-gas or power-to-heat from the alongside data on the status of the power grid and storage use of excess energy from industrial heating processes will and weather data. Under the current legal framework, play a bigger role in the future. Natural gas will become digitalization will open up new market opportunities for more expensive for customers due to higher taxes, while competitive metering point operators and transmission pressure in the heating market to offer lower-emission system operators in particular. On 1 December 2019, the solutions will increase, in particular in the new housing distribution grid operators ceded the currently public segment. authority task of collecting and processing meter readings to the metering point operators. The transmission system The liquidity of the European gas market is ensured de- operators are now aggregating the data for balancing spite the decrease in Dutch and German gas production. group settlement. The related growth in dependency on Russian gas can be counteracted by increasing utilization of existing terminals

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Digitalization will be not just an inescapable consequence Expected performance in the Renewables, Grids and Gas of sector coupling for energy purposes, but also a key Storage segment requirement for the cost-efficient supply of energy In the Renewables, Grids and Gas Storage segment, EWE aligned with customer needs. As a result, the revenue expects to improve its earnings in 2020 compared to the share of platforms will rise further and give platform op- previous fiscal year. Operating EBIT will increase in the erators the opportunity to increase competitive pressure. Grids area due to regulatory effects and a positive trend in telecommunications business. The full commissioning of Telecommunications the offshore wind farm Trianel Windkraftwerk Borkum II The further digitalization of business and society will will also have a positive effect. Prices in the areas of gas hinge on the availability of high-performance telecommu- storage sales are expected to be lower. nications infrastructure, which in return will require substantial investment. Once the merger control procedures EWE plans to invest around 417 million euros in the have been completed, a groundbreaking cooperation Renewables, Grids and Gas Storage segment in 2020, with between EWE and Deutsche Telekom will drive the expan- investments primarily falling into two categories: invest- sion of the fiber-optic network in northwestern Germany. ments in power grid, gas pipeline and telecommunications On 8 January 2020, the company Glasfaser NordWest network infrastructure (around 331 million euros), and GmbH & Co. KG, Oldenburg, was established. investments in onshore wind farms (around 57 million euros). This joint effort will make a strong contribution to the further digitalization of Lower Saxony. Expected performance in the Sales, Services and Trading segment In the Sales, Services and Trading segment, EWE expects Expected performance in the EWE Group lower operating EBIT in fiscal year 2020 compared to 2019. Our forecast for the EWE Group and its segments for fiscal year 2019 is based on the abovementioned expectations The decrease will stem from the change in an internal and assumptions on specific industry developments as offsetting method in the telecommunications segment, well as on political and regulatory conditions. the absence of various special effects from 2019, such as material cost savings and out-of-period effects in energy Our forecast excludes adverse legal developments. We sales, special payments from Telekom Deutschland in forecast our key performance indicator operating EBIT, the telecommunications segment, and positive one-time adjusted for unforeseeable special effects. effects from the sale of an IT business division and higher- than-forecast profits in energy trading. Since EWE is currently expanding activities in electromobility and its digi- in millions of euros 2020 2019 tal business models, further start-up losses are expected in these businesses. Renewables, Grids and Gas Storage segment 0 % to +10 % 360.0 EWE plans to make investments totaling around 150 mil- Sales, Services and Trading segment -60 % to -40 % 99.6 lion euros in the Sales, Services and Trading segment in International segment > 100 % -0.4 2020. Major investments of approximately 98 million swb segment -25 % to 0 % 68.1 euros relate directly and indirectly to the expansion of the Group Central Division - -71.4 broadband and fiber-optic networks and the backbone Operating EBIT EWE Group -15 % to +5 % 455.9 network as well as additional investments in technology. In energy sales, growth is expected in particular in the area of energy services.

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Expected performance in the International segment Report on risks and opportunities We expect operating EBIT from our business activities in Poland to increase significantly in 2020 compared with the Principles of risk and opportunity management previous year. The improvement will largely result from the decrease in negative effects in the electricity business The EWE Group’s risk management system (RMS) allows it and higher earnings from gas, primarily attributable to an to detect risks at an early stage as well as assess and increase in activities to expand the Group’s own network. manage internal and external risk. The internal control system (ICS) monitors the effectiveness of the implement- The investments planned for 2020 in the International ed controls and risk management measures. In the EWE segment total around 4 million euros and primarily apply Group, the RMS and ICS methods and execution are to grid infrastructure. implemented in the form of a standardized integrated risk management (iRM) approach. Expected performance in the swb segment In the swb segment, EWE expects operating EBIT in 2020 Risks are potential future developments or events which to decrease compared to 2019. could lead to positive or negative target deviations for the EWE Group (risk in the narrower sense or opportunity). This will be due on the one hand to Block 6 being taken These target deviations can arise both in the strategic and offline and the termination of lease models in generation. operating area as well as in the area of finances, reporting By contrast, one-time effects have a positive effect on and compliance. In addition to the financial target devia- the operating EBIT of the grid operators in 2019. At swb tions, risks can also have an impact on the EWE Group’s Entsorgung, operating EBIT is also expected to increase reputation. thanks to high plant availability and high prices. The underlying risk policy framework for the EWE Group’s The Sales segment will continue to be faced with stronger business activities is specified in the risk strategy. In addi- competition with only limited pricing options when it tion to guidance for the management of risks, it contains comes to the sale of power and natural gas. Overall, the the requirements for determining risk appetite and clear operating EBIT of the Sales segment is expected to be risk limits to ensure the EWE Group’s risk-bearing capaci- stable. ty. As a rule, the risks that jeopardize the EWE Group’s ability to continue as a going concern may not be taken EWE plans to make investments totaling around 176 mil- consciously. lion euros in the swb segment in 2020. The focus here will be on investments in grid infrastructure as well as invest- Regular reporting to the executive and supervisory boards ments in the generation business (mainly the construction ensures a high level of transparency with regard to the of a block-type thermal power station), with around EWE Group’s current risk profile, the effectiveness of the 96 million euros and 60 million euros earmarked for each, ICS and ongoing monitoring of the risk policy guidelines. respectively.

Risk and opportunity management process

The iRM process is based on the internationally recognized frameworks of the Committee of Sponsoring Organi- zations of the Treadway Commission (COSO Enterprise Risk Management – Integrated Framework and Internal Control – Integrated Framework).

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The iRM process focuses on the annual risk inventory, In its audits, the internal auditing department regularly which is performed alongside the planning process, as verifies management’s assessment and the functionality well as the assessment of the effectiveness of the ICS as of the significant risks and controls in the processes that it of the end of the year. As part of the risk inventory, the reviews. The most recent audit of the risk management significant risks relating to the business activities of all system was performed in the fourth quarter of 2017. For EWE group companies are determined and aggregated at the fiscal years 2019 to 2020, the EWE Group’s corporate group level. New risks are reported in an ad hoc process governance systems will be reviewed by an audit firm to and information on focus risks is updated on a monthly verify compliance with IDW (Institut der Wirtschaftsprüfer) basis to ensure that significant changes in the risk inven- Assurance Standards (AsS) 980 Compliance Management tory during the year are recorded promptly. To assess the System, 981 Risk Management System, 982 Internal Con- effectiveness of the ICS, all controls are reviewed for trol System and 983 Internal Auditing System. effectiveness in the form of a self-assessment. The weak- nesses of ineffective controls are documented and their To prepare for the IDW AsS 980 and 981 reviews in the remediation is subsequently monitored on a regular basis. second half of 2019, the iRM was revised and expanded in 2019. Significant changes involved systematic risk identifi- Systematic risk identification is divided into four risk types cation across new risk fields, the introduction of ES 95 as (strategic risk, financial risk, operational risk and compli- the central risk metric and the expansion of mandatory ance/legal risk), which in turn are subdivided into twelve risk and control requirements. risk fields. The companies identify risks using question- naires and mandatory requirements for risks and controls The EWE AG Board of Management defined the scope and with regard to the individual risk fields. The risks are alignment of the iRM based on group-specific circum- assessed using the gross probability of occurrence and the stances. Nonetheless, even an appropriately implemented gross loss amount for each individual fiscal year in the and properly functioning risk management system cannot medium-term business forecast. Risk is managed by provide absolute assurance regarding the identification means of controls and risk management measures docu- and management of risk. mented with regard to each risk. The net assessment of the risk is determined by taking into account the mitigat- The following section describes the risks posed by signifi- ing effect of the controls. It is used to determine the cant negative developments to our net assets, financial expected shortfall 95 per cent (ES 95) as the central key position and results of operations as well as our reputa- indicator for the assessment and classification of risk. tion for each individual risk type. Opportunities are often directly matched by risks and are assigned to the same ES 95 combines both the probability of occurrence and all categories and reported in them. potential loss amounts of a risk in a single metric. To this end, the risk is standardized to the level of loss which is The risks can be allocated to the following loss categories assumed for the risk if it exceeds the value-at-risk at the based on ES 95: 95 per cent confidence level.

Using statistical methods, individual risks are aggregated in millions of into a probability distribution for the EWE Group’s overall Loss category euros risk. The EWE Group’s aggregate risk is compared to the risk-bearing capacity across various value-at-risk levels to low < 10 ensure that it does not exceed the risk-bearing capacity mild 10 - 40 level. The risk-bearing capacity is derived from the EWE medium 40 - 100 Group’s ability to raise finance and pay using a rating- high 100 - 250 oriented approach. catastrophic > 250

The EWE Group’s energy trading activities are subject to separate risk guidelines which define tools for measuring and responding to risk with a special focus on energy trading.

30 EWE Financial Report 2019 Combined Management Report

Risks and opportunities Well qualified specialists with specific skill sets provide the foundation for this. A lack of qualified staff poses a Strategic risks and opportunities particular strategic risk that depends on endogenous and Changes to the market environment in the energy sector exogenous factors, such as employer attractiveness and as well as adjustments to underlying legal, political and demographic change. Similar risk factors apply in respect social conditions continue to pose a key risk to the com- of EWE’s central service providers, potentially resulting in pany’s long-term business development in terms of key increased costs and performance losses. financial targets in the EWE Group’s individual segments. Sustainability criteria also determine much of the political This relates in particular to the systemic configuration of debate about alternative drive technologies, the integrat- the European energy sector that is about to undergo sig- ed energy transition and coupling of the energy, heating nificant change due to EU initiatives. EWE mitigates the and mobility sectors. A fuel transition is expected in the related uncertainty, in particular regarding new market long term in order to achieve the long-term CO2 targets roles and the expected reorganization of rights and obliga- and due to the finite supply of fossil fuels. Hydrogen could tions for specific roles, by monitoring the developments become a primary energy carrier and substitute for con- closely and articulating its political interest at EU and ventional energy sources since it can be generated with a federal level. low environmental impact using power-to-X technologies.

The vision of the future European energy system set out in Society’s increasing digitalization is creating opportunities the abovementioned package propels the self-sufficiency for energy service providers such as EWE. At the same ambitions that are already increasing in light of the guid- time, it is lowering barriers to market entry for competi- ing principles of the German energy transition. While to tors from other industries. In order to strengthen the use date, these have been mostly aimed at power self- of digital business models and optimize existing models, sufficiency “on balance,” this trend could continue toward data sciences are increasingly being applied and institu- full self-sufficiency. Similar to power, self-sufficiency tionalized in the form of a data lab. ambitions can also be observed in relation to gas, in particular against the backdrop of the electrification of the There is also a risk of losing existing concessions and heating sector, for example through heat pumps. Lower therefore also parts of the grid. In general, concession grid usage could have negative effects on the cost effi- agreements for power and gas have a maximum term of ciency of networks. EWE is establishing a secure position 20 years and are subsequently re-awarded in a competi- for itself with a product portfolio aligned with this trend tive procedure. In this procedure, EWE competes against and rigorously monitors the responses of regulators and other providers for the power and gas concession for a political decision-makers. municipality. Sometimes, efforts are made to deprivatize the concessions to gain greater influence over the energy Energy providers must assume new roles in a largely networks. Since 2013, EWE has given the towns and mu- prosumer society. Changes in customers’ consumption nicipalities in EWE’s area of operation the opportunity to due to increasing efficiency and local energy solutions invest in EWE NETZ. are already discernible. In this respect, it is essential to contain the strategic risk that key market trends may be recognized too late and new products developed too slowly. EWE has set up a systematic trend management function and innovation process to this end. In addition to regular scrutinization of the group strategy, this ensures that major developments are focused on and prioritized.

EWE Financial Report 2019 Combined Management Report 31

Since the effects of the risks in the “strategic risks and Financial risks and opportunities opportunities” category could also extend beyond the The key sources of financial risk for the EWE Group are planning horizon of three years, the risks are measured in changes in prices and volumes on the sales and procure- qualitative rather than in financial terms. The qualitative ment side, the loss of business partners as well as a lack loss assessment is also based on five loss categories. In of liquidity and limited financing viability. Furthermore, the qualitative assessment, none of the strategic risks fluctuating prices may lead to valuation risk in the state- were allocated to a risk category higher than “medium.” ment of financial position. Specific individual risks that are derived from the strategic risks in the planning horizon are listed in the other risk In the energy business with end consumers, the Company categories and assessed financially. faces the risk that actual sales could deviate from forecast sales in terms of quantity or structure. For example, gas Besides the German energy market, in recent years the consumption in particular is highly dependent on weather EWE Group has also established itself in the Polish mar- conditions. This results in quantity risks to both sales and ket. This results in additional growth opportunities that network operations. On the other hand, the possibility of are, to a large extent, unaffected by the developments in a weather-related increase in consumption also exists. In the German market. The potential country-specific risks order to counter these risks, we use sophisticated plan- naturally posed by foreign investment are systematically ning and forecast methods. In addition, the quantities of monitored. power and gas sold are secured via short-term, medium- term and long-term procurement strategies. The quantity With the sale of EWE’s equity investments in the Turkish risks associated with power and gas sales are classified in energy and telecommunications market and after the financial terms as “mild.” transfer of all the shares in the Turkish intermediate holding company EWE Turkey Holding A.Ş., Istanbul (ETH), to Unscheduled changes to cost elements outside of the SOCAR Turkey Enerji A.Ş., Istanbul, the country and com- EWE’s control could have a negative effect on margins, pany-specific risks associated with ETH and its subsidiaries both in sales as well as in network operations. The margin passed to the buyer. risk associated with power sales from cost elements outside of EWE’s control is classified in financial terms as However, the parties agreed that EWE would bear half of “low.” the retroactive gas price discounts which may have to be refunded as a result of arbitration procedures pending as The performance of the EWE Group’s offshore wind parks of the date of sale. Furthermore, EWE would have to is heavily dependent on wind conditions. Wind energy assume liability for existing reinsured warranties toward a yield forecasts are prepared on the basis of current gas supplier in the event that the purchaser defaults. appraisals. There is a risk and opportunity that reduced or These risks are classified in financial terms as “moderate.” increased wind conditions will result in deviations from the actual wind energy yield. The related risk is classified The availability of low-calorific gas will decline significant- in financial terms as “low.” ly in the coming years due to decreases in production in Germany and the Netherlands. In addition, further earth EWE conducts an intensive analysis of the creditworthi- movements in Groningenfeld could lead to a significant, ness of key accounts, wholesale partners, banks and sup- short-term reduction in Dutch imports of low-calorific gas. pliers with the goal of preventing non-payment risks in This risk is countered by a market transition to high- Germany and abroad. In addition, risk concentrations are calorific gas, which is expected to be completed by 2027. mitigated by imposing appropriate limits. Due to the The risk is classified in financial terms as “low.” insolvency of a turbine supplier in a large project, the exact extent of which currently cannot be quantified accu- rately at present, the risk is classified in financial terms as “medium.”

32 EWE Financial Report 2019 Combined Management Report

The EWE Group utilizes a structured liquidity management Operational risks and opportunities process to address general liquidity risks, managing and Operational risks to the EWE Group result both from the planning changes in liquidity over the short, medium and operation of technical systems at all stages of the value long term. In addition, the EWE Group maintains a suffi- creation chain as well as due to unscheduled interruptions cient level of liquidity reserves in the form of liquid funds to scheduled process workflows. and credit lines to ensure the Group can meet its financial obligations at any time. When operating gas storage systems, there is a risk that geological changes could affect the form and stability of There is a general risk that the EWE Group’s financing the underground caverns and endanger the operation of terms and conditions may deteriorate substantially. This the gas storage systems. In addition, defects in the tech- can be caused by financial market turbulence or an exter- nical facilities required to operate the gas storage systems nal credit rating downgrade. The development of negative could result in the discontinuation or interruption of factors on the rating is documented in the regular reports operations. The risks are classified in financial terms as compiled by risk management and addressed in the inter- “low.” nal capital adequacy model. Where possible, appropriate action is taken early on to avoid negative effects on the To operate wind parks, technical switching operations are rating. The risk is classified in financial terms as “low.” required to feed the electricity generated into the transmission system. Errors in the feeding operations may In general, the EWE Group is exposed to risks from chang- result in system instability. The risk is classified in financial es in value that can inherently result from increasing capi- terms as “low.” tal market interest rates and fluctuating exchange rates as well as the business prospects of individual companies Dedicated quality assurance and coordinated redundancy becoming permanently worse. The risk is classified in concepts have been implemented to ensure the reliability financial terms as “low.” of processes and are continuously enhanced in line with the requirements. In the course of external audits, our The risks attached to the lessor business are mainly credit operating activities are reviewed regularly. This is reflect- risks, legal risks and technical / operational risks. Before ed in particular in various ISO certifications. Moreover, all making a contract offer, the creditworthiness of a poten- employees of the EWE Group are enrolled in a continuous tial lessee is assessed on the basis of systematic require- training program to ensure and extend their level of quali- ments. The terms of the leases governing the transfer of fication and competency. In addition, the EWE Group is ownership, rights of access, payment and collateral ensure represented in various specialist committees and boards. that the risk of loss is reduced. Technical / operational In this way, current and future requirements are identified risks, which arise in connection with activities such as early on, thus ensuring compliance with safety and securi- installation, operation, maintenance, deinstallation and ty-related measures and legal provisions. modification, are specifically covered by an insurance policy. The Company has no significant residual risks from Due to the increasing digitalization of the EWE Group’s the leasing business. business processes, these are reliant on secure, reliable and robust information processing. From a business and legal perspective, information security requirements are gaining significance for EWE. The primary aim of the information security function is to ensure business information is appropriately protected, security incidents are avoided and employees have a high level of security awareness. To this end, it has established appropriate guidelines and measures that allow effective and holistic risk management. The risk related to information security are classified in financial terms as “low.”

EWE Financial Report 2019 Combined Management Report 33

Compliance and legal risks and opportunities Risks from the use of financial instruments Within the scope of its business activities in Germany and Financial instruments are regularly used to implement other countries in which it is active, the EWE Group is hedging strategies. Within the EWE Group, derivative faced with numerous legal risks that result from both financial instruments are predominantly used to hedge general legal provisions as well as special, industry- market price risks from the physical power and gas busi- specific legal, regulatory and miscellaneous requirements. ness. In addition, the Board of Management of EWE AG The risks are classified in financial terms as “low.” allowed the Group’s trading company to take positions based on market expectations within strict limits in order EWE continuously monitors relevant developments, both to optimize the portfolio. In this connection, earnings risk with regard to legislation and case law, and evaluates from market price risks are limited by a stringent risk them as they pertain to possible effects on the Group’s monitoring and loss limitation concept. In addition, the business activities. use of derivative financial instruments is always associated with counterparty risks (for more information, see The EWE Group is exposed to risks from legal disputes or financial risks). government or official proceedings. We cannot guarantee that the outcomes of these legal disputes and proceedings To hedge energy trading and finance-related price risks, will not have a negative impact on our net assets, financial the EWE Group utilizes power futures, gas futures, coal position and results of operations. The aggregate risk from swaps, oil swaps, EUA and CER futures contracts (Euro- legal disputes or government or official proceedings is pean Union Allowances and Certified Emissions Reduc- classified in financial terms as “medium.” tions), and currency and interest rate hedges.

For significant legal risks, we have taken out directors and Negative changes in the market value of the derivative officers (D&O) insurance which management considers to financial instruments can have a positive or negative be appropriate and customary for the industry. However, impact on earnings as of the valuation date if hedge our insurance coverage does not protect us from any accounting cannot be applied; however, this does not reputational damage. In addition, we could suffer losses normally represent a risk to profit or loss. The risks are from legal disputes which exceed the insured amount, are classified in financial terms as “medium / moderate.” not covered by insurance or exceed any provisions for losses from legal disputes. Further information regarding financial instruments can be found in the notes. In addition to general legal risks, the EWE Group is also exposed to an increasing number of compliance risks. These risks result from increased activity on the part of Summary of the risk situation national and European Union lawmakers. In the course of the Group’s iRM process, no risks were identified which, either individually or collectively, jeop- ardized the Company’s ability to continue as a going concern in fiscal year 2019 or could do so in subsequent years.

The Group reviewed and confirmed the effectiveness of its internal control system in fiscal year 2019 by perform- ing a self-assessment of all key controls.

34 EWE Financial Report 2019 Combined Management Report

Key characteristics of the EWE Group’s The accounting guidelines standardized across the Group, accounting-related internal control system which must be consistently applied by all entities, form (pursuant to Sec. 289 (4) and Sec. 315 (4) HGB) the conceptual framework for the preparation of the consolidated financial statements. EWE continuously The aim of EWE’s financial reporting activities is to pro- analyses and takes into account new laws, accounting vide complete and correct information to all users in the standards and other official pronouncements with regard form of our annual and interim financial statements. Our to their relevance and effects on the Group’s consolidated accounting-related internal control system (ICS) is de- financial statements and combined management report. signed to identify possible sources of error and mitigate the resulting risks. The accounting-related ICS encom- The annual financial statements submitted by EWE AG passes accounting and financial reporting across the en- and its subsidiaries, which are based on the accounting tire EWE Group. entries recorded by each unit, form the data basis used to prepare the consolidated financial statements. The con- The Supervisory Board’s audit committee regularly solidated financial statements are drawn up using the reviews the effectiveness of the accounting-related ICS. consolidation process based on the annual reports sub- Once a year, the Board of Management reports to the mitted. The steps required to prepare the consolidated audit committee on the risks from financial reporting, financial statements undergo both manual and automated explains the implemented controls and illustrates how the reviews. correct implementation of these controls was verified. Within the scope of external reporting, the members of The structure of the accounting-related ICS results from EWE AG’s Board of Management must issue a compliance the organization of EWE’s accounting and financial report- statement (Bilanzeid) and sign a responsibility statement. ing process. By signing this statement, they confirm compliance with the mandatory accounting standards as well as the EWE One of the main functions of this process is the manage- Group’s accounting guidelines as set forth in the Group’s ment of the EWE Group and its operative units. In this accounting handbook, and that the figures presented give context, the targets set by the Board of Management of a true and fair view of the Group’s assets, liabilities, fi- EWE AG form the initial points of reference. Based on nancial position and earnings situation. these targets and EWE’s expectations with regard to the company’s operative development, once a year the Potential financial reporting risks are identified at the Company prepares its medium-term plans. These encom- division level based on quantitative, qualitative and pro- pass target figures for the upcoming fiscal year as well as cess-related criteria. The Company’s generally binding the following years. The Board of Management of EWE AG guidelines represent a fundamental component of EWE’s as well as the directors and general managers of the ICS. In addition, EWE has defined minimum requirements Company’s main subsidiaries meet at regular intervals to governing the key processes used to secure an integrated evaluate quarterly and annual financial statements and system of data collection and management. An annual update the forecast. review is used to verify whether the necessary controls were appropriate, actually took place and were carried The individual companies are responsible for their own out correctly. The Group auditing department also reviews bookkeeping, which is subject to respective local stand- the operating effectiveness of the parts of the ICS includ- ards; the accounting-related ICS is individually tailored to ed in the respective audit scope during the year as part of the needs of each company on the basis of group-wide its risk-based audit plan. guidelines. In its position as a holding company, EWE AG provides central accounting functions. These include con- solidating figures and testing goodwill for impairment.

EWE Financial Report 2019 Combined Management Report 35

Current situation of EWE Aktiengesellschaft

The financial statements of EWE Aktiengesellschaft, Olden- Profit / loss from investments also increased due to the burg, are prepared in accordance with the provisions of sale of the equity investment in EWE Turkey Holding A.Ş. the German Commercial Code [“Handelsgesetzbuch”: HGB]. In the previous year, impairment losses on financial assets also contributed to a substantially lower result. The earn- EWE AG manages the EWE Group as its holding company. ings from profit and loss transfer agreements were the Its duties lie in the strategic and cross-market develop- result, among other things, of higher income from Zweite ment of the business areas as well as strategic planning EWE Offshore Beteiligungs GmbH (up 35.4 million euros), and ensuring the Group’s financing. In addition, EWE AG EWE TRADING GmbH (up 22.8 million euros) and BTC AG performs centralized corporate services for the Group’s (up 19,9 million euros). The profit transfer from EWE companies. NETZ GmbH developed negatively, down 13.7 million euros on the previous year. The 11.2 million euros decrease in equity investment income to 5.7 million euros is largely Financial performance attributable to the absence of dividends from swb AG (down 11.1 million euros). in millions of euros 2019 2018 Net interest income / expense is primarily shaped by interest payable on bonds, loans from banks and two Profit / loss from investments 741.0 475.2 promissory note loans as well as interest income from Net interest income / expense -87.0 -83.6 Group companies. 13.4 million euros (previous year: Revenue 190.6 186.4 10.8 million euros) results from the unwinding of dis- Other operating income 9.1 11.9 counts on non-current provisions, mainly pension provi- Cost of materials -124.5 -117.3 sions. At 87.0 million euros, the net interest expense was Personnel expenses -71.5 -72.4 at the previous-year level (83.6 million euros). Amortization, depreciation and impairment -23.5 -17.7 Personnel expenses were 1.2 per cent down on the previ- Other operating expenses -61.6 -59.2 ous year at 71.5 million euros. Despite a 2.2 per cent Income taxes -86.7 -65.0 collective wage increase and a rise in the headcount of Earnings after taxes 485.9 258.3 around 4.4 per cent, personnel expenses were lower due Other taxes -0.7 -0.6 to a decrease in one-off effects from the previous year. Profit / loss for the period 485.2 257.7 Profit carried forward from the prior Amortization, depreciation and impairment increased by year 79.4 0.0 5.8 million euros to 23.5 million euros, largely as a result Allocations to retained earnings -240.7 -90.2 of an impairment loss on a building (7.5 million euros) Net retained profit 323.9 167.5 combined with a drop in amortization of intangible assets (down 1.1 million euros).

EWE AG’s results of operations are primarily shaped by The tax expense increased by 21.7 million euros, chiefly profit / loss from investments, net interest income / expense, due to the positive result generated by EWE AG which revenue from the provision of central services to the resulted in both higher corporate income tax (up Group’s companies and the corresponding cost of materi- 12.8 million euros) and higher trade tax (9.5 million als. euros). By contrast, tax on investment income was down by 2.5 million euros due to lower dividends. At 741.0 million euros, profit / loss from investments was significantly up on the previous year by 265.8 million Earnings after taxes rose by 227.5 million euros due to the euros, largely as a result of the reversal of impairment described effects, resulting in a profit for the period of loss on swb AG (338.1 million euros) and the balance of 485.2 million euros in fiscal year 2019 (previous year: income from profit and loss transfer agreements and 257.7 million euros). expenses from loss absorption (up 83.1 million euros).

36 EWE Financial Report 2019 Combined Management Report

Assets and liabilities

Assets in millions of euros 31 Dec 2019 in % 31 Dec 2018 in %

Fixed assets 3,399.3 72.9 3,133.7 79.6 Current assets 1,235.3 26.5 791.4 20.1 Prepaid expenses 30.4 0.7 11.2 0.3 Total assets 4,665.0 100.0 3,936.3 100.0

Equity and liabilities in millions of euros 31 Dec 2019 in % 31 Dec 2018 in %

Equity 2,507.5 53.8 1,516.2 38.5 Provisions 179.2 3.8 172.4 4.4 Liabilities 1,978.3 42.4 2,247.6 57.1 Deferred income 0.0 0.1 0.0 Total equity and liabilities 4,665.0 100.0 3,936.3 100.0

EWE AG’s total assets at the end of the reporting period Prepaid expenses of 30.4 million euros largely includes stood at 4.7 billion euros (previous year: 3.9 billion euros) interest rate hedges that matured in 2019 which had pre- and exhibited a well-balanced asset and capital structure. viously been recognized in an anticipatory hedge. The statement of financial position is structured around EWE AG’s functions as the parent company of the EWE On the equity and liabilities side, the sale of treasury Group, in which the key shareholdings are held. Fixed shares to a new investor and the profit for the period of assets dominate the asset side, with a value of 3.4 billion 485.2 million euros led to an increase in equity of euros, equal to 72.9 per cent (previous year: 79.6 per 2.5 billion euros (previous year: 1.5 billion euros). The cent) of total assets. Financial assets comprise the lion’s equity ratio increased to 53.8 per cent (previous year: share of fixed assets, with a value of 3.2 billion euros 38.5 per cent). (previous year: 3.0 billion euros). The increase compared with the previous year is mainly due to a reversal of an In addition to equity, non-current assets were matched by impairment loss on the shares in swb AG (338.1 million non-current liabilities of 1.0 billion euros. As such, non- euros) and a 43.5 million euros increase in loans to group current assets (3.4 billion euros) were completely covered companies. Other effects, such as the sale of the shares in by non-current liabilities or equity (3.5 billion euros). EWE Turkey Holding A.Ş. had the opposite effect. Non-current liabilities comprise bonds (0.6 billion euros), Current assets including prepaid expenses decreased to non-current loans (0.3 billion euros) and pension provi- 1,265.7 million euros (previous year: 802.6 million euros). sions (0.1 billion euros). This item is dominated by cash and cash equivalents, cash pool receivables from affiliates, profit transfer as well as Current liabilities of 1.1 billion euros are dominated by other receivables, and reflects EWE AG’s financing func- liabilities to affiliates (500.1 million euros), which re- tion. The 463.1 million euros increase compared to the mained at the prior-year level (501.6 million euros). The previous year is mainly due to other receivables from the increase in current liabilities is largely the result of a new investor and a 193.1 million euros increase in cash short-term utilization of the credit facility as of the report- pool receivables. The 149.6 million euros decrease in the ing date (143.1 million euros; previous year: 26.3 million securities portfolio to 0.0 euro is due to sales. In addition, euros). there was a 235.9 million euros year-on-year decrease in cash and cash equivalents to 93.7 million euros.

EWE Financial Report 2019 Combined Management Report 37

Financial position Investments

The value of investments carried out in the reporting year in millions of euros 2019 2018 totaled 332.4 million euros.

Cash flow from operating activities -249.1 -262.4 Cash flow from investing activities 440.7 293.2 in millions of euros 31 Dec 2019 31 Dec 2018 Cash flow from financing activities -427.5 -210.6 Change in cash and cash equivalents -235.9 -179.8 Intangible assets 2.7 5.5 Land and buildings 3.2 2.0 Furniture, fixtures and office Cash flow from operating activities totaled -249.1 million equipment 2.8 3.7 euros in the fiscal year, calculated on the basis of a profit Financial assets 323.7 162.8 for the period of 485.2 million euros. Net interest expense Total 332.4 174.0 (87.0 million euros), the income tax expense (86.7 million euros) and the change in provisions (11.4 million euros) led to an increase in cash flow, whereas equity investment The investments in intangible assets relate to software. income (372.2 million euros), non-cash depreciation, Investments in financial assets relate to the acquisition amortization, impairments and write-ups of intangible of shares, capital increases carried out by affiliates and assets, property, plant and equipment and financial assets investees as well as long-term loans. The change in (302.6 million euros), income tax payments (88.9 million loans to affiliates (up 43.7 million euros) is largely due to euros) and the change in other assets (up 110.9 million loans to EWE NETZ GmbH (up 120.0 million euros), EWE euros), especially as a result of the sale of securities, led TRADING GmbH (down 50.0 million euros), EWE to a decrease in cash flow. GASSPEICHER GmbH (down 20.0 million euros) and swb AG (down 11.7 million euros). Loans to other investees In the fiscal year, EWE posted cash flow from investing increased due to a loan to Trianel Windkraftwerk Borkum activities totaling 440.7 million euros. In 2019, cash out- II GmbH & Co. KG (up 20.8 million euros). Investments flows from the net inflow or outflow from investments relating to shares in affiliates relate to capital increases at amounted to 73.0 million euros. Investments in intangible the start-up companies totaling 8.5 million euros and assets and property, plant and equipment play only a involving Grünspar GmbH in liq. (up 1.4 million euros) and minor role. Incoming payments from dividends or profit GWAdriga GmbH & Co. KG (up 1.6 million euros). Invest- transfers from financial investments (372.2 million euros) ments in equity investments primarily relate to the pur- led to a positive cash flow overall. This income was up chase of shares in Zenhomes GmbH (2.8 million euros) 71.9 million euros on the previous year. and Comgy GmbH (1.3 million euros).

Cash flow from financing activities (-427.5 million euros) reflects the raising of loans (143.3 million euros), on the Forecast deviations one hand, and the repayment of bonds and loans (408.8 million euros), interest payments (74.7 million In fiscal year 2019, EWE AG posted a profit for the period euros) and the payment of a previous-year dividend of of 485.2 million euros, which was significantly higher than 88.0 million euros on the other. expected due to the reversal of impairment loss on the carrying amount of the investment in swb AG. The value of cash and cash equivalents decreased by 235.9 million euros to 93.7 million euros.

The Company was in a position to meet its financial obligations at all times.

38 EWE Financial Report 2019 Combined Management Report

Expected development of EWE AG Forward-looking statements

Due to its position as the Group’s parent company, EWE All statements made are based on current knowledge AG’s annual result is heavily influenced by the profit / loss and assumptions. They represent estimates that we have from investments. No impairments or write-ups of equity formulated on the basis of all information available to investments are expected for 2020, provided that busi- us at the present time. In the event that the underlying ness develops as forecast and the economic environment assumptions prove not to be accurate or additional risks remains stable. An increase in income from profit transfer emerge, the actual results could deviate from those by approximately 6.0 per cent is expected. Income from expected. As such, we cannot assume liability for such dividend payments from investees is forecast to rise by statements. around 14.0 million euros in 2020. A further increase is expected in subsequent years. Not including the reversal Oldenburg, 25 February 2020 of impairments in 2019 or any other special effects, such as income from sales of equity investments and impair- The Board of Management ment losses, profit from equity investments is expected to improve steadily over the next few years. Nonetheless, the results of the energy sales, telecommunications and grids business will continue to be subject to ongoing price Stefan Dohler pressure as well as regulation and levies. Subject to potential one-off special effects, 2020 and the two subsequent fiscal years are expected to yield a profit for the period in the lower three-digit millions. Michael Heidkamp

Important events after the end of the fiscal year Dr. Urban Keussen

There were no important events after the end of the fiscal year. Wolfgang Mücher

Report pursuant to Sec. 312 of the German Stock Corporation Act Marion Rövekamp Pursuant to Sec. 312 of the German Stock Corporation Act [“Aktiengesetz”: AktG], EWE AG has prepared a report on its relationships with affiliates. This report closes with the following statement by the Board of Management:

“Our Company received appropriate consideration for the legal transactions and acts listed in the report on relationships with affiliates according to the circumstances known to it at the time of each transaction or at the time of the act or omission, and was not prejudiced by any act or omission, with the exception that certain disadvantages arose for the Company from certain reportable acts. The Company did not receive any compensation for these reportable acts, nor was the Company granted any right to claim compensation.”

EWE Financial Report 2019 Combined Management Report 39

Consolidated income statement of the EWE Group

1 Jan - 1 Jan - in millions of euros Note 31 Dec 2019 31 Dec 2018

Revenue 1) 5 6,070.8 6,026.3 Electricity and energy taxes -411.5 -409.2 Revenue (excluding electricity and energy taxes) 5,659.3 5,617.1

Changes in finished goods and work in progress 4.4 -3.5 Other own work capitalized 6 72.2 74.0 Other operating income 1) 7 139.3 173.5 Cost of materials 1) 8 -3,862.5 -3,879.9 Personnel expenses 9 -753.3 -716.9 Amortization, depreciation and impairment 10 -516.9 -428.4 Other operating expenses 1) 11 -432.8 -480.3 Impairment losses / gains pursuant to IFRS 9.5.5 12 -14.0 -14.0 Profit / loss from investments accounted for using the equity method 13 -12.3 4.7 Other profit / loss from equity investments 14 49.9 17.0 EBIT 2) from continuing operations 333.3 363.3

Interest income 15 11.5 21.8 Interest expenses 15 -130.0 -139.7 Profit / loss from continuing operations before income taxes 214.8 245.4

Income taxes 16 -61.6 -56.5 Profit / loss from continuing operations 153.2 188.9

Profit / loss from discontinued operations 37 -25.7 -21.6 Profit / loss for the period 127.5 167.3

Thereof attributable to: Owners of the parent 122.3 168.8 Non-controlling interests 5.2 -1.5 127.5 167.3

1) Previous year's figures adjusted

2) Earnings before interest and taxes

40 EWE Financial Report 2019 Consolidated Financial Statements

Consolidated statement of comprehensive income of the EWE Group

1 Jan - 1 Jan - in millions of euros Note 31 Dec 2019 31 Dec 2018

Profit or loss for the period 127.5 167.3 Actuarial gains and losses from defined benefit pension plans and similar obligations 30 -264.9 49.3 Deferred taxes on pensions 81.4 -15.1 Fair value measurement of equity instruments 1) 89.9 -21.3 Sum of other comprehensive income and expenses recognized directly in equity without future reclassification to profit and loss -93.6 12.9 Adjustment item for foreign currency translation of international subsidiaries 1.1 -26.2 Effect from the disposal of discontinued operations (IFRS 5) 37 135.2 Cash flow hedges 39 -370.9 68.6 Deferred tax on cash flow hedge reserve 111.2 -21.2 Share of other comprehensive income comprising investments accounted for using the equity method 21 -6.5 -2.3 Sum of other comprehensive income and expenses recognized directly in equity with future reclassification to profit and loss -129.9 18.9 Other comprehensive income for the period, net of tax -223.5 31.8

Total comprehensive income for the period, net of tax -96.0 199.1

Thereof attributable to: Owners of the parent -101.2 204.2 Non-controlling interests 5.2 -5.1 -96.0 199.1

1) Previous year's figure adjusted

EWE Financial Report 2019 Consolidated Financial Statements 41

Consolidated statement of financial position of the EWE Group

ASSETS

in millions of euros Note 31 Dec 2019 31 Dec 2018

Non-current assets Intangible assets 17 739.9 751.4 Property, plant and equipment 18 5,193.9 4,860.9 Investment property 20 4.6 6.0 Investments accounted for using the equity method 21 121.1 145.1 Other financial assets 22 746.1 629.5 Income tax refund claims 1.8 1.8 Other non-financial assets 38.3 22.1 Deferred tax 35 229.3 49.9 7,075.0 6,466.7

Current assets Inventories 1) 23 236.6 248.9 Trade receivables 24 1,054.8 999.3 Other financial assets 25 1,307.9 645.1 Income tax refund claims 25.1 26.1 Other non-financial assets 1) 26 152.7 211.5 Cash and cash equivalents 27 135.3 362.7 2,912.4 2,493.6

Assets classified as held for sale 37 375.7 2,912.4 2,869.3

Total assets 9,987.4 9,336.0

1) Previous year's figures adjusted

42 EWE Financial Report 2019 Consolidated Financial Statements

EQUITY AND LIABILITIES

in millions of euros Note 31 Dec 2019 31 Dec 2018

Equity 28 Subscribed capital 243.0 243.0 less treasury shares -24.3 Capital reserves 1,567.1 1,486.4 less treasury shares -489.3 Retained earnings 1,441.2 1,316.9 Accumulated other comprehensive income / loss -631.2 -321.5 Equity attributable to owners of the parent 2,620.1 2,211.2 Non-controlling interests 48.4 32.6 2,668.5 2,243.8

Non-current liabilities Construction subsidies 29 640.5 619.4 Provisions 1) 30 2,566.2 2,252.0 Bonds 31 562.6 921.7 Liabilities to banks 32 382.5 376.2 Other financial liabilities 33 516.8 414.6 Income tax liabilities 1) 8.9 14.2 Other non-financial liabilities 34 6.8 8.3 Deferred tax 35 65.4 141.3 4,749.7 4,747.7

Current liabilities Construction subsidies 29 48.2 47.3 Provisions 30 96.5 100.0 Bonds 31 377.7 391.3 Liabilities to banks 32 161.9 41.9 Trade payables 762.8 829.2 Other financial liabilities 33 969.7 425.1 Income tax liabilities 23.4 36.1 Other non-financial liabilities 1) 34 129.0 140.6 2,569.2 2,011.5

Liabilities classified as held for sale 37 333.0 2,569.2 2,344.5

Total equity and liabilities 9,987.4 9,336.0

1) Previous year's figures adjusted

EWE Financial Report 2019 Consolidated Financial Statements 43

Consolidated statement of changes in equity of the EWE Group

Capital reserves Subscribed of the Retained capital EWE Group earnings Accumulated other comprehensive income / loss

Reserve for Revaluation equity reserve pursuant Cash flow in millions of euros instruments to IFRS 3 hedge reserve

As of 31 December 2017 218.7 997.1 1,200.9 132.9 74.5 53.6 Effects of first-time adoption of IFRS 15 35.2 As of 1 January 2018 218.7 997.1 1,236.1 132.9 74.5 53.6 Profit or loss for the period 168.8 Other comprehensive income -21.31) 47.4 Total comprehensive income

Capital increase Capital decrease Dividend payments -88.0 Reclassification IFRS 5 2) 0.0 -74.5 0.3 Other changes -0.31) As of 31 December 2018 218.7 997.1 1,316.9 111.3 101.3

As of 31 December 2018 218.7 997.1 1,316.9 111.3 101.3 Effects of first-time adoption of IFRIC 23 9.8 As of 1 January 2019 218.7 997.1 1,326.7 111.3 101.3 Profit or loss for the period 122.3 Other comprehensive income 89.9 -259.7 Total comprehensive income

Treasury shares 24.3 570.0 Dividend payments -88.0 Changes in the basis of consolidation -6.1 Other changes 86.3 -11.6 As of 31 December 2019 243.0 1,567.1 1,441.2 189.6 -158.4

1) Figure adjusted

2) See note 37

44 EWE Financial Report 2019 Consolidated Financial Statements

Equity attributable to owners of Non-controlling the parent interests Equity

Changes not recognized in profit or loss arising from accounting for Currency Measurement investments translation of pension using the difference obligations IFRS 5 equity method

-122.3 -472.8 -22.5 2,060.1 24.6 2,084.7 35.2 35.2 -122.3 -472.8 -22.5 2,095.3 24.6 2,119.9 168.8 -1.5 167.3 -22.6 34.2 -2.3 35.4 -3.6 31.8 204.2 -5.1 199.1

19.3 19.3 -6.3 -6.3 -88.0 -1.9 -89.9 134.9 -60.7 0.0 0.0 0.0 0.0 -0.3 2.0 1.7 -10.0 -438.6 -60.7 -24.8 2,211.2 32.6 2,243.8

-10.0 -438.6 -60.7 -24.8 2,211.2 32.6 2,243.8 9.8 9.8 -10.0 -438.6 -60.7 -24.8 2,221.0 32.6 2,253.6 122.3 5.2 127.5 1.1 -183.5 135.2 -6.5 -223.5 -223.5 -101.2 5.2 -96.0

594.3 594.3 -88.0 -0.5 -88.5 0.1 0.0 -6.0 12.1 6.1 -0.2 0.0 -74.5 0.0 -1.0 -1.0 -9.0 -622.1 0.0 -31.3 2,620.1 48.4 2,668.5

EWE Financial Report 2019 Consolidated Financial Statements 45

Consolidated statement of cash flows of the EWE Group

Cash inflow (+), cash outflow (-)

1 Jan - 1 Jan - in millions of euros Note 43 31 Dec 2019 31 Dec 2018

EBIT 1) from continuing operations 333.3 363.3 Amortization, depreciation and impairment 2) 516.9 428.4 Release of construction subsidies -54.0 -57.0 Interest paid -82.8 -99.7 Interest received 11.1 21.5 Income tax payments / refunds -120.3 -99.0 Gain / loss on the disposal of non-current assets 2.0 -0.5 Non-cash changes in provisions 47.2 35.7 Changes recognized in profit or loss arising from accounting for investments using the equity method 2) 18.5 3.2 Non-cash gain / loss from derivative financial instruments 85.2 26.1 Other non-cash income and expenses 21.6 51.0 Change in inventories 2) 12.8 -71.3 Change in receivables and other assets 2) -324.8 -738.8 Change in accounts payable and other liabilities 22.3 438.8 Cash flow from operating activities of continuing operations 489.0 301.7 Cash flow from operating activities of discontinued operations 28.3 4.6 Cash flow from operating activities 517.3 306.3

Cash received from construction subsidies 75.9 65.7 Cash paid for investments in intangible assets -31.9 -34.9 Cash received from the disposal of property, plant and equipment 9.2 23.5 Cash paid for investments in property, plant and equipment -501.4 -452.9 Cash received from the disposal of other non-current assets 9.5 90.6 Cash paid for investments in other non-current assets -52.8 -38.8 Cash received from the disposal of shares of fully consolidated subsidiaries 156.8 Cash paid for investments in shares of fully consolidated subsidiaries -1.3 -3.1 Cash flow from investing activities of continuing operations -336.0 -349.9 Cash flow from investing activities of discontinued operations -9.9 -16.7 Cash flow from investing activities -345.9 -366.6

1) Earnings before interest and taxes

2) Previous year's figures adjusted

46 EWE Financial Report 2019 Consolidated Financial Statements

1 Jan - 1 Jan - in millions of euros Note 43 31 Dec 2019 31 Dec 2018

Cash received from equity changes 25.6 Cash paid due to equity changes -6.3 Cash paid to owners of the parent (dividends) -88.5 -88.0 Cash received from financial liabilities 143.8 27.0 Cash paid for the repayment of financial liabilities -419.1 -97.0 Cash paid for the repayment of lease liabilities -23.8 Other net payments from financing activities 0.8 -0.7 Cash flow from financing activities of continuing operations -386.8 -139.4 Cash flow from financing activities of discontinued operations -12.9 12.4 Cash flow from financing activities -399.7 -127.0

Change in cash and cash equivalents -228.3 -187.3 Change in cash and cash equivalents due to exchange rates, basis of consolidation and measurement -43.8 -13.1 Cash and cash equivalents at the beginning of the period 409.1 609.5 thereof reported as assets classified as held for sale 44.9 58.9 Cash and cash equivalents at the beginning of the period from continuing operations 364.2 550.6 Cash and cash equivalents at the end of the period 137.0 409.1 thereof reported as assets classified as held for sale 44.9 Cash and cash equivalents at the end of the period from continuing operations 137.0 364.2

EWE Financial Report 2019 Consolidated Financial Statements 47

Notes to the consolidated financial statements of EWE Aktiengesellschaft

1. Information about the Company For futures requiring physical settlement that are accounted for as derivatives through profit or loss pursu- EWE Aktiengesellschaft (“EWE AG” or the “Company”) and ant to IFRS 9, to date, the previous valuation had been its subsidiaries (the “EWE Group”) are active in the fields reversed as operating expenses or income through profit of energy supply (particularly power and gas), energy or loss on settlement. As part of the adjustment of the generation, sales and trading, water supply, information approach used for presenting valuation effects from technology and telecommunications. From a regional derivative financial instruments, the figures in the previ- point of view, the Company carries out these activities in ous-year income statement were restated accordingly in the Ems-Weser-Elbe region, in the German state of Lower the current year. Other operating income and other oper- Saxony, in the German city of Bremen and, with regard to ating expenses from the previous year were reduced by gas supply operations, also in the German state of Bran- 156.1 million euros and 178.7 million euros, respectively. denburg, on the island of Rügen, in Poland and – until the The balance was reclassified to the gross margin, with an disposal of the business activities to SOCAR in the first amount of 86.8 million euros being reclassified from sales half of 2019, Turkey (see note 37). to revenue. Correspondingly, purchases were reclassified to cost of materials (64.2 million euros). Consequently, EWE AG’s headquarters are located at Tirpitzstrasse 39 in the effect from the valuation of derivative financial Oldenburg, Germany (postcode 26122). The Company is instruments is presented in the same line in which the registered in the commercial register of the Oldenburg income or expenses are also later recorded. local court under HRB no. 33. Slight deviations may result in the calculation of total values and percentages in the consolidated financial 2. Accounting policies statements as a result of rounding.

Basis of preparation The consolidated financial statements for the fiscal year ending on 31 December 2019 were approved by the Board EWE AG’s consolidated financial statements as of 31 De- of Management for review by the Supervisory Board on cember 2019 were prepared pursuant to Sec. 315e (1) of 25 February 2020. the German Commercial Code [“Handelsgesetzbuch”: HGB] and in accordance with the International Financial The consolidated financial statements and the group Report Standards (IFRS) as published by the International management report of EWE AG for fiscal year 2019 will Accounting Standards Board (IASB), London, UK, as well be published in the German Federal Gazette [“Bundesan- as interpretations of the IFRS Interpretations Committee zeiger”]. (IFRS IC), in effect and adopted by the European Union (EU) as of 31 December 2019. Additional legal provisions set forth in the HGB were also adhered to.

The consolidated financial statements are prepared on the basis of amortized cost, with the exception of financial assets measured at fair value through other comprehensive income and the financial assets and liabilities (including derivative financial instruments) measured at fair value through profit and loss. The consolidated financial statements were prepared in euros. All values are rounded to the nearest million euros unless otherwise indicated.

48 EWE Financial Report 2019 Consolidated Financial Statements

Basis of consolidation The following changes in the basis for consolidation took place during fiscal year 2019: The consolidated financial statements comprise the annual financial statements of EWE AG and its subsidiaries as of 31 December 2019. Type of consolidation and number Germany International Total Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control. Full consolidation Consolidation ends as soon as the parent company no 1 January 2019 56 11 67 longer has control of the company. The subsidiaries’ Additions 7 7 financial statements are prepared using uniform account- Disposals 1 9 10 ing methods for the same reporting periods as the parent 31 December 2019 62 2 64 company’s financial statements. All intragroup balances, transactions, unrealized gains and losses from intragroup Companies accounted for using the equity method transactions and dividends are eliminated in full, where 1 January 2019 15 15 necessary taking into account deferred taxes. Disposals 1 1 31 December 2019 14 14 A subsidiary’s total comprehensive income is attributed to non-controlling interests even if this would lead to a nega- Total tive balance. 1 January 2019 71 11 82 Additions 7 7 Changes in the ownership interest in a subsidiary, without Disposals 2 9 11 a loss of control, are accounted for as an equity trans- 31 December 2019 76 2 78 action.

As another shareholder has a controlling stake in Hanse- Additions of fully consolidated companies are particularly wasser Ver- und Entsorgungs-GmbH, Bremen (HVE), EWE due to acquisitions and intragroup reorganizations. Dis- AG does not have control of this company. As a result, posals of fully consolidated companies are primarily the HVE is recognized as a joint venture in the consolidated result of the sale of the business activities in Turkey. financial statements. Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen (GKB), is recognized as a joint The disposal of companies accounted for using the equity venture despite having a majority stake in the company, method relate to the assumption of control in Limón since a qualified majority is required to make major deci- GmbH, Kassel, through successive share purchases and its sions. HeideNetz GmbH, Munster, is recognized as a joint first-time full consolidation. venture despite having a majority stake in the company, since a qualified majority is required to make major decisions.

The Group’s list of shareholdings is published in the Bun- desanzeiger pursuant to Sec. 313 (2) Nos. 1 to 4 and (3) HGB (see note 45).

EWE Financial Report 2019 Consolidated Financial Statements 49

Acquisitions in 2019 Since their acquisition, the companies contributed 1.2 mil- As of 23 May 2019, EWE ERNEUERBARE ENERGIEN GmbH, lion euros to revenue and -0.3 million euros to the profit Oldenburg, acquired all the shares in Windpark Buchhain 8 for the period in 2019. Had the acquisition taken place at & 11 GmbH & Co. KG, Kiel, and Windpark Bärfang GmbH & the start of the period, the revenue contribution in 2019 Co. KG, Kiel, to expand its onshore business. The purpose would have been 1.5 million euros and the contribution to of the companies is the planning, construction and opera- profit for the period would have been -0.7 million euros. tion of a wind farm to generate electricity. The transaction costs were not material and were recog- 2.0 million euros of the purchase price of 2.3 million euros nized under other operating expenses in the income for the shares was paid in cash; 0.3 million euros was statement in 2019. retained due to an outstanding compensation payment. This purchase price corresponds to the fair value of the As part of the expansion of its energy service strategy, total consideration transferred. EWE AG acquired further shares of 39.71 per cent and 17.94 per cent in Limón GmbH, Kassel, on 7 and 28 August The fair values of the identifiable assets and liabilities at 2019, respectively. As such, EWE AG now holds 90.65 per the date of acquisition are as follows: cent of the shares in the company. The purpose of the company is the performance of analysis, design, planning and consulting activities in the areas of energy efficiency, Recognized management systems and environmental technology as upon well as the development of software and simulation tools in millions of euros acquisition for analysis activities in these areas.

Non-current assets 33.5 As part of the successive acquisition of shares, the shares thereof intangible assets 2.0 accounted for using the equity method until 7 August Current assets 1.7 2019 were remeasured at fair value. The acquisition cost thereof trade receivables 0.2 of 625 thousand euros is the sum of the remeasured car- thereof cash 1.3 rying amount of the company accounted for using the Total 35.2 equity method of 203 thousand euros and the purchase price of the newly acquired shares of 422 thousand euros, Non-current liabilities 26.8 settled in cash. The acquisition cost is equal to the fair Current liabilities 6.1 value of the total consideration transferred. Total 32.9 The fair value of trade receivables (0.5 million euros) as of Net assets 2.3 the acquisition date is equal to the carrying amount and Purchase price, thereof 0.3 million euros contingent 2.3 the gross amount. The receivables are expected to be Goodwill 0.0 recoverable.

Since the date of first-time consolidation, the company has The fair value of trade receivables (0.2 million euros) as of contributed 1.4 million euros to revenue and -0.3 million the acquisition date is equal to the carrying amount and euros to the profit for the period in 2019. Had it been fully the gross amount. The receivables are expected to be consolidated since the start of the period, the revenue recoverable. contribution in 2019 would have been 3.1 million euros and the contribution to profit for the period would have been -0.6 million euros.

The transaction costs were insignificant.

50 EWE Financial Report 2019 Consolidated Financial Statements

The fair values of the identifiable assets and liabilities at The fair values of the identifiable assets and liabilities at the date of first-time full consolidation are as follows: the date of acquisition are as follows:

Recognized Recognized upon upon in millions of euros acquisition in millions of euros acquisition

Non-current assets 1.3 Non-current assets 1.0 thereof intangible assets 1.2 thereof intangible assets 1.0 Current assets 0.6 Current assets 2.2 thereof trade receivables 0.5 thereof receivables 0.7 Total 1.9 thereof cash 1.4 Total 3.2 Non-current liabilities 0.5 Current liabilities 0.8 Non-current liabilities 0.3 Total 1.3 Current liabilities 1.2 Total 1.5 Net assets 0.6 Purchase price 0.6 Net assets 1.7 Goodwill 0.0 Purchase price 4.3 Goodwill 2.6

Divestments 2019 Goodwill primarily relates to multiplication effects in As of 31 December 2018, the business activities bundled connection with the expansion of software development in the investments in Turkey were presented as non- and SAP IS-U activities as well as high-quality consulting current assets (and liabilities) held for sale due to the services and integration as well as services in the business intention to sell. The shares were sold in the first half of process automation segment. Goodwill is not deductible 2019 (see note 37). for tax purposes.

Acquisitions in 2018 The fair value of trade receivables (0.7 million euros) as of In order to expand the consulting business, BTC Business the acquisition date is equal to the carrying amount and Technology Consulting AG, Oldenburg, acquired all the the gross amount. The receivables are expected to be shares in best-blu consulting with energy GmbH, Salzgitter recoverable. (BBC), and SEC Selecta Energy Consulting GmbH, Kelkheim (SEC), as of 1 October 2018. The entities are consulting Since their acquisition, the companies contributed 1.8 mil- companies in the area of contract software development lion euros to revenue and 0.3 million euros to the profit and business process automation as well as in the SAP for the period in 2018. Had the acquisition taken place at environment. the start of the period, the revenue contribution in 2018 would have been 6.3 million euros and the contribution to The purchase price of the shares of 4.3 million euros was profit for the period would have been 0.8 million euros. exclusively paid in cash. This purchase price corresponds to the fair value of the total consideration transferred.

EWE Financial Report 2019 Consolidated Financial Statements 51

Summary of significant accounting policies Goodwill is initially measured at cost being the excess of the consideration transferred over the Group’s net identi- The significant accounting policies applied in the prepara- fiable assets acquired and liabilities assumed. If this con- tion of these consolidated financial statements for the sideration is lower than the fair value of the net assets of EWE Group are presented below. The policies described the subsidiary acquired, the difference is recognized in herein were consistently applied to the reporting periods profit or loss. presented, except where otherwise indicated. After initial recognition, goodwill is valued at acquisition Mergers and goodwill cost minus accumulated impairment losses. For the pur- Business combinations are accounted for using the acqui- pose of impairment testing, goodwill acquired in a busi- sition method. The acquisition costs of an acquisition are ness combination is, from the acquisition date, allocated calculated as the total of the consideration transferred to each of the Group’s cash-generating units that are valued at fair value on the date of acquisition and of the expected to benefit from the combination. shares without a controlling influence in the acquired company. For each business combination, the acquirer Where goodwill has been allocated to a cash-generating measures the non-controlling interests in the acquiree unit and part of the operation within that unit is disposed either at fair value (full goodwill method) or at the pro- of, the goodwill associated with the disposed operation is portionate share of the acquiree’s identifiable net assets included in the carrying amount of the operation when (purchased goodwill method). Costs incurred as part of determining the gain or loss on disposal. Goodwill dis- the business combination are recorded as expenses. posed of in these circumstances is measured based on the relative values of the disposed operation and the portion When the EWE Group acquires a business, it assesses the of the cash-generating unit retained. financial assets and financial liabilities assumed for appropriate classification and designation in accordance Investments in an associate / joint venture with the contractual terms, economic circumstances and Investments by the EWE Group in an associate or joint pertinent conditions as of the acquisition date. This also venture are accounted for using the equity method. An includes separating embedded derivatives from the host associate is an entity over which the EWE Group has sig- contract. nificant influence. Joint ventures are companies under joint control with another party. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously Under the equity method, the investment in another held equity interest in the acquiree is remeasured to fair company is carried in the statement of financial position value at the acquisition date through profit or loss. at cost plus post-acquisition changes in the EWE Group’s share in the net assets of that company. Goodwill relating Any contingent consideration to be transferred by the to that company is included in the carrying amount of the acquirer is recognized at fair value at the acquisition date. investment and is neither amortized nor individually test- Subsequent changes to the fair value of the contingent ed for impairment. consideration which is deemed to be an asset or liability, will be recognized in accordance with IFRS 9 either in profit or loss or as a change to equity. If the contingent consideration is not within the scope of IFRS 9, it is measured in accordance with the appropriate IFRS.

52 EWE Financial Report 2019 Consolidated Financial Statements

The EWE Group’s share of a company’s profit / loss for the  Primarily held for trading purposes, period is shown on the face of the income statement.  Expected to be realized within twelve months after Changes recognized directly in the company’s other com- the reporting period, or prehensive income are recorded by the Group according  It is a cash or cash equivalent unless restricted from to its share and disclosed cumulated in the Group’s being exchanged or used to settle a liability for at statement of changes in equity. least twelve months after the reporting period.

As a matter of principle, subsidiaries’ financial statements All other assets are classified as non-current. are prepared as of the same reporting date as the financial statements of the EWE Group. When necessary, adjust- A liability is current when it is: ments are made to bring the accounting policies in line with those of the Group.  Expected to be settled in the normal operating cycle,  Held primarily for the purpose of trading, At each reporting date, the EWE Group determines  Due to be settled within twelve months after the whether there is objective evidence that the investment reporting period, or in the company accounted for using the equity method is  The company does not have the unrestricted ability impaired. If this is the case, the difference between the to postpone fulfillment of the liability by at least recoverable amount of the investment in the company twelve months after the end of the reporting period. and the carrying amount of the investment in the company is recognized in profit and loss as an impairment loss. All other liabilities are classified as non-current.

Upon loss of significant influence or joint control, the Deferred tax assets and liabilities are classified as non- Group measures any retained investment in the company current assets and liabilities. previously accounted for using the equity method at fair value. Any differences between the carrying amount of Fair value measurement investments in companies accounted for using the equity Fair value is the price that would be received to sell an method upon loss of significant influence or joint control asset or paid to transfer a liability in an orderly trans- and the fair value of the retained investment and pro- action between market participants at the measurement ceeds from disposal are recognized in profit and loss tak- date. The fair value measurement is based on the pre- ing into consideration any amounts reclassified from other sumption that the transaction to sell the asset or transfer comprehensive income. the liability takes place either:

Current versus non-current classification  In the principal market for the asset or liability, or The EWE Group presents assets and liabilities in the  In the absence of a principal market, in the most statement of financial position based on current / non- advantageous market for the asset or liability. current classification.

An asset is current when it is:

 Expected to be realized or intended to be sold or consumed in the normal operating cycle,

EWE Financial Report 2019 Consolidated Financial Statements 53

The principal or the most advantageous market must be Foreign currency translation accessible by the Group. The EWE Group’s consolidated financial statements are presented in euros, the functional currency of the parent The fair value of an asset or a liability is measured using company. Each company within the EWE Group deter- the assumptions that market participants would use when mines its own functional currency. The items contained in pricing the asset or liability. In this context, it is further the financial statements of the respective company are assumed that the market participants would act in their measured using this functional currency. best financial interest. Transactions and balances Measuring the fair value of a non-financial asset is carried Foreign currency transactions are initially translated by out taking into account the ability of the market partici- the group companies into the functional currency at the pant to generate economic benefit from the highest and respective applicable exchange rate on the date of the best use of the asset or through its sale to another market transaction. participant who will find the highest and best use for the asset. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot The Group utilizes valuation techniques that are appro- rates of exchange at the reporting date. priate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of All currency translation differences are recognized in profit relevant observable inputs and minimizing the use of or loss. unobservable inputs. Non-monetary items that are measured at historical All assets and liabilities for which fair value is measured or acquisition or production cost in a foreign currency are disclosed in the financial statements are categorized with- translated using the exchange rates at the dates of the in the fair value hierarchy, described as follows, based on initial transactions. Non-monetary items measured at the lowest level input that is significant to the fair value fair value in a foreign currency are translated using the measurement as a whole: exchange rates at the dates when the fair value is determined.  Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; Group companies  Level 2: Valuation techniques for which the lowest On consolidation, the assets and liabilities of foreign level input that is significant to the fair value meas- operations are translated into euros at the exchange rate urement is directly or indirectly observable; prevailing at the reporting date. Income and expenses are  Level 3: Valuation techniques for which the lowest translated at the annual average rate. The exchange level input that is significant to the fair value meas- differences arising on translation for consolidation are urement is unobservable. recognized in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in profit or loss.

54 EWE Financial Report 2019 Consolidated Financial Statements

Any goodwill arising on the acquisition of a foreign opera- The new provisions of IFRS 15 primarily apply to the fol- tion and any fair value adjustments to the carrying lowing: amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign opera- Multiple-element arrangements tion and translated at the spot rate of exchange at the Under these arrangements including subsidized products reporting date. delivered in advance (e.g., service contract including mobile phone), the entire transaction price comprising The following exchange rates were used for the foreign the ongoing monthly payments during the minimum con- currency translation of separate financial statements tractual term and the one-off payments for the end- prepared in a foreign currency: device, the signing fee and similar items using the relative stand-alone selling prices must be spread across the individual performance obligations. Revenue recognition is Closing rate based on the relative stand-alone selling price. In the 1 Euro 31 Dec 2019 31 Dec 2018 statement of financial position, this leads to the recognition of a contract asset, i.e., a claim that is not yet legally Polish Zloty (PLN) 4.26 4.30 required under the customer contract or a contractual Turkish Lira (TRY) 6.68 6.06 liability equal to the difference between the relative stand- alone selling price and the allocated payment received.

Average rate Variable consideration 1 Euro 31 Dec 2019 31 Dec 2018 Energy supply contracts with private customers have a “standing ready obligation,” which is usually remunerated Polish Zloty (PLN) 4.30 4.26 according to two different price components: a fixed basic Turkish Lira (TRY) 6.36 5.71 fee (basic price) and a variable, consumption-related charge for each unit of purchased energy (unit price). The basic price is recorded on a straight-line basis over the term of the contract and the variable price according to Revenue from contracts with customers the amount of energy used by the customer. At the time The standard governs the principles for measuring and of performance, the sum of basic prices (allocated recognizing revenue and the related cash flows. The core straight-line over the contract term) and the (variable) principle is that an entity will recognize revenue at an unit prices correspond to the amount that the energy amount that reflects the consideration to which the entity supply company can claim under the agreement. expects to be entitled in exchange for transferring goods or services to a customer (control approach). To this end, Some contracts with customers provide for variable con- the standard provides a principles-based five-step model: sideration in the form of trade discounts and volume rebates. This consideration paid to customers (e.g., cus-  Step 1: Identifying the contract with the customer tomer bonus) can be rendered as financial consideration  Step 2: Identifying the contractual performance obli- in the form of a cash payment or credit note or other gations consideration, which customers can offset against their  Step 3: Determining the consideration liabilities to the entity. Such discounts and other obliga-  Step 4: Allocating the consideration to performance tions to customers are treated as reductions of the trans- obligations action price and thus of revenue. If the customer pay-  Step 5: Recognizing revenue upon satisfaction of a ments received are higher than the revenue to be recog- performance obligation by the entity nized, contract liabilities therefore also arise in connection with subsequent bonus payments.

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Costs to obtain contracts with customers Taxes Under IFRS 15, the incremental and directly attributable Current income tax costs of obtaining a contract with a customer are recog- Current income tax assets and liabilities for the current nized as an asset if the entity expects to recover them. period are measured at the amount expected to be recov- These assets are amortized on a straight-line basis over ered from or paid to the taxation authorities. The tax rates the expected customer retention period (two to five and tax laws used to compute the amount are those that years). are enacted or substantively enacted, at the reporting date in the countries where the EWE Group operates and Subscriber acquisition costs are expensed as incurred generates taxable income. when the amortization period for this asset, which would otherwise have to be recognized, is a maximum of one Current taxes that relate to items recognized directly in year. equity are recognized in equity and not in profit or loss. Management regularly evaluates individual tax matters Acting as principal / agent with regard to whether room for interpretation exists in If the EWE Group does not act as a principal but as an light of applicable tax provisions and establishes provi- agent, corresponding income and related expenses are sions where appropriate. reported net. Deferred taxes In connection with the model for compensation for elec- Deferred taxes are recognized using the liability method tricity fed into the grid as well as direct sales of EEG on temporary differences between the tax bases of assets power, the EWE Group’s distribution grid operators act and liabilities and their carrying amounts for financial as agents. Under this arrangement, the income from reporting purposes at the reporting date. recharging the EEG compensation and the market premium to the transmission system operator is to be offset Deferred tax liabilities are recognized for all taxable tem- against the expenditure resulting from the payment of the porary differences, except: EEG compensation or market premium.  When the deferred tax liability arises from the initial In connection with sales of CHP-generated electricity recognition of goodwill or an asset or liability in a outside the general supply network, the distribution grid transaction that is not a business combination and, operator does not assume a market role in the energy at the time of the transaction, affects neither the sector as the electricity is not physically fed into the gen- accounting profit nor taxable profit or loss; eral supply network. The income from recharging the CHP  In respect of taxable temporary differences associat- surcharge to the distribution grid operator is offset ed with investments in subsidiaries, associates and against the expense relating to the payment of the CHP investments in joint ventures, when the timing of the surcharge. reversal of the temporary differences can be con- trolled and it is probable that the temporary differ- Government grants ences will not reverse in the foreseeable future. Government grants are recognized when there is reasonable assurance that the grants will be received and that the company will comply with any conditions attached to the grant. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset.

56 EWE Financial Report 2019 Consolidated Financial Statements

Deferred tax assets are recognized for all deductible tem- Deferred tax relating to items recognized in equity is also porary differences, the carry forward of unused tax credits recognized in equity. Deferred tax items are recognized in and any unused tax losses. Deferred tax assets are recog- correlation to the underlying transaction either in other nized to the extent that it is probable that taxable profit comprehensive income or directly in equity. will be available against which the deductible temporary differences and the carry forward of unused tax credits The EWE Group offsets deferred tax assets and liabilities if and unused tax losses can be utilized, except: and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred  When the deferred tax asset relating to the deducti- tax assets and deferred tax liabilities relate to income ble temporary difference arises from the initial taxes levied by the same tax authority. recognition of an asset or liability in a transaction that is not a business combination and, at the time of Tax benefits acquired as part of a business combination, the transaction, affects neither the accounting profit but not satisfying the criteria for separate recognition at nor taxable profit or loss; that date, are recognized subsequently if new information  In respect of deductible temporary differences asso- about facts and circumstances change. The adjustment is ciated with investments in subsidiaries, associates either treated as a reduction in goodwill (as long as it and interests in joint ventures, deferred tax assets are does not exceed goodwill) if it was incurred during the recognized only to the extent that it is probable that measurement period or recognized in profit or loss. the temporary differences will reverse in the foreseeable future and taxable profit will be available against Value-added tax which the temporary differences can be utilized. Revenue, expenses and assets are recognized net of VAT, except: The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no  When the VAT incurred on a purchase of assets or longer probable that sufficient taxable profit will be avail- services is not recoverable from the taxation authori- able to allow all or part of the deferred tax asset to be ty, in which case, the VAT is recognized as part of the utilized. Unrecognized deferred tax assets are re-assessed cost of acquisition of the asset or as part of the at each reporting date and are recognized to the extent expense item, as applicable. that it has become probable that future taxable profits  When receivables and payables are stated with the will allow the deferred tax asset to be recovered. amount of VAT included.

Deferred tax assets and liabilities are measured at the tax The net amount of VAT recoverable from, or payable to, rates that are expected to apply to the period when the the taxation authority is reported as an asset or a liability. asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted by the reporting date.

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Non-current assets classified as held for sale and Depreciation is calculated on a straight-line basis over the discontinued operations estimated useful lives of the assets, as follows: Non-current assets or disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs of disposal. They are not Years amortized or depreciated. Non-current assets or disposal groups are classified as held for sale if their carrying Buildings up to 50 amounts will be recovered principally through a sale Plant and machinery transaction rather than through continuing use. This is Power supply systems 8-45 only the case when the sale is highly probable and the Gas supply systems 10-55 asset or disposal group is available for immediate sale in Other plant and machinery 3-50 its current condition. Management must be committed to Gas storage 33-40 the sale and expect it to qualify as a completed sale with- Other equipment, furniture and fixtures 5-14 in a period of one year from the date of classification (see note 37). Items of property, plant and equipment are derecognized Property, plant and equipment upon disposal. Items of property, plant and equipment are carried at acquisition or production cost including existing rehabili- The residual values, useful lives and depreciation methods tation and dismantling obligations measured at present of assets are reviewed at the end of each fiscal year and value, less accumulated depreciation and / or accumulated adjusted prospectively, if necessary. impairment losses. In addition to direct costs, production cost also includes directly attributable indirect costs. Leases The determination of whether an arrangement is, or con- Any subsequent acquisition / production costs – for exam- tains, a lease is based on the substance of the arrange- ple, as a result of expansion or replacement investments – ment at the inception of the lease. A lease is a contract are not recognized as part of the cost of the respective that conveys the right to control the use of an identified asset or – if appropriate – as a separate asset unless the asset for a period of time to the user of the asset (lessee) EWE Group can reasonably expect to generate economic in exchange for consideration even if this asset is not benefits from it in the future and unless the cost of the explicitly specified in the contract. asset can be reliably determined. Expenses for repairs and maintenance are recognized as an expense in profit or loss Group as a lessee in the fiscal year they were incurred. Assets classified as Until 31 December 2018, a lease was classified at the property, plant and equipment are depreciated using the inception date as a finance lease or an operating lease. straight-line method, with the exception of land. A lease that transferred substantially all the risks and rewards incidental to ownership to the Group was classified as a finance lease.

58 EWE Financial Report 2019 Consolidated Financial Statements

Finance leases were capitalized at the commencement of IFRS 16 affords lessees options which the EWE Group has the lease at the inception date fair value of the leased exercised as follows: property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned  A lease liability and a corresponding right-of-use between finance charges and reduction of the lease liabil- asset for the leased assets are not recognized for ity so as to achieve a constant rate of interest on the short-term leases or leases of low-value assets. Lease remaining balance of the liability. Interest charges were payments under such contracts are recognized as recognized in finance costs in the income statement. A operating expenses straight line over the lease term. leased asset was depreciated over the useful life of the  Each lease component of an agreement and all relat- asset. However, if there was no reasonable certainty that ed non-lease components are recognized as a single the Group would obtain ownership by the end of the lease lease component. term, the asset was depreciated over the shorter of the  IFRS 16 will not be applied to leases of intangible estimated useful life of the asset and the lease term. assets except where already explicitly excluded from IFRS 16. An operating lease was a lease other than a finance lease. Operating lease payments were recognized as other oper- In addition, for the lease agreements entered into, we ating expenses in the income statement on a straight-line apply the practical expedient of applying a single discount basis over the lease term. rate for leases with reasonably similar characteristics.

From 1 January 2019 onwards, lessees must recognize A number of leases, especially for real estate, contain almost all lease agreements, with the exception of short- extension and termination options. Such contractual pro- term or low-value leases, in their statement of financial visions afford the Group the greatest operational flexibil- position. For leases that were previously classified as ity. To determine the contractual terms, the Group takes operating leases under IAS 17, the lease liability is recog- into account all facts and circumstances which offer an nized at the present value of the lease payment, discount- economic incentive to exercise an extension option or not ed using the lessee’s incremental borrowing rate at the to exercise a termination option. Changes in the contrac- date of transfer of use or 1 January 2019, the date of first- tual terms as a result of the exercise or waiver of such time application. options are only taken into account when determining the contractual term if they can be determined with reasona- The lease payments are divided into principal and interest ble certainty. portions using the effective interest method. The right-of- use asset is generally measured at the amount of the Group as a lessor lease liability plus initial direct costs, prepayments and By contrast, the accounting provisions for the lessor dismantling obligations less lease incentives. The right-of- remain largely unchanged, especially with regard to the use asset is recognized in property, plant and equipment, continued requirement to classify leases as either operat- measured at amortized cost and depreciated over the ing or finance leases. reasonably certain lease term of the leased asset on a straight-line basis. The rules in IAS 36 “Impairment of Lease transactions in which the Group is the lessor and Assets” on the determination and recognition of impair- substantially to the lessee all the risks and rewards of the ment of assets also apply to right-of-use assets. Straight- use of the leased asset are transferred to the lessee are line expenses for operating leases under IAS 17 will be recognized as finance leases. The present value of the replaced by amortization expenses for right-of-use assets outstanding minimum lease payments (net investment) is and interest expenses for liabilities under the lease. recognized as a receivable. Payments by the lessee are treated as repayments plus interest income. Revenue is recognized using the effective interest method over the term of the lease.

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Leases in which the Group does not transfer substantially The fair value of investment property was calculated all the risks and rewards of ownership of an asset are by independent appraisers or the specialized department classified as operating leases. EWE recognizes leased of the respective property using the German income assets at amortized cost in property, plant and equipment. approach [“Ertragswertmethode”]. In the event that a Contingent rents are recognized as income in the period in valuation report was not prepared for a property, the which they are earned. value of the property was determined pursuant to the German regulation on the determination of value of prop- Borrowing costs erties (Valuation Ordinance [“Wertermittlungsverordnung”] Borrowing costs directly attributable to the acquisition, with annexes Wert V and Wert R). construction or production of an asset are capitalized as part of the cost of the asset. All other borrowing costs are In this context, either the income approach or the asset recognized as an expense in the period in which they were value method was used, depending on the utility of the incurred. appraised property. The appraisals using the income approach were carried out primarily using the rent values Investment property attainable over the long term as well as the rental proper- Investment properties are measured initially at cost, ty yield rates typical for the area. When using the asset including transaction costs. The cost of replacing a portion value method, appropriate market adjustment premiums of an investment property is included in the carrying or discounts were taken into account, which vary accord- amount of the property at the time it is incurred, if the ing to region. When carrying out the appraisals, the recognition criteria are met. The carrying amount does appraiser referred to property market reports and infor- not contain the cost of ongoing maintenance of the prop- mation from property valuation committees. In addition, erty. Within the scope of subsequent measurement, the data from current property certificates and information investment property is accounted for at amortized cost and documents provided by the company were also incor- less accumulated depreciation and accumulated impair- porated into the appraisal. ment losses. To the extent that property values are determined based An investment property is derecognized on disposal or on appraisals from prior years, an internal adjustment of when the investment property is permanently withdrawn property values is carried out as well as a review of from use and no future economic benefits are expected whether any major changes have occurred to the parame- from its disposal. The difference between the net disposal ters used in the appraisal. proceeds and the carrying amount of the asset is recognized in profit and loss in the period the asset was derec- Intangible assets ognized. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, Transfers to, or from, investment property are only made intangible assets are carried at cost less accumulated when there is a change in use. When a property is trans- amortization and impairment losses. With the exception ferred from investment property to owner-occupied prop- of the portion eligible for capitalization, development erty, acquisition and / or manufacturing costs for the pur- costs are not capitalized and recognized in profit or loss in poses of subsequent measurement are set at amortized the period in which they were incurred. acquisition and / or manufacturing costs at the time of the change in use. If owner-occupied property becomes an The useful lives of intangible assets are assessed as either investment property, this property is accounted for in finite or indefinite. accordance with the policy stated under the section “Property, plant and equipment” up to the date of the change in use.

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Intangible assets with finite lives are amortized over their Research and development costs useful economic life and assessed for impairment when- Research costs are recognized as an expense in the period ever there is an indication that the intangible asset may incurred. Development expenditures on an individual be impaired. The amortization period and the amortiza- project are only recognized as an intangible asset when tion method for an intangible asset with a finite useful life the EWE Group can demonstrate technical feasibility, are reviewed at least at the end of each reporting period. intention to use or sell, future economic benefits, availa- The necessary changes to the method or period of depre- bility of sufficient resources and ability to reliably meas- ciation due to changes to the anticipated useful life or to ure expenditure. the anticipated use of the future economic benefit of the asset are accounted for as changes in accounting esti- Amortization of the asset begins when development is mates. complete and the asset is available for use. It is amortized over the period of expected future benefit. During the Depreciation is calculated on a straight-line basis over the period of development, the asset is tested for impairment estimated useful lives of the assets, as follows: annually.

The development costs incurred in the EWE Group do not Years currently meet the recognition criteria set forth in IAS 38 and are therefore not recognized. Concessions, licenses and rights 15-60 Computer software and licenses 3-5 Emission rights Customer list 5-17 Emission rights (CO2 certificates) are recognized as assets under current other non-financial receivables and assets. Initial measurement upon acquisition (that is, when pur- Intangible assets with indefinite useful lives are not amor- chased) is carried out at acquisition cost and subsequent tized, but are tested for impairment at least annually, measurement at amortized average acquisition cost, either individually or at the cash-generating unit level. always taking into account the net realizable value. Emis- These intangible assets are not amortized. The assess- sion rights held as of the reporting date which are intend- ment of indefinite life is reviewed annually to determine ed to be returned in the following year if they are not whether the indefinite life continues to be supportable. If utilized are recognized as a liability. This liability is meas- not, the change in useful life from indefinite to finite is ured at the amortized cost of the respective right. In the made on a prospective basis. event that actual emissions exceed emission certificates granted and held as of the reporting date, provisions are Trademarks and licenses recognized in the amount of the market value of the emis- Trademarks and licenses have finite useful lives and are sion rights the company must acquire. measured at acquisition / production cost less accumulated amortization and impairment losses. Financial instruments I. Financial assets The EWE Group’s financial assets include cash and short- term deposits, trade receivables, loans and other receivables, quoted and unquoted financial instruments and derivative financial instruments.

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Classification Debt instruments The Group classifies its financial assets in the following Subsequent measurement of debt instruments depends measurement categories: on the group’s business model for managing the asset and the cash flow characteristics of the asset. There are three  those to be measured subsequently at fair value measurement categories into which the group classifies its (either through other comprehensive income, or debt instruments (financial assets): through profit or loss), and  those to be measured subsequently at amortized  Amortized cost: Assets that are held for collection of cost. contractual cash flows where those cash flows represent solely payments of principal and interest are The classification depends on the entity’s business model measured at amortized cost. A gain or loss on a debt for managing the financial assets and the contractual investment that is subsequently measured at amor- terms of the cash flows. tized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is recog- For financial assets measured at fair value, gains and loss- nizedly or impaired. Interest income from these finan- es will either be recorded in profit or loss or other com- cial assets is included in net interest income / expense prehensive income. For financial investments in debt using the effective interest method. instruments, this will depend on the business model in  Fair value through other comprehensive income: which the investment is held. For investments in equity Financial assets that are held for collection of instruments that are not held for trading, this will depend contractual cash flows and for sale, where the on whether the group has made an irrevocable election at assets’ cash flows represent solely payments of the time of initial recognition to account for the equity principal and interest, are measured at fair value investment at fair value through other comprehensive through other comprehensive income. Changes in the income. carrying amount are recognized in other comprehensive income, except for the recognition of impairment The EWE Group reclassifies debt instruments when and gains or losses, interest income and foreign exchange only when its business model for managing those financial gains and losses, which are recognized in profit or assets changes. loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other Measurement comprehensive income is reclassified from equity to At initial recognition, the EWE Group measures a financial profit or loss. Interest income from these financial asset at its fair value plus, in the case of a financial asset assets is included in net interest income / expense not at fair value through profit or loss, transaction costs using the effective interest method. Foreign exchange that are directly attributable to the acquisition of the gains and losses are presented in other operating financial asset. Transaction costs of financial assets car- income / expenses and the impairment loss or gain ried at fair value through profit or loss are expensed in under impairment losses / gains pursuant to IFRS 9.5.5. profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

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 Fair value through profit or loss: Assets that do not For trade receivables and lease receivables, the EWE meet the criteria for measurement at amortized cost Group applies the simplified approach permitted by or at fair value through other comprehensive income IFRS 9, which allows lifetime expected credit losses to be are measured at fair value through profit or loss. A recognized from initial recognition of the receivables. gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is The EWE Group’s financial assets include cash and short- not part of a hedging relationship is recognized in term deposits, trade receivables, loans and other receiva- profit or loss and presented net in the income state- bles, quoted and unquoted financial instruments and ment in the period in which it arises. derivative financial instruments.

Equity instruments Derecognition The EWE Group subsequently measures all equity invest- A financial asset (or, where applicable, a part of a financial ments at fair value. Where the group management has asset or part of a group of similar financial assets) is de- elected to present fair value gains and losses on equity recognized when the rights to receive cash flows from the investments in other comprehensive income, there is no asset have expired. subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the II. Financial liabilities investment. To prevent earnings volatility for sharehold- Initial recognition and measurement ings which are expected to be held for a prolonged period, All financial liabilities are recognized initially at fair value. these were classified at fair value through other compre- Derivative assets and liabilities are designated at fair value hensive income. Dividends from such investments are through profit or loss and are subsequently remeasured at recognized in other profit / loss from equity investments fair value through profit or loss. All other financial liabili- when the group’s right to receive payments is established. ties are classified as other liabilities and are subsequently measured at amortized cost using the effective interest Changes in the fair value of financial assets at fair value method. through profit or loss are recognized in the income statement as applicable. Impairment losses (and income from Derecognition reversals of impairments) on equity investments meas- A financial liability is derecognized when the obligation ured at fair value through other comprehensive income underlying the liability is discharged or canceled or are not reported separately from other changes in fair expires. value. III. Offsetting of financial instruments Impairments Financial assets and financial liabilities are offset (with the The EWE Group assesses on a forward looking basis the net amount reported) if, and only if, there is a currently expected credit losses associated with its debt instru- enforceable legal right to offset the recognized amounts ments carried at amortized cost and at fair value through and there is an intention to settle on a net basis, or to other comprehensive income. The impairment methodol- realize the assets and settle the liabilities simultaneously. ogy applied depends on whether there has been a significant increase in credit risk. Note 41 details how the EWE Group determines whether there has been a significant increase in credit risk.

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IV. Fair value of financial instruments The Group documents at the inception of the hedging The fair value of financial instruments that are traded in transaction the economic relationship between hedging active markets at each reporting date is determined by instruments and hedged items including whether the reference to quoted market prices or dealer price quota- hedging instrument is expected to offset changes in the tions (bid price for long positions and ask price for short cash flows of hedged items. The Group documents its risk positions), without any deduction for transaction costs. management objective and strategy for undertaking various hedge transactions at the inception of each hedging For financial instruments not traded in an active market, relationship. the fair value is determined using appropriate valuation techniques. Such techniques may include using recent The full fair value of a hedging derivative is classified as a arm’s length market transactions between knowledgea- non-current asset or liability when the remaining maturity ble, willing independent parties; reference to the current of the hedged item is more than 12 months. It is classified fair value of another instrument that is substantially the as a current asset or liability when the remaining maturity same; discounted cash flow analysis or other valuation of the hedged item is less than 12 months. models. Cash flow hedges that qualify for hedge accounting An analysis of fair values of financial instruments and The effective portion of changes in the fair value of deriv- further details as to how they are measured are provided atives that are designated and qualify as cash flow hedges in note 39. is recognized in the cash flow hedge reserve within equity, limited to the cumulative change in fair value of the Derivative financial instruments and hedge accounting hedged item on a present value basis from the inception Derivatives are initially recognized at fair value on the of the hedge. The gain or loss relating to the ineffective date a derivative contract is entered into and are subse- portion is recognized immediately in profit or loss, within quently re-measured to their fair value at the end of each other operating income / expenses and in net interest reporting period. The accounting for subsequent changes income / expense. in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the When forward contracts are used to hedge forecast trans- item being hedged and the type of hedging relationship actions, the group generally designates the full change in designated. fair value of the forward contract (including forward points) as the hedging instrument. In such cases, the gains The EWE Group designates its currency derivatives as or losses relating to the effective portion of the change in hedges of currency risk associated with the cash flows of fair value of the entire forward contract are recognized in highly probable forecast transactions and all of its interest the cash flow hedge reserve within equity. rate swaps as hedges of interest rate risk associated with its borrowings (both are cash flow hedges). Risks due to Amounts accumulated in equity are reclassified in the price changes in commodities are hedged using financial periods when the hedged item affects profit or loss, as and physical forward exchange contracts. follows:

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 The gain or loss relating to the effective portion of In addition to the contractually agreed and paid costs, the the forward contracts is accounted for as follows: Company took into account the fair values of recognized Where the hedged item subsequently results in the purchases which were not included in hedge accounting recognition of a non-financial asset (such as invento- but rather made in connection with physical inventory ry), both the deferred hedging gains and losses and procurement. the deferred aligned forward element are included within the initial cost of the asset. The deferred Trade discounts and rebates are deducted. amounts are ultimately recognized in profit or loss when the hedged item affects profit or loss (e.g., Inventories are stated at the lower of cost of acquisition through cost of materials). or manufacture and net realizable value. Net realizable  The gain or loss relating to the effective portion of value is the estimated selling price in the ordinary course the interest rate swaps used to hedge interest- of business, less the estimated cost of completion and the bearing borrowings is recognized in profit or loss estimated costs necessary to make the sale. When deter- within net interest income / expense. mining the estimated selling price, the contractual prices of sales transactions that are already recognized as pend- When a hedging instrument expires, or is sold or termi- ing transactions are not taken into account. nated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss Any reversals are recognized in profit or loss up to the and deferred costs of hedging in equity at that time re- amount of historical cost. mains in equity until the forecast transaction occurs. If the forecast transaction results in a non-financial asset, the Impairments of non-financial assets recycled amounts of the reserve will be transferred to the The EWE Group assesses, at each reporting date, whether carrying amount of the non-financial asset. When the there is an indication that a non-financial asset may be forecast transaction is no longer expected to occur, the impaired. If any indication exists, or when annual impair- cumulative gain or loss that was reported in equity is ment testing for an asset is required (goodwill, intangible immediately reclassified to profit or loss. assets with an indefinite useful life or where the development stage has not yet been completed), the EWE Group Hedge ineffectiveness is recognized in profit or loss within estimates the asset’s recoverable amount. An asset’s other operating income / expenses and in net interest recoverable amount is the higher of an asset’s or cash- income / expense. generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is deter- Inventories mined for an individual asset unless the asset does not Inventories are initially measured at cost. The cost of generate cash inflows that are largely independent of inventories includes all costs associated with purchase, those from other assets or groups of assets. When the conversion or processing as well as other costs incurred in carrying amount of an asset or CGU exceeds its recovera- bringing the inventories to their present location and ble amount, the asset is considered impaired and is writ- condition. This also includes incidental acquisition costs ten down to its recoverable amount. In assessing value in and other costs directly attributable to the purchase of use, the estimated future cash flows are discounted to inventories. Directly attributable costs can comprise both their present value using a pre-tax discount rate that direct and indirect costs. reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such transactions can be identified, a suitable valuation tech- nique is applied. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

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Impairment losses of continuing operations, including Provisions impairment on inventories, are recognized in profit or Basic principles loss. A provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past For assets excluding goodwill, an assessment is made at event, the outflow of resources with economic benefit to each reporting date to determine whether there is an fulfill the obligation is probable and the amount can be indication that previously recognized impairment losses estimated reliably. When the Group expects some or all no longer exist or have decreased. If such indication of a provision to be reimbursed, for example, under an exists, the EWE Group estimates the asset’s or CGU’s insurance contract, the reimbursement is recognized as a recoverable amount. A previously recognized impairment separate asset, but only when the reimbursement is virtu- loss is reversed only if there has been a change in the ally certain. The expense relating to a provision is pre- assumptions used to determine the asset’s recoverable sented in the income statement net of any reimburse- amount since the last impairment loss was recognized. ment. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed Provisions are measured at the present value of the the carrying amount that would have been determined, expected expense using a pre-tax rate that reflects the net of depreciation, had no impairment loss been recog- current market assessments of the time value of money nized for the asset in prior years. Such reversal is recog- and the risks specific to the liability. Increases in the pro- nized in profit or loss. visions exclusively arising from the unwinding of the discount are recognized as interest expenses in profit or loss. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at Provisions are classified according to their maturity. Provi- banks and short-term deposits with a maturity of three sions or portions of provisions whose obligations are months or less. To calculate the value of cash and cash expected to reach maturity within twelve months after equivalents in the statement of cash flows, cash pool the reporting date are presented as current provisions. receivables are also included. Provisions that will reach maturity after twelve months are classified as non-current. Treasury shares Own equity instruments which are reacquired (treasury Provisions for potential losses shares) are recognized at cost and deducted from equity. Provisions for potential losses are recognized – when the No gain or loss is recognized in profit or loss on the pur- general requirements for the recognition of provisions are chase, sale, issue or cancellation of the Group’s treasury fulfilled – for onerous contracts in the amount that the shares. Any difference between the carrying amount and unavoidable costs under the contract exceed the expected the consideration, if reissued, is recognized in the share economic benefit from the contract. premium.

66 EWE Financial Report 2019 Consolidated Financial Statements

Provisions for rehabilitation and dismantling As part of the process of introducing a defined contribution Provisions are recognized for rehabilitation obligations unit-based benefit plan, the association EWE-Treuhand- relating to gas caverns, power plants and wind turbines in verein e. V., Oldenburg, was founded in 2009 and as part the amount of the present value of the obligation. These of the process of introducing the supplementary pension are recognized as assets and amortized and / or the dis- tariff agreement III, the association swb Treuhandverein count on the provisions is unwound. The expense arising e. V., Bremen, in 2016 was established. Any assets trans- from the unwinding of the discount on the rehabilitation ferred to EWE-Treuhandverein e. V. or swb Treuhandverein provision is recognized as interest expense in profit or e. V. for the purpose of financing company pension plans loss. Changes in estimates or adjustments of the discount represent offsettable plan assets as defined by IAS 19.8. rate change the underlying carrying amount. Reversals of rehabilitation provisions in excess of a plant’s carrying In addition to direct benefits, small groups of employees amount are recognized as other operating income. are also compulsorily insured through the VBL [“Ver- sorgungsanstalt des Bundes und der Länder”: Pension Provisions for emission certificates Institution of the Federal Republic and the Länder], Karls- If it becomes apparent over the course of the year that ruhe. In order to finance these benefits, the Company the emission rights held are not sufficient – that is, actual must pay annual allocations and top-up contributions to emissions already exceed the Group’s emission rights – a VBL. These pension commitments must be treated as a provision is recognized for the emission certificates that multi-employer defined benefit plan as defined in IAS 19. need to be purchased to close the gap. However, provi- In accordance with IAS 19.34, this pension plan is ac- sions for future emissions are prohibited, even if planning counted for as a defined contribution plan as sufficient indicates that there is a high probability that emissions information to use defined benefit accounting is not avail- will exceed the number of emission certificates granted. able for the plan. If there is a plan deficit, the participating employers are required to compensate for this deficit. Pensions and other employee benefits In this context, the amount of the additional contribution Pensions and similar obligations obligation is calculated by VBL and allocated precisely Provisions for pensions and similar obligations are recog- according to cause across all members as a prorated con- nized for immediate pension obligations to employees tribution in the form of the currently open-ended top-up (including former employees) with vested benefits and contributions. Upon exiting the VBL system, the Company entitlements to benefits under company pension schemes. may be obligated to make a compensation payment in Collective labor agreements, labor-management agree- order to offset a potential future plan deficit allocated to ments and individual commitments form the legal basis its portion of the plan. The portion of VBL’s total insur- of these obligations within the EWE Group. They are ance plan allocated to EWE AG is marginal compared to accounted for pursuant to IAS 19 using the projected unit the obligations of other participating companies. The credit method. In this context, the future obligations are Company does not plan to leave the VBL system. measured using actuarial principles and use of the relevant inputs (including but not limited to interest rate, Other long-term employee benefits expected mortality as well as salary and pension trends). Other long-term employee benefits primarily encompass Under this method, the expense arising from the increase obligations from long-service awards. Employees receive a in vested benefits is allocated to the respective period of one-time award on the 25th and 40th anniversaries of their service in which the benefits are earned. In this context, hiring that is predominantly based on their respective the additional benefits are considered as the portion of salary. Similar long-term obligations include phased the entire scheduled future benefit that is attributable to retirement agreements. At the EWE Group, these agree- the respective fiscal year while taking vesting provisions ments are generally entered into using the “block model.” into account. The resulting obligations are calculated using actuarial principles based on the prepaid expense method. Where these obligations (settlement amount) are matched by plan assets they are offset against the fair value of the respective plan assets.

EWE Financial Report 2019 Consolidated Financial Statements 67

Termination benefits Changes in accounting policies Termination benefits are paid when an employee is terminated by a group company before his or her regular Accounting policies are largely unchanged in comparison retirement date or leaves the Company voluntarily in with the previous year, except for the following standards return for a severance payment. The EWE Group recog- and interpretations which became effective for the first nizes severance payments if the Group is demonstrably time but had no or no material impact on the consolidat- committed to terminate employment contracts with cur- ed financial statements (other than IFRS 16 and IFRIC 23): rent employees based on a detailed, formal plan that cannot be withdrawn, or if the Group is demonstrably  Amendments to IAS 19 “Plan Amendment, Curtail- committed to provide a severance package upon volun- ment or Settlement” tary termination of employment by employees.  Amendment to IAS 28 “Long-term Interests in Associ- ates and Joint Ventures” This particularly includes individual contracts entered into  Amendment to IFRS 9 “Prepayment Features with with employees governing phased retirement. These Negative Compensation” employees have been released from their job duties yet  Improvements to IFRS (2015 to 2017) generally continue to receive a reduced salary until they reach the earliest retirement age set forth by the provi- Initial application of IFRS 16 “Leases” sions of statutory pension insurance for employees in an IFRS 16 replaces the existing regulations governing leases, ongoing employment relationship. Benefits that are due including IAS 17 “Leases,” IFRIC 4 “Determining whether later than twelve months after the reporting date are an Arrangement contains a Lease,” SIC-15 “Operating discounted to their present value. Leases – Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease.” The Construction subsidies EWE Group has chosen to apply the modified retrospec- Construction subsidies include investment subsidies and tive approach. Under this method, the leases that are not construction cost subsidies. completed as of 1 January 2019 are recognized in the statement of financial position as of 1 January 2019. The The EWE Group receives construction cost subsidies for comparative figures of previous periods are not restated. power, gas and water connections for standard and spe- Furthermore, the following simplifications available to cial contract customers. Construction cost subsidies are lessees in connection with the modified retrospective recognized as a contract liability and released over the approach are applied: useful life of the subsidized assets. They are released to revenue since the receipt of construction cost subsidies is  No reassessment of existing agreements to determine closely linked to the Company’s power and gas business whether leases exist. At the transition date, a lease li- and therefore relates to the EWE Group’s ordinary busi- ability and a right-of-use asset are recognized for ness activities. agreements classified as operating leases in accordance with IAS 17. Investment subsidies are recognized as a liability and  Recognition of leases with a remaining term of less released over the useful life of the subsidized assets to than 12 months as of the transition date as well as profit or loss. short-term leases.  Measurement the right-of-use asset at the amount of the lease liability, adjusted for previously recognized deferred or accrued lease payments.

68 EWE Financial Report 2019 Consolidated Financial Statements

 Initial direct costs are not included in the measure- 3. Significant accounting judgments, ment of the right-of-use asset. estimates and assumptions  Taking into account of the current information, for example, to determine the term of leases containing The preparation of the EWE Group’s consolidated finan- an extension or purchase option. cial statements requires management to make judgments, estimates and assumptions that affect the reported The new provisions primarily apply to motor vehicles, land amounts of revenues, expenses, assets and liabilities and and buildings and grid infrastructure. the disclosure of contingent liabilities as of the reporting date. Uncertainty about these assumptions and estimates The impact of the new requirements as of the transition could result in outcomes that require a material adjust- date / date of first-time application on 1 January 2019 is ment to the carrying amount of assets or liabilities affect- explained in note 19. ed in future periods.

First-time application of IFRIC 23 “Uncertainty over Income The key assumptions concerning the future and other key Tax Treatments” sources of estimation uncertainty at the reporting date, IFRIC Interpretation 23 sets out provisions on how to that could have a risk of causing an adjustment to the consider income tax matters which are yet to be conclu- carrying amounts of assets and liabilities within the next sively assessed by the tax authorities. Uncertainty regard- fiscal year, are described below. The Group bases its ing tax treatments by EWE group companies which are assumptions and estimates on parameters available when unlikely to be accepted by the tax authorities is to be the consolidated financial statements were prepared. reflected by recognizing either the most likely amount or Existing circumstances and assumptions about future the expected amount. developments, however, may change due to market changes or circumstances arising that are beyond the Total transition effects of 9.8 million euros were recog- control of the Group. Such changes are first reflected in nized in equity. The comparative figures of previous peri- the Group’s assumptions after they occur. ods are not restated. Goodwill Goodwill is tested for impairment at least once annually or whenever appropriate indicators from internal or external sources of information indicate that goodwill may be impaired. This impairment test is based on forward- looking assumptions which require estimates related to future cash flows of the cash-generating units that contain goodwill. These estimates may affect the determination of the cash flows and lead to the recognition of impairment losses on goodwill. The key assumptions used to determine the recoverable amount for the cash-generating units are presented in the notes to intangible assets.

EWE Financial Report 2019 Consolidated Financial Statements 69

Intangible assets and property, plant and equipment Fair value measurement of financial instruments The calculation of these assets’ expected useful lives and When the fair values of financial assets and financial lia- impairments is based on management assessments. Tech- bilities recorded in the statement of financial position nological progress, a deterioration of the market situation cannot be measured on the basis of quoted prices in or damage may result in impairment. active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) Leases model. The inputs for these models are taken from The lease liabilities are discounted using the incremental observable markets where possible, but where this is not borrowing rate as of contract inception. The incremental feasible, a degree of judgment is required in establishing borrowing rate was derived from reference rates for a fair values. Judgments include considerations of inputs period of up to 30 years from risk-free interest rates for such as liquidity risk, credit risk and volatility. Changes in the relevant maturity, plus a credit risk premium and a assumptions relating to these factors could affect the liquidity and country risk premium. reported fair value of financial instruments.

The term of leases are determined at the time of incep- Contingent consideration, resulting from business combi- tion on the basis of the non-cancelable period and the nations, is valued at fair value as of the acquisition date as periods covered by an option to extend the lease if the part of the business combination. If the contingent con- lessee is reasonably certain to exercise that option and sideration meets the definition of a financial liability, it is periods covered by an option to terminate the lease if the subsequently remeasured to fair value as of each report- lessee is reasonably certain not to exercise that option. All ing date. The determination of the fair value is based on relevant facts and circumstances that create an economic discounted cash flows. The key assumptions taken into incentive for EWE as a lessee to exercise, or not to exer- consideration are the probability of meeting performance cise, the option are taken into account. targets and the discount factor.

Impairment of non-financial assets Revenue recognition Impairment exists when the carrying value of an asset or To determine the transaction price under multiple- cash-generating unit exceeds its recoverable amount. The element arrangements, the full transaction price is allo- fair value less costs of disposal calculation is based on cated to the individual performance obligations on the available data from binding sales transactions, conducted basis of the relative stand-alone selling prices. The exist- at arm’s length, for similar assets or observable market ence and amount of variable consideration (discounts and prices less incremental costs of disposing of the asset. The bonuses) that are deducted from the transaction price recoverable amount is sensitive to the discount rate used and are mainly based on the contractual terms and past for the DCF model as well as the expected future cash experience have special significance. In addition, judg- inflows and the growth rate used for extrapolation pur- ment is exercised regarding the timing of revenue, espe- poses. These estimates are most relevant to goodwill and cially appropriate progress measurement. For provision other intangibles with indefinite useful lives recognized by services, revenue is recognized on a straight-line basis, the Group. because the customer generally uses the service on a regular basis.

The Company recognizes additional contract renewal costs (e.g., commission payments to sales agents), paid upon successful conclusion, as assets. The amortization period is based on the average customer retention period.

70 EWE Financial Report 2019 Consolidated Financial Statements

Provisions for pensions and similar obligations 4. Standards which have been issued but are The measurement of pension obligations is based on not yet effective and have also not been actuarial assumptions with regard to demographic (ex- voluntarily adopted early pected mortality, employee turnover) and financial parameters (interest rate, future salary and pension increas- The EWE Group reasonably expects the following stand- es). In this context, the interest rate is derived taking ards and interpretations issued but not yet effective to into account the specific structure of the cash flows of the have no or only an immaterial impact on its disclosures vested obligations. The calculations are based on the and / or assets, liabilities, financial position and financial pension obligations as of the reporting date and the yield performance when applied at a future date: curves of German federal bonds, the DJ Euro-Stoxx 50 index and the iBoxx index for the market yield of high-  Amendments to IAS 1 and IAS 8 “Definition of Mate- quality corporate bonds at their current value on rial” 31 December 2019. Pursuant to IAS 19.83, the discount  Amendments to IAS 1 “Presentation of Financial rate used is determined by reference to market yields at Statements” – Classification of Liabilities as Current the end of the reporting period on high-quality corporate or Non-Current bonds (with an AA rating or better) whose currencies and  Amendments to IFRS 3 “Business Combinations” maturities match those of the Company’s obligations. In  IFRS 17 “Insurance Contracts” the event that a sufficient market is not available for the  Amendments to references to the IFRS Conceptual maturities required, the yield is interpolated or extrapo- Framework lated for these maturities based on the available yield  Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest structure as set forth in IAS 19.86. Rate Benchmark Reform”

Rehabilitation and dismantling obligations The provisions for the rehabilitation of gas caverns are based on external reports and / or information from the works managers. With regard to caverns and wind farms, the cost of rehabilitation and dismantling upon decommissioning the facilities is estimated. This amount is discounted to the reporting date using the interest rate specific to the obligation. The rehabilitation provision is remeasured as of each reporting date and adjusted to a different, new, best-possible estimate, if applicable. Changes with regard to the expected timing and amount of payments required to fulfill the obligation as well as changes in the discount rate lead to adjustments to the rehabilitation provisions which do not affect profit or loss.

Income taxes The calculation of current and deferred taxes is subject to assumptions. The use of deferred tax assets is dependent on the ability to earn sufficient taxable income.

EWE Financial Report 2019 Consolidated Financial Statements 71

Notes to the income statement

5. Revenue

The EWE Group recognized the following revenue amounts in the income statement:

1 Jan - 31 Dec 1 Jan - 31 Dec in millions of euros 2019 2018

Revenue from contracts with customers 5,582.7 5,599.2 Revenue from leases 21.4 5.5 Revenue from other sources 55.2 12.4 Total 5,659.3 5,617.1

Revenue breaks down by products and services as follows:

Renewables, Sales, Group 2019 Grids and Services and Central in millions of euros Gas Storage Trading International swb Division Group

Power Energy 142.2 1,768.7 22.0 389.8 2,322.7 Grid utilization 299.0 110.2 409.2 Miscellaneous 36.5 9.5 98.1 144.1 Gas Energy 45.8 1,016.4 43.2 185.2 1,290.6 Grid utilization 132.9 30.5 163.4 Miscellaneous 96.5 18.2 0.3 23.0 138.0 IT 100.0 100.0 Telecommunications Private customers 254.6 254.6 Business customers 146.6 146.6 Carrier & wholesale 34.9 34.9 Miscellaneous 26.9 26.9 Other Heat 0.1 71.6 0.1 72.2 144.0 Water 25.1 5.5 84.7 115.3 Waste 0.4 63.1 63.5 Miscellaneous 61.4 194.6 0.1 47.0 2.4 305.5 External revenue 839.9 3,647.5 65.7 1,103.8 2.4 5,659.3

72 EWE Financial Report 2019 Consolidated Financial Statements

Renewables, Sales, Group 2018 Grids and Services and Central in millions of euros Gas Storage Trading International swb Division Group

Power Energy 121.7 1,871.5 10.2 343.1 2,346.5 Grid utilization 305.4 88.8 394.2 Miscellaneous 47.8 8.3 112.1 168.2 Gas Energy 9.8 1,082.4 38.7 173.0 1,303.9 Grid utilization 145.1 0.3 23.2 168.6 Miscellaneous 86.7 15.7 18.5 120.9 IT 77.8 77.8 Telecommunications Private customers 242.1 242.1 Business customers 152.9 152.9 Carrier & wholesale 29.9 29.9 Miscellaneous 26.1 26.1 Other Heat 67.1 0.2 70.4 137.7 Water 24.4 5.9 85.9 116.2 Waste 58.5 58.5 Miscellaneous 65.8 177.7 0.1 27.9 2.1 273.6 External revenue 806.7 3,757.4 49.5 1,001.4 2.1 5,617.1

Revenue from electricity, gas and telecommunications In connection with the model for compensation for elec- primarily relates to revenue recognized over time, since tricity fed into the grid as well as direct sales of EEG the customer consumes the service as the performance power, the EWE Group’s distribution grid operators act occurs. Revenue is generally recognized on a straight-line as agents. Under this arrangement, the income from basis, with variable consideration being allocated to spe- recharging the EEG compensation and the market premi- cific performance obligations. Discounts or bonus pay- um to the transmission system operator is to be offset ments are considered to be variable consideration which against the expenditure resulting from the payment of the reduce revenue accordingly. For multiple-element ar- EEG compensation or market premium. Furthermore, the rangements which include the delivery of hardware upon allocation of the CHP surcharge to the distribution grid conclusion of the contract, revenue is recognized as of the operator (due to its agency role) must also be offset date of transfer of the hardware (at a point in time) and against the expense relating to the payment of the CHP measured at the relative stand-alone selling price. Reve- surcharge. nue from service components is recognized over time. In the area of IT, revenue is recognized over time except for release changes, which are recognized at a point in time.

EWE Financial Report 2019 Consolidated Financial Statements 73

Costs to obtain contracts with customers The EWE Group realized revenue of 54.2 million euros In connection with revenue from contracts with custom- (previous year: 61.8 million euros) in the reporting period ers, the Company recognized costs of customer acquisi- that was part of a contract liability as at the beginning of tion of 23.4 million euros as of 31 December 2019 (previ- the period. Furthermore, in the current period it recog- ous year: 23.8 million euros) in the statement of financial nized revenue from performance obligations of 0.6 million position under other non-financial assets. Impairments of euros (previous year: 2.0 million euros) which had been 21.0 million euros were recognized on the costs of cus- satisfied (or partially satisfied) in prior periods. tomer acquisition recognized (previous year: 20.4 million euros). No impairment losses were recognized. Performance obligations The performance obligations not satisfied as at the end of Contract assets and contract liabilities the reporting period break down as follows: In addition, the EWE Group recognized contract assets and contract liabilities pursuant to IFRS 15. in millions of euros 31 Dec 2019 31 Dec 2018 in millions of euros 31 Dec 2019 31 Dec 2018 Expected recognition date Less than 1 year 400.2 3.2 Non-current contract assets 2.7 0.2 Between 1 and 5 years 527.9 441.5 Current contract assets 15.7 19.1 More than 5 years 537.2 553.4 Total 18.4 19.3 Total 1,465.3 998.1

Contract assets are recognized under other non-financial assets. As of 31 December 2019, telecommunications 6. Other own work capitalized agreements of 14.8 million euros (previous year: 13.4 million euros) were recognized. Other own work capitalized mainly includes construction and expansion measures within telecommunications and supply networks. In the previous year, other own work in millions of euros 31 Dec 2019 31 Dec 2018 capitalized included construction and expansion measures within supply networks and the expansion of wind farms. Non-current contract liabilities 640.5 619.4 thereof construction subsidies 640.5 619.4 Current contract liabilities 54.0 51.8 7. Other operating income thereof construction subsidies 48.2 47.3 Total 694.5 671.2 in millions of euros 2019 2018

Contract liabilities include subsequent customer bonus Administrative income 32.9 41.3 payments of 5.0 million euros (previous year: 3.3 million Operating leases 26.6 26.7 euros) and construction subsidies of 688.7 million euros Reversal of provisions 19.1 40.8 (previous year: 666.7 million euros). Construction subsi- Reimbursement claims 13.6 13.9 dies include prepayments that were recognized as a liabil- Disposals of property, plant and ity and released to income over the useful life of the sub- equipment 4.6 11.7 sidized assets. Foreign currency gains 0.5 0.1 Miscellaneous 42.0 39.0 Total 139.3 173.5

74 EWE Financial Report 2019 Consolidated Financial Statements

8. Cost of materials 11. Other operating expenses

in millions of euros 2019 2018 in millions of euros 2019 2018

Cost of raw materials, consumables Concession levies 121.0 121.7 and supplies and of purchased Advertising and sponsoring 41.7 43.4 merchandise 2,718.8 2,755.4 Administrative 41.0 40.2 Cost of purchased services 1,143.7 1,124.5 Professional fees and consulting 39.8 44.1 Total 3,862.5 3,879.9 Other personnel-related expenses 29.2 31.0 IT 24.7 23.8 Commissions 24.5 25.2 Allocation to other provisions 14.8 13.4 9. Personnel expenses Other taxes 9.9 12.3 Insurance premiums 7.8 9.4 Disposal of intangible assets and in millions of euros 2019 2018 property, plant and equipment 6.6 11.2 Leases (prior year: rents and leases) 3.9 31.7 Wages and salaries 613.4 578.1 Endowment contributions and Social security, pension and other donations 0.8 0.9 benefit costs 139.9 138.8 Miscellaneous 67.1 72.0 Total 753.3 716.9 Total 432.8 480.3

The decrease in other operating expenses is largely due to The average number of employees during the fiscal year the first-time adoption of IFRS 16. totaled:

12. Impairment losses / gains pursuant to 2019 2018 IFRS 9.5.5

Full-time employees 7,304 7,116 Part-time employees 1,308 1,193 in millions of euros 2019 2018 Trainees and temporary staff 219 199 Total 8,831 8,508 Income from written-off receivables 3.0 2.8 Income from the reversal of impairment losses 2.1 2.7 Income from the reversal of credit risk 10. Amortization, depreciation and provision 0.2 0.3 impairment Expense from the reversal of credit risk provision -0.3 -2.3 In the reporting period, amortization, depreciation and Expense from the allocation to bad impairment contained impairments of 68.1 million euros debt allowances -9.3 -4.4 (previous year: 6.6 million euros). Expense from bad debt allowances -9.7 -13.1 Total -14.0 -14.0 The allocation to segments is indicated in the segment report.

EWE Financial Report 2019 Consolidated Financial Statements 75

13. Profit / loss from investments accounted 14. Other profit / loss from equity investments for using the equity method

in millions of euros 2019 2018 in millions of euros 2019 2018 Income from the fair value Current profit / loss from investments measurement of debt instruments 38.0 3.4 accounted for using the equity method -7.2 -10.9 Income from equity investments 12.6 15.1 Reversal of impairment losses of Income from the transfer of profits 0.3 0.1 investments accounted for using the Expenses from the fair value equity method 16.8 measurement of debt instruments -0.4 -0.3 Impairments of investments accounted Expenses from loss absorption -0.6 -1.3 for using the equity method -5.1 -1.2 Total 49.9 17.0 Total -12.3 4.7

Profit / loss from investments accounted for using the equity method is composed of the following:

in millions of euros 2019 2018

Hansewasser Ver- und Entsorgungs- GmbH 5.0 5.0 htp GmbH 1.2 1.2 Windenergiepark Hohegaste GmbH & Co. KG 0.6 0.4 Gemeinschaftskraftwerk Bremen GmbH & Co. KG -0.4 1.0 GWAdriga GmbH & Co. KG -1.5 -1.8 Trianel Windkraftwerk Borkum II GmbH & Co. KG -2.5 -3.7 DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG -9.7 -13.1 Other entities accounted for using the equity method 0.1 0.1 Total -7.2 -10.9

In the previous year, the reversals of impairments recognized on investments accounted for using the equity method were exclusively attributable to DOTI Deutsche Offshore Testfeld- und Infrastruktur GmbH & Co. KG, Oldenburg.

Impairment of investments accounted for using the equity method mainly relates to DOTI Deutsche Offshore- Testfeld- und Infrastruktur-GmbH & Co. KG, Oldenburg (previous year: in full to Windenergiepark Hohegaste GmbH & Co. KG, Leer).

76 EWE Financial Report 2019 Consolidated Financial Statements

The fair values of and dividends received for equity instruments measured at fair value through other comprehensive income are as follows:

Dividend Dividend on existing on existing equity equity Fair value Fair value investments investments in millions of euros 2019 2018 2019 2018

Harzwasserwerke GmbH 38.1 30.3 1.0 0.9 SOCON Sonar Control Kavernenvermessung GmbH 35.9 12.4 1.2 0.8 ENRO Ludwigsfelde Energie GmbH 24.0 15.7 0.4 0.8 Verkehr und Wasser GmbH 20.0 12.6 0.1 0.1 Städtische Betriebswerke Luckenwalde GmbH 17.7 12.0 0.3 0.4 BTC (Schweiz) AG 17.6 13.5 1.5 0.8 TELTA Citynetz GmbH 16.4 11.0 Stadtwerke Frankfurt (Oder) GmbH 13.8 0.6 Stadtwerke Strausberg GmbH 13.2 7.6 0.6 0.7 Stadtwerke Schwedt GmbH 11.9 7.5 0.4 0.3 Stadtwerke Ludwigsfelde GmbH 11.6 6.9 0.4 0.5 TEWE Energieversorgungsgesellschaft mbH Erkner 10.6 7.2 0.3 0.3 Energieversorgung Brand GmbH 8.0 4.8 0.4 0.4 Wärmeversorgungsgesellschaft Königs Wusterhausen mbH 7.7 5.2 0.2 0.2 FSO Fernwirk-Sicherheitssysteme Oldenburg GmbH 7.5 5.0 0.3 0.3 European Energy Exchange AG 5.1 5.1 0.1 0.1 Gasversorgung Angermünde GmbH 5.0 2.9 0.1 0.1 sovanta AG 4.2 4.0 0.1 0.1 Zenhomes GmbH 2.8 GSN Gebäudesicherheit Nord GmbH 2.6 2.6 0.1 0.1 swb Erzeugung Beteiligungs-GmbH 1.5 1.5 0.1 0.1 Comgy GmbH 1.2 OWT Offshore Wind Technologie GmbH 1.2 BTC Bilişim Hizmetleri A.Ş. 1.0 1.0 BTC Embedded Systems AG 11.6 1.1 Digitalprojekt 1 GmbH 7.9 Eigensonne GmbH 7.3 Digitalprojekt 2 GmbH in liq. 4.7 sw Beleuchtungs- und Betriebsführungs GmbH 1.7 BTC Business Technology Consulting Sp. z o.o. 0.3 0.4 Other entities 5.3 6.2 0.2 0.6 Total 283.9 208.5 8.4 9.1

EWE Financial Report 2019 Consolidated Financial Statements 77

15. Net interest income / expense The EWE Group’s weighted average tax rate for 2019 was 30.0 per cent (previous year: 30.0 per cent). in millions of euros 2019 2018 The taxes on the EWE Group’s earnings before taxes devi- ates from the notional tax expense which would result Interest and similar income from application of the weighted average group tax rate to Financial assets at amortized cost 6.4 7.9 the Group’s earnings before taxes as follows: Leases 2.0 Other interest income 3.1 13.9 Interest and similar expenses in millions of euros 2019 2018 Financial liabilities at amortized cost -81.9 -84.5 Leases -2.8 Earnings before income taxes 193.2 221.3 Other interest income -2.9 -20.2 thereof continuing operations 214.8 245.4 Interest components of allocations to thereof discontinued operations -21.6 -24.1 Pension provisions -31.9 -30.6 Provisions for rehabilitation -4.6 -3.6 Notional tax expense 64.4 66.4 Other provisions -0.9 -0.8 Deviation as a result of the assessment Expenses from interest rate derivatives -5.0 0.0 base for local trade tax -3.4 -1.6 Total -118.5 -117.9 Permanent deviations 4.9 9.2 Use of loss carryforwards 5.7 2.5 Non-deductible expenses 1.0 4.7 The net interest income / expense includes interest Tax-exempt income -3.4 -20.8 expenses from lease liabilities which were recognized Associates accounted for using the for the first time in fiscal year 2019 when IFRS 16 was equity method 2.1 3.2 adopted for the first time. Non-periodic taxes -7.2 -25.9 Effects of first-time adoption of IFRIC 23 (previous year IFRS 15) 14.4 16. Income taxes Miscellaneous 1.6 1.9 Effective tax expense 65.7 54.0 thereof continuing operations 61.6 56.5

thereof discontinued operations 4.1 -2.5 in millions of euros 2019 2018 Effective tax rate (continuing

operations) in % 28.7 23.0 Tax expense for the current period 104.1 76.1

Tax expense / (income) from prior periods 1.2 -1.6 Current income tax 105.3 74.5

Temporary differences -43.6 -11.9 Loss carryforwards -0.1 -6.1 Deferred taxes -43.7 -18.0

Total (continuing operations) 61.6 56.5

78 EWE Financial Report 2019 Consolidated Financial Statements

Notes to the statement of financial position

17. Intangible assets

in millions of euros 31 Dec 2019 31 Dec 2018

Concessions, industrial property rights, licenses and similar rights 319.8 344.9 Prepayments 15.5 9.9 Goodwill 308.7 300.7 Intangible assets with indefinite useful lives 95.9 95.9 Total 739.9 751.4

Intangible assets developed as follows:

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

Acquisition / production cost As of 1 January 2019 790.3 9.9 546.1 95.9 1,442.2 Changes in the basis of consolidation / acquisitions 6.4 8.0 14.4 Additions / disposals due to mergers and carve-outs 1.0 1.0 Additions 21.5 10.4 31.9 Reclassifications 4.5 -3.5 -1.0 Disposals -31.1 -1.3 -1.4 -33.8 As of 31 December 2019 792.6 15.5 551.7 95.9 1,455.7

Accumulated amortization and impairment As of 1 January 2019 445.4 245.4 0.0 690.8 Changes in the basis of consolidation / acquisitions 2.4 2.4 Amortization 52.0 52.0 Impairments 1.8 1.3 3.1 Reclassifications 0.0 -1.0 -1.0 Disposals -28.8 -1.3 -1.4 -31.5 As of 31 December 2019 472.8 243.0 0.0 715.8

Carrying amounts As of 31 December 2019 319.8 15.5 308.7 95.9 739.9

EWE Financial Report 2019 Consolidated Financial Statements 79

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

Acquisition / production cost As of 1 January 2018 922.7 14.6 700.0 95.9 1,733.2 Changes in the basis of consolidation / acquisitions 1.1 2.6 3.7 Additions 26.3 9.5 35.8 Reclassifications 11.2 -10.4 0.8 Reclassification to assets held for sale -119.9 -117.5 -237.4 Currency adjustments -39.7 -39.0 -78.7 Disposals -11.4 -3.8 -15.2 As of 31 December 2018 790.3 9.9 546.1 95.9 1,442.2

Accumulated amortization and impairment As of 1 January 2018 502.8 388.2 0.0 891.0 Changes in the basis of consolidation / acquisitions 0.1 0.1 Amortization 56.5 56.5 Impairments 0.4 2.4 2.8 Reclassifications 0.1 0.1 Reclassification to assets held for sale -78.7 -107.1 -185.8 Currency adjustments -25.2 -35.7 -60.9 Disposals -10.6 -2.4 -13.0 As of 31 December 2018 445.4 245.4 0.0 690.8

Carrying amounts As of 31 December 2018 344.9 9.9 300.7 95.9 751.4

“Reclassification to assets held for sale” include the assets Impairments of intangible assets were recognized in profit of the discontinued operations in Turkey. Amortization of or loss under amortization, depreciation and impairment. 0.0 million euros (previous year: 4.1 million euros) relates to the discontinued operations in Turkey and is contained There were no restrictions on EWE’s property rights to in the profit / loss from discontinued operations. intangible assets; nor were any intangible assets furnished as collateral for liabilities. Development costs were not capitalized as they were not eligible for capitalization. These costs were – similar to research costs – recognized as an expense. In 2019, a total of 2.6 million euros was spent on research and development (previous year: 4.9 million euros).

80 EWE Financial Report 2019 Consolidated Financial Statements

Goodwill and intangible assets with indefinite useful lives For impairment testing, goodwill acquired in business combinations and brands were allocated to the following cash-generating units (CGUs):

2019 in millions of euros WACC in % Goodwill Brand Total

CGU Waste Disposal 3.16 57.8 57.8 wesernetze 2.11 159.9 159.9 swb Vertrieb 3.19 28.6 95.9 124.5 Telecommunications 3.36 42.8 42.8 TurboWind 3.04 8.9 8.9 BTC 5.38 10.7 10.7 Total 308.7 95.9 404.6

2018 in millions of euros WACC in % Goodwill Brand Total

CGU Waste Disposal 4.26 57.8 57.8 wesernetze 2.54 159.9 159.9 swb Vertrieb 4.24 28.6 95.9 124.5 Telecommunications 4.52 42.8 42.8 TurboWind 4.16 8.9 8.9 Miscellaneous 2.7 2.7 Total 300.7 95.9 396.6

The EWE Group performs its annual impairment test as of The CGUs’ fair value less costs of disposal is calculated 30 September of each year. An impairment test is also based on current planning and assumptions. As a general carried out when circumstances indicate that the value of principle, a planning horizon of three years with a sub- an asset may be impaired. The CGUs’ recoverable amount sequent terminal growth rate was used. For projects with is calculated on the basis of fair value less costs of dispos- a definite term, the length of this term was used accord- al. In this context, information was used that was not ingly. based on observable market data and, as such, is classified in level 3 of the fair value hierarchy. Discount rates reflect current market assessments for the specific risks of each CGU as of 30 September of the The fundamental assumptions which management uses as respective year and are based on the CGUs’ weighted the basis for calculating the fair value less costs of dispos- average cost of capital (WACC). al of the CGUs to which the carrying amounts are allocated include an individual terminal growth rate of between 0.0 per cent and 0.5 per cent. As in the previous year, no impairment losses were recognized on goodwill as a result of the impairment test for the above CGUs.

EWE Financial Report 2019 Consolidated Financial Statements 81

The discount rates were derived from capital market data Grid fee trends (wesernetze) for industry-specific peer groups. They take expectations The development of earnings related to grids is heavily with regard to the risk-free market interest rate and the affected by regulatory influences, particularly the regula- specific risks of the respective CGU into account. The tion of grid fees (revenue caps) as well as the awarding of individual WACC after taxes calculated in this manner was concession agreements. On the basis of management’s used for the respective planning horizon. The respective experience, EWE will continue to assume that existing discount rates used are listed in the table above. concession agreements will be awarded in the future and that an adequate earnings position is guaranteed from Underlying assumptions for the calculation of fair value regulated grid fees. less costs of disposal Estimation uncertainty exists with regard to the following Changes in the size of the customer base (swb Vertrieb, significant assumptions used in the calculation: Telecommunications) Changes in the size of the customer base have a major  Discount rates (all CGUs) effect on profit and loss in the swb Vertrieb and Telecom-  Production quantities, electricity prices and waste munications CGUs and thus indirectly affect the absolute prices (Waste Disposal) contribution margin available to cover existing fixed costs.  Grid fee trends (wesernetze) In this context, based on historical churn rates, EWE  Changes in the size of the customer base (swb Vertrieb, assumes that the size of the customer base in the swb Telecommunications) Vertrieb and Telecommunications CGUs will essentially remain stable. Discount rates (all CGUs) The discount rates reflect the current market assessment Sensitivity to changes in assumptions of the risks specific to each CGU. The discount rate calcu- The implications of the key assumptions for the recovera- lation is based on the specific circumstances of the Group ble amount are discussed below: and its CGUs and is derived from its weighted average cost of capital (WACC), which takes into account both debt and Discount rates equity. The cost of equity is derived from the return on For the aforementioned CGUs, an increase in the underly- investment expected by the Group’s investors. The cost of ing WACC of 1.80 percentage points would result in no debt is derived from the market price of industry-specific impairment loss (previous year: no impairment loss for a bonds. CGU-specific risk is incorporated by applying indi- 0.75 percentage point increase). vidual beta factors. The beta factors are evaluated annually based on publicly available market data.

Production quantities, electricity prices and waste prices (Waste Disposal) Management’s estimates are based on past experience, existing contracts and an estimation of the otherwise unused capacity / production quantity. A capacity-oriented production quantity was assumed and a commercially cautious assumption for prices actually realizable in the future, taking into account any newly emerging competitive incineration capacities, was made as the basis for terminal value. Electricity price assumptions are based on a long-term fundamental forecast which is prepared for the Group and makes assumptions for the future, for example, on the development of capacities in conventional power generation and renewable energies as well as on commodity prices and costs for emission rights and derives electricity price scenarios therefrom. Based on this forecast, a more conservative scenario was used for the valuation.

82 EWE Financial Report 2019 Consolidated Financial Statements

18. Property, plant and equipment

in millions of euros 31 Dec 2019 31 Dec 2018

Land and buildings 535.3 381.1 Plant and machinery Power supply systems 1,617.0 1,616.3 Gas supply systems 1,636.4 1,604.5 Miscellaneous 1,145.7 989.1 Other equipment, furniture and fixtures 52.9 45.0 Prepayments and construction in progress 206.6 224.9 Total 5,193.9 4,860.9

Property, plant and equipment including rights of use developed as follows:

Other equipment, Prepayments Land and Plant and furniture and and construction in millions of euros buildings machinery fixtures in progress Total

Acquisition / production cost As of 1 January 2019 863.1 12,240.2 223.3 230.5 13,557.1 Effects of first-time adoption of IFRS 16 175.6 3.2 5.3 184.1 Changes in the basis of consolidation / acquisitions 0.7 7.8 0.8 9.3 Additions / disposals due to mergers and carve-outs 3.8 24.2 0.4 28.4 Additions 33.2 397.5 18.6 144.7 594.0 Reclassifications 4.4 155.3 1.3 -162.7 -1.7 Currency adjustments 0.0 1.4 0.0 0.1 1.5 Disposals -17.8 -104.1 -9.8 -0.3 -132.0 As of 31 December 2019 1,063.0 12,725.5 239.9 212.3 14,240.7

Accumulated depreciation and impairment As of 1 January 2019 482.0 8,030.3 178.3 5.6 8,696.2 Changes in the basis of consolidation / acquisitions -0.5 -8.8 0.2 -9.1 Additions / disposals due to mergers and carve-outs 0.5 9.7 0.3 10.5 Depreciation 40.5 338.4 17.7 0.0 396.6 Impairments 10.2 54.7 0.0 0.1 65.0 Reclassifications 0.4 -2.1 0.0 -1.7 Currency adjustments 0.0 0.3 0.0 0.0 0.3 Disposals -5.4 -96.1 -9.5 0.0 -111.0 As of 31 December 2019 527.7 8,326.4 187.0 5.7 9,046.8

Carrying amounts As of 31 December 2019 535.3 4,399.1 52.9 206.6 5,193.9

EWE Financial Report 2019 Consolidated Financial Statements 83

Other equipment, Prepayments Land and Plant and furniture and and construction in millions of euros buildings machinery fixtures in progress Total

Acquisition / production cost As of 1 January 2018 871.7 12,265.9 223.9 86.0 13,447.5 Changes in the basis of consolidation / acquisitions 0.1 0.2 0.3 Additions 8.5 273.3 16.3 195.9 494.0 Reclassifications 8.1 13.6 1.1 -47.2 -24.4 Reclassification to assets held for sale -6.4 -147.4 -5.9 -0.5 -160.2 Currency adjustments -2.0 -50.6 -1.8 -0.4 -54.8 Disposals -16.8 -114.7 -10.5 -3.3 -145.3 As of 31 December 2018 863.1 12,240.2 223.3 230.5 13,557.1

Accumulated depreciation and impairment As of 1 January 2018 475.5 7,860.8 177.0 5.1 8,518.4 Changes in the basis of consolidation / acquisitions 0.2 0.2 Depreciation 19.2 341.8 15.8 376.8 Impairments 2.6 0.0 1.3 3.9 Reclassifications 0.5 -14.6 0.2 -13.9 Reclassification to assets held for sale -0.3 -50.1 -3.7 -0.5 -54.6 Currency adjustments -0.1 -16.0 -1.1 -0.3 -17.5 Disposals -12.8 -94.2 -10.1 -117.1 As of 31 December 2018 482.0 8,030.3 178.3 5.6 8,696.2

Carrying amounts As of 31 December 2018 381.1 4,209.9 45.0 224.9 4,860.9

“Reclassification to assets held for sale” include the assets There were no restrictions on EWE’s property rights to of the discontinued operations in Turkey. Depreciation of items of property, plant and equipment; furthermore, no 0.0 million euros (previous year: 7.5 million euros) relates items of property, plant and equipment were used as to the discontinued operations in Turkey and is contained collateral for liabilities. in the profit / loss from discontinued operations.

Borrowing costs capitalized as of 31 December 2019 came to 1.3 million euros (previous year: 0.9 million euros). The rate used to determine the amount of borrowing costs eligible for capitalization was 3.70 per cent (previous year: 3.97 per cent).

84 EWE Financial Report 2019 Consolidated Financial Statements

19. Leases The “difference in term” is largely offset by the discounting effect. The difference in term results in an allocation As described in note 2 Accounting policies, the EWE to other financial obligations due to different time peri- Group has applied IFRS 16 Leases since 1 January 2019. ods. The minimum lease payments from operating leases related to the non-cancelable lease period, while the EWE as lessee lease liability pursuant to IFRS 16 relates to the most likely In the transition to IFRS 16, assets for the rights of use to lease term. This means that the lease liability pursuant to the leased assets and lease liabilities of 184.6 million IFRS 16 also includes payments that relate to optional euros were recognized as of 1 January 2019. The operat- renewal periods provided EWE is reasonably certain that ing lease obligations as of 31 December 2018 gave rise to it will exercise the renewal option. The difference in terms the following reconciliation to the opening balance of is particularly significant in the case of real estate leases. lease liabilities as of 1 January 2019: The lease liabilities were discounted using the incremental borrowing rate as of 1 January 2019. The weighted aver- in millions of euros age interest rate was 1.8 per cent. The incremental borrowing rate was derived from reference rates for a period Minimum lease payments under operating leases as of 31 of up to 30 years from risk-free interest rates for the rele- December 2018 185.0 vant maturity, plus a credit risk premium and a liquidity Practical expedient for leases of low-value assets -0.8 and country risk premium. Difference in term 21.5 Effect from discounting at the incremental borrowing The following table shows the significant changes from rate as of 1 January 2019 -21.1 the first-time application of IFRS 16. It only presents those items in the statement of financial position affected by Additional liabilities recognized as a result of the first- first-time application. time application of IFRS 16 as of 1 January 2019 184.6 Finance lease liabilities as of 31 December 2018 0.1

Lease liabilities as of 1 January 2019 184.7

EWE Financial Report 2019 Consolidated Financial Statements 85

Restated opening statement of financial position as of 1 January 2019

Pursuant As reported Restatement to IFRS 16 in millions of euros 1 Jan 2019 IFRS 16 1 Jan 2019

Assets Non-current assets Property, plant and equipment Land and buildings 381.1 175.6 556.7 Plant and machinery 4,209.9 3.2 4,213.1 Other equipment, furniture and fixtures 45.0 5.3 50.3 Other financial assets 629.5 0.4 629.9 Deferred taxes 49.9 55.9 105.8 Current assets Other financial assets 645.1 0.1 645.2 Total assets 9,336.0 240.5 9,576.5

Equity and liabilities Non-current liabilities Other financial liabilities 414.6 161.2 575.8 Deferred taxes 141.3 55.9 197.2 Current liabilities Other financial liabilities 425.1 23.4 448.5 Total equity and liabilities 9,336.0 240.5 9,576.5

The figures presented in the income statement and statement of financial position for fiscal year 2019 were as follows:

Leases recognized in the income statement Leases in the statement of financial position

1 Jan - in millions of euros 31 Dec 2019 in millions of euros 31 Dec 2019 Assets Other operating expenses Non-current assets (right-of-use) Variable lease payments 2.0 Land and buildings 165.0 Low-value assets 1.8 Plant and machinery 4.1 Short-term leases 0.2 Other equipment, furniture and fixtures 5.3 Total 174.4 Amortization, depreciation and impairment Amortization of right-of-use assets Liabilities Land and buildings 22.1 Non-current liabilities Plant and machinery 0.3 Lease liabilities 158.1 Other equipment, furniture and fixtures 2.9 Current liabilities Lease liabilities 22.0 Net interest income / expenses Total 180.1

Interest expenses 2.8

86 EWE Financial Report 2019 Consolidated Financial Statements

In fiscal year 2019, additions to right-of-use assets came For leases of land for wind farms, the Group concluded to 21.1 million euros and were due in particular to the several agreements, some specifying variable lease pay- conclusion or renewal of real estate leases of 17.3 million ments, the amounts of which depend on the relevant euros. wind farm yield. The terms of the agreements are negotiated in such a way that the income-dependent lease pay- In the area of land and buildings, EWE primarily leases ments vary in proportion to the wind yield. The amount administrative buildings, customer care centers and payable was not less than the minimum lease payment. In leased areas for wind farms. The majority of assets in the fiscal year 2019, the Company paid 4.6 million euros for area of furniture, fixtures and office equipment relate to these types of variable payments as well as minimum vehicle leases. The Company has long-term leases in place lease payments, of which 42.7 per cent accounted for particularly for land in connection with wind farms. The variable payments. required areas are leased in line with the useful lives of the wind turbines (generally 25 years). Other long-term As of the reporting date, potential future cash outflows leases are also in place for properties. The terms of the of 17.8 million euros were not included in lease liabilities leases are negotiated individually and are subject to dif- due to a lack of reasonable certainty. Of this amount, ferent conditions. The lease payments for office buildings 16.0 million euros relate to estimated variable lease pay- are regularly adjusted in line with price indices. ments to be made over the expected contractual term. Potential future cash outflows of 1.6 million euros arise For details of the corresponding lease liabilities, refer to from leases concluded by the Group as a lessee but not other financial liabilities (note 33). yet commenced. A potential future cash outflow of 0.2 million euros was not included in lease liabilities, as The following table shows total cash outflows for leases in the exercise of termination and extension options is not fiscal year 2019: reasonably certain.

in millions of euros 2019 EWE as lessor Finance leases Repayment of lease liabilities 23.8 Finance lease receivables mainly relate to transactions in Interest expense on lease liabilities 2.8 the heat contracting area. Expense from short-term leases 0.2 Expense from leases for low-value assets 1.8 There are no guaranteed residual assets. Expense for variable lease payments not included in the measurement of lease liabilities 2.0 The table below presents the maturities of the nominal Total cash outflows for leases 30.6 and present values of outstanding lease payments:

EWE Financial Report 2019 Consolidated Financial Statements 87

Interest Gross income Net investments not yet investments in leases realized in leases in millions of euros 31 Dec 2019 31 Dec 2019 31 Dec 2019

Up to 1 year 13.1 2.0 11.1 Between 1 and 2 years 12.1 1.6 10.5 Between 2 and 3 years 10.9 1.3 9.6 Between 3 and 4 years 9.6 1.1 8.5 Between 4 and 5 years 8.7 0.9 7.8 More than 5 years 41.5 2.5 39.0 Total 95.9 9.4 86.5

Interest Present value Gross income of minimum investments not yet lease in leases realized payments in millions of euros 31 Dec 2018 31 Dec 2018 31 Dec 2018

Up to 1 year 12.9 2.1 10.8 1 to 5 years 41.0 5.1 35.9 More than 5 years 36.7 2.2 34.5 Total 90.6 9.4 81.2

Operating leases Operating leases include the lease of properties and systems contracting. The following table shows future minimum lease payments from non-cancelable operating leases:

in millions of euros 31 Dec 2019 in millions of euros 31 Dec 2018

Up to 1 year 37.4 Up to 1 year 20.1 Between 1 and 2 years 30.1 1 to 5 years 53.9 Between 2 and 3 years 29.1 More than 5 years 57.3 Between 3 and 4 years 27.1 Total 131.3 Between 4 and 5 years 26.0 More than 5 years 99.2 Total 248.9

88 EWE Financial Report 2019 Consolidated Financial Statements

20. Investment property Property classified as investment property had a fair value of 9.0 million euros at the end of the reporting period Investment property developed as follows: (previous year: 11.0 million euros).

in millions of euros 2019 2018 21. Investments accounted for using the equity method Acquisition / production cost As of 1 January 14.7 15.0 Investments in companies accounted for using the equity Reclassifications -1.6 method developed as follows: Disposals -0.1 -0.3 As of 31 December 13.0 14.7 in millions of euros 2019 2018 Accumulated depreciation and impairment As of 1 January 145.1 145.0 As of 1 January 8.7 8.7 Group share of profit / loss -7.2 -10.9 Depreciation 0.2 0.2 Dividends received -6.3 -7.9 Reclassifications -0.4 Changes in the basis of consolidation -0.2 0.5 Disposals -0.1 -0.2 Addition 6.8 11.6 As of 31 December 8.4 8.7 Disposal -5.5 -6.6 Changes recognized in equity -6.5 -2.3 Carrying amounts Impairments -5.1 -1.2 As of 31 December 4.6 6.0 Reversal of impairment losses 16.9 As of 31 December 121.1 145.1

Profit / loss from investment property breaks down as As in the previous year, additions relate to capital increas- follows: es at the companies.

The investments in associates held by the Group as of in millions of euros 2019 2018 31 December 2019 included goodwill of 13.3 million euros (previous year: 14.0 million euros). As in the previous Rental income from investment year, this goodwill is largely allocated to the Sales, Ser- property 1.1 1.1 vices and Trading segment. Direct operating expenses (including repairs and maintenance) generating Condensed financial information about companies ac- rental income 0.7 0.8 counted for using the equity method (none of which are Profit / (loss) from investment listed on a stock exchange) is presented in the following property 0.4 0.3 table. In this context, the figures presented do not represent the share attributable to EWE AG, but the full amount. The Group has no restrictions on the realizability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

EWE Financial Report 2019 Consolidated Financial Statements 89

Associates

DOTI Deutsche Offshore- Trianel 31 December 2019 Testfeld- und Windkraftwerk Other in millions of euros Infrastruktur htp Borkum II associates

Statement of financial position Non-current assets 93.8 102.1 825.8 61.0 Current assets 17.7 11.7 58.9 10.7 thereof cash and cash equivalents 6.2 2.1 12.4 7.4 Non-current liabilities 35.7 26.9 718.9 22.4 Current liabilities 4.2 11.4 128.9 36.9 Total assets 111.5 113.8 884.7 71.7 Equity 71.6 75.5 36.9 12.4 Accounted for using the equity method 29.3 28.7 20.3

Income statement Revenue 18.9 90.0 8.1 4.8 Amortization, depreciation and impairment -32.0 -9.6 -6.2 -3.3 Interest income 0.1 Interest expenses -0.2 -0.6 -4.9 -1.2 Tax result 0.2 -1.6 -0.5 Profit / loss -20.5 2.4 -6.5 -3.1

DOTI Deutsche Offshore- Trianel 31 December 2018 Testfeld- und Windkraftwerk Other in millions of euros Infrastruktur htp Borkum II associates

Statement of financial position Non-current assets 129.0 99.0 591.6 65.7 Current assets 14.2 10.3 16.8 10.7 thereof cash and cash equivalents 9.3 2.4 11.1 7.4 Non-current liabilities 37.2 24.0 529.4 25.7 Current liabilities 11.0 9.8 19.4 36.9 Total assets 143.2 109.3 608.4 76.4 Equity 95.0 75.5 59.6 13.8 Accounted for using the equity method 45.0 28.7 28.9

Income statement Revenue 20.3 70.0 0.3 7.6 Amortization, depreciation and impairment -36.6 -9.7 -2.6 -3.6 Interest expenses -0.3 -0.6 -4.8 -1.3 Tax result 4.5 -1.6 0.4 Profit / loss -27.6 2.3 -9.3 -3.9

90 EWE Financial Report 2019 Consolidated Financial Statements

Joint ventures

Gemeinschafts- Hansewasser 31 December 2019 kraftwerk Ver- und Other in millions of euros Bremen Entsorgung joint ventures

Statement of financial position Non-current assets 381.6 63.1 33.4 Current assets 55.5 20.5 20.3 thereof cash and cash equivalents 34.0 0.3 9.0 Non-current liabilities 378.0 46.1 29.0 Current liabilities 26.5 8.8 14.2 Total assets 437.1 83.6 53.7 Equity 32.6 28.7 10.5 Accounted for using the equity method 16.9 14.6

Income statement Revenue 93.5 2.8 25.1 Amortization, depreciation and impairment -16.7 -0.1 -1.6 Interest expenses -15.9 -2.1 -0.6 Tax result -2.9 -6.7 -0.1 Profit / loss -0.8 9.9 0.6

Gemeinschafts- Hansewasser INGAVER 31 December 2018 kraftwerk Ver- und Innovative Gas- in millions of euros Bremen Entsorgung verwertung

Statement of financial position Non-current assets 394.5 60.4 27.4 Current assets 73.1 20.5 11.5 thereof cash and cash equivalents 38.7 0.1 3.9 Non-current liabilities 392.9 48.3 24.5 Current liabilities 40.5 5.8 8.9 Total assets 467.6 80.9 38.9 Equity 34.2 26.8 5.5 Accounted for using the equity method 17.8 13.7

Income statement Revenue 117.5 2.3 22.9 Amortization, depreciation and impairment -16.5 -0.1 -1.2 Interest expenses -16.0 -2.4 -0.4 Tax result -1.0 -6.3 -0.1 Profit / loss 2.0 9.7 0.5

EWE Financial Report 2019 Consolidated Financial Statements 91

22. Other non-current financial assets

in millions of euros 31 Dec 2019 31 Dec 2018

Shares 415.6 301.4 Loans 163.4 139.0 Derivatives 85.3 106.9 Finance lease 73.1 78.1 Miscellaneous 8.7 4.1 Total 746.1 629.5

Other non-current financial assets recognized at amortized cost and finance lease receivables developed as follows:

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2019 139.2 85.3 224.5 Value adjustments IFRS 16 0.4 0.4 As of 1 January 2019 pursuant to IFRS 16 139.2 85.7 224.9 Additions 37.4 7.0 44.4 Disposals -9.0 -12.0 -21.0 As of 31 December 2019 167.6 80.7 248.3

Loss allowance As of 1 January 2019 -0.2 -3.1 -3.3 Allocations / reversals (net) -0.1 -0.2 -0.3 Reclassifications 0.5 0.5 As of 31 December 2019 -0.3 -2.8 -3.1

Net carrying amount As of 31 December 2019 167.3 77.9 245.2

92 EWE Financial Report 2019 Consolidated Financial Statements

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2018 145.5 75.0 220.5 Additions 9.1 11.8 20.9 Disposals -11.1 -11.2 -22.3 Reclassifications -3.3 9.9 6.6 Reclassification to assets held for sale -0.9 0.0 -0.9 Currency adjustments -0.1 -0.2 -0.3 As of 31 December 2018 139.2 85.3 224.5

Loss allowance As of 1 January 2018 -0.2 -3.2 -3.4 Allocations / reversals (net) 0.0 0.1 0.1 As of 31 December 2018 -0.2 -3.1 -3.3

Net carrying amount As of 31 December 2018 139.0 82.2 221.2

23. Inventories

in millions of euros 31 Dec 2019 31 Dec 2018

Gas supplies 169.2 181.1 Raw materials, consumables and supplies 44.0 40.8 Work in progress 15.5 15.1 Finished goods and merchandise 4.7 4.8 Prepayments 2.1 7.1 Leased assets before contract inception 1.1 Total 236.6 248.9

Inventories contain impairments of 1.4 million euros (previous year: 4.5 million euros). Impairments of 0.0 million euros (previous year: 0.0 million euros) were reversed. Inventories of 81.5 million euros (previous year: 28.1 million euros) were expensed. There are no restrictions on the disposal of inventories or other encumbrances.

EWE Financial Report 2019 Consolidated Financial Statements 93

24. Trade receivables

Carrying amounts and loss allowances on trade receivables developed as follows:

Stage 2 Stage 3 Lifetime- Lifetime- ECLs ECLs (not credit- (credit- in millions of euros impaired) impaired) Total

Gross carrying amount As of 1 January 2019 999.1 13.2 1,012.3 Changes in the basis of consolidation 2.7 2.7 Additions / disposals (net) 186.2 4.7 190.9 Offsetting -121.2 -121.2 Derecognition / write-offs -4.4 -5.3 -9.7 Transfer to stage 2 0.3 -0.3 Transfer to stage 3 -7.9 7.9 As of 31 December 2019 1,054.8 20.2 1,075.0

Loss allowance As of 1 January 2019 -1.5 -11.5 -13.0 Allocations / reversals (net) -0.3 -6.9 -7.2 As of 31 December 2019 -1.8 -18.4 -20.2

Net carrying amount As of 31 December 2019 1,053.0 1.8 1,054.8

94 EWE Financial Report 2019 Consolidated Financial Statements

Stage 2 Stage 3 Lifetime- Lifetime- ECLs ECLs (not credit- (credit- in millions of euros impaired) impaired) Total

Gross carrying amount As of 1 January 2018 1,050.8 10.0 1,060.8 Value adjustments IFRS 15 5.1 5.1 As of 1 January 2018 pursuant to IFRS 15 1,055.9 10.0 1,065.9 Changes in the basis of consolidation 0.7 0.7 Additions / disposals (net) 454.9 2.3 457.2 Offsetting -341.4 0.0 -341.4 Reclassification to assets held for sale -131.3 -131.3 Derecognition / write-offs -3.9 -5.8 -9.7 Transfer to stage 3 -6.7 6.7 Currency adjustments -29.1 0.0 -29.1 As of 31 December 2018 999.1 13.2 1,012.3

Loss allowance As of 1 January 2018 -9.2 -9.0 -18.2 Allocations / reversals (net) -2.8 -2.6 -5.4 Reclassification to assets held for sale 8.5 0.1 8.6 Currency adjustments 2.0 0.0 2.0 As of 31 December 2018 -1.5 -11.5 -13.0

Net carrying amount As of 31 December 2018 997.6 1.7 999.3

Changes in the loss allowances that are recognized in profit or loss are presented under the item “Impairment losses / gains pursuant to IFRS 9.5.5.”

EWE Financial Report 2019 Consolidated Financial Statements 95

25. Other current financial assets

in millions of euros 31 Dec 2019 31 Dec 2018

Derivatives 580.0 400.5 Cash collateral furnished (energy trading) 51.8 39.5 Loans 26.5 23.2 Securities 3.2 152.6 Miscellaneous other financial assets 646.4 29.3 Total 1,307.9 645.1

Other financial assets recognized at amortized cost and finance lease receivables developed as follows:

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2019 91.5 0.5 92.0 Value adjustment IFRS 16 0.1 0.1 As of 1 January pursuant to IFRS 16 91.5 0.6 92.1 Change in the basis of consolidation 594.2 0.2 594.4 Additions / disposals (net) 236.6 10.4 247.0 Offsetting -208.2 -208.2 As of 31 December 2019 714.1 11.2 725.3

Loss allowance As of 1 January 2019 Net change -0.1 -0.1 Reclassifications -0.5 -0.5 As of 31 December 2019 -0.6 -0.6

Net carrying amount As of 31 December 2019 714.1 10.6 724.7

96 EWE Financial Report 2019 Consolidated Financial Statements

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2018 71.8 5.1 76.9 Additions / disposals (net) 201.6 -4.6 197.0 Offsetting -188.5 -188.5 Reclassifications 7.4 7.4 Reclassification to assets held for sale -0.5 -0.5 Write-off -0.1 -0.1 Currency adjustments -0.2 -0.2 As of 31 December 2018 91.5 0.5 92.0

Loss allowance As of 1 January 2018 -0.1 -0.1 Reclassifications 0.1 0.1 As of 31 December 2018

Net carrying amount As of 31 December 2018 91.5 0.5 92.0

26. Other current non-financial assets

in millions of euros 31 Dec 2019 31 Dec 2018

Emission rights 60.4 97.1 Prepayments 17.8 32.8 Value-added tax 16.8 29.0 Customer acquisition costs 16.0 17.4 Contract asset 15.8 19.1 Miscellaneous other non-financial assets 25.9 16.1 Total 152.7 211.5

EWE Financial Report 2019 Consolidated Financial Statements 97

27. Cash and cash equivalents

Cash and cash equivalents developed as follows:

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2019 360.5 2.4 362.9 Changes in the basis of consolidation 5.8 5.8 Additions / disposals (net) -234.4 1.0 -233.4 Transfer to stage 1 0.8 -0.8 Currency adjustments 0.1 0.1 As of 31 December 2019 132.8 2.6 135.4

Loss allowance As of 1 January 2019 -0.2 -0.2 Allocations / reversals (net) 0.1 0.1 As of 31 December 2019 -0.1 -0.1

Net carrying amount As of 31 December 2019 132.7 2.6 135.3

See note 43 for more information on the composition of cash and cash equivalents in the statement of cash flows.

98 EWE Financial Report 2019 Consolidated Financial Statements

Stage 1 Stage 2 12-month- Lifetime- ECLs ECLs (expected (not credit- in millions of euros credit loss) impaired) Total

Gross carrying amount As of 1 January 2018 607.2 1.7 608.9 Changes in the basis of consolidation 2.8 0.1 2.9 Additions / disposals (net) -185.6 -2.8 -188.4 Reclassification to assets held for sale -15.4 -29.9 -45.3 Transfer to stage 2 -53.6 53.6 Currency adjustments 5.1 -20.3 -15.2 As of 31 December 2018 360.5 2.4 362.9

Loss allowance As of 1 January 2018 -0.5 -0.1 -0.6 Allocations / reversals (net) -0.1 -0.2 -0.3 Reclassification to assets held for sale 0.2 0.2 0.4 Currency adjustments 0.2 0.1 0.3 As of 31 December 2018 -0.2 -0.0 -0.2

Net carrying amount As of 31 December 2018 360.3 2.4 362.7

28. Equity

The subscribed capital of EWE AG totaling 242,988 thousand euros (previous year: 242,988 thousand euros) is in thousands of euros 31 Dec 2019 in % divided into 242,988 registered shares (previous year: 242,988 registered shares, each with a value of Weser-Ems-Energiebeteiligungen 1,000 euros. 10.0 per cent of shares were acquired as GmbH, Oldenburg 143,358 59 treasury shares in 2016. Energieverband Elbe-Weser Beteiligungsholding GmbH, Oldenburg 36,453 15 Due to the disposal of shares in the new shareholder Ems Ems Weser Elbe Infrastruktur Weser Elbe Infrastruktur Akquisitionsgesellschaft mbH (2), Akquisitionsgesellschaft mbH (2), Düsseldorf (ARDIAN), dated 6 December 2019 and ap- Düsseldorf 63,177 26 proval of the Federal Cartel Office dated 20 December Total issued shares 242,988 100 2019, the beneficial ownership in the shares recognized as treasury shares in the prior year was transferred as of the transaction date and they are no longer deducted from The capital reserves primarily include distributable subscribed capital and capital reserves. reserves in accordance with Sec. 272 (2) No. 4 HGB.

EWE Financial Report 2019 Consolidated Financial Statements 99

Non-controlling interests are the shares held by third parties in EWE NETZ GmbH, Oldenburg, BTC Embedded Systems AG, Oldenburg, and Limón GmbH, Kassel (previous year: EWE NETZ GmbH, Oldenburg, Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey, and Kayserigaz Kayseri Doğalgaz Dağıtım Pazarla- ma ve Ticaret A.Ş., Kayseri, Turkey).

Net retained profit of EWE AG The Board of Management proposes to the general meeting of shareholders of EWE AG to pay a dividend amounting to 145,792,800.00 euros to the Company’s shareholders from its net retained profit. This is a distribution of 600.00 euros per share entitled to a dividend.

29. Construction subsidies

31 Dec 2019 31 Dec 2018 in millions of euros Non-current Current Non-current Current

Construction subsidies 640.5 48.2 619.4 47.3

Construction subsidies are released to income over the useful life of the subsidized assets.

30. Provisions

31 Dec 2019 31 Dec 2018 in millions of euros Non-current Current Total Non-current Current Total

Provisions for pensions and similar obligations 1,967.3 1,967.3 1,724.4 1,724.4 Personnel-related obligations 52.1 7.1 59.2 61.1 7.4 68.5 Rehabilitation obligations 498.8 0.5 499.3 425.9 425.9 Miscellaneous other provisions 48.0 88.9 136.9 40.6 92.6 133.2 Total 2,566.2 96.5 2,662.7 2,252.0 100.0 2,352.0

100 EWE Financial Report 2019 Consolidated Financial Statements

Provisions for pensions and similar obligations By contrast, in the case of the defined benefit plans, the employer bears the full financing risk as well as the bio- The EWE Group grants its employees both pension bene- metric risks, such as longevity and early pension claims. fits financed by the employer and pension benefits These closed plans are mainly deferred compensation financed by deferred compensation. At present, unit- commitments under which the employer grants employ- linked direct commitments are exclusively open to new ees a percentage of their last fixed salary as a monthly entrants. Earlier defined benefit commitments were pension depending on the length of service, subject to closed or replaced with the introduction of the unit-linked a cap. Some pension benefits under statutory pension direct commitments in the EWE subgroup in 2007 and the insurance schemes are offset against these benefits. introduction of the supplementary pension tariff agreement III in the swb subgroup in 2016. The pension plans The obligations encompass both pension benefits current- offered by the EWE Group to its employees correspond to ly being paid out as well as entitlements to future benefit the definition of defined benefit plans for post-employment payments. benefits as set forth in IAS 19. Amounts recognized in the statement of financial position The unit-linked commitments are financed by means of with regard to the defined benefit and defined contribu- contractual trust arrangements (CTA), EWE-Treuhand- tion pension obligations are as follows: verein e. V., Oldenburg, and swb Treuhandverein e. V., Bremen. The benefits accruing to the employees and their surviving dependents are largely based on the gains on the capital investment if they exceed the defined benefit in millions of euros 31 Dec 2019 31 Dec 2018 liabilities. Upon the occurrence of an event which results in eligibility to receive benefits, the beneficiaries may Present value of financial obligations choose between a lump sum or pension benefits, with the funded via EWE- / swb Treuhandverein 118.5 84.8 amount of pension depending on the conditions at the Fair value of plan assets (EWE- / swb time. The CTAs are independent from the trustor. Their Treuhandverein) -109.5 -77.4 governing body is a member meeting composed of an Present value of obligations not equal number of shareholder and employee representa- funded via EWE- / swb Treuhandverein 1,958.3 1,717.0 tives. The management boards of the CTAs manage the Carrying amount 1,967.3 1,724.4 transferred securities in accordance with the provisions of the protection trustee agreements and the investment policies issued by EWE and swb, respectively. IAS 19 requires a defined benefit liability to be recognized if the The following values have been recognized in profit or present value of the guaranteed benefit exceeds the fair loss: value of the plan assets. Since the defined benefit liability chiefly comprises the nominal value guarantee of the pension expenses plus, if applicable, the guaranteed in millions of euros 2019 2018 interest of no more than the discount rate under the German Insurance Reserve Ordinance [“Deckungsrückstel- Current service cost 39.2 39.8 lungsverordnung”], the annual service cost largely corre- Net interest expense 31.9 30.6 sponds to the pension expenses, so that these schemes Past service cost -3.3 -0.8 are, in substance, ultimately more or less treated like Total 67.8 69.6 defined contribution plans.

EWE Financial Report 2019 Consolidated Financial Statements 101

The present value of the obligation developed as follows: Since 2010, the EWE trust assets have been invested in Fidelity Target Funds with target dates between 2020 and 2050; the capital is invested on the basis of the expected in millions of euros 2019 2018 retirement dates of the entitled employees. There is a quoted price in an active market as defined in IFRS 13 for Present value at the beginning of the all target funds in which the EWE trust assets are invested. period 1,801.8 1,857.0 EWE trust assets consist of the following: 73 per cent Current service cost 39.2 39.8 shares (previous year: 74 per cent); 14 per cent fixed- Interest expense 33.5 31.8 income securities (previous year: 18 per cent); 13 per cent Actuarial (gains) / losses recognized in cash and cash equivalents (previous year: 8 per cent). swb other comprehensive income 277.7 -54.5 Treuhandverein e. V. was established in December 2016 thereof changes in demographic with the introduction of the supplementary pension tariff assumptions 11.1 agreement III. The swb special fund, which invests in dif- thereof changes in financial ferent sub-funds consisting of equity and fixed-income assumptions 271.3 -42.2 funds, was set up to finance the obligations. As of Past service cost -3.3 -0.8 31 December 2019, its trust assets consist of the follow- Benefits paid -70.9 -71.5 ing: 50 per cent shares (previous year: 35 per cent); Disposals in the basis of consolidation -1.2 50 per cent fixed-income securities (previous year: 50 per Present value at the end of the period 2,076.8 1,801.8 cent) and 0 per cent cash and cash equivalents (previous year: 15 per cent).

The carrying amount of the obligation developed as fol- The following table shows the performance of plan assets: lows:

in millions of euros 2019 2018 in millions of euros 2019 2018

Fair value at the beginning of the Carrying amount at the beginning of period 77.4 63.8 the period 1,724.4 1,793.6 Interest income 1.6 1.1 (Income) / expense recognized in Income from plan assets not included profit or loss 67.8 69.7 in net interest income 12.7 -5.3 Pension payments from company Employer contributions 19.7 18.6 assets and contributions to EWE- / swb Reimbursements -0.7 -0.8 Treuhandverein -89.8 -89.4 Disposals in the basis of consolidation -1.2 Actuarial (gains) / losses 264.9 -49.3 Fair value at the end of the period 109.5 77.4 Disposals in the basis of consolidation -0.2 Carrying amount at the end of the period 1,967.3 1,724.4

All actuarial losses of 264.9 million euros (previous year: actuarial gains of -49.3 million euros) were recognized in other comprehensive income. In the previous year, 11.1 million euros thereof related to the effect of the first- time application of the Heubeck 2018 G mortality tables.

102 EWE Financial Report 2019 Consolidated Financial Statements

Pension obligations were calculated using the Heubeck Changes in the relevant actuarial assumptions would have 2018 G mortality tables and based on the following main the following effects on the defined benefit pension obli- actuarial assumptions: gation:

Calculation assumptions / inputs Effect on the present value of the (in per cent) 31 Dec 2019 31 Dec 2018 obligations in millions of euros 2019 2018 Discount rate 1.00 1.90 Interest rate for plan assets 1.00 1.90 Change in the assumption Future salary increases 2.50 2.50 regarding the discount rate Future pension increases 1.75 1,75 Increase by 1.0 % -297.5 -245.3 Labor turnover rate 1.00 1.00 Decrease by 1.0 % 393.1 316.5 regarding future salary increases Increase by 0.5 % 29.8 23.8 Departing from the aforementioned assumptions, the Decrease by 0.5 % -28.1 -22.4 pension obligations calculated for the swb segment as of regarding inflation the current reporting date used the Heubeck 2018 G mor- Increase by 0.5 % 73.2 59.1 tality tables, with a reduced invalidity likelihood to 40 per Decrease by 0.5 % -66.4 -53.9 cent p.a. (previous year: 40 per cent p.a.), future pension regarding life expectancy increases of 0.75 per cent p.a. (previous year: 0.75 per Reduction in mortality rate by cent p.a.), future salary increases of 2.00 per cent p.a. 10.0 % 79.2 64.3 (previous year: 2.00 per cent p.a.) and an average annual employee turnover of 1.25 per cent p.a. (previous year: 1.25 per cent p.a.). For the EWE segment, obligations with The sensitivity analyses presented above were each based historically higher adjustment rates were measured using on a change in one assumption, while the other assump- the adjustment rates observed in the past and expected tions remain unchanged compared with the original calcu- to continue over the long term, with future pension lation. increases of 4.00 per cent p.a. as in the previous year. The average duration of the defined benefit pension obli- The pension payments for 2020 are expected to total gation weighted on the basis of the present value of the 73.6 million euros, of which 2.5 million euros will be obligation (Macaulay duration) is 18.5 years (previous reimbursed from the trust assets. Contributions to plan year: 16.9 years). assets are expected to total 17.1 million euros. Defined contribution pension plans in the EWE Group relate to statutory pension insurance. In 2019, the expense related to employer contributions totaled 62.9 million euros (previous year: 59.5 million euros).

EWE Financial Report 2019 Consolidated Financial Statements 103

Statement of provisions

Changes recognized in other As of comprehen- Other Interest As of in millions of euros 31 Dec 2018 Allocations sive income Reversals changes effect Utilizations 31 Dec 2019

Provisions for pensions and similar obligations 1,724.4 25.9 264.9 -9.6 31.9 -70.2 1,967.3 Other provisions Personnel-related obligations 68.5 9.9 -1.8 0.3 0.6 -18.3 59.2 Rehabilitation obligations 425.9 3.6 69.6 -1.4 1.9 4.6 -4.9 499.3 Miscellaneous other provisions 133.2 31.0 -16.1 11.2 0.3 -22.7 136.9 Total 1) 2,352.0 70.4 334.5 -19.3 3.8 37.4 -116.1 2,662.7

1) thereof -0.2 million euros of the reversals relates to credit risk

Personnel provisions include phased retirement obliga- Provisions for rehabilitation are recognized at their dis- tions and long-service awards. The lion’s share of restruc- counted settlement value at the reporting date. According turing provisions recognized for the “Personal 2017” pro- to the term, an interest rate from a yield curve was gram has been used up. assigned to each obligation in the reporting year. The yield curve in the reporting year describes a corridor of Rehabilitation provisions are primarily recognized for gas between -0.69 per cent and +0.36 per cent p.a. (previous caverns and wind farms to cover the costs of rehabilita- year: between -0.70 per cent and +0.96 per cent p.a.). tion and dismantling upon decommissioning the facilities, the dismantling of a power plant and the rehabilitation of The miscellaneous other provisions primarily relate to land including the disposal of existing waste due to uncertain obligations arising from pending transactions, ground contamination from the past operation of a gas litigation risks, invoicing and retention requirements as plant. The provisions for the gas caverns were recognized well as obligations for environmental restoration as a result of obligations under public law and their measures. amount is based on external expert reports. Additional allocations were required for certain caverns due to special geological conditions. The provisions for gas caverns and wind farms are disclosed under non-current liabilities, as no rehabilitation or dismantling measures are expected in the near future.

104 EWE Financial Report 2019 Consolidated Financial Statements

31. Bonds

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

Carrying Carrying amount Nominal amount Nominal in millions of euros Interest rate Maturity date 31 Dec 2019 volume 31 Dec 2018 volume

Eurobond (15 years) 4.875 % October 2019 372.3 372.4 Eurobond (9 years) 4.125 % November 2020 362.7 365.3 359.8 365.3 Eurobond (12 years) 5.250 % July 2021 462.9 463.9 462.2 463.9 Bearer bond (15 years) 2.200 % May 2032 49.8 50.0 49.8 50.0 Bearer bond (20 years) 4.000 % September 2032 49.9 50.0 49.9 50.0 Accrued interest 15.0 19.0 Total 940.3 929.2 1,313.0 1,301.6

32. Liabilities to banks

31 Dec 2019 31 Dec 2018 in millions of euros Non-current Current Non-current Current

Liabilities to banks 382.5 161.9 376.2 41.9

Fixed-interest liabilities to banks of 401.4 million euros (previous year: 418.1 million euros) mostly carry interest at an average rate of 1.68 per cent p.a. (previous year: 1.60 per cent p.a.). The average remaining fixed-interest period ranges from 1.16 years to 16.48 years (previous year: 8.27 years to 20.71 years).

Floating-rate liabilities to banks of 143.0 million euros (previous year: 0.0 million euros) mostly carry interest at an average rate of 0.30 per cent p.a. The average remaining interest period for floating-rate liabilities was ten days.

EWE Financial Report 2019 Consolidated Financial Statements 105

33. Other financial liabilities

31 Dec 2019 31 Dec 2018 in millions of euros Non-current Current Non-current Current

Derivative financial instruments 98.4 767.8 139.3 224.2 Liabilities from contributions by silent partners 225.0 225.0 Lease liabilities 158.1 22.0 0.0 0.1 Personnel-related liabilities 0.2 60.0 0.5 55.6 Outstanding invoices and credit notes 35.4 46.0 Liabilities from guaranteed dividends 25.9 3.5 29.1 2.8 Cash collateral 15.3 22.7 Liabilities to other investees and investors 13.6 13.5 Non-controlling interests in partnerships 7.3 6.9 Research and development 0.4 Miscellaneous other financial liabilities 9.2 44.8 20.7 52.9 Total 516.8 969.7 414.6 425.1

Liabilities from contributions by silent partners relates to the contributions by the cities of Bremen and Bremerha- ven to wesernetz Bremen GmbH, Bremen, and wesernetz Bremerhaven GmbH, Bremerhaven, which are fully consolidated entities in the EWE Group.

The first-time application of IFRS 16 as of 1 January 2019 gave rise to the recognition of additional lease liabilities. In the prior year, the Company only recognized liabilities from finance leases in accordance with IAS 17.

34. Other non-financial liabilities

31 Dec 2019 31 Dec 2018 in millions of euros Non-current Current Non-current Current

Tax liabilities 68.8 77.8 Prepayments received on account of orders 26.8 31.8 Emission rights 16.0 13.5 Contract liabilities 5.7 4.5 Miscellaneous other non-financial liabilities 6.8 11.7 8.3 13.0 Total 6.8 129.0 8.3 140.6

106 EWE Financial Report 2019 Consolidated Financial Statements

35. Deferred taxes

Deferred tax assets and liabilities relate to the following items:

31 Dec 2019 31 Dec 2018 in millions of euros Assets Liabilities Assets Liabilities

Intangible assets 1.9 106.8 2.4 117.1 Property, plant and equipment 51.8 586.1 27.2 514.6 Other assets 6.5 53.8 16.3 107.2 Non-current assets 60.2 746.7 45.9 738.9

Inventories 0.7 19.3 1.6 9.9 Receivables 161.1 2.5 105.5 3.5 Other assets 134.9 292.6 52.5 244.3 Current assets 296.7 314.4 159.6 257.7

Construction subsidies 191.2 190.9 Emission rights 0.8 1.0 Pension provisions 316.0 237.6 Other provisions 156.4 4.2 130.0 6.6 Liabilities 104.4 2.3 109.1 3.3 Non-current liabilities 768.0 7.3 667.6 10.9

Construction subsidies 12.9 11.9 4.9 Emission rights 8.4 Other provisions 6.6 11.1 7.0 5.0 Liabilities 353.9 255.0 202.2 169.8 Current liabilities 373.4 266.1 229.5 179.7

Deferred taxes on items of the statement of financial position 1,498.3 1,334.5 1,102.6 1,187.2 Loss carryforwards 0.1 6.1 Deferred taxes before offsetting 1,498.4 1,334.5 1,108.7 1,187.2 Offsetting -1,269.1 -1,269.1 -1,043.8 -1,043.8 Deferred taxes after offsetting before IFRS 5 229.3 65.4 64.9 143.4 Reclassification IFRS 5 -15.0 -2.1

Deferred taxes in the statement of financial position 229.3 65.4 49.9 141.3

EWE Financial Report 2019 Consolidated Financial Statements 107

The tax loss carryforwards do not expire. 36. Contingent assets, contingent liabilities and other obligations Tax loss carryforwards for which no deferred tax assets were recognized totaled 30.7 million euros at the end of Contingent assets the reporting period (previous year: 22.9 million euros). Contingent assets came to 39.2 million euros as of No deferred tax assets are recognized for this portion of 31 December 2019 (previous year: 16.2 million euros) and the aforementioned tax loss carryforwards, as it is not relate to guarantees received. probable that the tax assets will be realized in the foreseeable future. Sureties, guarantees and letters of comfort At the end of the reporting period, EWE had issued sure- Deferred tax assets are recognized for the aforementioned ties, guarantees and letters of comfort totaling tax loss carryforwards of 0.8 million euros (previous year: 110.3 million euros (previous year: 114.8 million euros) of 35.3 million euros), as it is sufficiently probable that the which 34.2 million euros (previous year: 35.2 million tax assets will be realized. euros) were to creditors of an associate.

Temporary differences for which no deferred tax assets Obligations to purchase intangible assets and property, were recognized in the statement of financial position plant and equipment totaled 0.0 million euros, as in the previous year. The acquisition of intangible assets gave rise to contractual obligations of 7.5 million euros (previous year: Temporary differences relating to investments in subsidi- 4.6 million euros) for planned software expenditure not aries and associates for which no deferred tax liabilities yet incurred. EWE has entered into contractual commit- were recognized in the reporting year (in line with ments with a value of 125.4 million euros related to the IAS 12.39) totaled 111.1 million euros (previous year: purchase of property, plant and equipment (previous 237.4 million euros). year: 126.0 million euros). These mainly relate to purchase commitments in connection with the setup of supply networks and technical facilities.

Other contingent liabilities and obligations As part of an equity investment in a power plant company, EWE has a contingent obligation to provide additional contributions of no more than 5.0 per cent of its share of target equity amounting to 2.2 million euros (previous year: 2.2 million euros). Due to the payment of 50.0 per cent of the additional contribution obligation in 2016, the remaining additional contribution obligation amounts to 1.1 million euros (previous year: 1.1 million euros). It is not foreseeable at present when the remaining 50.0 per cent will be demanded.

As of the reporting date, the contingent liabilities relating to a contribution to High-Tech Gründerfonds III GmbH & Co. KG, Bonn, no longer exist (previous year: 4.6 million euros).

Furthermore, EWE has also entered into non-current, market-standard purchase contracts for the supply of power and gas.

108 EWE Financial Report 2019 Consolidated Financial Statements

37. Assets classified as held for sale, disposal Income statement groups and discontinued operations 1 Jan - 1 Jan - At the end of December 2018, EWE AG concluded an in millions of euros 31 Dec 2019 31 Dec 2018 arrangement with SOCAR Turkey Enerji A.Ş., Istanbul, Turkey (SOCAR), regarding a draft agreement on the sale Revenue 219.3 670.7 of its business activities in Turkey. The business activities Income 3.8 6.7 in Turkey previously bundled under the International Expenses -245.8 -681.4 segment were reported as discontinued operations until EBIT from discontinued operations -22.7 -4.0 their sale to SOCAR in the first half of 2019 and subsequently deconsolidated. The loss on deconsolidation Net interest income / expenses 1.1 -20.1 amounted to 39.9 million euros and is reported in the Income taxes -4.1 2.5 income statement under “Profit or loss from discontinued Profit / loss from discontinued operations.” operations -25.7 -21.6

The loss on deconsolidation contains the amounts from currency translation differences (-134.9 million euros) and cash flow hedges (-0.3 million euros) recognized cumula- Statement of cash flows tively in other comprehensive income as of 31 December 2018. Those previously unrealized losses must be added 1 Jan - 1 Jan - to other comprehensive income in the period in which the in millions of euros 31 Dec 2019 31 Dec 2018 realized losses are reclassified to profit or loss to avoid including them in total comprehensive income twice Cash flow from operating activities 28.3 4.6 (IAS 1.93). Cash flow from investing activities -9.9 -16.7 Cash flow from financing activities -12.9 12.4 The following table presents the key figures regarding Currency translation and changes in discontinued operations: the basis of consolidation -50.4 -14.3 Change in cash and cash equivalents -44.9 -14.0 Statement of financial position Cash and cash equivalents at the beginning of the period from in millions of euros 31 Dec 2018 discontinued operations 44.9 58.9 Cash and cash equivalents at the end Assets of the period from discontinued Non-current assets 177.4 operations 44.9 Current assets 198.3 Total assets 375.7

Equity and liabilities Equity 42.7 Non-current liabilities 43.1 Current liabilities 289.9 Total equity and liabilities 375.7

EWE Financial Report 2019 Consolidated Financial Statements 109

38. Capital management Derivative financial instruments are exclusively entered into with contractual partners with a high degree of cre- The EWE Group’s objectives with respect to capital man- ditworthiness or on the stock exchange. To hedge price agement include securing the Company’s continued exist- risks, the EWE Group primarily utilizes power and gas ence as a going concern, optimizing its capital structure futures, coal and gas swaps, EUA and CER futures con- and maintaining financial flexibility. tracts and forward exchange contracts. They are recognized as other financial assets or other financial liabilities Non-current capital management at the EWE Group is in the statement of financial position. based on an analysis of the optimal capital structure considering both equity and borrowings. Activities to opti- Hedge accounting is used to account for some hedging mize the capital structure focus on minimizing the total relationships, in particular in order to reduce accounting cost of capital and imply a target rating in the investment anomalies between regularly unrecognized expected grade range for the EWE Group. hedged items and the hedging derivatives to be recognized at fair value. Most of the derivatives for which Equity consists of equity attributable to the owners of the hedge accounting is not possible or sensible act as eco- parent and non-controlling interests. nomic hedges. Opportunistic trading positions are limited both in terms of volume and impact on earnings. Equity and total assets stood at: An effectiveness test using either the critical terms match method or regression analysis is carried out to assess the in millions of euros 31 Dec 2019 31 Dec 2018 effectiveness of a hedging relationship (cash flow hedges).

Total equity 2,668.5 2,243.8 For further information on the hedging of individual risk Equity ratio in % 26.7 24.0 categories, see also the disclosures in the risk manage- Total assets 9,987.4 9,336.0 ment section.

The nominal volume of the derivatives shown below is presented without offsetting. The amount of nominal 39. Derivative financial instruments and volume allows conclusions to be drawn as to the extent of hedge accounting the use of derivatives. It does not reflect the Group’s risk, however, since the derivative transactions as of the a) Strategy and objectives reporting date are offset or, in the future, will be offset by The EWE AG Board of Management defines the risk man- hedged items with countervailing risks. agement policy for the EWE Group. The implementation of this policy is the responsibility of the appropriate b) Presentation of the hedging instruments and departments across the Group. Financial risks are identi- development of the cash flow hedge reserve fied, evaluated and hedged against. The prior approval of The following tables present separately by risk category the risk committee is required for hedging strategies the carrying and nominal amounts of the derivatives as of which deviate from the guidelines. The risk committee is the reporting date, the change in fair value on which the also informed on a regular basis about the extent and hedge effectiveness assessment is based and the residual value of risk exposure. term over which the nominal volumes will increase or decrease. As an aid, the average prices of the hedging instruments are listed.

110 EWE Financial Report 2019 Consolidated Financial Statements

Hedging instruments on the assets side (I/II)

Nominal Nominal Nominal volume volume volume Residual Residual Non-current Current Residual term of term of Total Average 31 Dec 2019 carrying carrying term of between 1 more than nominal hedge in millions of euros amount amount up to 1 year and 5 years 5 years volume rate

USD / Euro Hedge of foreign currency risk Foreign currency Euro PLN / Euro for the currency USD not in a hedging relationship 1.3 3.7 39.6 13.6 41.8 in cash flow hedges 2.3 6.2 55.0 18.6 56.0 Total 3.6 9.9 94.6 32.2 97.8 1.3 for the currency PLN not in a hedging relationship 0.0 1.2 0.3 Total 0.0 1.2 0.3 4.0

Hedge of commodity price risk GWh Euro / MWh for power derivatives not in a hedging relationship 23.7 55.4 1,826.8 724.5 54,231.6 in cash flow hedges 0.7 3.2 19.0 10.1 656.5 Total 24.4 58.6 1,845.8 734.6 54,888.1 47.0 for gas derivatives not in a hedging relationship 46.2 498.1 3,426.8 1,221.9 261,602.3 in cash flow hedges 3.0 2.4 17.0 62.2 4,790.5 Total 49.2 500.5 3,443.8 1,284.1 266,392.8 17.7

millions of t Euro / t for coal derivatives not in a hedging relationship 64.9 3.2 1.0 Total 64.9 3.2 1.0 68.1 for CO2 derivatives not in a hedging relationship 0.1 35.6 4.5 2.9 in cash flow hedges 8.1 9.8 5.2 5.0 1.1 Total 8.1 9.9 40.8 9.5 4.0 12.6

Hedge of residual market risk Other derivatives not in a hedging relationship 1.1 1.1 Total 1.1 1.1

Hedging instruments on the assets side not in a hedging relationship 71.2 558.4 in cash flow hedges 14.1 21.6 Total 85.3 580.0

EWE Financial Report 2019 Consolidated Financial Statements 111

Hedging instruments on the assets side (II/II)

Nominal Nominal Nominal volume volume volume Residual Residual Non-current Current Residual term of term of Total Average 31 Dec 2018 carrying carrying term of between 1 more than nominal hedge in millions of euros amount amount up to 1 year and 5 years 5 years volume rate

USD / Euro Hedge of foreign currency risk Foreign currency Euro PLN / Euro for the currency USD not in a hedging relationship 2.9 2.9 55.1 84.1 112.8 in cash flow hedges 5.3 3.6 46.1 73.6 92.2 Total 8.2 6.5 101.2 157.7 205.0 1.3 for the currency PLN not in a hedging relationship 0.0 0.0 11.9 0.5 2.9 Total 0.0 0.0 11.9 0.5 2.9 4.3

Hedge of commodity price risk GWh Euro / MWh for power derivatives not in a hedging relationship 28.9 102.1 1,314.4 523.3 41,073.2 in cash flow hedges 4.6 98.7 309.2 14.6 7,712.8 Total 33.5 200.8 1,623.6 537.9 48,786.0 44.3 for gas derivatives not in a hedging relationship 27.1 94.5 2,053.2 879.8 138,486.2 in cash flow hedges 18.1 69.7 305.2 129.2 24,623.8 Total 45.2 164.2 2,358.4 1,009.0 163,110.0 20.6

millions of t Euro / t for coal derivatives not in a hedging relationship 2.7 126.4 89.1 3.1 in cash flow hedges 0.7 0.8 16.9 29.7 0.7 Total 0.7 3.5 143.3 118.8 3.8 69.0 for CO2 derivatives not in a hedging relationship 0.1 4.0 27.2 24.7 4.2 in cash flow hedges 19.2 20.4 10.9 10.3 2.4 Total 19.3 24.4 38.1 35.0 6.6 11.1 for other commodity derivatives not in a hedging relationship 1.1 9.2 Total 1.1 9.2

Hedging instruments on the assets side not in a hedging relationship 59.0 207.3 in cash flow hedges 47.9 193.2 Total 106.9 400.5

112 EWE Financial Report 2019 Consolidated Financial Statements

Hedging instruments on the liabilities side (I/II)

USD / Euro Hedge of foreign currency risk Foreign currency Euro PLN / Euro for the currency USD not in a hedging relationship 0.6 4.0 70.3 7.0 63.7 Total 0.6 4.0 70.3 7.0 63.7 1.2 for the currency PLN not in a hedging relationship 0.0 0.1 20.9 6.9 6.3 Total 0.0 0.1 20.9 6.9 6.3 4.4

Hedge of interest rate risk in cash flow hedges 35.3 215.0 Total 35.3 215.0

Hedge of commodity price risk GWh Euro / MWh for power derivatives not in a hedging relationship 11.4 72.5 2,027.4 710.5 58,270.9 in cash flow hedges 5.6 51.9 347.3 23.1 8,153.9 Total 17.0 124.4 2,374.7 733.6 66,424.8 46.8 for gas derivatives not in a hedging relationship 57.9 481.2 3,444.4 1,459.4 271,623.3 in cash flow hedges 19.7 116.3 383.3 236.7 33,182.4 Total 77.6 597.5 3,827.7 1,696.1 304,805.7 18.1

millions of t Euro / t for coal derivatives not in a hedging relationship 67.0 11.7 1.1 in cash flow hedges 3.2 6.1 19.8 14.8 0.5 Total 3.2 6.1 86.8 26.5 1.6 70.8 for CO2 derivatives not in a hedging relationship 0.4 94.9 8.6 4.9 in cash flow hedges 0.0 0.7 0.0 Total 0.0 0.4 94.9 9.3 4.9 21.3

Hedging instruments on the liabilities side not in a hedging relationship 69.9 558.2 in cash flow hedges 28.5 209.6 Total 98.4 767.8

EWE Financial Report 2019 Consolidated Financial Statements 113

Hedging instruments on the liabilities side (II/II)

USD / Euro Hedge of foreign currency risk Foreign currency Euro PLN / Euro for the currency USD not in a hedging relationship 1.4 1.0 32.2 41.4 60.4 Total 1.4 1.0 32.2 41.4 60.4 1.2 for the currency PLN not in a hedging relationship 0.0 0.1 24.1 3.2 6.2 Total 0.0 0.1 24.1 3.2 6.2 4.4

Hedge of interest rate risk in cash flow hedges 14.3 410.0 Total 14.3 410.0

Hedge of commodity price risk GWh Euro / MWh for power derivatives not in a hedging relationship 54.4 72.3 1,272.2 541.0 41,272.1 in cash flow hedges 26.7 40.8 111.5 65.6 4,472.4 Total 81.1 113.1 1,383.7 606.6 45,744.5 43.5 for gas derivatives not in a hedging relationship 38.3 98.6 1,966.2 665.1 122,502.8 in cash flow hedges 3.6 8.2 85.6 51.3 5,999.0 Total 41.9 106.8 2,051.8 716.4 128,501.8 21.5

millions of t Euro / t for coal derivatives not in a hedging relationship 1.5 123.9 31.9 2.2 in cash flow hedges 0.0 0.3 19.8 1.6 0.3 Total 0.0 1.8 143.7 33.5 2.5 70.9 for CO2 derivatives not in a hedging relationship 0.5 0.1 55.4 79.7 6.8 Total 0.5 0.1 55.4 79.7 6.8 19.9 for other commodity derivatives not in a hedging relationship 0.1 1.3 9.2 Total 0.1 1.3 9.2

Hedging instruments on the liabilities side not in a hedging relationship 94.7 174.9 in cash flow hedges 44.6 49.3 Total 139.3 224.2

114 EWE Financial Report 2019 Consolidated Financial Statements

The following table presents the changes in the value of the hedged item and the hedging instrument used as the basis for determining hedge ineffectiveness for the period and the amount of the cash flow hedge reserve for existing and terminated hedging relationships by risk category.

Hedging reserve Change in value Change in value Hedging reserve of terminated 31 December 2019 of the hedged of the hedging of existing hedge hedge in millions of euros item instrument Ineffectiveness relationship relationship

Assets / liabilities Hedge of foreign currency risk Currency derivatives -1.2 -1.2 4.9 Hedge of interest rate risk Interest rate derivatives 41.6 46.6 -5.0 -39.2 Hedge of commodity price risk Power derivatives 154.9 154.9 -37.7 Gas derivatives 204.6 204.6 0.0 -92.2 Coal derivatives -7.1 -7.1 -6.3

CO2 derivatives -14.8 -14.8 12.1 Total 378.0 383.0 -5.0 -158.4

Hedging reserve Change in value Change in value Hedging reserve of terminated 31 December 2018 of the hedged of the hedging of existing hedge hedge in millions of euros item instrument Ineffectiveness relationship relationship

Assets / liabilities Hedge of foreign currency risk Currency derivatives 6.9 6.9 6.1 Hedge of interest rate risk Interest rate derivatives -9.8 Hedge of commodity price risk Power derivatives -4.4 -4.4 30.3 -4.0 Gas derivatives 9.4 9.5 -0.1 58.6 -7.5 Coal derivatives -11.5 -11.5 0.7

CO2 derivatives 25.9 25.9 26.9 Total 26.3 26.4 -0.1 112.8 -11.5

EWE Financial Report 2019 Consolidated Financial Statements 115

The following table shows the development of the cash flow hedge reserve:

Hedge of foreign Hedge of currency interest risk rate risk Hedge of commodity price risk

Currency Interest rate Power Gas Coal CO2 in millions of euros derivatives derivatives derivatives derivatives derivatives derivatives Total

As of 1 January 2019 6.2 -9.8 26.3 51.0 0.7 26.9 101.3 Gain relating to effective hedges recognized in equity (OCI) 2.2 8.4 10.6 Loss relating to effective hedges recognized in equity (OCI) -42.0 -168.0 -253.3 -19.8 -40.1 -523.2 Gain relating to reclassifications due to the settlement of the hedged item being recognized in the income statement 69.3 48.6 117.9 Reclassifications due to a basis adjustment -4.0 9.4 18.4 23.8 Deferred taxes 0.6 12.6 26.3 61.4 3.4 6.9 111.2 As of 31 December 2019 5.0 -39.2 -37.7 -92.3 -6.3 12.1 -158.4

116 EWE Financial Report 2019 Consolidated Financial Statements

Hedge of foreign Hedge of currency interest risk rate risk Hedge of commodity price risk

Currency Interest rate Power Gas Coal CO2 in millions of euros derivatives derivatives derivatives derivatives derivatives derivatives Total

As of 1 January 2018 1.7 -2.5 -5.2 44.0 14.5 1.0 53.5 Gain relating to effective hedges recognized in equity (OCI) 8.4 72.6 182.3 2.9 62.5 328.7 Loss relating to effective hedges recognized in equity (OCI) -0.6 -10.4 -46.7 -57.7 Profit from CFH-reserve reclassification into the P&L as a result of premature CFH termination 0.2 0.2 Gain relating to reclassifications due to the settlement of the hedged item being recognized in the income statement 19.6 19.6 Loss relating to reclassifications due to the settlement of the hedged item being recognized in the income statement -8.1 -173.1 -181.2 Reclassifications due to a basis adjustment 1.7 4.3 -19.7 -24.4 -38.1 Deferred taxes -3.3 3.1 -10.7 -3.5 5.4 -12.2 -21.2 Reclassifications -1.9 4.8 -3.0 -2.4 0.0 -2.5 As of 31 December 2018 6.2 -9.8 26.3 51.0 0.7 26.9 101.3

The ineffective portion of the interest rate cash flow hedges is reported in net interest income / expenses.

The ineffective portion of the commodity cash flow hedges is reported under other operating income or expenses.

Gains or losses relating to reclassifications due to the settlement of hedged items being recognized in the income statement are presented in revenue or cost of materials.

Reclassifications due to a basis adjustment are recognized in the statement of financial position under inventories and non-financial assets.

EWE Financial Report 2019 Consolidated Financial Statements 117

40. Additional disclosures on financial instruments a) Disclosures on categories under IFRS 9, classes under IFRS 7 and fair value levels

Carrying amounts and fair values by measurement category (I/II)

Carrying amount Fair value in millions of euros 31 Dec 2019 Measurement category pursuant to IFRS 9 31 Dec 2019

Fair value Fair value Amortized through through OCI cost profit or loss without recycling

Assets Other non-current assets Shares 415.6 131.7 283.9 415.6 Loans 163.4 163.4 178.4 Derivatives Derivatives not in a hedging relationship 71.2 71.2 71.2 Derivatives in a hedging relationship (n/a) 14.1 14.1 Finance lease receivables (n/a) 73.1 71.9 Miscellaneous non-current financial assets 8.7 8.7 22.8 Trade receivables 1,054.8 1,054.8 1,054.8 Other current assets Loans 26.5 26.5 26.5 Securities 3.2 3.2 3.2 Derivatives Derivatives not in a hedging relationship 558.4 558.4 558.4 Derivatives in a hedging relationship (n/a) 21.6 21.6 Finance lease receivables (n/a) 10.4 10.4 Miscellaneous current financial assets 687.8 687.8 687.8 Cash and cash equivalents 135.3 135.3 135.3 Total 3,244.1 2,076.5 764.5 283.9 3,272.0

Liabilities Bonds 940.3 940.3 1,006.9 Liabilities to banks 544.4 544.4 577.4 Trade payables 762.8 762.8 762.8 Lease liabilities (n/a) 180.1 180.1 Miscellaneous other financial liabilities 440.2 439.9 0.3 454.4 Derivatives Derivatives not in a hedging relationship 628.0 628.0 628.0 Derivatives in a hedging relationship (n/a) 238.2 238.2 Total 3,734.0 2,687.4 628.3 3,847.8

n/a = not applicable: financial instrument is not allocated to any of the three measurement categories pursuant to IFRS 9

118 EWE Financial Report 2019 Consolidated Financial Statements

Carrying amounts and fair values by measurement category (II/II)

Carrying amount Fair value in millions of euros 31 Dec 2018 Measurement category pursuant to IFRS 9 31 Dec 2018

Fair value Fair value Amortized through through OCI cost profit or loss without recycling

Assets Other non-current assets Shares 301.4 92.9 208.5 301.4 Loans 139.0 139.0 154.6 Derivatives Derivatives not in a hedging relationship 59.0 59.0 59.0 Derivatives in a hedging relationship (n/a) 47.9 47.9 Finance lease receivables (n/a) 78.1 6.7 78.1 Miscellaneous non-current financial assets 4.1 4.1 4.1 Trade receivables 999.3 999.3 999.3 Other current assets Loans 23.2 23.2 23.2 Securities 152.6 152.6 152.6 Derivatives Derivatives not in a hedging relationship 207.3 207.3 207.3 Derivatives in a hedging relationship (n/a) 193.2 193.2 Finance lease receivables (n/a) 0.4 0.4 Miscellaneous current financial assets 68.4 68.4 0.0 68.4 Cash and cash equivalents 362.7 362.7 362.7 Total 2,636.6 1,603.4 511.8 208.5 2,652.2

Liabilities Bonds 1,313.0 1,313.0 1,424.5 Liabilities to banks 418.1 418.1 434.3 Trade payables 829.2 829.2 829.2 Finance lease liabilities (n/a) 0.1 0.1 Miscellaneous other financial liabilities 476.2 474.2 2.0 478.5 Derivatives Derivatives not in a hedging relationship 269.5 269.5 269.5 Derivatives in a hedging relationship (n/a) 94.0 94.0 Total 3,400.1 3,034.5 271.5 3,530.1

n/a = not applicable: financial instrument is not allocated to any of the three measurement categories pursuant to IFRS 9

Fair value of financial instruments is measured solely on a Fair value is the price that would be received to sell an recurring basis. asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

EWE Financial Report 2019 Consolidated Financial Statements 119

Equity investments that are not traded on an active mar- Listings on active markets are used as a reference for the ket are reported as shares. The fair value of unquoted measurement of commodity derivatives. If no listings are equity instruments is generally calculated using the dis- available (due to insufficient liquidity in the market, for counted cash flow method. example), fair values are calculated on the basis of recognized valuation techniques. The shares recognized in the reporting period primarily relate to equity investments in corporations measured as When available, trades that are identical to stock equity instruments at fair value through other compre- exchange transactions on the over-the-counter market are hensive income. The shares also relate to equity invest- measured on the basis of the published closing rates of ments in partnerships which are measured as debt the respective stock exchange. The fair values of over-the- instruments at fair value through profit or loss. In the counter products are measured on the basis of publicly reporting year, the securities were classified as debt available broker quotes or, if not available, on the basis of instruments at fair value through profit or loss as they do recognized valuation techniques using internal data. The not meet the criteria for measurement at amortized cost risk of default is measured. Energy deals conducted as or at fair value through other comprehensive income. part of commodity transactions are generally subject to Trade receivables and cash and cash equivalents have EFET (European Federation of Energy Traders) agreements short periods until maturity, which is why their carrying or the German framework agreement for financial futures amounts as of the reporting date generally match their [“Deutscher Rahmenvertrag für Finanztermingeschäfte”: fair value. The maximum default risk is reflected by the DRV]. In this case, risks of default are accounted for allow- carrying amounts of the assets recognized on the state- ing for netting agreements. ment of financial position. With regard to derivatives, the credit and debit valuation The fair value of derivative financial instruments is adjustment (CVA / DVA) gave rise to an insignificant gain / dependent on trends in the underlying market factors. loss, similar to the previous year. The respective fair values are measured and reviewed at regular intervals. The fair value of publicly traded bonds corresponds to the nominal value of the bonds multiplied by the quoted price Derivative financial instruments are largely governed by as of the reporting date. As of 31 December 2019, the fair conventional offsetting agreements. Derivative transac- value of the bonds exceeds their carrying amount. tions are generally conducted on the basis of standard agreements which enable the netting of all outstanding The fair value of other fixed-rate bonds which are not transactions with business partners under certain condi- traded on a stock exchange or fixed-interest liabilities to tions. banks is calculated as the present value of the payments relating to these liabilities taking into account the appli- Interest rate swaps, forward exchange contracts, CO2 cable yield curves. For floating-rate liabilities to banks, it forwards, power futures, coal swaps and gas price hedging is assumed that the carrying amount will generally corre- contracts are measured using standard valuation tech- spond to the fair value due to the regular adjustments niques with maximum consideration given to observable made to the interest rates on the basis of current market market data such as currency spot and forward rates, yield parameters. curves and price forward curves. Trade payables primarily have short maturities; the carrying amounts are therefore generally equal to their fair value.

120 EWE Financial Report 2019 Consolidated Financial Statements

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

31 Dec 2019 in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value Shares 0.0 415.6 415.6 Securities 3.2 3.2 Derivative financial instruments 17.8 641.8 5.7 665.3 Total 21.0 641.8 421.3 1,084.1 Financial liabilities at fair value Derivative financial instruments 9.3 805.6 51.3 866.2 Other financial instruments 0.3 0.3 Total 9.3 805.6 51.6 866.5

31 Dec 2018 in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value Shares 0.0 301.4 301.4 Securities 152.6 152.6 Derivative financial instruments 41.0 444.5 21.9 507.4 Total 193.6 444.5 323.3 961.4 Financial liabilities at fair value Derivative financial instruments 0.3 357.1 6.1 363.5 Other financial instruments 2.0 2.0 Total 0.3 357.1 8.1 365.5

The levels of the fair value hierarchy and their application As of each reporting date, the Company reviews whether to assets and liabilities are described below: there is any indication that an asset or a liability needs to be transferred to another level. During the reporting peri-  Level 1: Quoted (unadjusted) market prices in active od ending 31 December 2019, EWE did not transfer any markets for identical assets or liabilities. assets or liabilities between levels 1 and 2 of the fair value  Level 2: Inputs other than quoted market prices that hierarchy, nor did it transfer any assets or liabilities into or are observable for the asset or liability, either directly out of level 3 of the hierarchy. (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 Financial Report 2019 Consolidated Financial Statements 121

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

Derivative Derivative Other financial financial financial Shares instruments instruments instruments in millions of euros (assets) (assets) (liabilities) (liabilities)

As of 1 January 2019 301.4 21.9 6.1 2.0 Cost of materials recognized in the income statement -2.1 1.2 Other operating income recognized in the income statement -1.0 Other profit / loss from equity investments recognized in the income statement 37.9 Other comprehensive income 89.9 -15.2 44.0 Purchases 12.6 1.1 Addition / disposal of contingent purchase price obligations under IFRS 3 -0.7 Sales -2.1 Changes in the basis of consolidation, mergers -24.1 As of 31 December 2019 415.6 5.7 51.3 0.3

Derivative Derivative Other financial financial financial Shares instruments instruments instruments in millions of euros (assets) (assets) (liabilities) (liabilities)

As of 1 January 2018 384.5 8.8 5.8 2.0 Cost of materials recognized in the income statement 3.7 -1.9 Other profit / loss from equity investments recognized in the income statement 3.3 Other comprehensive income -21.3 9.4 2.2 Purchases 16.8 Sales -80.3 Reclassifications -1.6 As of 31 December 2018 301.4 21.9 6.1 2.0

The fair values of shares classified in level 3 are calculated 45.7 million euros (previous year: increase by 28.6 million using the discounted cash flow method based on planning euros) or a decrease by 45.7 million euros (previous year: figures from several periods for the cash flows to be dis- decrease by 28.6 million euros), respectively. counted and assuming a sustainable terminal value. This category includes equity instruments not listed on a stock As in the prior year, level 3 derivative financial instruments exchange. A hypothetical change in the WACC by +/-1 per were predominantly flexible purchase and sale contracts cent would result in a theoretical decrease in fair values as of 31 December 2019. The prices for the flexible terms by 122.5 million euros (previous year: decrease by are not quoted on a highly liquid market, they are deter- 58.0 mil-lion euros) or an increase by 279.9 million euros mined individually in bilateral negotiations. To measure the (previous year: increase by 104.5 million euros), respec- value of contracts with flexibility, EWE utilizes a valuation tively. A hypothetical change in EBIT by +/-10 per cent model which includes Monte Carlo simulations that make would result in a theoretical increase in fair values by it possible to determine a price for the contract options.

122 EWE Financial Report 2019 Consolidated Financial Statements b) Offsetting of financial instruments Since 2018, the EWE Group has stepped up its procurement and marketing optimization activities. The EWE Group aims to use more standard products in order to reduce transaction costs.

Fair value of financial Gross Net Amounts collateral 31 Dec 2019 amounts amounts that cannot received / in millions of euros recognized Offsetting recognized be offset pledged Net amount

Assets Trade receivables 1,522.2 -462.6 1,059.6 -59.8 999.8 Derivatives 1,519.4 -854.1 665.3 -532.4 132.9 Other financial assets 1,086.4 -396.7 689.7 -9.3 -594.2 86.2 Total 4,128.0 -1,713.4 2,414.6 -601.5 -594.2 1,218.9

Liabilities Trade payables 1,225.6 -462.6 763.0 -59.8 703.2 Derivatives 1,800.9 -934.7 866.2 -523.9 342.3 Other financial liabilities 480.3 -316.1 164.2 -17.8 146.4 Total 3,506.8 -1,713.4 1,793.4 -601.5 1,191.9

Fair value of financial Gross Net Amounts collateral 31 Dec 2018 amounts amounts that cannot received / in millions of euros recognized Offsetting recognized be offset pledged Net amount

Assets Trade receivables 1,344.8 -341.4 1,003.4 -42.1 961.3 Derivatives 1,022.7 -515.3 507.4 -186.4 321.0 Other financial assets 250.5 -183.7 66.8 66.8 Total 2,618.0 -1,040.4 1,577.6 -228.5 1,349.1

Liabilities Trade payables 1,170.8 -341.4 829.4 -42.1 787.3 Derivatives 870.0 -506.5 363.5 -186.4 177.1 Other financial liabilities 387.9 -192.5 195.4 195.4 Total 2,428.7 -1,040.4 1,388.3 -228.5 1,159.8

EWE Financial Report 2019 Consolidated Financial Statements 123

The Group shifted its focus from OTC markets to stock The overview also shows the financial assets and liabilities markets. As part of its optimization efforts, the Group that have not been offset, but which are subject to master used market opportunities to increase the turnover rate. netting arrangements or similar agreements. This involved making a greater number of purchases and sales and a considerable increase in the gross amounts The fair value of financial collateral received is largely the traded. value of treasury shares which hedge the purchase price receivable of these shares. In the area of realized transactions, the payment netting arrangements in the EFET agreements were recognized as In addition to the collateral described, the Company uses protected against insolvency, so that the criteria to qualify initial margins for collateral effect, which cannot be allo- for offsetting were met. In the area of derivatives, the cated to a specific item. carrying amounts of the futures were netted with the variation margin payments, while in the area of forwards Contractually agreed cross-commodity nettings were not with traded energy, significant amounts arose as a result presented because the value of the collateral effect could of a netting of positions, which were reported on a net not be reliably assessed. basis in the statement of financial position.

c) Net gains or losses by measurement category The following table provides an overview of net gains or losses before income taxes and losses by IFRS 9 category:

in millions of euros 2019 2018

Net gains or losses on financial assets Measured at fair value through profit or loss (FVPL) Debt instruments measured at FVPL 41.8 8.9 At amortized cost -7.2 -4.5 Equity instruments at fair value through OCI (FVOCI) 98.0 -13.4 Total net gains or losses on financial assets 132.60 -9.0

Net gains or losses on financial liabilities Measured at FVPL 1.0 At amortized cost -80.6 -84.5 Total net gains or losses on financial liabilities -79.6 -84.5

Net gains or losses on financial assets or financial liabilities Mandatorily measured at fair value (derivatives with a hedging relationship) 1) -494.0 230.7 Mandatorily measured at fair value (derivatives without a hedging relationship) -85.2 -22.7 Total net gains or losses on financial assets or financial liabilities -579.2 208.0

Total -526.2 114.5

1) Valuation effects relating to effective hedges, basis adjustments and ineffectiveness

124 EWE Financial Report 2019 Consolidated Financial Statements

41. Risk management

Liquidity risks To ensure liquidity, the EWE Group maintains a sufficient Liquidity risk refers to the risk of a company not being line of credit with banks. Financial flexibility is ensured by able to meet its financial obligations as necessary. In order means of bilateral lines of credit and, in particular, to ensure that it remains solvent, the EWE Group obtains through the existing syndicated revolving credit facility of the majority of the funds needed to finance working capi- 750.0 million euros, whose original five-year term was tal and investments from the proceeds of business opera- extended in 2018 by one additional year to November tions and external financing. The EWE Group continually 2023 through the exercise of the second and final renewal monitors the risk of a possible liquidity shortfall using option. This credit line serves to provide general working continually updated liquidity planning. capital. As of 31 December 2019, a total of 50.0 million euros has been drawn on from this credit line (previous Within the scope of operative liquidity management, the year: 0.0 million euros). The value of bilateral credit lines EWE Group pools all of its cash and cash equivalents on a available as of the reporting date totaled 463.9 million daily basis. As a result, liquidity requirements and sur- euros (previous year: 582.7 million euros). Of this amount, pluses can be balanced and managed according to the 192.2 million euros (previous year: 209.5 million euros) needs of the Group as a whole as well as for individual was drawn on in some form, including as guarantees. Group companies. Included are clearing activities which can also result in a cash inflow or outflow. A limit system There are no financial covenants in financing agreements and structured follow-up processes are in place to ensure within the EWE Group. Exceptions relate to onshore wind that the potential cash outflow from clearing activities is parks with project finance containing bank loans with limited. financial covenants in the form of debt service coverage ratios (DSCRs). These financial covenants were complied Furthermore, Group companies are also provided funds with. for non-current financing purposes. Fundraising on the banking and capital markets is generally carried out by The liquidity held with banks as well as the current and EWE AG at the level of the parent company. non-current lines of credit provide EWE AG sufficient flexibility to cover the Group’s liquidity needs.

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

31 Dec 2019 CASH FLOWS More than 5 in millions of euros Up to 1 year 1 to 5 years years

Primary financial liabilities: Bonds 380.2 463.9 100.0 Liabilities to banks 162.3 82.9 303.7 Liabilities from guaranteed dividends 6.9 9.6 22.0 Trade payables 762.8 Lease liabilities 25.6 77.4 100.6 Miscellaneous financial liabilities 174.0 48.7 324.7 Total 1,511.8 682.5 851.0

EWE Financial Report 2019 Consolidated Financial Statements 125

31 Dec 2018 CASH FLOWS More than 5 in millions of euros Up to 1 year 1 to 5 years years

Primary financial liabilities: Bonds 433.1 905.4 127.9 Liabilities to banks 46.7 61.4 361.1 Liabilities from guaranteed dividends 2.8 13.1 21.5 Trade payables 828.0 Miscellaneous financial liabilities 198.3 60.5 334.7 Total 1,508.9 1,040.4 845.2

Cash flows from power derivatives (not own use)

31 Dec 2019 31 Dec 2018 in millions of euros Up to 1 year 1 to 5 years Up to 1 year 1 to 5 years

Cash outflows -571.4 -106.4 -633.7 -161.4 Cash inflows 261.7 367.2 359.0 277.7 Net cash flows -309.7 260.8 -274.7 116.3

These cash flows relate to power derivatives with negative an overall view of all cash inflows and outflows from all market values of 141.4 million euros (previous year: transactions with power derivatives (purchases and sales). 194.2 million euros) and positive market values of The own-use positions relevant in this regard are not 83.0 million euros (previous year: 234.3 million euros). disclosed in the above table because they do not repre- Meaningful financial information can only be derived from sent financial instruments as defined under IFRS.

Cash flows from gas derivatives (not own use)

31 Dec 2019 31 Dec 2018 in millions of euros Up to 1 year 1 to 5 years Up to 1 year 1 to 5 years

Cash outflows -1,412.2 -840.6 -1,263.6 -894.3 Cash inflows 844.2 436.2 717.9 215.8 Net cash flows -568.0 -404.4 -545.7 -678.5

These cash flows relate to gas derivatives with negative an overall view of all cash inflows and outflows from all market values of 675.1 million euros (previous year: transactions with gas derivatives (purchases and sales). 148.7 million euros) and positive market values totaling The own-use positions relevant in this regard are not 549.7 million euros (previous year: 209.5 million euros). disclosed in the above table because they do not repre- Meaningful financial information can only be derived from sent financial instruments as defined under IFRS.

126 EWE Financial Report 2019 Consolidated Financial Statements

Credit risks In addition to bilateral trades, the Company also con- Credit risk describes the risk of financial loss when coun- cludes EEX and ICE (Intercontinental Exchange) transac- terparties are not or not fully able to meet their contrac- tions under clearing terms. In this way, the market price tual obligations, with the risk stemming from financial risk shifts to the relevant clearing houses and banks. The difficulties or inability to deliver. credit risk with regard to these institutions corresponds to the initial margin provided. In credit risk management, a credit rating-oriented management of potential credit risks, which addresses both A procedure and methodology are defined for the assess- individual risks and cluster risks, takes place. The most ment of the creditworthiness of the counterparties. An significant credit risks to which the EWE Group is exposed initial assessment is followed by ongoing monitoring of arise from its business with special contract and retail creditworthiness. The creditworthiness assessment is customers, the investment of cash and cash equivalents, represented by an internal rating and encompasses both from energy and foreign exchange trading and from inter- external and internal information. If available, scores from est rate transactions. In order to limit credit risks arising Standard & Poor’s, Moody’s and Fitch are used wherever from financial difficulties or insolvency in the business possible. In addition, other rating agencies and credit with special contract customers, offers are only made to agencies are involved and current financial statements customers with good credit ratings. The Group diversifies are evaluated. Business takes place exclusively within credit risks when investing overnight and time deposits at approved credit limits and compliance is monitored. banks with high creditworthiness requirements. In the trading business, financial difficulties and the ability to Within the scope of normal business operations, accounts deliver on the part of counterparties are considered. receivable are continuously monitored by decentralized receivables management, with the available customer- Credit risks in the trading business predominantly stem specific information, such as past-due receivables, evalu- from: ated in order to recognize the bad debt allowances. A default is assumed if the second reminder is not followed  Loss of receivables for physical goods and financial by prompt receipt of payment. If payment is no longer transactions; expected at a certain point in time, the receivable is writ-  Repurchase risk arising from purchase contracts and ten off. Receipt of payment is no longer expected when price increases; the relevant contracting party is undergoing insolvency  Re-sale risk arising from sales contracts, if prices have proceedings. Any payments received for receivables writ- since declined. ten off are recognized in the income statement.

Potential default risks in the trading business are also Financial assets are impaired on the basis of an expected limited by means of specific clauses in framework agree- credit loss (ECL) model, which takes into account the re- ments with trading partners. The EFET and DRV frame- ceivable at risk, the probability of default and the loss work agreements help ensure that business is conducted given default. For non-current financial assets, a multi- in an orderly and risk-focused manner. The framework year analysis is performed until the end of the term and agreements include stipulations governing collateral to be discounted. provided, if necessary, as well as on measures to protect the parties from losses due to insolvency, among other The measurement of the probability of default is the same clauses. Collateral is differentiated in credit risk manage- as in credit risk management and uses the information ment in terms of collateral provider and mechanism. The available there. It is measured upon acquisition and at reduction of credit risk with regard to the loss amount or each subsequent reporting date. In the general approach, the probability of default increases the available scope for a migration takes place if there is a significant change in action. Furthermore, netting arrangements are concluded credit risk. To assess whether this has occurred, the credit and an increasing amount of clearing activities take place risk at the reporting date is compared with the credit risk in the trading business. on the migration date or upon later acquisition, as appropriate. Upon acquisition, the probability of default is

EWE Financial Report 2019 Consolidated Financial Statements 127 normalized over a 12-month period and adjusted in rela- The credit risks are assessed over the contractual term of tion to its reference period. For this purpose, the empiri- the financial assets in accordance with the respective cal information on rating migration from Standard & Poor’s term. Only historical data is included in the calculation for and Moody’s is used for non-current financial assets. the portfolios.

A significant increase in credit risk in the ECL of the As energy, water and telecommunications are basic needs impairment concept will have occurred if the credit rating for retail customers and commodities in industry, credit of the counterparty deteriorates by a rating grade and loss expectations do not vary palpably in response to is no longer investment grade. The allocation of the macroeconomic indicators. Accordingly, no adjustments probability of default to ratings is based on the ratings of were taken into account for this purpose and, instead, the Standard & Poor’s and Moody’s. The determination of a outlook contained in credit information was included for significant increase in credit risk leads to an increase in individually measured credit risks. the credit loss allowance.

For the simplified approach, the financial assets are dif- Basis for the ferentiated by amount. No individual information is held measurement of below the threshold for the credit limit allocation and the the expected loss assets are combined into portfolios and subsequently Category Category description from credit risk collectively impaired. Company-specific portfolios are used to recognize an appropriate impairment on the small Customers have a low customer and retail customer segment. The portfolios probability of default and Category 1 a large capacity to meet 12-month ECL consider historical defaults, among other things. The allo- Investment grade the contractual cash flows or shorter cation of the companies included in the consolidated Category 2 Customers with Contractual financial statements to the portfolios is reviewed annually. Non-investment grade increased credit risk term There is a major Asset is Category 3 risk of partial (partially) Receivables processing loss of the asset impaired

The EWE Group has the following risk category structure based on the carrying amounts:

General Simplified 31 Dec 2019 Approach approach in millions of euros Stage 1 Stage 2 Stage 3

Category 1 (investment grade) 985.4 13.3 2.7 949.5 Category 2 (non-investment grade) 39.8 1.9 179.2 Category 3 (debt workout) 2.5 13.3 Total 1,025.2 15.2 5.2 1,142.0

128 EWE Financial Report 2019 Consolidated Financial Statements

General Simplified 31 Dec 2018 Approach approach in millions of euros Stage 1 Stage 2 Stage 3

Category 1 (investment grade) 535.8 6.0 0.8 976.0 Category 2 (non-investment grade) 56.7 0.1 117.2 Category 3 (debt workout) 0.3 13.0 Total 592.5 6.1 1.1 1,106.2

31 Dec 2019 31 Dec 2018 Gross Gross Probability receivables receivables in millions of euros of default p.a. amount Impairment amount Impairment

Portfolio 1.00 % n/a 256.3 -2.8 200.7 -2.6 2.50 % n/a 85.3 -0.3 26.4 -0.1 4.50 % n/a 83.1 -0.3 129.8 -1.0 IFRS 9 rating AAA 0.01 % 12.6 0.0 10.2 0.0 AA 0.05 % 138.6 0.0 150.5 0.0 A 0.16 % 918.0 -0.1 250.1 0.0 BBB 0.44 % 438.4 -0.5 732.0 -0.6 BB 1.57 % 160.2 -0.2 130.3 -0.3 B 5.42 % 72.8 -0.6 59.3 -0.3 C 20.00 % 1.5 0.0 3.1 -0.1 D 35.00 %

Subtotal 2,166.8 -4.8 1,692.4 -5.0 Impaired receivable / specific bad debt allowance 20.8 -18.9 13.5 -11.7 Total 2,187.6 -23.7 1,705.9 -16.7

n/a = not applicable: no specific probabilities of default were assigned to the receivables

The specified portfolio percentages refer to a term of one The Group’s maximum default risk is reflected by the year so that receivables with a shorter term with a lower recognized carrying amounts of the assets as of the expected loss rate are included in the calculation. The reporting date. EWE Group applies a standardized loss given default (LGD) of 75 per cent. The Group holds cash collateral from energy trading and energy sales transactions. The collateral for energy trading The increase in financial assets in comparison with the relates to standard trading contracts and is from institu- previous year, which was attributable to normal fluctuations with good credit ratings, while the collateral for tions, did not have a significant impact on the amount of energy sales is from business and retail customers. impairments before specific bad debt allowances. The financial instruments are impaired with due regard to any collateral provided.

EWE Financial Report 2019 Consolidated Financial Statements 129

Market price risks For conventional power generation, the hedging of elec- Market price risks are the risks of fluctuations in the fair tricity sales volumes and the corresponding commodity value or future cash flows of a financial instrument due to purchases needed for this purpose are aligned in terms of changes in market prices. Within the EWE Group, this timing and quantity. primarily applies to market price risk related to commodities, foreign exchange and interest rates. To the extent that it makes economic sense, price risk and derivatives entered into to hedge this risk are subject to Commodity price risks in EWE’s energy management arise the same specific variable or the same index. In addition from asynchronous developments of prices from energy to credit risks, ineffectiveness is not usually expected to and commodity purchase and sales contracts or expected be very high. The price of coal may be subject to quality contracts, on the one hand, and changes in market prices, adjustments and can therefore develop differently to a on the other. As part of defined risk strategies, EWE uses limited extent. These differences in quality compared to derivatives to hedge much of its exposure to these diverg- the contractually-agreed basis can only be determined ing changes in prices and values. For this purpose, simple upon delivery, when they are reflected directly in the forwards and futures and in some cases swaps are used income statement. on a regular basis and, rarely and to a lesser extent, options or positions classified as Level 3. Derivatives are designated in hedging relationships where practicable and appropriate. Hedges of foreign currency The energy and commodity prices hedged by the deriva- commodity purchases may be concluded if necessary. tives are generally similar in nature to the risk exposure from the underlying transactions. For example, electricity The sensitivities used for measuring financial instruments price risks are hedged using electricity price-linked deriva- or power, gas, coal and emissions rights derivatives as well tives and gas prices risks from TTF, gas pool or NCG-linked as currencies and interest rates are shown below. Howev- hedged items are generally hedged using corresponding er, this only includes recognized financial instruments TTF, gas pool or NCG-linked derivatives. As part of coal whose changes in market value affect equity and / or the price hedging for expected production quantities, stand- income statement. ardized products are also hedged based on the API 2 index, e.g., and thus correspond to the standard market condi- By contrast, financial instruments used for the physical tions and price risks. Volatile power generation – e.g., fulfillment of non-financial items in accordance with the from renewable energy sources, is only marketed in the Company’s expected purchase, sale or usage require- short term and is not included in hedge accounting. ments (“own use”) are not included. These items are not accounted for in accordance with IFRS 9. Therefore, the The hedging period does not usually exceed the liquid following sensitivities do not reflect the actual economic market period. risks and merely serve to fulfill the disclosure requirements of IFRS 7. The economic sensitivity is regarded as The hedging level for energy production or expected sales low. (production and energy sales) over a future period generally increases over time. In designated hedges however, it These fluctuations in market value generate increased generally remains below the realistically expected quanti- cash flow effects from activities on the energy exchanges. ties such that the hedged item can generally be consid- Changes in the market value of transactions concluded ered highly likely to be realized for the purpose of hedge there are compensated for financially by providing a mar- accounting. For hedging purposes, in some cases specific gin as specified by the terms of margin agreements. cover or – e.g., for retail customer and small business customer business – short to medium-term cover is Sensitivity analyses assume a change in the respective obtained to hedge prices. underlying market price or exchange rate of +/-10 per cent and / or interest rates of +/-100 basis points (bp) across all relevant supply years and / or periods.

130 EWE Financial Report 2019 Consolidated Financial Statements

Power and gas To measure and limit market price risks, the relevant open items for all delivery periods are measured with potential market price developments, which are determined using stochastic models. These may not exceed prescribed limits and risk management therefore constantly monitors compliance.

Change in Effect on Effect on other

price trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Power futures requiring physical fulfillment -38.6 -8.4 36.6 46.2 subject to hedge accounting +10 % 18.3 23.1 subject to hedge accounting -10 % -18.3 -23.1 not subject to hedge accounting +10 % -19.3 -4.2 not subject to hedge accounting -10 % 19.3 4.2

Power futures requiring financial fulfillment 40.8 25.8 not subject to hedge accounting +10 % 20.4 12.9 not subject to hedge accounting -10 % -20.4 -12.9

Total +10 % 1.1 8.7 18.3 23.1 Total -10 % -1.1 -8.7 -18.3 -23.1

Change in Effect on Effect on other price trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Gas futures requiring physical fulfillment 65.1 -11.3 84.0 75.4 subject to hedge accounting +10 % 42.0 37.7 subject to hedge accounting -10 % -42.0 -37.7 not subject to hedge accounting +10 % 32.6 -4.7 not subject to hedge accounting -10 % -32.5 6.6

Gas futures requiring financial fulfillment 0.2 7.8 54.2 subject to hedge accounting +10 % 3.9 27.1 subject to hedge accounting -10 % -3.9 -27.1 not subject to hedge accounting +10 % 0.1 not subject to hedge accounting -10 % -0.1

Total +10 % 32.7 -4.7 45.9 64.8 Total -10 % -32.6 6.6 -45.9 -64.8

EWE Financial Report 2019 Consolidated Financial Statements 131

Coal The following table shows sensitivity based on the API 2 index, which is quoted in US dollars. In this context, the EWE Group assumes a highly effective hedging relationship for the coal derivatives used as hedging instruments. The items were translated from US dollars into euros at the rate on the respective reporting date.

Change in Effect on Effect on other price trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Coal futures 1.8 7.2 subject to hedge accounting +10 % 2.5 6.9 subject to hedge accounting -10 % -2.5 -6.9 not subject to hedge accounting +10 % 0.9 3.6 not subject to hedge accounting -10 % -0.9 -3.6

Total +10 % 0.9 3.6 2.5 6.9 Total -10 % -0.9 -3.6 -2.5 -6.9

CO2 certificates

Change in Effect on Effect on other price trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

CO2 forward transactions -5.4 -14.4 5.8 12.2 subject to hedge accounting +10 % 2.9 6.1 subject to hedge accounting -10 % -2.9 -6.1 not subject to hedge accounting +10 % -2.7 -7.2 not subject to hedge accounting -10 % 2.7 7.2

Total +10 % -2.7 -7.2 2.9 6.1 Total -10 % 2.7 7.2 -2.9 -6.1

132 EWE Financial Report 2019 Consolidated Financial Statements

Other commodities

Change in Effect on Effect on other price trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Other commodities 2.6 not subject to hedge accounting +10 % 1.3 not subject to hedge accounting -10 % -1.3

Total +10 % 1.3 Total -10 % -1.3

Currencies The Group is mainly exposed to foreign exchange risks uses hedges in line with its risk management policy to which result from trading commodities, primarily gas and reduce this risk. In this context, the EWE Group generally coal, in foreign currencies. This risk is due to the variabil- assumes that the hedging relationship between the ity of future cash flows resulting from volatile exchange hedged items (e.g., planned coal purchases) and the for- rates, in particular EUR / USD and EUR / PLN. The Group ward exchange contracts is effective.

Change in euro / foreign currency Effect on Effect on other exchange rate profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Forward exchange contracts 4.4 -0.7 -12.2 -20.5 subject to hedge accounting +10 % -5.5 -9.2 subject to hedge accounting -10 % 6.7 11.3 not subject to hedge accounting +10 % 2.0 -0.3 not subject to hedge accounting -10 % -2.4 0.4

Currency options 0.3 not subject to hedge accounting +10 % 0.2 not subject to hedge accounting -10 % -0.1

Other 0.6 -2.2 0.2 subject to hedge accounting +10 % -1.0 0.1 subject to hedge accounting -10 % 1.2 -0.1 not subject to hedge accounting +10 % 0.0 0.3 not subject to hedge accounting -10 % 0.0 -0.3

Total +10 % 2.0 0.2 -6.5 -9.1 Total -10 % -2.4 0.0 7.9 11.2

EWE Financial Report 2019 Consolidated Financial Statements 133

Interest rates EWE’s interest risk management system minimizes the risk  Changes in the market interest rates for fixed-interest of cash flow changes from existing or planned underlying primary financial instruments only have an effect on financing transactions and the resulting interest pay- profit or loss for the period if they are carried at fair ments. value.  Fixed-interest financial instruments carried at amor- For this purpose, interest rate swaps are used in hedging tized cost are not subject to interest rate risk. relationships. The hedge covers the isolated interest rate risk, but not the variability of the Group’s own credit risk The use of hedging instruments can lead to earnings vola- (credit spread). tility in the event of changes in the hedged item. The following interest rate sensitivity analysis shows market The sensitivity analyses for interest rate risk are based on rate sensitivity of the existing interest rate derivative the following assumptions: portfolio.

Change in Effect on Effect on other interest trends profit or loss comprehensive income in millions of euros 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018

Interest rate derivatives 2.2 61.1 104.6 subject to hedge accounting +100 bp 30.6 52.3 subject to hedge accounting -100 bp -30.5 -52.3 not subject to hedge accounting +100 bp 1.1 not subject to hedge accounting -100 bp -1.1

Total +100 bp 1.1 30.6 52.3 Total -100 bp -1.1 -30.5 -52.3

Risk concentration Risk concentration arises if the occurrence of several risks In order to avoid excessive concentrations of risk, the is correlated. In the area of credit risk, risk concentration Group’s policies and procedures include specific guide- arises when counterparties are engaged in similar busi- lines to focus on the maintenance of a diversified portfolio ness activities or activities with similar economic charac- and the limitation of highly correlated risks through group teristics that would cause their ability to meet contractual companies. Identified credit risk concentrations are con- obligations to be similarly affected by changes in econom- trolled and managed both at the level of the individual ic, political or other conditions. Risk concentrations indi- business relationships as well as at branch level. cate the relative sensitivity of the Group’s performance to developments affecting a particular industry. The commodities listed under market price risks have correlations that could lead to a risk concentration if the relevant commercial or political developments occur.

134 EWE Financial Report 2019 Consolidated Financial Statements

42. Segment reporting The International segment encompasses EWE’s business activities in Poland. Until its sale to SOCAR in the first half The segments in the EWE Group are determined in of 2019, the Turkish business, which was included in the accordance with internal reporting approaches. The International segment in the past, was reported as a operating segments are regularly reviewed by the chief discontinued operation and is no longer included in the operating decision maker, EWE AG’s full Board of International segment. Management. The swb segment consists of the swb subgroup. This seg- Segment data is determined using the recognition and ment encompasses the provision of energy and water measurement methods used in the consolidated financial services, particularly supplying energy and water to the statements. municipalities of Bremen and Bremerhaven and their surrounding areas. This results in the following segments: In addition to the holding company EWE AG and the  Renewables, Grids and Gas Storage Group’s property portfolio, the Group Central Division  Sales, Services and Trading encompasses the equity investments managed directly by  International EWE AG as well as the companies consolidated at the  swb group level.

In addition to the water and waste water business, power External revenue is presented by product and service as generation from renewable energy sources as well as the part of revenue reporting (note 5). gas storage business, the Renewables, Grids and Gas Stor- age segment also encompasses power grids, natural gas The following table shows external revenue, assets and pipelines and telecommunications networks. capital expenditure by region:

Energy and telecommunications sales as well as energy trading and the information technology business are included in the Sales, Services and Trading segment.

Germany Germany International International Group Group in millions of euros 2019 2018 2019 2018 2019 2018

External sales 5,593.5 5,567.6 65.8 49.5 5,659.3 5,617.1 Segment assets 9,067.6 8,161.8 123.8 121.6 9,191.4 8,283.4 Capital expenditure 582.2 527.5 5.2 2.2 587.4 529.7

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

EWE Financial Report 2019 Consolidated Financial Statements 135

Segment reporting

Renewables, Sales, Group 2019 Grids and Services and Central in millions of euros Gas Storage Trading International swb Division Group

External sales 839.9 3,647.5 65.7 1,103.8 2.4 5,659.3 Internal sales 835.9 510.7 0.2 166.5 -1,513.3 Revenue 1,675.8 4,158.2 65.9 1,270.3 -1,510.9 5,659.3

Segment profit / loss (operating EBIT) 360.0 99.6 -0.4 68.1 -71.4 455.9

Impairments of intangible and property, plant and equipment -40.5 -5.4 -14.5 -7.7 -68.1 Capital expenditure 371.5 85.1 5.2 125.6 0.0 587.4 Employees (average) 2,308 3,498 119 2,221 685 8,831

Renewables, Sales, Group 2018 Grids and Services and Central in millions of euros Gas Storage Trading International swb Division Group

External sales 806.7 3,757.4 49.5 1,001.4 2.1 5,617.1 Internal sales 854.3 656.4 0.0 372.0 -1,882.7 0.0 Revenue 1,661.0 4,413.8 49.5 1,373.4 -1,880.6 5,617.1

Segment profit / loss (operating EBIT) 361.9 52.1 0.8 34.3 -72.0 377.1

Impairments of intangible and property, plant and equipment -2.6 -3.7 -0.3 -6.6 Capital expenditure 305.9 97.8 2.2 102.7 21.1 529.7 Employees (average) 2,198 3,389 122 2,142 657 8,508

136 EWE Financial Report 2019 Consolidated Financial Statements

Operating EBIT can be reconciled as follows to earnings 43. Statement of cash flows before taxes (EBT): Cash and cash equivalents comprise the cash and cash equivalents recognized in the statement of financial posi- in millions of euros 2019 2018 tion amounting to 135.3 million euros (previous year: 362.7 million euros) as well as cash pool receivables of Operating EBIT from continuing 1.7 million euros (previous year: 1.5 million euros). Cash operations 455.9 377.1 and cash equivalents include cash on hand and bank Derivatives -85.2 -22.7 balances. Fair value measurement of other financial instruments 37.6 3.0 To calculate cash flow from operating activities, the allo- Reversals of impairments 16.9 cations to and reversals of provisions are presented as Impairments -73.2 -11.2 non-cash changes in provisions and the utilization of pro- Equity investments 0.3 visions is shown in changes in liabilities and other compo- Restructuring 0.8 0.2 nents of equity and liabilities. Cash flow from operating Transaction costs / treasury shares -2.9 activities includes dividends received totaling 19.1 million EBIT from continuing operations 333.3 363.3 euros (previous year: 23.0 million euros). Interest income 11.5 21.8 Interest expenses -130.0 -139.7 Cash paid for investments in shares of fully consolidated EBT from continuing operations 214.8 245.4 companies relates to the acquisition of shares in Wind- park Buchhain 8 & 11 GmbH & Co. KG, Kiel, Windpark Bärfang GmbH & Co. KG, Kiel, and Limón GmbH, Kassel, less acquired cash and cash equivalents. In the previous year, this item mainly related to the acquisition of shares in BBC and SEC less acquired cash and cash equivalents.

Cash flow from financing activities includes dividends paid to the owners of EWE AG of 88.0 million euros (previous year: 88.0 million euros), or 402.40 euros per share entitled to a dividend (previous year: 402.40 euros). Dividends of 0.5 million euros (previous year: 1.9 million euros) were distributed to non-controlling shareholders

Non-cash investments of 92.5 million euros (previous year: 18.9 million euros) largely relate to the acquisition cost of right-of-use assets under lease agreements of 21.1 million euros (previous year: 0.0 million euros) and the capitalization of rehabilitation provisions of 71.4 million euros (previous year: 18.6 million euros).

Non-cash financing activities relate to the recognition of lease liabilities pursuant to IFRS 16 of 21.1 million euros (previous year: 0.0 million euros) resulting from the acquisition of assets by way of a lease.

EWE Financial Report 2019 Consolidated Financial Statements 137

The amounts reported in the statement of cash flows as a lessee pursuant to IFRS 16 are presented as follows:

 Presentation of cash paid for the principal portion in cash flow from financing activities  Presentation of the cash paid for the interest portion of the lease liability in cash flow from operating activities  Presentation of the lease payments for short-term leases and leases of low-value assets not recognized in the statement of financial position, and variable lease payments not contained in the lease liability in cash flow from operating activities

As of 31 December 2019, 3.3 million euros of cash and cash equivalents were subject to restrictions on disposal (previous year: 4.5 million euros).

The following reconciliation statement shows the change in liabilities from financing activities:

Liabilities from Liabilities from Liabilities Lease contributions by guaranteed Other in millions of euros Bonds to banks liabilities silent partners dividends liabilities Total

Non-current liabilities As of 1 January 2019 921.7 376.2 0.0 225.0 29.1 0.6 1,552.6 Cash-effective -3.1 -22.4 0.0 -25.5 Non-cash-effective Changes in the basis of consolidation 22.7 3.8 26.5 Reclassifications / other changes -359.1 -13.3 183.3 -3.2 -0.1 -192.4 As of 31 December 2019 562.6 382.5 164.7 225.0 25.9 0.5 1,361.2

Current liabilities As of 1 January 2019 391.3 41.9 0.0 2.8 19.8 455.8 Cash-effective -372.4 106.5 -1.4 -2.8 -3.2 -273.3 Non-cash-effective Changes in the basis of consolidation 0.1 0.1 0.0 0.2 Reclassifications / other changes 358.8 13.4 23.3 3.5 -0.1 398.9 As of 31 December 2019 377.7 161.9 22.0 3.5 16.5 581.6

138 EWE Financial Report 2019 Consolidated Financial Statements

Liabilities from Liabilities from Liabilities Lease contributions by guaranteed Other in millions of euros Bonds to banks liabilities silent partners dividends liabilities Total

Non-current liabilities As of 1 January 2018 1,290.6 395.4 0.1 225.0 24.8 0.7 1,936.6 Cash-effective -15.8 -0.1 6.2 0.2 -9.5 Non-cash-effective Currency adjustments 0.1 0.0 0.1 Reclassifications / other changes -368.9 -3.5 -1.9 -0.3 -374.6 As of 31 December 2018 921.7 376.2 0.0 225.0 29.1 0.6 1,552.6

Current liabilities As of 1 January 2018 18.9 118.3 0.1 2.8 20.3 160.4 Cash-effective -43.5 0.0 -2.8 4.4 -41.9 Non-cash-effective Currency adjustments -6.5 0.0 -6.5 Reclassifications / other changes 372.4 -26.4 -0.1 2.8 0.0 348.7 As of 31 December 2018 391.3 41.9 0.0 2.8 24.7 460.7

44. Information on easements

A number of easements – that is, agreements governing These agreements are generally entered into for a period the use of public property for electricity and natural gas, of 20 years. If the easements are not renewed, EWE is and concession agreements in the water sector – exist legally obligated to transfer the local distribution facilities between companies in the EWE Group and the local to the new energy supplier in return for reasonable con- authorities in EWE’s network areas. sideration.

In the easement agreements, the EWE group companies are given the right to use public spaces within the contractual territory for the construction, operation and maintenance of power lines and pipelines as well as the associated equipment which serve to directly supply end consumers with power and natural gas. The water concession agreements obligate the local authorities in the contract territory agree to grant EWE the exclusive use of public spaces for the installation and operation of pipelines for directly supplying the public with water. Within the scope of these agreements, a concession fee must be paid to the municipality for the use of public land.

EWE Financial Report 2019 Consolidated Financial Statements 139

45. Selection of significant shareholdings pursuant to Sec. 313 (2) HGB as of 31 December 2019

Name and registered office of the company Share Profit / loss in thousands of euros in % Equity for the year

Affiliates Consolidated: Amperas GmbH (formerly Digitalprojekt 4 GmbH), Berlin, Germany 100.00 354 -889 7) be storaged GmbH, Oldenburg, Germany 100.00 3,775 2) best-blu consulting with energy GmbH, Salzgitter, Germany 100.00 1) 478 453 BREKOM GmbH, Bremen, Germany 100.00 1) 9,093 117 7) BTC Business Technology Consulting AG, Oldenburg, Germany 100.00 12,902 2) BTC Embedded Systems AG, Oldenburg, Germany 93.60 1) 4,057 1,837 BTC IT Services GmbH, Oldenburg, Germany 100.00 1) 1,463 2) Bürgerwindpark Bakum West GmbH & Co. KG, Oldenburg, Germany 100.00 1) 806 -128 Eigensonne GmbH (formerly Digitalprojekt 3 GmbH), Berlin, Germany 100.00 1,867 -4,700 7) Energieversorgung Weser-Ems GmbH, Oldenburg, Germany 100.00 170,210 2) EWE energia Sp. z o. o., Międzyrzecz, Poland 100.00 1) 93,750 2,732 EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg, Germany 100.00 25,657 2) EWE GASSPEICHER GmbH, Oldenburg, Germany 100.00 160,090 2) EWE GO GmbH (formerly WAYDO GmbH), Oldenburg, Germany 100.00 13,189 2) EWE NETZ GmbH, Oldenburg, Germany 96.68 5) 222,799 2) EWE NETZ RVN GmbH, Oldenburg, Germany 100.00 45 2) EWE Offshore Service & Solutions GmbH, Oldenburg, Germany 100.00 25 2) EWE Polska Sp. z o.o., Poznań, Poland 100.00 105,120 3,610 EWE TEL GmbH, Oldenburg, Germany 100.00 95,908 2) EWE TRADING GmbH, Bremen, Germany 100.00 30,026 2) EWE VERTRIEB GmbH, Oldenburg, Germany 100.00 152,156 2) EWE WASSER GmbH, Cuxhaven, Germany 100.00 1) 14,216 2) EWE Windpark Hatten GmbH, Hatten, Germany 100.00 1) 9,277 1,452 7) EWE Windpark Köhlen GmbH & Co. KG, Köhlen, Germany 100.00 1) 15,348 2,343 7) EWE Windpark Walsrode GmbH & Co. KG, Oldenburg, Germany 100.00 1) 2,052 585 EWE-WINDSERVICE GmbH, Krummhörn, Germany 100.00 1) 558 533 7) Gastransport Nord GmbH, Oldenburg, Germany 100.00 20,790 2) Lichtenau Windparkbetriebsgesellschaft mbh, Lichtenau, Germany 100.00 1) 375 2) Limón GmbH, Kassel, Germany 90.65 330 nordcom Niedersachsen GmbH, Oldenburg, Germany 100.00 1) 525 2) Offshore-Windpark RIFFGAT GmbH & Co. KG, Oldenburg, Germany 99.58 1) 291,933 24,677 7) PRO CONSULT Management- und Systemberatung GmbH, Mainz, Germany 100.00 1) 465 306 qbig GmbH, Oldenburg, Germany 100.00 1) 25 2) SEC Selecta Energy Consulting GmbH, Kelkheim (Taunus), Germany 100.00 1) 750 625 Stromnetz Delmenhorst GmbH & Co. KG, Oldenburg, Germany 50.05 1) 4,171 1,107 7) swb AG, Bremen, Germany 100.00 267,815 14 swb Beleuchtung GmbH, Bremen, Germany 99.00 1) 250 2) swb Bremerhaven GmbH, Bremerhaven, Germany 100.00 1) 1,980 2) swb Entsorgung GmbH & Co. KG, Bremen, Germany 100.00 1) 140,693 6,021 swb Erzeugung AG & Co. KG, Bremen, Germany 100.00 1) -70,159 -15,121

140 EWE Financial Report 2019 Consolidated Financial Statements

Name and registered office of the company Share Profit / loss in thousands of euros in % Equity for the year

Affiliates Consolidated: swb Erzeugung und Entsorgung AG & Co. KG, Bremen, Germany 100.00 1) 177,885 -11,578 swb Gasumstellung GmbH, Bremen, Germany 100.00 1) 1,509 -268 swb Services AG & Co. KG, Bremen, Germany 100.00 1) 3,832 56 swb Vertrieb Bremen GmbH, Bremen, Germany 100.00 1) 9,592 2) swb Vertrieb Bremerhaven GmbH & Co. KG, Bremerhaven, Germany 100.00 1) 554 2,016 swb Windpark Am Zolltor GmbH & Co. KG, Bremerhaven, Germany 100.00 1) 2,655 655 swb Windpark Essel GmbH & Co. KG, Bremerhaven, Germany 100.00 1) 4,650 1,219 swb Windpark Mulsum II GmbH & Co. KG, Bremen, Germany 100.00 1) 304 304 swb Windpark Weserufer GmbH & Co. KG, Bremerhaven, Germany 100.00 1) 4,031 622 TurboWind Energie GmbH, Hanover, Germany 100.00 1) -1,082 2) 7) Uetze Süd Windparkbetriebsgesellschaft mbH, Uetze, Germany 100.00 1) 25 2) wesernetz Bremen GmbH, Bremen, Germany 99.00 1) 211,519 2) wesernetz Bremerhaven GmbH, Bremerhaven, Germany 99.00 1) 34,468 2) wesernetz Stuhr GmbH & Co. KG, Bremen, Germany 100.00 1) 6,577 759 wesernetz Weyhe GmbH & Co. KG, Bremen, Germany 100.00 1) 4,149 881 Windfarm Elsdorf II GmbH, Oldenburg, Germany 100.00 1) -318 489 Windfarm Märkisch-Linden GmbH & Co. KG, Bremen, Germany 85.20 1) 7,243 1,733 Windpark Bärfang GmbH & Co. KG, Kiel, Germany 100.00 1) -34 42 Windpark Buchhain 8 & 11 GmbH & Co. KG, Kiel, Germany 100.00 1) -57 4 Windparkbetriebsgesellschaft Adorf/Diemelsee mbH, Diemelsee, Germany 100.00 1) 13 2) Windpark Industriehäfen GmbH & Co. KG, Bremerhaven, Germany 74.90 1) 1,846 246 Windpark Tuchen GmbH & Co. KG, Oldenburg, Germany 100.00 1) 429 -77 Zweite EWE Offshore Beteiligungs GmbH, Oldenburg, Germany 100.00 327,210 2)

Not included in the basis of consolidation and accounted for in accordance with IFRS 9: BIBER GmbH - Bildung Betreuung Erziehung, Oldenburg, Germany 100.00 73 2) 12) BTC (Schweiz) AG, Glattbrugg, Switzerland 90.00 1) 3,282 1,848 BTC Bilişim Hizmetleri A.Ş., Istanbul, Turkey 100.00 1) 1,160 341 3) 4) BTC Software Systems Sp. z o.o., Poznań, Poland 100.00 1) 1 BTC Software Technology (Shanghai) Co., Ltd., Shanghai, China 100.00 1) 197 53 3) 11) Digitalprojekt 1 GmbH, Berlin, Germany 100.00 1,051 -2,897 3) Digitalprojekt 2 GmbH in liq., Berlin, Germany 100.00 31 -2,714 3) Eimelrod Windparkbetriebsgesellschaft mbH, Willingen (Upland), Germany 100.00 1) 13 2) ENRO Ludwigsfelde Energie GmbH, Ludwigsfelde, Germany 100.00 1) 9,230 731 3) EWE Direkt GmbH, Oldenburg, Germany 100.00 1) 28 2) EWE HHW Windpark Schneeberg GmbH, Grunow-Dammendorf, Germany 100.00 1) 36 -11 7) EWE Urbanisation Dienstleistungs GmbH (UDG), Bremen, Germany 100.00 2,374 2) 10) Fünfunddreißigste RE Vermögensverwaltungsgesellschaft mbH, Oldenburg, Germany 100.00 1) 488 -8 3) Gewi New Project GmbH, Husum, Germany 100.00 1) 26 3) Gewi Planung und Vertrieb GmbH & Co. KG, Husum, Germany 100.00 1) -240 -259 3)

EWE Financial Report 2019 Consolidated Financial Statements 141

Name and registered office of the company Share Profit / loss in thousands of euros in % Equity for the year

Affiliates Not included in the basis of consolidation and accounted for in accordance with IFRS 9: Glasfaser NordWest GmbH & Co. KG, Oldenburg, Germany 100.00 26 8) 13) Grünspar GmbH in liq., Münster, Germany 100.00 -6,053 -5,146 3) 14) Hohnebostel Windparkbetriebsgesellschaft mbH, Langlingen, Germany 100.00 1) 13 2) Kommunale EnergieSpargesellschaft Stuhr mbH, Stuhr, Germany 100.00 1) 105 9 proNaturWatt GmbH, Oldenburg, Germany 100.00 21 2) Sabbenhausen Windparkbetriebsgesellschaft mbH, Hanover, Germany 100.00 1) 13 2) SOCON Sonar Control Kavernenvermessung GmbH, Giesen, Germany 62.00 1) 6,853 1,973 3) swb Assekuranz Vermittlungs-GmbH, Bremen, Germany 60.00 1) 3,928 277 3) swb Erzeugung Beteiligungs-GmbH, Bremen, Germany 100.00 1) 1,563 63 3) swb Netze Bremerhaven Beteiligungs-GmbH, Bremen, Germany 100.00 1) 13 -1 3) swb Windpark Beteiligungsgesellschaft mbH, Kutenholz, Germany 100.00 1) 62 1 Testfeld Langen-Neuenwalde GmbH, Oldenburg, Germany 75.00 1) 114 -12 TEWE Energieversorgungsgesellschaft mbH Erkner, Erkner, Germany 100.00 1) 4,733 267 3) UW Lichtenau Betriebsgesellschaft mbH, Lichtenau, Germany 100.00 1) 13 2) Windparkbetriebsgesellschaft Rittmarshausen mbH, Rittmarshausen, Germany 100.00 1) 13 2) Zell Windparkbetriebsgesellschaft mbH, Hanover, Germany 100.00 1) 13 2)

Entities accounted for using the equity method Associates: DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG, Oldenburg, Germany 47.50 1) 57,925 -23,919 7) GWAdriga GmbH & Co. KG, Berlin, Germany 48.00 3,150 -3,118 7) htp GmbH, Hanover, Germany 50.00 31,835 2,550 7) swb Weserwind GmbH & Co. KG, Bremen, Germany 50.00 1) 801 505 Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg, Germany 37.50 59,996 -14,301 7) Weserkraftwerk Bremen GmbH & Co. KG, Bremen, Germany 50.00 1) 4,069 -722 Windpark Köhlen GmbH, Oldenburg, Germany 50.00 1) 1,437 -47 7) Windpark Spolsen GmbH & Co. KG, Zetel, Germany 40.00 1) 2,257 347 7) Joint ventures: Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen, Germany 51.76 1) 75,200 1,274 Hansewasser Ver- und Entsorgungs-GmbH, Bremen, Germany 51.00 1) 64,263 10,498 HeideNetz GmbH, Munster, Germany 50.50 1) 2,282 107 7) INGAVER Innovative Gasverwertungs-GmbH, Bremen, Germany 50.00 1) 1,142 113 KENOW GmbH & Co. KG, Bremen, Germany 42.36 1) 5,497 -664 7) Windenergiepark Hohegaste GmbH & Co. KG, Leer, Germany 50.00 1) 716 1,086 7)

142 EWE Financial Report 2019 Consolidated Financial Statements

Name and registered office of the company Share Profit / loss in thousands of euros in % Equity for the year

Other equity investments pursuant to IFRS 9 Comgy GmbH, Berlin, Germany 5.70 1,027 -1,203 3) Energieversorgung Brand GmbH, Krausnick-Groß Wasserburg, Germany 50.00 3,239 811 3) European Energy Exchange AG, Leipzig, Germany 0.67 340,295 45,459 3) GasLINE Telekommunikationsnetzgesellschaft deutscher Gasversorgungsunternehmen mbH & Co. Kommanditgesellschaft, Straelen, Germany 5.67 1) 76,403 35,403 3) GASPOOL Balancing Services GmbH, Berlin, Germany 20.00 1) 4,709 463 3) Gasversorgung Angermünde GmbH, Angermünde, Germany 49.00 1) 2,262 201 3) GefuE GmbH & Co. Geeste-Wind KG, Bremen, Germany 49.88 1) 1,600 93 3) Gemeinschaftskraftwerk Bremen Verwaltungsgesellschaft mbH, Bremen, Germany 51.76 1) 27 3) Gewi Windpark GmbH & Co. 16. Beteiligungs-KG, Husum, Germany 50.00 1) 26 3) hanseWasser Bremen GmbH, Bremen, Germany 38.20 1) 51,774 12,262 6) 9) Harzwasserwerke GmbH, Hildesheim, Germany 17.39 1) 94,869 9,612 3) Ingenieurbüro Garbade & Kastner GmbH, Lilienthal, Germany 25.50 1) 957 275 3) Osterholzer Stadtwerke GmbH & Co. KG, Osterholz-Scharmbeck, Germany 25.71 1) 35,308 6,463 3) PRISMA European Capacity Platform GmbH, Leipzig, Germany 1.33 1) 925 410 3) sovanta AG, Heidelberg, Germany 10.00 6,864 744 3) Städtische Betriebswerke Luckenwalde GmbH, Luckenwalde, Germany 20.00 1) 14,111 1,595 3) Stadtwerke Frankfurt (Oder) GmbH, Frankfurt (Oder), Germany 10.00 1) 34,715 7,559 3) 9) Stadtwerke Ludwigsfelde GmbH, Ludwigsfelde, Germany 20.00 1) 12,868 2,088 3) Stadtwerke Schwedt GmbH, Schwedt/Oder, Germany 10.20 1) 23,933 5,545 3) 9) Stadtwerke Soltau GmbH & Co. KG, Soltau, Germany 49.50 1) 12,813 1,380 3) Stadtwerke Strausberg GmbH, Strausberg, Germany 38.38 1) 11,748 1,919 3) 9) Verkehr und Wasser GmbH, Oldenburg, Germany 26.00 1) 14,101 3) Wärmeversorgungsgesellschaft Königs Wusterhausen mbH, Königs Wusterhausen, Germany 22.90 6,354 800 3) Zenhomes GmbH, Berlin, Germany 7.01 -2,158 3)

1) Indirect investment 2) A (partial) domination and / or profit and loss transfer agreement is in place with this company 3) Equity and profit / loss for the year figures are from 2018 4) It holds 99.9998 per cent of the shares 5) A 96.68 per cent interest is held indirectly 6) The company is included in the consolidated financial statements of the Hansewasser Ver- und Entsorgungs-GmbH, Bremen, Germany, according to the equity method 7) Preliminary profit / loss for 2019 8) The company was founded in 2019 9) The company has a profit and loss transfer agreement in place with other companies 10) Fiscal year from 1 October 2018 to 30 September 2019 11) Two shares are held by non-controlling shareholders 12) Fiscal year from 1 August 2018 to 31 July 2019 13) From January 2020 onwards: joint venture with Telekom Deutschland GmbH 14) Equity and profit / loss for the year figures are from 2017

EWE Financial Report 2019 Consolidated Financial Statements 143

46. Related party disclosures The Company concluded the following transactions with related parties: Transactions with subsidiaries included in the consolidated financial statements were eliminated in the course of consolidation. Related parties of the EWE Group include: in millions of euros 2019 2018

 Ems-Weser-Elbe Versorgungs- und Entsorgungsver- Income 249.0 341.1 band Beteiligungsgesellschaft mbH, Oldenburg (EWE- Shareholders in EWE AG 161.0 211.6 Verband GmbH) and Ems-Weser-Elbe Versorgungs- Associates and joint ventures 75.4 107.6 und Entsorgungsverband, Oldenburg (EWE-Verband) Other entities 12.5 21.9 as indirect shareholders of EWE AG,  Weser-Ems-Energiebeteiligungen GmbH (WEE), Ener- Expenses 230.5 269.7 gieverband Elbe-Weser Beteiligungsholding GmbH, Shareholders in EWE AG 159.8 206.4 Oldenburg (EEW-Holding) and Ems Weser Elbe Infra- Associates and joint ventures 44.9 48.8 struktur Akquisitionsgesellschaft mbH (2), Düsseldorf Other entities 25.6 14.5 (ARDIAN) as direct shareholders of EWE AG,  non-consolidated affiliates (other entities) and Receivables 704.7 128.9  associates and joint ventures accounted for using the Shareholders in EWE AG 597.4 28.7 equity method Associates and joint ventures 95.6 88.5 Other entities 11.7 11.7 Key management personnel of the EWE Group includes the members of the Board of Management and the Super- Liabilities 22.8 42.2 visory Board of EWE AG. Shareholders in EWE AG 30.4 Associates and joint ventures 8.4 6.2 Relationships with the group of shareholders are primarily Other entities 14.4 5.6 of a financial nature as well as for the exchange of commercial services. Guarantees or collateral provided 34.3 35.3 Associates and joint ventures 34.3 35.3 The majority of the relationships with associates and joint ventures accounted for using the equity method are trade relationships for natural gas as well as financial relationships. All transactions are conducted at arm’s length.

The members of the EWE-Verband include districts and cities in our supply area between the Ems, Weser and Elbe rivers. They are supplied with power, gas as well as telecommunications and information services at standard market rates.

The EWE Group did not conclude any significant transactions with related parties. The supply of power, natural gas and telecommunications services to related parties takes place at rates and with terms and conditions compa- rable to those agreed upon with external third parties.

144 EWE Financial Report 2019 Consolidated Financial Statements

Information on the governing bodies of EWE AG

Supervisory Board

Bernhard Bramlage Aloys Kiepe Chairman of the Supervisory Board Trade Secretary of ver.di for the Weser-Ems District, Former Chief Administrative Officer of the Leer District, Emden, Germany Leer, Germany Heike Klattenhoff Carsten Hahn General Manager of ver.di for the Weser-Ems District, First Deputy Chairman Delmenhorst, Germany Chairman of the General Works Council of EWE AG, Osterholz-Scharmbeck, Germany Jürgen Krogmann Mayor of the City of Oldenburg, Oldenburg, Germany Heiner Schönecke Second Deputy Chairman Beatrix Kuhl Member of the Landtag (state parliament) of Lower Mayor of the City of Leer, Leer, Germany Saxony, Neu-Wulmstorf, Germany Jürgen Franz Löcke Johann Wimberg Managing Director of the Association of Savings Banks in Third Deputy Chairman Lower Saxony, Barsinghausen, Germany Chief Administrative Officer of the Cloppenburg District, Cloppenburg, Germany Peter Marrek Chairman of the Group Works Council of swb AG, Henning R. Deters Wilhelmshaven, Germany Fourth Deputy Chairman Chairman of the Board of Management of Gelsenwasser AG, Stefanie Menke Essen, Germany Chairwoman of the Works Council of EWE NETZ GmbH, Zetel, Germany Christian Blömer Head of Department Group Communications and Brand, Immo Schlepper EWE AG, Bad Zwischenahn, Germany Regional Department Director of ver.di for the Lower Saxony-Bremen region, Oldenburg, Germany Peter Bohlmann Chief Administrative Officer of the Verden District, Ulrike Schlieper Langwedel, Germany Chairwoman of the Parliamentary Group of the German Social Democratic Party in the County Council of the Frank Gawrischtschuk Administrative District of Friesland, Sande, Germany Chairman of the Works Council of swb Entsorgung GmbH & Co. KG and Chairman of the Work’s Council of swb Paul Schneider Erzeugung AG & Co. KG, Bremen, Germany Qualified Engineer, EWE GASSPEICHER GmbH, Oldenburg, Germany Bernd-Carsten Hiebing Member of the Landtag (state parliament) of Lower Richard Venning Saxony, Haren / Ems, Germany Field Service employee, EWE TEL GmbH, Spenge, Germany

EWE Financial Report 2019 Consolidated Financial Statements 145

Board of Management 47. Auditor’s fees and services rendered

Stefan Dohler The companies consolidated within the EWE Group made Chief Executive Officer of EWE AG, Oldenburg, Germany use of the following services from the auditors of the consolidated financial statements, Ernst & Young GmbH Michael Heidkamp Wirtschaftsprüfungsgesellschaft (EY), as well as from Chief Sales Officer of EWE AG, Bad Zwischenahn, Germany companies in the international EY network.

Dr. Urban Keussen Chief Technical Officer of EWE AG, Oldenburg, Germany in millions of euros 2019 2018

Wolfgang Mücher Audit services 2.1 2.0 Chief Financial Officer of EWE AG, Oldenburg, Germany Audit-related services 0.3 0.6 Tax services 0.0 0.1 Marion Rövekamp Other services 0.5 0.5 Chief Human Resources and Legal Affairs Officer of EWE Total 2.9 3.2 AG, Human Resources Director, Oldenburg, Germany

0.1 million euros (previous year: 0.2 million euros) of the The Board of Management’s total remuneration came to auditor’s fees was paid to companies in the international 4.3 million euros (previous year: 4.5 million euros). The EY network. members of the Supervisory Board received remuneration of 1.2 million euros (previous year: 1.3 million euros). This The audit services include fees for the statutory audit of total includes 0.7 million euros (previous year: 0.8 million financial statements and audit services relating to new euros) for their duties as employees. accounting standards. Other audit-related services include fees for various voluntary audits, the review of the half- Pension obligations from deferred compensation exist for year financial statements, statutory and voluntary energy- active members of EWE AG’s Board of Management in the related audits, EMIR (European Market Infrastructure amount of 3.4 million euros (previous year: 1.8 million Regulation) reviews, the review of the non-financial euros), which are financed through EWE-Treuhandverein statement and a comfort letter. Other permitted services e. V.. primarily include fees for the support of the enera research project. The provision for pension obligations to former members of the Board of Management and their surviving dependents totaled 52.3 million euros (previous year: 46.1 million euros); total remuneration came to 1.8 million euros (previous year: 1.8 million euros).

146 EWE Financial Report 2019 Consolidated Financial Statements

48. Disclosures pursuant to Sec. 264 (3) HGB

The following subsidiaries made use of the exemptions under Sec. 264 (3) HGB during fiscal year 2019:

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

49. Group relationships

EWE AG’s consolidated financial statements are included in the consolidated financial statements of EWE-Verband GmbH.

50. Events after the reporting date

With the exception of the proposal for the appropriation of the net retained profit (note 28), there were no significant events after the reporting date.

Oldenburg, 25 February 2020

The Board of Management

Stefan Dohler

Michael Heidkamp

Dr. Urban Keussen

Wolfgang Mücher

Marion Rövekamp

EWE Financial Report 2019 Consolidated Financial Statements 147

Responsibility statement

We confirm that, to the best of our knowledge and in accordance with the applicable financial reporting framework, the consolidated financial statements provide a true and fair view of the assets, liabilities, financial position and financial performance of the Group and that the group management report, which was combined with the management report of EWE AG, gives a true and fair view of the development of business, including the operating result and the Group’s position, and also describes the principal opportunities and risks relating to the expected future development of the Group.

Oldenburg, 25 February 2020

The Board of Management

Stefan Dohler

Michael Heidkamp

Dr. Urban Keussen

Wolfgang Mücher

Marion Rövekamp

148 EWE Financial Report 2019 Further Information

Independent auditor’s report to EWE Aktiengesellschaft

Report on the audit of the consolidated financial on the group management report does not cover the statements and of the group management report content of the group statement on corporate governance or the group non-financial statement referred to Opinions above. We have audited the consolidated financial statements of EWE Aktiengesellschaft, Oldenburg, and its subsidiaries Pursuant to Sec. 322 (3) Sentence 1 HGB, we declare that (the Group), which comprise the consolidated statement our audit has not led to any reservations relating to the of financial position as of 31 December 2019, the consoli- legal compliance of the consolidated financial statements dated income statement and the consolidated statement and of the group management report. of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement Basis for the opinions for the fiscal year from 1 January to 31 December 2019, We conducted our audit of the consolidated financial and notes to the consolidated financial statements, statements and of the group management report in including a summary of significant accounting policies. In accordance with Sec. 317 HGB and the EU Audit Regula- addition, we have audited the group management report tion (No 537/2014, referred to subsequently as “EU Audit of EWE Aktiengesellschaft, which was combined with the Regulation”) and in compliance with German Generally management report of the Company, for the fiscal year Accepted Standards for Financial Statement Audits prom- from 1 January to 31 December 2019. In accordance with ulgated by the Institut der Wirtschaftsprüfer [“Institute of the German legal requirements, we have not audited the Public Auditors in Germany”: IDW]. Our responsibilities content of the group non-financial statement included in a under those requirements and principles are further separate section of the group management report or the described in the “Auditor’s responsibilities for the audit of group statement on corporate governance included in the the consolidated financial statements and of the group section entitled “Gender quota” of the group manage- management report” section of our auditor’s report. We ment report. are independent of the group entities in accordance with the requirements of European law and German commer- In our opinion, on the basis of the knowledge obtained in cial and professional law, and we have fulfilled our other the audit, German professional responsibilities in accordance with these requirements. In addition, in accordance with  the accompanying consolidated financial statements Art. 10 (2) f) of the EU Audit Regulation, we declare that comply, in all material respects, with the IFRS as we have not provided non-audit services prohibited under adopted by the EU, and the additional requirements Art. 5 (1) of the EU Audit Regulation. We believe that the of German commercial law pursuant to Sec. 315e (1) audit evidence we have obtained is sufficient and appro- HGB [“Handelsgesetzbuch”: German Commercial Code] priate to provide a basis for our opinions on the consoli- and, in compliance with these requirements, give a dated financial statements and on the group management true and fair view of the assets, liabilities, and finan- report. cial position of the Group as of 31 December 2019 and of its financial performance for the fiscal year Key audit matters in the audit of the consolidated from 1 January to 31 December 2019, and financial statements Key audit matters are those matters that, in our profes-  the accompanying group management report as a sional judgment, were of most significance in our audit of whole provides an appropriate view of the Group’s the consolidated financial statements for the fiscal year position. In all material respects, this group manage- from 1 January to 31 December 2019. These matters were ment report is consistent with the consolidated addressed in the context of our audit of the consolidated financial statements, complies with German legal financial statements as a whole, and in forming our opin- requirements and appropriately presents the oppor- ion thereon; we do not provide a separate opinion on tunities and risks of future development. Our opinion these matters.

EWE Financial Report 2019 Further Information 149

Below, we describe what we consider to be the key audit Given the materiality, the complexity of the valuation matters: models and the judgment used in the assumptions made by the executive directors, we consider the determination 1. Impairment of cash-generating units with goodwill of the fair values for the purposes of impairment testing and certain energy generation assets to be a key audit matter.

Reasons why the matter was determined to be a key audit Auditor’s response matter During our audit, we analyzed the process implemented In the consolidated financial statements of EWE Aktien- by the executive directors of EWE Aktiengesellschaft and gesellschaft, significant goodwill is recognized under the the recognition and measurement policies for determining statement of financial position item “Intangible assets” the fair values of cash-generating units and obtained an and significant energy generation assets under the state- understanding of the process steps and internal controls ment of financial position item “Property, plant and in place. equipment.” Goodwill is tested for impairment annually or ad hoc and property, plant and equipment are tested We assessed the measurement policies specified in the ad hoc at the level of the cash-generating units to which internal valuation guideline for consistency with the rele- the respective goodwill and / or property, plant and vant IFRS provisions and implementation by EWE Aktien- equipment is allocated. Cash-generating units with certain gesellschaft. energy generation assets primarily comprise offshore wind farms and conventional power generation. We analyzed selected forecasts by comparing them with actual results achieved in the past and considering current Fair value less costs of disposal is determined for the developments. We evaluated the significant assumptions purposes of impairment testing on the basis of the pre- regarding growth and business performance by discussing sent values of future cash flows derived from the fore- them with the executive directors of EWE Aktiengesell- casts prepared by the executive directors and approved schaft and testing the underlying long-term commodity and / or acknowledged by the Supervisory Board for the and energy price forecasts for plausibility. Moreover, we next three years (medium-term forecast) or, as the case considered the sensitivity analyses performed by the may be, for a longer period determined by the Company. Company in order to assess impairment risks in the event Expectations regarding future market developments, of a reasonably possible change in a significant valuation including the development of certain energy prices about assumption. the development of macroeconomic fundamentals are considered in this context. The present values are deter- The determination of the other significant valuation mined using discounted cash flow models. For discount- assumptions, such as the discount rate and the growth ing, the weighted average cost of capital of the respective rate, were examined with the assistance of internal valua- cash-generating unit is used. The outcome of these valuation specialists on the basis of an analysis of market indi- tions is highly dependent on the estimate of future cash cators. We also checked the arithmetical accuracy of the flows and on the discount rates used by the executive valuation models. directors. Our procedures did not lead to any reservations concerning the determination of fair values.

150 EWE Financial Report 2019 Further Information

Reference to related disclosures revenue related to annually billed customers are reviewed and adjusted if need be when the next meter reading and The Company’s disclosures on goodwill are provided in billing take place in the new year. The EWE Group devel- the notes to the consolidated financial statements in note ops an expectation regarding consumption by customers “17. Intangible assets” in the section “Notes to the state- outside its network. The customers make periodical payment of financial position.” Further details on energy ments based on the expected consumption. For each generation assets are provided in note “18. Property, current month, in the interests of prioritizing the calcula- plant and equipment” in the section “Notes to the state- tion, forecast figures are used in part for the total volume ment of financial position” and note “10. Amortization, and for the number of monthly billed customers. Any depreciation and impairment” in the section “Notes to the adjustment is made in the following month. Given the consolidated income statement.” materiality of the recognized revenue and accrued receivables, the complexity of the estimation models and the judgment involved in the assumptions used by the execu- 2. Recognition of revenue from the sale of electricity tive directors in the estimation process, we consider the and gas on an accrual basis (consumption accrual) determination of the accrued receivables, including the related revenue, to be a key audit matter. Reasons why the matter was determined to be a key audit matter Auditor’s response

Part of the revenue from energy supplies (sale and distri- Our audit included an analysis of the internal control bution of electricity, sale and distribution of gas and bill- system in place for the estimation and regular billing of ing of electricity fed in from renewable energy sources) is revenue. With regard to the estimated revenue, our audit estimated in the consolidated financial statements of EWE procedures included various analytical procedures and Aktiengesellschaft. data analyses using actual data in order to test the plausibility of the revenue estimate of EWE Aktiengesellschaft. Total sales are determined in the EWE Group by meas- Furthermore, we tested the consistency of the estimation urement, meter reading and estimation. The methods process to determine the consumption accrual and the vary as a result of federal state-specific standards, tech- appropriateness of the prior-year estimates by comparing nical measurement methods and time-related processes. them with the actual bills for the reporting year. The EWE Group applies an accrual method of accounting for customers in Germany whose consumption cannot be In addition, we analyzed the sales volume estimates used read and billed due to the reporting date. The accrual by the Group and the underlying estimation parameters, method is applied on a monthly rolling basis. The revenue e.g., degree-day factors, and on this basis compared estimates relate to the energy supplies per customer the recognized accrued volume with the actual volume. between the date of the last meter reading and year-end For significant commercial customers, a sample-based as well as allocation of the actual supply volume meas- plausibility test on the basis of the actual values as of the ured to the period since the previous measurement. The reporting date was performed. calculation is based on the total feed-in volume, from which the volume measured for the consumption points Our procedures did not lead to any reservations relating that are read and billed on a monthly basis and line losses to the recognition of customer receivables and the related are deducted. The remaining volume forms the basis for revenue. the statistical volume relating to annually read and billed customers. This volume is allocated to the customers and valued based on assumptions regarding customer behavior as well as historical rate consumption data and profiles. Statistical figures on customer receivables and

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Reference to related disclosures Responsibilities of the executive directors and the supervisory board for the consolidated financial The disclosures on revenue from energy deliveries are statements and the group management report provided in note “5. Revenue” in the section “Notes to the The executive directors are responsible for the prepara- income statement” and in note “42. Segment reporting” in tion of the consolidated financial statements that comply, the section “Notes to the statement of financial position.” in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB, and that the consoli- Other information dated financial statements, in compliance with these The Supervisory Board is responsible for the “Report of requirements, give a true and fair view of the assets, the Supervisory Board of EWE Aktiengesellschaft” pursu- liabilities, financial position and financial performance of ant to Sec. 171 (2) AktG [“Aktiengesetz”: German Stock the Group. In addition, the executive directors are respon- Corporation Act]. In all other respects, the executive sible for such internal control as they have determined directors are responsible for the other information. Other necessary to enable the preparation of consolidated information includes the group non-financial statement financial statements that are free from material mis- included in a separate section of the group management statement, whether due to fraud or error. report, the group statement on corporate governance included in the section entitled “Gender quota” of the In preparing the consolidated financial statements, the group management report as well as other sections which executive directors are responsible for assessing the are to be included in the annual report of which we Group’s ability to continue as a going concern. They obtained versions before issuing this auditor’s report, in also have the responsibility for disclosing, as applicable, particular the responsibility statement. Furthermore, matters related to going concern. In addition, they are other information includes other sections of the annual responsible for financial reporting based on the going report which will be made available to us after the audi- concern basis of accounting unless there is an intention to tor’s report has been issued, in particular the Report of liquidate the Group or to cease operations, or there is no the Supervisory Board pursuant to Sec. 171 (2) AktG. realistic alternative but to do so.

Our opinions on the consolidated financial statements and Furthermore, the executive directors are responsible for on the group management report do not cover the other the preparation of the group management report that, as information, and consequently we do not express an a whole, provides an appropriate view of the Group’s opinion or any other form of assurance conclusion there- position and is, in all material respects, consistent with on. the consolidated financial statements, complies with German legal requirements, and appropriately presents In connection with our audit, our responsibility is to read the opportunities and risks of future development. In the other information and, in so doing, to consider addition, the executive directors are responsible for such whether the other information arrangements and measures (system) as they have considered necessary to enable the preparation of a group  is materially inconsistent with the consolidated finan- management report that is in accordance with the Ger- cial statements, with the group management report man legal requirements, and to be able to provide suffi- or our knowledge obtained in the audit, or cient appropriate evidence for the assertions in the group management report.  otherwise appears to be materially misstated. The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the group management report.

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Auditor’s responsibilities for the audit of the  Obtain an understanding of internal control relevant consolidated financial statements and of the group to the audit of the consolidated financial statements management report and of arrangements and measures (systems) rele- Our objectives are to obtain reasonable assurance about vant to the audit of the group management report in whether the consolidated financial statements as a whole order to design audit procedures that are appropriate are free from material misstatement, whether due to in the circumstances, but not for the purpose of fraud or error, and whether the group management report expressing an opinion on the effectiveness of these as a whole provides an appropriate view of the Group’s systems. position and, in all material respects, is consistent with the consolidated financial statements and the knowledge  Evaluate the appropriateness of accounting policies obtained in the audit, complies with the German legal used by the executive directors and the reasonable- requirements and appropriately presents the opportuni- ness of estimates made by the executive directors ties and risks of future development, as well as to issue an and related disclosures. auditor’s report that includes our opinions on the consolidated financial statements and on the group management  Conclude on the appropriateness of the executive report. directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, Reasonable assurance is a high level of assurance, but is whether a material uncertainty exists related to not a guarantee that an audit conducted in accordance events or conditions that may cast significant doubt with Sec. 317 HGB and the EU Audit Regulation and in on the Group’s ability to continue as a going concern. compliance with German Generally Accepted Standards If we conclude that a material uncertainty exists, we for Financial Statement Audits promulgated by the Institut are required to draw attention in the auditor’s report der Wirtschaftsprüfer (IDW) will always detect a material to the related disclosures in the consolidated finan- misstatement. Misstatements can arise from fraud or cial statements and in the group management report error and are considered material if, individually or in the or, if such disclosures are inadequate, to modify our aggregate, they could reasonably be expected to influence respective opinions. Our conclusions are based on the the economic decisions of users taken on the basis of audit evidence obtained up to the date of our audi- these consolidated financial statements and this group tor’s report. However, future events or conditions management report. may cause the Group to cease to be able to continue as a going concern. We exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Evaluate the overall presentation, structure and content of the consolidated financial statements, includ-  Identify and assess the risks of material misstatement ing the disclosures, and whether the consolidated of the consolidated financial statements and of the financial statements present the underlying trans- group management report, whether due to fraud or actions and events in a manner that the consolidated error, design and perform audit procedures respon- financial statements give a true and fair view of the sive to those risks, and obtain audit evidence that is assets, liabilities, financial position and financial per- sufficient and appropriate to provide a basis for our formance of the Group in compliance with IFRS as opinions. The risk of not detecting a material mis- adopted by the EU and the additional requirements statement resulting from fraud is higher than for one of German commercial law pursuant to Sec. 315e (1) resulting from error, as fraud may involve collusion, HGB. forgery, intentional omissions, misrepresentations, or the override of internal control.

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 Obtain sufficient appropriate audit evidence regard- From the matters communicated with those charged with ing the financial information of the entities or busi- governance, we determine those matters that were of ness activities within the Group to express opinions most significance in the audit of the consolidated financial on the consolidated financial statements and on the statements of the current period and are therefore the group management report. We are responsible for key audit matters. We describe these matters in our audi- the direction, supervision and performance of the tor’s report unless law or regulation precludes public group audit. We remain solely responsible for our disclosure about the matter. audit opinions. Other legal and regulatory requirements  Evaluate the consistency of the group management report with the consolidated financial statements, its Further information pursuant to Art. 10 of the EU Audit conformity with [German] law, and the view of the Regulation Group’s position it provides. We were elected as group auditor by the general meeting of shareholders on 9 May 2019. We were engaged by the  Perform audit procedures on the prospective infor- Supervisory Board on 9 July 2019. We have been the mation presented by the executive directors in the group auditor of EWE Aktiengesellschaft without inter- group management report. On the basis of sufficient ruption since fiscal year 2012. appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive We declare that the opinions expressed in this auditor’s directors as a basis for the prospective information, report are consistent with the additional report to the and evaluate the proper derivation of the prospective audit committee pursuant to Art. 11 of the EU Audit Regu- information from these assumptions. We do not lation (long-form audit report). express a separate opinion on the prospective information and on the assumptions used as a basis. There German Public Auditor responsible for the engagement is a substantial unavoidable risk that future events The German Public Auditor responsible for the engage- will differ materially from the prospective infor- ment is Mr. Tjark Eickhoff. mation. Hamburg, 25 February 2020 We communicate with those charged with governance regarding, among other matters, the planned scope and Ernst & Young GmbH timing of the audit and significant audit findings, including Wirtschaftsprüfungsgesellschaft any significant deficiencies in internal control that we identify during our audit. Eickhoff Barnstedt We also provide those charged with governance with a Wirtschaftsprüfer Wirtschaftsprüfer statement that we have complied with the relevant inde- [German Public Auditor] [German Public Auditor] pendence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, the related safeguards.

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Supervisory Board report

Ladies and Gentlemen,

During the course of the 2019 fiscal year, the Supervisory After in-depth consultation, the Supervisory Board ap- Board continuously monitored the Company’s manage- proved the acquisition of a wind farm and the conversion ment and received regular, comprehensive reports from of the SAP software (to S/4 HANA). The Supervisory Board the Board of Management on the Company’s position, all also approved a change in EWE AG’s articles of incorpora- significant events and company performance, both verbally tion and bylaws regarding responsibility for the acquisi- and in writing. tion, encumbrance and sale of properties in the EWE Group and the related proposal to the general meeting of The Supervisory Board thoroughly discussed all matters shareholders. In addition, amendments to the Supervisory requiring its approval either by law or the Company’s Board’s rules of procedure were resolved and amend- articles of incorporation and made the necessary deci- ments to the rules of procedure of EWE AG’s Board of sions. In a total of seven face-to-face meetings in 2019, Management approved. the Supervisory Board dealt in particular with the separate and consolidated financial statements, the current The Supervisory Board also engaged the audit firm financial performance (including the risk management Ernst & Young to provide audit-related support and a system), capital expenditure and its financing, and indi- review (limited assurance) of the non-financial statement vidual transactions of particular importance and adopted and approved the provision of admissible non-audit ser- resolutions on the matters assigned to it by law or articles vices by the audit firm. of incorporation and bylaws. In the fiscal year, the Supervisory Board also concerned In fiscal year 2019, the Company placed particular empha- itself with the effectiveness of the internal control system, sis on the planned disposal of treasury shares held in EWE the risk management system and the internal auditing AG. In this context, the Supervisory Board passed a reso- system and received reports from the Board of Manage- lution to sell 10 per cent of treasury shares. The Super- ment on these systems as well as on the Company and the visory Board also passed resolutions to conclude the EWE Group’s compliance. The internal auditing department Agreement between EWE AG and the future shareholders. reported regularly to the Supervisory Board on the audits it performed. The Chairman of the Supervisory Board has Against this background, the Supervisory Board adopted regularly reported on the legal disputes between former a proposal to the general meeting of shareholders to members of the Board of Management and EWE AG. repurchase the shares held by EnBW Energie Baden- Württemberg AG in EWE AG and a proposal to secure the The composition of the Supervisory Board in fiscal year amended syndicated loan agreement. 2019 was unchanged compared to the prior year.

Furthermore, the Supervisory Board passed resolutions in Together with the Board of Management, the Supervisory the 2019 fiscal year which resulted in the completion of Board committees prepared the meetings and the resolu- the Turkey engagement and the related process of selling tions of the Supervisory Board. All in all, the Steering the shares held by EWE AG in EWE Turkey Holding A.Ş. Committee met seven times, the Working Committee four times and the Finance and Audit Committee four times. There was no need to hold any mediation committee meetings pursuant to Sec. 27 (3) MitbestG [“Mitbe- stimmungsgesetz”: German Co-Determination Act]. An amendment to the donation policy was adopted in the meeting of the Finance and Audit Committee on 14 November 2019.

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Ernst & Young GmbH, Wirtschaftsprüfungsgesellschaft Each member of the Supervisory Board was provided with was elected as at the general meeting of shareholders on a copy of the separate financial statements and manage- 9 May 2019 and subsequently engaged by the Supervisory ment report, the consolidated financial statements and Board. The separate financial statements of EWE AG pre- the Group management report as well as the long-form pared by the Board of Management in accordance with audit reports from the Company’s auditor. After its own the HGB, the consolidated financial statements prepared review of the report, the Supervisory Board concurs with in accordance with IFRS and the combined management the results of the audit and declares that it has no objec- report for EWE AG and the Group for fiscal year 2019 tions to the statements made by the Board of Manage- were audited and an unqualified auditor’s report was ment at the end of the dependent company report. issued thereon. The auditors’ reports were distributed to the members of the Supervisory Board, officially acknowl- The Supervisory Board would like to thank and express its edged and considered in the discussion and review of appreciation to the Board of Management, all employees the separate and consolidated financial statements. The and the members of the works council for their hard work auditors attended the meeting of the Finance and Audit in fiscal year 2019. Committee on 18 March 2020 and the Supervisory Board meeting on 22 April 2020 dealing with the financial Oldenburg, 22 April 2020 statements, where they reported on the major findings of their audit and were available to answer questions. The Supervisory Board Having examined the separate and consolidated financial statements prepared by the Board of Management, the combined management report for EWE AG and the Group as well as the proposal for the appropriation of net retained profit, the Supervisory Board raises no objections. The Supervisory Board today adopted the separate finan- Bernhard Bramlage cial statements, approved the consolidated financial statements and concurred with the Board of Manage- Chairman ment’s proposal for the appropriation of net retained profit.

The Board of Management also prepared a report as required under Sec. 312 AktG on relationships with affiliates (dependent company report) pursuant to Sec. 313 AktG. The auditors have audited this report and issued the following opinion thereon:

“Based on our audit and assessment in accordance with professional standards, we confirm that

1. the factual statements contained in the report are correct, 2. the compensation given by the Company in respect of the legal transactions listed in the report was not excessive, 3. there are no circumstances in the measures listed in the report for a significantly different assessment than that of the Board of Management.”

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Disclaimer

This financial report contains forward-looking statements based on assumptions and estimates by the management of EWE AG. Although company management believes that these assumptions and estimates are accurate, actual future developments and results may differ considerably from these assumptions and estimates due to a wide variety of factors, which may include changes in the legal and regulatory framework in Germany and the EU, and in the sector. EWE AG is neither liable for, nor guarantees that actual future developments or results will coincide with the assumptions and estimates made in this financial report. EWE AG neither intends to, nor assumes any obligation to, update forward-looking statements to reflect events or developments after the date of this report.

This document contains supplementary financial ratios – not precisely defined in IFRS – which are or may be non- GAAP measures. For the purpose of assessing the assets, liabilities, financial position and financial performance of the EWE Group, these should not be used in isolation or as an alternative to the financial ratios presented in the consolidated financial statements and calculated in accordance with IFRS. Other companies that present or report similar financial ratios may calculate them differently.

Due to rounding, it is possible that some numbers in this and other documents do not add up exactly to the specified aggregate value, and that the percentages shown do not exactly reflect the absolute values to which they refer.

This financial report was originally produced in German; in case of any differences, the German version of the financial report shall prevail over the English translation. Both versions are available for download from www.ewe.com.

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EWE Aktiengesellschaft

Tirpitzstrasse 39 26122 Oldenburg Germany www.ewe.com

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