Energy Supply for a New Era

EWE Aktiengesellschaft Tirpitzstrase 39 26122 Oldenburg Germany www.ewe.com ENERGY SUPPLY FOR A NEW ERA

ANNUAL REPORT 2015 GROUP KEY FIGURES

| T 001

in millions of euros 2015 2014 Change in %

Sales 7,819.3 8,134.2 -3.9 Operating EBITDA 864.0 849.2 1.7 Operating EBIT 428.1 427.5 0.1 EBIT 212.0 354.7 -40.2 Result for the period -9.4 146.3 -106.4

Cash outflows for capital expenditure (total) 666.9 721.4 -7.6 Cash flow from operating activities 708.2 770.3 -8.1

Balance sheet total 9,744.3 9,800.9 -0.6 Equity ratio in % 18.0 23.3 -22.7 Net financial position 4,237.1 4,120.7 2.8

Employees (on average) 8,855 9,154 -3.3 Full time employees (FTE) 8,465 8,538 -0.9

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

OPERATING EBIT IN 2015

Earnings remained stable at the previous year’s level in millions of euros 2011 179.3 … we made changes to the organisa- 2012 512.7 tional structure of the group and made 2013 adjustments to the management and 497.9 2014 leadership model. This resulted in a new 425.4 segment structure. 2015 428.1 1

ENERGY SUPPLY FOR CONTENT A NEW ERA

U2 Group Key Figures

02 Our business After the liberalisation of the electricity and natural gas markets and in the middle of the 2015 MAGAZINE ‘German energy turnaround’ (the transition from fossil fuels to renewable energy sources and the 08 Interview with Matthias Brückmann, Chairman of the Board of Management phasing out of nuclear energy), the energy sector of EWE AG is now undergoing the third transformation within 14 Understanding and using digital data 30 years. 18 Efficiently expanding the use of And EWE is playing an active role in this renewables process – because changes also bring with them 22 Managing grids in an intelligent manner new opportunities and prospects. 26 Further reducing energy consumption

The digitisation of our markets is a challenge that 30 A changing market – changing companies we approach from a long-term and sustainable perspective to the benefit of our company. 38 Foreword by the Chairman of the Board of Management

In this context, renewable sources of energy 42 Report from the Supervisory Board continue to play a major role, as does the development of intelligent grids and networks. 44 Investor Relations What should be done with the steadily growing 46 Sustainability mountains of data? And what new opportunities do new partnerships offer? 49 Group management report 2015 93 Consolidated financial statements 2015 Reducing energy demands is another challenge and remains a key goal. After all, Germany has set 191 Annual financial statements of EWE AG for 2015 the target of cutting carbon dioxide emissions by 195 Service 80 per cent by the year 2050. U3 5-year financial summary EWE Group A new era of supplying energy is dawning. In the magazine for this year’s annual report, you will learn how EWE is preparing for this new era, how employees view the changes and which key issues we are particularly focussed on.

EWE AG Annual Report 2015 2 OUR BUSINESS

OUR BUSINESS

WHAT WE DO EWE GROUP (as of 20.04.2016) At EWE, around 9,000 employees generate annual revenue of 8 billion euros – this makes Energieverband Weser-Ems-Energie EnBW Energie Baden- Elbe-Weser us one of the largest municipal companies in beteiligungen GmbH Württemberg AG Beteiligungsholding GmbH Germany. Our customers in north-west Ger- many and Brandenburg and on Rügen benefit from innovative energy products and powerful telecommunications. EWE has also made a 64% 20% 6% name for itself as a reliable provider and trend- setter in modern energy markets in Poland and Turkey. The Group headquartered in Oldenburg EWE Group has its own production capacities from both (10% own shares) renewable and conventional energy sources. In Renewables, Group Central Sales, Services International swb addition, the companies of the EWE Group Grids and Division and Trading operate advanced and safe networks for Gas storage electricity, natural gas and telecommunications. Our portfolio is rounded off with

Germany-wide IT solutions. Holdings of Ems-Weser-Elbe-Versorgungs- und Entsorgungsverbands (Members: 17 administrative districts and four cities) Segments with operative business activities

EMPLOYEES TELECOMMUNICA- ELECTRICITY GAS CUSTOMERS (2014: 9,153) TIONS CUSTOMERS CUSTOMERS (2014: 1.7 mio.) (2014: 604,000) (2014: 1.3 mio.) 8,854 615,000 1.3 mio. 1.7 mio.

ENERGY FOR TOMORROW

Shaping the German energy turnaround with the local population – this is EWE’s goal as a regional service provider. We are a municipal company that combines the expertise for intelligent energy systems with energy, telecommunications and IT.

In the town of Zetel in Lower Saxony, Windpark Spolsen produces enough electricity to meet 80 per cent of the local need with 2 plants. Since 2013, EWE has operated the wind park with municipal participation.

EWE AG Annual Report 2015 OUR BUSINESS 3

POLAND

2 3 Warsaw Warsaw

1 Warsaw 2

WHERE WE ARE REPRESENTED 4

GERMANY GERMANY 5 1 Oldenburg (Headquarter) 2 Region Brandenburg/Rügen TURKEY 6 POLAND 3 Poznań (Headquarter)

TURKEY 4 Istanbul (Headquarter) 5 Bursa 6 Kayseri

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

• Combined offer of • The swb Group supplies • Establishment of a • Active in Turkey since power, natural gas and the state with energy, comprehensive supply of 2007: Supplying natural telecommunications drinking water and tele- natural gas since 1990 gas in two cities of over • Efficient network communications • Natural gas pipeline net- a million inhabitants (80,000 km for power, • One of the largest regional work of around 14,000 km (Bursa und Kayseri) 55,000 km for gas and energy suppliers in the with 180,000 homes • Own trading company 37,000 km for tele country and generates its connected to the network for power and gas as well as communications) own power and heat • Natural gas storage with service company for energy • Pioneer in the field of • Has belonged to the two underground gas consulting as a key player renewables with a main EWE Group since 2009 storage facilities for more driving further growth focus on wind power supply security • Solid customer base in Poland: Market entry in 1999

2015 2015 2015 2015

• Brought new services • Started sale of the • Celebrated 25-year • Entering the telecommuni- (e-mobility, light contract- EQOO house storage company anniversary cations market by ing, smart home) to the system to generate • New heat concept purchasing the telephone market own PV power supply launched for the city company Millenicom • Broadband expansion • Smart meter: 93,000 districts (Istanbul) being pushed forward: electrical meters on the • Customer Advisory Council • Growth of the customer high-speed Internet grid installed by wesernetz strikes a positive balance base abroad to over possibly available to one • Start-up of new gas and goes into the next 900,000 customers million households by the and steam turbine plant round • Initial success on the end of 2016 expected in 2016 power market in Poland • Enera consortium receives and Turkey funding approval as model region for Smart Energy Showcases

EWE AG Annual Report 2015 WER WIR SIND UNSER GESCHÄFT

EWE AG Annual Report 2015 2015 MAGAZINE

ENERGY SUPPLY FOR A NEW ERA 6

CONTENT

08 INTERVIEW

22 MANAGING GRIDS IN AN INTELLIGENT MANNER

08 INTERVIEW WITH THE CHAIRMAN OF THE BOARD OF MANAGEMENT 14 Interview with Matthias Brückmann UNDERSTANDING AND USING DIGITAL DATA 14 UNDERSTANDING AND USING DIGITAL DATA Everything is new: digitisation will change the energy world 7

26 FURTHER REDUCING ENERGY CONSUMPTION

30 A CHANGING MARKET – CHANGING COMPANIES

18 EFFICIENTLY EXPANDING THE USE OF RENEWABLES

18 EFFICIENTLY EXPANDING THE 26 FURTHER REDUCING ENERGY USE OF RENEWABLES CONSUMPTION The energy market – between a breath of Still room for improvement – about the fresh air and headwinds responsible use of energy

22 MANAGING GRIDS IN AN 30 A CHANGING MARKET – INTELLIGENT MANNER CHANGING COMPANIES Overcoming the complexity of feeding “I am going to learn new things” – in power and power transmission an interview on change and communication 8

INTERVIEW WITH MATTHIAS BRÜCKMANN CHAIRMAN OF THE BOARD OF MANAGEMENT OF EWE AG

Matthias Brückmann, chairman of the Board of Management of EWE AG, discusses the previous year, the current situation as well as the future of the company.

Mr Brückmann, which of EWE’s services Let’s stay on the topic of satisfaction and do you use personally? talk about EWE’s previous business year. Almost all of them – energy, so power and Declining revenue in your home energy natural gas. Communication with receivers market. Write-downs on conventional on each floor. I think I use everything we power plants, unpredictable weather have to offer. conditions. How satisfied can you be with 2015? And are you satisfied with them? Well first off, we are talking about an indus- Yes, very. try trend here. The money isn’t growing on trees for anyone at the moment. It was a difficult year. A year full of changes, but once again, we’re talking about the entire industry. In the end, I think we posted a good operating EBIT that was stable year The detailed interview can be found over year. In that regard, I’m very satisfied. online at: And I’m particularly satisfied with our www.ewe.com/interview_brueckmann employees’ performance – they put in a significant amount of time, energy and hard work to achieve this result.

EWE makes the following claim about itself: We are the first company in Germany to tap the joint potential offered by energy, telecommunications and IT. How did EWE bring together these three areas of business in the previous year? You see, that is relatively easy – anywhere you see “SMART bei EWE” you know that it is an indication that you have a package which includes energy, communication and IT services. We changed our sales phi- losophy, not only in the departments but the shops as well. And in doing so, we’ve 9

“We will begin looking for a new strategic partner beginning in 2017. Or maybe a consortium of realised that we can generate more reve- several companies all interested nue by bundling a variety of products. We generated significant sales, so that today in investing in EWE. We are giving we can already say that we have attractive ourselves time until the end of products available that encompass all three areas of business. Intelligent services for 2019 to do this.” the smart home, but also for business customers.

EnBW’s announced exit as one of your company’s shareholders was certainly one of the previous business year’s major events. Now you are searching for a new strategic partner. What are you looking for in this new partner and when do you want to have found them by? You’re right, but this doesn’t only con- ability to further pay off our debts and still cern EWE and EnBW, but also VNG. We have capital available in the coming years have held an interest in the Leipzig-based to invest. That is what we are currently company for many years, most recently focused on. as the majority shareholder. By selling our interest in VNG to EnBW and buying back In short: We have three years and by that the EnBW shares by EWE AG itself as well time, we will – together with the EWE as the EWE Verband, we managed to pull Verband – have reflected on who is a good off a coup. That is how I see it, and I believe match and who will support us and help us our partners view it this way as well. achieve our goals in the future.

We will begin looking for a new strategic You made another decision in 2015: partner beginning in 2017. Or maybe a con- you completely changed your segment sortium of several companies all interested structure. Does this offer benefits to in investing in EWE. We are giving ourselves EWE’s customers and shareholders? time until the end of 2019 to do this, so we Our business model has changed. As you aren’t under any pressure at the moment. know, we reorganized our collaboration Thanks to this transaction, we have the with swb. We are also extremely pleased 10

“If there aren’t any new major special items or weather effects this year, we believe we will generate a stable result once again.” 11

with how our international business is years ago to save 150 million euros, which expanding, which meant that the change we continued to work on. In addition, we was more of a business-related one than are changing the holding structure, we one for or because of customers. want to be leaner and finish this by the end of the year. But ultimately, we need to be When it comes to a forecast, EWE ambidextrous. remains vague: You are predicting a change to group-wide operating EBIT That means not only cutting costs and of between 0 per cent and 15 per cent. optimising operational processes, but also What does that mean? Are you expecting paying attention to where new prospects growth or stagnation? and new business opportunities are created Mr Witte, in times of radical changes to the which we do not yet serve. In the previous energy sector, we are keeping our estimates year we pushed ahead strongly with our conservative. I believe that compared to activities in the field of electric transporta- others, in the past year we did relatively tion. EWE also recently began offering light well with an operating EBIT at the same contracting. And we now offer our classic level as the year before. service, energy efficiency consulting, not only in Germany but also in Turkey. If there aren’t any new major special items or weather effects this year, we believe we Will your efforts to increase efficiency will generate a stable result once again. have an impact on staff figures? And honestly, that alone is a success. If we Yes, but everyone knows this. As the Super- manage to not only further increase our visory Board decided, we are going to cut efficiency but also set about new business 500 full-time jobs by the end of 2017, or models which may already be able to con- simply not refill positions, so that from tribute to our total earnings, it’s possible today’s perspective, we will have about 500 that we will increase our operating EBIT. fewer employees. But on the other hand, you can’t forget that we are also going to Let’s look even farther into the future: be doing new things. We are going to need Based on size, your home market remains – and want – to tap new areas of business, EWE’s top priority. Here you need to and we are going to need new personnel consolidate your business and increase here, which means we are going to start efficiency. How will you do so? hiring again. We already launched programmes to increase efficiency, for example the programme two 12

Let’s talk about your international business: You are currently entering the Turkish telecommunications market and have acquired a provider there. Is EWE going to expand further internationally? First off, we believe that everything we can do at EWE well we can also transfer to other markets – and that happens to include telecommunications, and has so for almost 20 years. Which is why it made sense to purchase the telecommunications supplier Millenicom.

The company has over 100,000 customers. And is developing quite well, with 5,000 new customers each month. And these figures do not even include our customer base in the Turkish gas supply regions, meaning almost another one million customers.

That means that when the scheduled campaign launches this summer, we will be able to offer natural gas, power and telecommunications and significantly increase our customer potential. So to answer your question: when opportunities arise, we aren’t averse to investing further internationally.

Let’s take a lot at the energy market as a whole. There is barely another sector that is undergoing such profound changes. How is EWE preparing for these changes? We prepared for these changes early on. We focused on the energy, telecommunications and IT stages of the value chain. I think 13

“We prepared for these changes early on. We focused on the energy, telecommunications and I T stages of the value chain. I think this is going to be an extremely important requirement for the future.”

this is going to be an extremely important so through digitalisation, our customers requirement for the future. Namely when will receive increased benefits and we we talk about a future in a digitalised world. as a company will become leaner, faster There will not be any advancements with- and better. If I needed to come up with out digitalisation. At EWE, we have already a headline for digitalisation, it would be: begun creating the foundation for this. We simply want to become more simple.

The “German energy turnaround”, the goal In closing, another question about the of decarbonisation and the rise of renew- weather: After moving from southern ables – all of this has also been a part of Germany three years ago, have you EWE’s profile for many years. But we also gotten used to the weather in the north? have the advantage that power generation Easy answer. If you mean the temperature, for nuclear power plants is not a part of then it is better in the south – but in return, EWE’s core business and we do not have the climate is better in the north. any decommissioning obligations. With the exception of our conventional plants in Bremen, which play a minor role, we have a relatively good position compared to the rest of the sector.

What new products, markets and sources of added value are you currently considering? As I mentioned earlier, there are currently two megatrends: digitalisation and decarbonisation. This means changes to the energy landscape are occurring by leaps and bounds, renewable sources of energy will continue to enter the market, and this will bring about all kinds of changes. And we are going to to play an active role.

To us, digitalisation means first looking at our own internal processes, seeing what we can automate, what we can digitalise, The interview was conducted by Wolfgang Witte so that it ultimately makes things easier for the customer. If we succeed in doing UNDERSTANDING AND USING DIGITAL DATA

EVERYTHING IS NEW: DIGITISATION WILL CHANGE THE ENERGY WORLD

After the liberalisation of the power and natural gas markets and in the middle of the ‘German energy turnaround’ (the transition from fossil fuels to renewable energy sources and the phasing out of nuclear energy), the energy sector is now undergoing the third transformation within 30 years as a result of digitisation.

It is foreseeable that, in the future, private households and companies will create an energy world using their smartphones and the Internet which is ONLINE-SHOP GRÜNSPAR tailored to their specific needs. This is because the intelligent grid meets all the requirements to supply up-to-the-minute data on the rhythms The internet and digitalisation give energy service and regularities of our own energy consumption. Similarly, we will also be providers the ability to create new value chains; at able to immediately and accurately view power supply and demand within the same time they open the door to personalized low-voltage systems – in other words, at the local level. So the exciting communication with customers. EWE is both devel- question for all energy companies is, which of the services that can be oping its own products for this purpose as well as simultaneously focusing on the acquisition of new ideas that have developed from all this data will customers love? And what changes will already proven themselves on the market. As such, EWE has acquired a this mean for energy companies? 90-per cent interest in “grünspar GmbH” in order to round out its own range of energy-saving products. Consumers can purchase a variety of CREATING DIGITAL SERVICES FROM DATA energy-saving products in the Grünspar online shop, from LED lamps to This question requires a new way of thinking within the sector – away water-saving shower heads to efficient household appliances. In addi- from the conventional, sole business model of safely supplying power tion, “grünspar.de” provides its users with tips, test results and informa- and natural gas at competitive prices towards the systematic use of their tion about the latest developments and current discussions.

Online sales: EWE offers its customers online the attractive range of products from Grünspar as well as its own services in the field of energy efficiency. 17

“Valuable data”

Those that know when, how much, and what their power is being used for have valuable information at their fingertips. With the right technology, energy providers can develop data-driven business models in order to quickly and efficiently offer their customers personalised products and services that are extremely easy-to-use. New technologies are needed for the digital and smart energy world of tomorrow that bring together operative and business processes in real time.

Bernd Leukert, Member of the Managing Board, SAP SE, Products & Innovation

technological expertise for the purposes of data collection. A high-per- The smart factory is another appealing service – a company can cut its formance telecommunications network, secure data centres and data costs when it precisely knows its energy consumption and can intensify storage – these are the areas of activity that energy companies will also production at times during which power is affordable on the exchange need to serve in the future. and also has the ability to react to changes in the power grid with regard to its own power generation. Those that make the most intelligent use And energy companies are also called upon to take this one step further of the raw material ‘data’ have the best prospects in the competitive and answer the next question: how can we use this data to create services environment – this applies equally to both suppliers and consumers. for consumers? In this regard, product development needs to start with people’s needs – an easy-to-use, intuitive interface that allows customers to communicate with energy companies. In this context, the old tradi- EXPANSION OF BROADBAND NETWORKS AT EWE tion of developing products until their completion in a process that can sometimes take years will become obsolete. Instead, companies need to immediately test ideas with a small group of customers and bring them to market when successful.

If energy companies do not keep up with this development, they are in danger of falling victim to the ‘elephant effect’ or the ‘piranha effect’. The first case refers to large companies that already have experience with digitisation and expand their business into new industries. The second case refers to small companies that develop innovative products and in this way secure individual pieces of a large business. When it comes EWE is a key player driving the expansion of broadband networks in to both scenarios, EWE operates in a proactive manner. Not only does north-western Germany. In over 440 locations, we ensure that as many the company integrate the current status quo of digital services into people, companies and institutions as possible have fast Internet access. its product range, but also strives to form partnerships with start-up We have carried out the self-financed, area-wide expansion of VDSL since companies, such as an online shop for energy efficiency products. 2013, and have connected over 5,800 serving area interfaces with fibre optics since launching the programme. More than half of them are also equipped with additional vectoring technology, which offers speeds of up THE FUTURE: FROM THE SMART HOME TO THE SMART to 100 Mbit/s. FACTORY

Which energy apps will be used by millions in the future? If speaking in EWE is expanding broadband networks in a multistage process, with the terms of private households, the answer remains to be seen. This is because connection of serving area interfaces being an intermediate step on the we will only know which role self-supply, electric vehicles and power as path to fibre-optic building connections. So far, 50 new regions have been heating energy will actually play for private and business customers at supplied with fibre-optic building connections, meaning a total of over the end of the German energy turnaround. The smart home is a promi 1,000,000 households can receive a fast Internet connection. sing option, but it alone will not bring about the digital breakthrough. EFFICIENTLY EXPANDING THE USE OF RENEWABLES EFFICIENTLY EXPANDING THE USE OF RENEWABLES 20

THE ENERGY MARKET – BETWEEN A BREATH OF FRESH AIR AND HEADWINDS

Under the umbrella – some also say ‘heavens’ – of Germany’s act on the sale of electricity to the grid (Stromeinspeisungsgesetz – StromEinspG) and then the subsequent renewable energy sources act (Erneuerbare-Energien-Gesetz – EEG), the power generation system has changed fundamentally since 1991.

The legally defined feed-in tariff and the legal guarantee to purchase power from wind, photovoltaic and biogas systems have spurred on the GREEN ELECTRICITY COMES TO MARKET advancement and expansion of renewables so that in Germany today The chart shows the share of directly sold capacities of renewable sources of energy (as of April 2015) an average of nearly 35 per cent of all power in the grid comes from renewable sources. Germany’s goal is for this figure to reach at least 80 per cent by 2050. Furthermore, the security of investments codified by 100% 81% the EEG has moved hundreds of thousands of individuals and companies 62% to participate in power generation in Germany. The monopolies of the 14% large energy supply companies are a thing of the past. Today the ‘big four’ face stiff competition from cooperatives, regional GmbH & Co. KGs (limited partnerships with a limited liability company as general partner), Wind power Wind power Biomass Photo engineering firms, project developers, power distributors or investors from (Offshore)1) (Onshore) voltaics other industries that have participated in the expansion of renewables 1) With regard to offshore wind power, in the past installed capacity has usually corresponded with longer than the old-established energy providers. the directly sold capacity (share equal to 100%). The figures from distribution grid operators for directly sold capacity equal 1,976 MW for April 2015. Source: Study by Fraunhofer ISI and IWES, bbh, IKEM (as of May 2015) THE FORECAST: UNSETTLED The era of state-guaranteed investment security is coming to a close, however. The term Einspeisevergütung (feed-in tariff) has disappeared from which anyone can apply for as long as they have a permit for wind parks. the law; instead it now refers to the anzulegender Wert (applicable price), The contract is then awarded to the bidder offering the lowest applicable which must be calculated in all tenders beginning in 2017. From this point price. Those that are not awarded the contract are free to place a new bid on, Germany’s Federal Network Agency for Electricity, Gas, Telecommuni- during the next round of tenders. This approach increases risk – those with cations, Post and Railway will put certain projects for solar parks as well as plans that go over budget or those that pushed their luck too far in the first onshore and offshore wind parks out for tender three to four times per year round of bidding are left to cover their planning costs, need to cut their costs

GROSS POWER GENERATION: THE SHARE OF RENEWABLES SINCE 2005 TRIPLED

Gross power generation in billion kWh and total share by energy source in %

700 640 641 641 633 639 652 623 613 630 628 596 14 % 26 % 26 % 22 % 23 % 22 % 16 % 15 % 16 % 600 23 % 18 % 24 % 500 26 % 25 % 25 % 24 % 24 % 23 % 25 % 25 % 24 % 24 % 400 18 % 19 % 20 % 19 % 22 % 19 % 19 % 18 % 300 22 % 22 % 18 %

billion kWh 9 % 11 % 10 % 14 % 14 % 12 % 200 12 % 14 % 14 % 5 % 12 % 5 % 5 % 5 % 30 % 12 % 5 % 26 % 6 % 5 % 5 % 6 % 24 % 100 6 % 6 % 10 % 11 % 14 % 15 % 16 % 17 % 20 % 23 % 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Renewables Other (oil, pumped hydro storage, etc.) Natural gas Reﬁned coal Lignite Nuclear power

Source: bdew’s “Energie-Info” entitled “Erneuerbare Energien und das EEG: Zahlen, Fakten, Grafiken”, Berlin, February 2016 21

Construction and maintenance of a wind power park in Spolsen. and reduce their margins. Furthermore, an additional risk exists in the fact planned and constructed both onshore and offshore wind parks in the that it is no longer certain whether all the power from new EEG plants will past, and continues to operate them today. The company has experience be compensated for over the long term. There are many indications that, in financing wind parks and in the direct sale of power, and has sufficient with the further expansion of renewables, times in which the power cannot capital to bear the risks. be sold will increase. And anyone who assumes that increased risk should actually lead to increased prices must have made their calculation without EWE’S GOAL IS TO BE PREPARED FOR ALL WEATHER the government, which set a maximum value for the ‘applicable price’. As a CONDITIONS result, the tenders will lead to cost optimisation at all levels – and the cost There is also a further soft skill that should not be taken for granted: of leases, for power plants, for project development, management, financing from their long-term work for and with citizens, regional energy service and power sales will all come under pressure. To put it another way: it was providers have developed models of collaboration and conflict resolution warm under the umbrella of the EEG, but now you need to bundle up. strategies. Companies will primarily be able to use the opportunities these skills offer when they call also remain competitive with regard to costs at all levels. Regional energy service providers will only be able to fully EWE has sufficient capital utilise their expertise in a tender when they can hold their position in the market against specialised competitors as well as other energy suppliers to bear the risks. using all of their skills.

With increasing risk also come new financing models. In all likelihood, CONSISTENT MARKET OPPORTUNITIES FOR EWE THANKS the number of financing partnerships will increase, with regional energy TO ITS REGIONAL ROOTS service providers cooperating with insurance companies and/or local The expectation is that the many local investors that previously shaped citizens as investors. The partnership can be set up so that the energy the expansion of renewable energy sources will have fewer opportunities service provider is responsible for a smaller portion of the investment, in this new world, since they will have a more difficult time handling the but is compensated by the investor for the development and operation risk and cutting costs at all levels. The market opportunities for regional of the park. Furthermore, thanks to its knowledge and skills, the energy energy service providers will increase, however, and most notably in service provider can offer its financing partners a deal where it shoulders the cases where they control the entire value chain. EWE has already the risk in exchange for a premium.

MANAGING GRIDS IN AN INTELLIGENT MANNER 24

OVERCOMING THE COMPLEXITY OF FEEDING IN POWER AND POWER TRANSMISSION

“Make it more complicated” is usually not a good suggestion for overcoming difficulties. But if we are going to make advancements to distribution grids so they can handle the growing amount of renewable energy being fed in from power plants, it is the silver bullet.

Intelligent distribution transformers automatically regulate the voltage in the grid and in doing so, prevent overloads. EWE already uses more than 200 of these smart transformers in its grid regions.

In the old German energy world, you would find a power station about with significant wind and sunshine while only a limited amount of power every 70 km which would transmit power only in the direction of continues to flow into them. And since wind power and solar plants are consumers through the extra-high-voltage grid and the distribution grids widely distributed at the local level, imbalances in the grid occur not only over increasingly ‘thinner’ lines. And that itself was already a challenging regionally but also locally – and they can also fluctuate minute by minute. task. From today’s perspective, the old energy world appears idyllic, however, since the imbalances in the grid have now increased by leaps A grid operator can react to this challenge by laying additional lines. But and bounds – power from renewable sources such as solar and wind is the high cost of doing so completely outweighs the benefits. This kind of namely generated primarily in areas where few people live and, earlier, grid would almost always be oversized, and only used to capacity in times the grid ended. As a result, the cables that were laid during the time of of high winds, scorching sunlight and low local demand – an extremely the old energy world are today too ‘thin’ for the power lines needed to rare phenomenon in Germany. transmit power from wind parks and solar plants. In addition, power no longer flows in only one direction, but instead flows from rural areas 25

EWE’S SOLUTION: INTELLIGENT GRID USAGE THANKS much voltage. In contrast, intelligent distribution transformers recognise TO TECHNOLOGICAL EXPERTISE higher voltages in the medium-voltage grid and adjust their transformers EWE has confronted the particular pressure of getting the grid ready so that the low-voltage grid continues to supply 230 V. for the German energy turnaround for many years. In Germany, nearly 35 per cent of all power in the grid now comes from renewable sources. At EWE NETZ, this figure stands at 75 per cent – almost as much as the Today, 75 per cent of the power target the German government has set for all of Germany by 2050. On the basis of its experience, the company has developed a firm vision for transmitted by EWE NETZ is the grid of the future. already generated by renewables.

If we want to better control the current, it makes sense to deal with feed-in peaks in an intelligent manner. This is why EWE is 1 advocating for the ability to cap the peak power from renewable A further way to increase the grid’s capacity is through ‘reactive power plants by five per cent. This would only be necessary for a few power management’. Modern wind power and solar power hours each year, but would simultaneously allow twice as many plants 3 plants supply reactive power upon request, which, if fed in to be connected to the grid as there are today. The implementation of precisely, increases the grid’s ability to transmit energy to the consumer. this cost–benefit optimisation demands significant technical expertise; grid operators can only flexibly reduce the peaks from wind power and The same requirement applies to all three solutions: the grid operator solar power plants which acutely overload the grid when sufficient data needs data on the often minute-by-minute and locally changing conditions is first collected and consolidated which allows the condition of the grid in the grid. Before they can control and manage, they need to measure. to be observed and managed at all times. This is why EWE has begun to equip its grid with additional sensors and develop applications that can handle these data flows. The company To ensure that the grid transmits power without fail in the is prepared to offer this expertise as a service to other grid operators. case of larger voltage fluctuations, EWE already relies on 2 distributed automation technology today. One example of this is variable distribution transformers. Most wind parks feed power into THE ENERA PROJECT the medium-voltage grid, and high winds lead to an increase in voltage in DEMONSTRATES THE these grids. The grid can handle this increase within certain limits. Since ENERGIEWENDE TRANSITION the old distribution transformers pass this increased voltage on to the IN THE REAL WORLD low-voltage grid unchanged, however, end consumers would receive too The next step in the Energiewende transition is being taken in the German state of Lower Saxony: Germany’s Federal Ministry of Econom- THE FIVE PER CENT APPROACH ics awarded a consortium of 75 partners led by EWE approximately Up until now, grid operators were required to accept 100 per cent of power 50 million euros from the Schaufenster intelligente Energie (intelligent generated from renewable energy sources and expand the grid accordingly. It energy showcase) subsidy programme. Within the scope of the project would make more sense, however, if they were allowed to throttle up to five per entitled enera, the partners want to demonstrate how, through the use cent of the generated power demand. This five per cent approach could be used of intelligent technologies, energy systems can be designed in a sustain- to avoid up to 70 per cent of the costs of grid expansion and allow twice as many renewable power plants to be connected to the grid. able manner and operated more efficiently. The project will be carried out in a model region in East Friesland. The goal is for the results to be applicable across Germany.

For the purposes of this major real-world test, the power grid in the administrative districts of Aurich, Friesland and Wittmund, as well as the cities of Emden and Lingen, will be equipped with up to 40,000 intelligent measurement systems. In addition, the project participants will build storage systems, technologically upgrade wind power plants and expand market models in collaboration with power trading centres to include regional products. The consortium is investing 150 million euros of its own capital to carry out the project. Source: magazin.ewe.com

FURTHER REDUCING ENERGY CONSUMPTION 28

STILL ROOM FOR IMPROVEMENT – ABOUT THE RESPONSIBLE USE OF ENERGY

Reducing energy demand continuously presents companies and consumers with new challenges. Clear goals and personal responsibility accelerate the intelligent use of power and heat.

The destination is known and the road there has been mapped out, but ONE QUARTER OF ALL ENERGY IS USED FOR HEAT no one has any idea how quickly it will be paved. Germany’s goal is to Germans use nearly 25 per cent of all the energy consumed in the country cut its carbon dioxide emissions by at least 80 per cent by 2050 (or even to heat their homes and warm up their water. By better insulating old better, by 95 per cent). The goal will be reached when not only power, buildings, the country could considerably reduce this demand and generate but also heat is generated from renewable sources. the remaining heating energy required from renewables. The Fraunhofer Institute for Solar Energy Systems expects that, in the coming 35 years, power from solar panels in conjunction with battery storage will become petroleum and natural gas’s strongest competitor in the heating market. Germany’s goal is to cut its The power will either be consumed by the pumps in geothermal heating carbon dioxide emissions by at or infrared heating systems. It is also expected that, on the path to this future, today some established heating systems and some new heating least 80 per cent by 2050 systems will be utilised that make more efficient use of fossil fuels, such (or even better, by 95 per cent). as condensing boilers, combined heat and power plants, natural gas heat pumps and fuel cells. A total of 60 per cent of all heating systems in Germany are more than 16 years old – the potential savings are enormous.

NEW EWE HEADQUARTERS IN BURSA: AN ENERGY CONCEPT WITH BRAINS

The new headquarters of the Turkish EWE subsidiaries Bursagaz and Enervis in Bursa, Turkey, demonstrates how energy can be used in an optimal way in buildings; it was constructed in accordance with the LEED (Leadership in Energy and Environmental Design) INFORMATIONEN ZU BURSAGAZ international standards for green building. Here are some technical details at a glance: 1 Zwei auf dem Dach installierte 2kW-Windturbinen, 1 2 liefern schon ab geringen Windstärken Strom. 3 The waste heat from the building’s own combined heat and power unit is used to cool and heat the building. This cuts the building’s Auf dem Dach des Gebäudes befindet sich eine Solar- CO2 emissions2 by 30 per cent. anlage, welche eine Nennleistung von 45kWp hat.

10 per cent of the building’s own power demand is generated from Leicht verschmutztes Abwasser und Regenwasser renewable sources:3 semi-permeable solar cells on the building’s werden aufgefangen und wieder verwendet zur facade and a solar power system as well as one 600W wind turbine Klospülung o. ä. on the roof. 100m2 der Fassade sind mit halbdurchlässigen 4 Solarzellen bedeckt und bringen eine zusätzliche 5 Fibreglass pipes guide sunlight into rooms without daylight and Leistung von 5 kWp. into the basement. 4 Strom wird durch ein Blockheizkraftwerk gewonnen, 5 dessen Abwärme gleichzeitig zur Heizung und Kühlung Rain and grey water is collected and used a second time for des Gebäudes genutzt wird und somit den CO2-Auss- flushing toilets. toß um 30 % reduziert. 29

What potential does the topic of energy efficiency have in Turkey?

Energy efficiency in Turkey is still in its infancy and has significant potential. The Turkish government has set the absolutely realistic goal of cutting industrial energy consumption by 15 per cent and energy consumption in buildings by 27 per cent by the year 2023. We recognised this market potential early on, utilised our expertise from Germany and now are one of the leading providers of local consulting services. A key to further market success is that Turkish business owners begin to invest in energy efficiency.

Dr Frank Quante, CEO of EWE Turkey Holding, Istanbul

SEIZING THE RIGHT MOMENT system, that makes it possible to schedule and pay the costs over a long EWE demonstrated with its new office building in the Turkish city of period of time. This increases customers’ willingness to utilise innovative Bursa that the company has mastery of the technology required to bring and efficient systems technology. EWE not only supports customers in the about the German energy turnaround when it comes to heating. But the selection of the ideal heating system, but also complements this support question for all energy companies is, when is the time right to follow the with additional services related to saving energy in general – infrared investments in research and development with further investments that imaging and airtightness tests (known as blower door tests) are two turn innovative technologies into a mass-market business in which prices keywords in this regard. Furthermore, the company also advises customers will also be attractive to customers? in selecting the right renewable energy subsidies.

This insecurity stems from four sources: first, the majority of property A POLITICAL DECISION owners view new heating systems with caution; their attitude reflects The government pulls the strings when it comes to successful implemen- less a lack of confidence in the new technologies than it does the fear tation of the heating German energy turnaround, however. And politicians that rapid advancements and price declines will leave them stuck with face a difficult decision: if the members of German Parliament decide an out-of-date system too quickly. Second, 50 per cent of residents in to increase the market opportunities for new heating technologies by Germany live in a rented flat, and while the tenant is the one who benefits means of a subsidy to get the ball rolling, then, on the one hand, it costs from insulation and new heating systems, the landlord is the one who has money, and on the other hand, it will cause a loss of tax revenue. Today, to bear the costs, which they are prohibited from passing directly on to the consumers pay value-added taxes, power taxes and a licence fee on every tenant. (Incidentally, legal provisions make the sale of self-generated solar kilowatt-hour of power or gas that they draw from the grid. And these power to tenants uneconomical, and this customer group is discriminated taxes comprise 30 per cent and 25 per cent of the price of a kilowatt-hour against as a result). Third, investments in energy efficiency compete of power and natural gas, respectively. In contrast, in the current legal with investments in consumer goods, whether they be cars, kitchens or situation this revenue disappears for every kilowatt-hour of energy that a vacations. And fourth, the heavily fluctuating prices for natural gas and household supplies itself. This means the transition to renewable sources oil also reduce people’s willingness to invest. of energy used for heating also requires budgetary policy decisions. In contrast, this transition in the power supply is paid for almost entirely by PLANNING AND SAVING OVER THE LONG TERM power customers through the EEG reallocation charge and the grid fees. In this situation, energy service providers can accelerate the transition to renewable sources of energy primarily by offering their customers long- term contractual relationships, such as when purchasing a new heating A CHANGING MARKET – CHANGING COMPANIES

“I AM GOING TO LEARN NEW THINGS” AN INTERVIEW ON CHANGE AND COMMUNICATION

Every German knows first-hand just how much the energy world has Is it true that everything changes with increasing speed? changed; into the 1990s, citizens were simply recipients. They only became What changed for you? customers able to choose their own supplier in a competitive market Szekeres: The Renewables business area grew extremely rapidly in recent after the dissolution of the supply monopolies. The German energy years – with many changes for employees. Now we are in the middle turnaround turned many customers into self-suppliers. And with the of a further period of accelerated digitisation of the grids that is currently beginning, consumers will also change, since external conditions soon become energy traders. But what did these changes initiate within are changing: tenders for wind energy companies? How do EWE’s employees experience and shape this “It goes without parks, expansion restrictions, change? What can energy companies offer their employees so that they saying that a acceptance issues and interna- develop and implement new ideas? tional business. These are all new trusting relation- challenges, and we are, for example, ship between developing new partnership models employees and with other companies and citizens managers and to overcome them.

regular commu- Rißmüller: Yes, each individual’s nication is job description is constantly chang- absolutely key.” ing. In my relatively short career, I, as an economist, have expanded Szilvia Szekeres my IT expertise and developed new products together with my IT colleagues. I have played an active Szilvia Szekeres (38) has worked for EWE for 12 years. She part in introducing telecontrol for is an economist who also studied Slavic languages and has biogas systems, and now my focus is shifting to the topic of optimisation. focused on renewables since starting at EWE. Today she There is no way to say what I’m going to be working on in a few years. But works at the subsidiary EWE ERNEUERBARE ENERGIEN on one thing is sure: I’m going to learn new things to do it. project development for onshore wind parks, an area of business that has grown rapidly in recent years. She likes Schlörmann: Constant changes also mean that a company and its manag- to go horse riding in her free time. ers need to handle employees differently. If we want change – and we do here at EWE – then we need to explain the necessity and the significance of these changes to our colleagues, discuss this with them and build trust. 33

Ray Kodali (32) has worked for EWE for six years, the last four of which he has spent at the IT subsidiary BTC. At BTC, he was first involved in the development of offshore wind IT products. He is currently active in corporate development, where he supports the Network and Committee Management business area, among others. Ray Kodali is also one of the employees at BTC responsible for the digitisation project enera. The mechatronics engineer does volunteer work for social projects in his free time, currently with refugees. In addition, he follows the development of European film and loves the independent cinemas in Oldenburg.

Heuberger: That is an important point. I have not been with EWE that Is this the end of the silo mentality? long, but I have been told that the company used to be organised in a Kodali: The ‘we are one Group’ way of thinking is not practised on a much more hierarchical way. Back then, it may have been enough when a day-to-day basis. supervisor said, ‘This is how it’s done.’ That does not work today. Changes require an explanatory, cooperative management style. Szekeres: On the contrary, it is. For example, we regularly coordinate with the energy trading division. And we also work together closely with the “We are increasingly competing with start-ups Netzgesellschaft (power grid operator) or the affected holding divisions. But it could – no, not just could, but must – go further. The potential that and companies from other industries that are we have at our company is enormous. supposed to be fast.” Michael Rißmüller Kodali: What I would like is that when I have an idea for product, I want to speak directly to the per- “When considering What does a company need to do to play an active role in the change son responsible at the respective all our employees, process? How do new things come to EWE? subsidiary without them having I think it’s good that Kodali: We anticipate change, look at how the market is changing and to first check with their manager. the Group uses new see what customers want in the future. And we try to keep an eye on the I mean, we need this commu- media to communicate risks. The more this happens across the borders of the individual EWE nication to create agility and subsidiaries, the larger the success. critically review ideas together. with everyone.” If we succeed in doing that, then Ray Kodali we can also move quickly as a department and rapidly bring new products to market. 34

Rißmüller: Many of our competitors no longer come from the classic What type of working environment do employees need in order energy sector. We are increasingly competing with start-ups and com- to be fast and innovative? panies from other industries that are supposed to be fast. We need to Szekeres: The employees in our department have a lot of freedom. And be just as fast. this is also necessary in order to organise the projects. It goes without saying that a trusting relationship between employees and managers and Kodali: EWE not only needs to compete with start-ups, but also create regular communication is absolutely key. a platform for them. We are playing an active role in shaping the change in a proactive manner together with start-ups. That is an organisational Heuberger: Exactly. People expect me to take the reins. That only works change to establish this new way of thinking in our Group. when they also trust me. I don’t need to go to my boss every day and

Dr Daniel Heuberger (33) is a project manager for the introduction of smart grids. As an employee in power grid development, he developed the investment strategy for EWE NETZ, among other things. He is married, and he and Michael Rißmüller (32) has been with EWE VERTRIEB for his wife are expecting their first child this summer. His team one-and-a-half years, and before that spent five years at the IT is primarily comprised of male co-workers between 25 and subsidiary BTC. Today the economist is responsible for EWE’s 35 years old. Many of them became fathers in recent years virtual power plant. His duties include combining various and all of them took parental leave. According to Heuberger, renewable energy power systems that fall under the scope of who grew up in the Rhineland region of Germany and is a the EEG with industrial and private customers to form a virtual big fan of carnival, EWE is more family-friendly than many power plant, in order to then sell the power on the power and companies. control energy markets, among others. Michael Rißmüller is married and has two children. 35

Alwin Schlörmann (56) has worked for EWE since 1990. One of his first duties was working on Europe’s largest wind park at the time, with a total capacity of 3 MW. Today he is the general manager of EWE ERNEUERBARE ENERGIEN and deals with plants that can each generate 3 MW or more. In the years between, the father of two sons worked in sales in different regions and was most recently responsible for internal corporate services. In his free time, Alwin Schlörmann particularly enjoys family life, his home and garden, as well as spending quality time with friends and acquaintances.

show him what I did today. It’s okay when we sit down every two or three freedom in their day-to-day weeks. It is also important to be able to put the daily work down for a bit. activities to do so. We can’t In my team, we get together once a week for a ‘technology slam’ in order “We can’t lose lose sight of the classic areas to develop new ideas outside of the day-to-day routine. sight of the of business where we earn our money. Most EWE employees classic areas of work in operative units, such business where as the regional maintenance “Changes require an explanatory, cooperative we earn our areas, in customer service or in management style.” accounting. These employees Dr Daniel Heuberger money.” are also faced with more chal- Alwin Schlörmann lenging process or customer desires and need to master Kodali: Particularly when considering all our employees, I think it’s good increasingly complex tech- that the Group uses new media to communicate with everyone. Some nologies. Often they have a fixed daily workload in front of them. We extremely critical questions were posed in an online chat with the Board particularly need to create the conditions for these employees so that they of Management. This creates the opportunity to have a constructive enjoy coming to work. It goes without saying that they need to be shown discussion. respect and appreciation. This is how we make stable, efficient process and organisations possible and increase our ability to seize opportunities. Schlörmann: But we can’t only look at academics and the employees who work on projects, develop new areas of business and require extensive

EWE AG Annual Report 2015 38 FOREWORD BY THE CHAIRMAN OF THE BOARD OF MANAGEMENT

FOREWORD BY THE CHAIRMAN OF THE BOARD OF MANAGEMENT

BOARD OF MANAGEMENT OF EWE AG (f.l.t.r.) Ines Kolmsee (Chief Technology Officer, CTO) Matthias Brückmann (Chief Executive Officer, CEO) Michael Heidkamp (Chief Sales Officer, CSO) Nikolaus Behr (Chief Human Resources and IT Officer, CHRO/CIO)

EWE AG Annual Report 2015 FOREWORD BY THE CHAIRMAN OF THE BOARD OF MANAGEMENT 39

2015 was a difficult, and at the same time, successful year. We systematically tackled the company’s challenges and set a course for the future in several areas. We are closing a turbulent year having generated a solid, stable operating EBIT – not something to be taken for granted in an industry that currently finds itself in a period of massive reorganisation that does not allow rapid successes, but is opening new doors. In this report, you can follow both: how our markets and the supply of energy in general is evolving and how EWE is progressing when it comes to the issue of restructuring.

Let us first take a look at the financial figures: Despite declining revenues in our home energy market, in 2015 we succeeded in maintaining operating earnings before interest and taxes at the same level as last year, generating 428.1 million euros. As such, we achieved our goal. It was, however, another challenging year in a changing energy sector, and one which required write-downs on the group’s conventional power plants. On top of that came costs from the company’s restructuring. As a result of these extraordinary costs, the group generated a loss of 9.4 million euros, a weaker result than in previous years.

At the same time, the capital markets rewarded our efforts – EWE’s bonds significantly outperformed the market average in 2015. We continue to stand by our reliable dividend policy, and as such we will recommend the distribution of dividends in the usual amount at the annual general meeting of shareholders. This would mean distributing 88.0 million euros to our shareholders.

One of the successes of the completed business year surely must be the sale of our interest in VNG to EnBW and the associated buyback of EWE’s own shares from our shareholder. For many years, we searched for the right path to take within our group with regard to the further development of VNG. Now we have found a solution that gives all of the companies involved, as well as their shareholders, the ability to look toward the future, and will also unleash new energy. We are happy and proud of the fact that we succeeded here, since liquidating this shareholding frees us from risks unrelated to our core business and unlocks new prospects for EWE. We will continue to reduce our debt while simultaneously making new investments in select areas of business, such as renewable sources of energy.

We also set a new course with regard to our interest in the Bremen-based swb Group. Last year’s decision to more strongly focus our collaboration on specific topics of interest proved correct and above all, created clarity within the company. Topics of collaboration, such as renewables, grids and sales offer opportunities for joint projects and innovations. We are making good progress toward seizing these opportunities.

EWE AG Annual Report 2015 40 FOREWORD BY THE CHAIRMAN OF THE BOARD OF MANAGEMENT

And recognising and seizing opportunities is also our focus when it comes to our home energy market. Over the course of the last decade, the heating market in north-western Germany has changed significantly. Today private households consume approximately 20,000 kilowatt- hours of natural gas, which is one-third less than ten years ago. And when it comes to power, improvements in energy efficiency and the trend toward self-supply have led to constantly declining sales for quite some time. This has two consequences for EWE’s classic business. On the one hand, we will continue to work on improving our sales performance and cost structure to continue standing out among the competition. Furthermore, we are also focusing on the development of new products and services that have the potential to add further value. Comprehensive system solutions with innovative components, such as the home storage systems we have marketed to municipal utilities since 2015, are one example in this regard. We can also create new synergies by expanding existing sales channels. EWE’s decision to focus on the telecommunications sector early on is already paying off today – whether with regard to developing product packages or as a convincing argument for customer loyalty.

We are also expecting a significant positive boost as a result of the “enera” project. In December 2015, Germany’s Federal Ministry of Economics awarded funding of approximately 50 million euros to a consortium of 75 partners led by EWE. Within the scope of the “enera” project, we want to demonstrate in a model region in East Frisia how, through the use of intelligent technologies, energy systems can be designed in a sustainable manner and operated more efficiently. The goal is for the results to be applicable across Germany – we hope that this major German energy turnaround project being carried out right on our doorstep will offer new insights on how to shape future business models as well as fruitful collaboration in new partnerships.

Our grid operations company’s investment model is also based on a cooperative approach. Municipalities in Lower Saxony can purchase shares of EWE NETZ until the year 2018 and in this manner elect representatives to the company’s committees in order to play a role in the decision-making process, among other things. As of today, a total of 82 municipalities have invested, together holding 3.1 per cent of the company’s shares. We view this as an excellent amount. But we believe the real success is in our extremely close, outstanding collaboration with these cities and municipalities. In addition to the all necessary technological advancements, this trusting relationship will represent a key cornerstone in the successful implemen tation of the German energy turnaround here in our home of north-western Germany.

EWE AG Annual Report 2015 FOREWORD BY THE CHAIRMAN OF THE BOARD OF MANAGEMENT 41

Let us also take a brief look at our international activities, particularly our operations in Turkey. EWE entered the energy business here early on, back in 2007. Today we hold a strong position in the country. After closely following the developments in the Turkish telecommunications market, only a few weeks ago we successfully acquired a telecommunications company headquartered in Istanbul. The acquisition of Millenicom gives us the opportunity to successfully grow in this market as well. In the future, we will be able to offer our customers in Turkey combined energy and telecommunications services – a business model we are already successful with in our home market.

What do we expect in 2016? We believe that the situation in our markets – energy as well as telecommunications – will remain strained and continued to be shaped by significant com petitive pressure. As a result, we are systematically adhering to our approach of improving efficiency, and will continue to work on our internal company structures. This also includes strict cost discipline. Furthermore, we will continue to move forward with the reorganisation of our group. Nevertheless, we are entering the year 2016 with optimism. With its wide range of products and services and many years of experience, including in the fields of intelligent grids and wind power, EWE has an outstanding position from which to play an active role in shaping a new era of energy supply. We proved this in 2015, and we want to continue down this path in 2016. Changes also bring with them new opportunities and prospects. This is also reflected in our Board of Management’s new composition. We sincerely thank our employees for their hard work and significant dedication in this challenging year. We would also like to thank our customers, shareholders and business partners for their trust and support. We will continue to do everything in our power in the future to justify both.

Best wishes,

Matthias Brückmann Chairman of the Board of Management

EWE AG Annual Report 2015 42 REPORT FROM THE SUPERVISORY BOARD

REPORT FROM THE SUPERVISORY BOARD

Ladies and Gentlemen,

During the course of the 2015 business year, the Supervisory Board continuously monitored the company’s management and received regular, comprehensive reports from the Board of Management on the company’s position, all significant events and company performance, both verbally and in writing.

The Supervisory Board thoroughly discussed all matters requiring its approval either by law or the company’s articles of incorporation and made the necessary decisions. In a total of six meetings in 2015, the Supervisory Board dealt in particular with the annual and consolidated financial statements, the current earnings position (including the risk management system), investments and their financing, and individual transactions of particular importance. In addition, the Supervisory Board provided guidance regarding the company’s strategic focus; the conclusion of agreements between EWE, EnBW and the municipal shareholders pertaining to shares in VNG and EWE; entering the Turkish telecommunications market; and appointing members of the Board of Management responsible for the sales, technology and finance departments. Furthermore, the Supervisory Board was provided extensive information on charitable, sponsorship and marketing activities as well as the progress of onshore and offshore wind farm projects.

The composition of the Supervisory Board of EWE AG has changed as follows since 1 January 2015: Gregor Heller vacated his position as an employee representative on the Supervisory Board on 31 December 2015. There were no changes in the composition of committees in 2015.

The Supervisory Board would like to thank Mr. Heller for his committed and constructive assistance as a member of the board, and his many years of work on behalf of the company.

Together with the Board of Management, the Supervisory Board committees prepared the meetings and the resolutions of the Supervisory Board. All in all, the steering committee met ten times, the working committee twice and the finance and audit committee a total of two times. No meetings of the mediation committee were held pursuant to article 27, section 3 of the German co-determination act (Mitbestimmungsgesetz – MitbestG).

The individual financial statements of EWE AG prepared by the Board of Management in accordance with the German Commercial Code, the consolidated financial statements prepared in accordance with IFRS and the condensed management report for EWE AG and the Group for the 2015 business year have been audited by the accounting firm Ernst & Young GmbH, which was elected as auditor at the Annual General Meeting on 27 April 2015, and subsequently hired by the Supervisory Board. Upon completion of the audit, the auditors issued an unqualified opinion of the financial statements. The auditors’ reports were distributed to the members of the Supervisory Board, officially acknowledged and incorporated into the discussion and review of the annual and consolidated financial statements. The auditors participated in the meeting of the finance and audit committee on 4 April 2016 and the Supervisory Board

EWE AG Annual Report 2015 REPORT FROM THE SUPERVISORY BOARD 43

meeting dealing with the financial statements, where they reported on the major findings of their audit and were available to answer questions. Having conclusively examined the individual financial statements and consolidated financial statements prepared by the Board of Man- agement, the management report for EWE AG and the Group management report as well as the proposal for the appropriation of net profit, the Supervisory Board expresses no objections. The Supervisory Board today adopted the individual financial statements, approved the consolidated financial statements and concurred with the Board of Management’s proposal for the appropriation of net profit.

The Board of Management also prepared a report as required under article 312 of the German stock corporation act (Aktiengesetz – AktG) on relationships with affiliated companies as per article 313 of the German stock corporation act. The auditors have audited this report and issued the following auditor’s opinion:

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

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

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

The Supervisory Board would like to thank and express its appreciation to the Board of Man- agement, all employees and the members of the works council for their hard work in the 2015 business year.

Oldenburg, Germany, 20 April 2016

The Supervisory Board

Dr Stephan-Andreas Kaulvers Chairman

EWE AG Annual Report 2015 44 INVESTOR RELATIONS

Investor Relations

EWE BONDS AND CAPITAL MARKET DEVELOPMENT OF THE BOND MARKET

EWE currently has three eurobonds placed on the capital Multiple periods of increased volatility in 2015 led to a market with maturity dates in 2019, 2020 and 2021 rise in interest rates as well as an increase in the risk (each with a total value of 500 million euros). As such, premium for newly issued bonds. The European Central the bonds have a total outstanding value of 1.5 billion Bank’s programme to purchase government bonds euros. initially had a positive effect on issuers of corporate bonds. In order to conduct capital market transactions more efficiently and avoid time-consuming individual The attractive terms and conditions for the new issue of documentation of bond issuances, EWE initiated a debt bonds in the beginning of the year led to an increase in issuance programme with a total value of 2.0 billion the volume of newly issued bonds, which – in a weaken- euros in 2014. The programme encompasses a standar ing market environment – resulted in an increase in the dised documentation platform for issuing medium-term premiums for new issuances and total financing costs in and non-current bonds on the capital market. the second quarter. The ongoing crisis in Greece, the

Performance of the EWE bonds in 2015 | G 01 Spread vs. mid-swaps (bp)

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EWE 12-year EWE 15-year EWE 9-year Utility Index iBoxx Corporates

EWE AG Annual Report 2015 INVESTOR RELATIONS 45

faltering Chinese economy and unforeseen develop- FINANCING ACTIVITY IN 2015 ments like the significantly declining oil price ushered in a phase in the middle of year with a reduced number of In the 2015 business year, EWE repaid ahead of schedule new bond issuances, which continued until the end of four private placements on the capital market from 2015. Investors’ general scepticism was further height- 2012 with a total value of 50 million euros. The private ened as a result of isolated negative signals from the placements were issued with long maturity periods and market environments surrounding several individual extraordinary termination rights. For the purpose of companies (such as Volkswagen and Glencore). general business financing, EWE issued four new private placements through the existing debt issuance pro- After a rough start for bonds from utility companies, the gramme, each with a total value of 50 million euros and sector outperformed the relevant benchmark index for short maturity periods of between one and two years. industrial bond issuers in the second half of the year. Because the market conditions for utility companies These transactions should be viewed in light of the remain difficult, the situation for bonds issued by utilities planned sale of EWE’s interest in VNG and the associated also remains tense, however, and is equally characterised influx of liquidity, which gives EWE the opportunity to by both pressure from rating agencies and the current cut its debt at a more rapid pace in 2016 and 2017. reorganisation trend in Germany. In addition, investors are watching how the financing of Germany’s nuclear EWE RATING power phaseout develops, which could lead to increasing liquidity shortfalls on the part of the affected utility The rating agency Moody’s confirmed EWE AG’s rating companies. of Baa1 in August 2015 and February 2016 and left its outlook as stable. The rating confirmed by Moody’s The bonds issued by EWE performed well compared to reflects the limited risk EWE faces as a result of trends the market average in 2015. The rating agencies assessed in wholesale power prices and takes into account the the planned sale of EWE’s interest in VNG positively, and financial flexibility that EWE will gain from the sale of this sale supports EWE’s stable Baa1 rating. its interest in VNG (74.2% of shares).

EWE AG Annual Report 2015 46 SUSTAINABILITY

Sustainability

As a predominantly municipal company, we believe AN EVOLVING STRATEGY sustainability means operating in a non-current, reliable and responsible manner – for our regions, their people A shifting economic and political environment, the key and the environment. In order to recognise social and challenges posed by the transition to renewable energy environmental developments early on and have the sources and new social trends all make it necessary to ability to integrate them into our business activities, we rethink old business models and establish new ones. maintain an ongoing dialogue with our key stakeholders. Similarly, our shareholders’ expectations also change. In Together with our customers, employees, shareholders, light of this, we are currently reviewing our sustainability non-governmental organisations and suppliers, we have strategy. Our non-current goal is to integrate financial, defined key topics that EWE feels are particularly environmental and social KPIs into the Group’s manage- relevant when it comes to sustainability, and they form ment model which reinforce its focus on sustainability. the foundation of our sustainability strategy which we issued in 2014. We regularly inform our stakeholders of current developments in our sustainability report. This report is oriented TEN AREAS OF ACTIVITY – TEN GOALS around the guidelines of the Global Reporting Initiative’s G4 standard, which is considered the leading framework We defined ten goals in ten specific areas that we want for non-financial reporting. Detailed information can be www.ewe.com/ to achieve by 2020. In order to create transparency and found online. en/ewe-group/ sustainability to give the strategy a binding character, we measure our progress using concrete figures. As such, we emphasise The sustainability report will be published approximately our non-current commitment to and activities in the in September 2016. fields of education, science, social projects, culture and athletics, and place an emphasis on connecting energy, telecommunications and information technology as the key competencies in the sustainable supply of energy.

EWE AG Annual Report 2015 SUSTAINABILITY 47

Sustainability strategy | T 002

Area of Target value Current status action Objective by 2020 Measures Progress criterion for 2020 in 2014

Security of We are building a sustainable Implementing the maintenance and Power outage durations Better than the average 5.5 minutes per year, supply and and efficient infrastructure for reinvestment strategy in minutes per year, per for Germany deter- per customer (Average network the people in the region. Expanding crisis and emergency management customer in Germany mined by the German value from German stability Supporting the expansion of the regional Federal Network Agency Federal Network broadband network (= SAIDI: System Aver- Agency: 15.3 minutes Expansion of smart grid research age Interruption per year, per customer) projects and field tests Duration Index) Innovation We bring energy, telecommuni- Launch of an innovation portal Number of ideas 10 projects initiated Innovation portal has and product cations and information Interdisciplinary research and development submitted via the per year been designed responsibil- technology together to create projects innovation portal that ity the intelligent energy supply Expanding the range of energy efficiency culminated in a project systems of tomorrow. products and services Climate We are making our energy Expansion in the use of wind power CO2 emissions in grams Reduction in CO2 emis- 540 grams per gener- protection generation processes more Making our power plants more flexible per generated kilowatt sions in grams per gen- ated kilowatt hour of and genera- environmentally friendly. and more efficient hour of electricity erated kilowatt hour of electricity (equivalent tion Bringing the steam turbine power plant online electricity by 40% com- to a 34.8% reduction pared to 2005 levels compared to 2005) Environ- We handle energy responsibly Establishment of a Group-wide energy Number of companies Twelve companies 4 companies have mental and minimise our consumption monitoring system with ISO 50001-certi- certified already been certified manage- within the company. Launch and certification of further energy fied energy manage- swb Services ment and management systems ment systems Bursagaz resource EWE GASSPEICHER efficiency EWE VERTRIEB Regional Our activities make a significant Greater involvement of members of the Regionality index Better than the average 72 (German Association responsi contribution to the develop- public in wind farm projects from the “Customer of Energy and bility ment of the region. Expansion of the network investment model Focus – Households” Water Industries Continued tailoring of sponsorship (Kundenfokus (BDEW) “Customer commitments to the needs of the region Haushalte) study Focus – Households” Supporting forums for discussions published by the study average: 68) German Association of Energy and Water Industries (BDEW); a minimum of 67 if the average falls below this level Supply We are implementing specific Introduction of a supplier code of conduct Proportion of strategic Over 95% of strategic The supplier code of chain sustainability requirements for Providing purchasers with sustainability materials and services materials and services conduct has been our suppliers. training suppliers who commit suppliers covered developed and will be Establishment of a strategic supplier to the supplier code of introduced in 2015 management system conduct Market and We are a trustworthy service Implementation of customer service strategy Customer loyalty 74 2) 72 2) trans provider for our customers and Intensify customer loyalty measures index 1) parency a reliable contract partner. Health and We guarantee a safe and Introduction of leadership curriculum on Healthy employee rate 3) 97 % 95.3 % occupa- healthy working environment. health management tional safety Expansion of training on working hours and self-management Intensification of measures related to stress prevention, healthy eating and fitness Introducing Group-wide Health, Safety, Environment (HSE) policy Employees We are an attractive employer Development of a brand identity as an Time taken to fill 75 weekdays 85.6 weekdays and educa- for the region. employer positions tion Establishing a demographic management system Helping employees to have a healthy work/life balance Data We are a reliable partner in the Introduction of relevant e-learning modules Proportion of all > 85% (the maximum Resolution on protection areas of data protection, infor- Continued development of a Group-wide employees in all proportion in practice) introduction of and information security and unbundling. information security management system in relevant companies e-learning modules mation accordance with ISO 27001 requirements who have been trained has been prepared security in data protection, information security and unbundling using e-learning modules 1) An aggregate score from four customer service indicators (customer satisfaction, willingness to recommend our company, likelihood of staying with the company and comparison with competitors) based on the results of the BDEW Customer Focus study. 2) For the energy field 3) The healthy employee rate stands in opposition to the absence rate. This means that if the absence ratio is 3 per cent, the healthy employee rate is 97 per cent. The absence rate is the ratio of days of absence resulting from incapacity to work to the target number of working days assigned to the reporting period. This also includes annual leave.

EWE AG Annual Report 2015

GROUP MANAGEMENT REPORT 2015

which was consolidated with the EWE AG management report

50 Company background 80 Key characteristics of the EWE Group’s 50 Structure and key business areas accounting-related internal control system 56 Group strategy (pursuant to article 289, section 5, and 56 Research and development article 315, section 2, number 5, of the 57 Corporate management and supervision German Commercial Code) 58 Economic, political and regulatory 80 Basic principles environment 80 Structure and process

67 Current situation of the EWE Group 82 Report on risks and opportunities 67 Overall assessment of business 82 Principles of risk and opportunity performance management 67 Forecast deviations 82 Structure and process of risk and 67 Earnings performance opportunity management 68 Significant changes to the consolidated 83 Risk and opportunity situation statement of comprehensive income 69 Segment performance 88 Forecast report 71 Asset position 88 Business environment forecast 73 Employees of the EWE Group 88 Future political and regulatory conditions 89 Expected performance 76 Events after the balance sheet date 91 Forward-looking statements

76 Current situation of EWE AG 76 Notes to the annual report of EWE AG, Oldenburg, as required by commercial law 50 GROUP MANAGEMENT REPORT

Company background

STRUCTURE AND KEY BUSINESS AREAS so, tap the joint potential of energy, telecommunications and IT. As such, we now already possess the key compe- Here at EWE, we are systematically positioning ourselves tencies required for sustainable, intelligent energy for the future of energy. We operate state-of-the-art and systems, which means we are well positioned for the reliable energy grids, are a pioneer in the field of renew ongoing decentralisation of the energy supply. able energy and, as the first company in Germany to do

| T 003

Change Select key performance indicators 2015 2014 in %

Installed power generation capacity 1) (MW) 1,367.3 1,347.7 1.5 from renewable energy sources 322.3 302.7 6.5 from conventional energy sources (including waste to energy) 1,045.0 1,045.0 0.0

Grid length (in thousands of km) Power 92.8 92.5 0.4 Natural gas 70.7 69.5 1.7 Telecommunications 38.0 36.6 3.8 of telecommunications, copper 15.2 15.1 0.6 of telecommunications, fibre optic 22.8 21.5 6.1

Customers (number) Electricity customers 1,324,578 1,346,078 -1.6 Natural gas customers 1,710,733 1,674,927 2.1 Telecommunications customers 615,278 603,897 1.9

Sales volume (in millions of kWh) Sales volume, electricity 34,034.9 38,975.7 -12.7 of this total, commercial and self-consumption 19,956.4 22,647.8 -11.9 Sales volume, natural gas 74,666.3 73,871.0 1.1 of this total, commercial and self-consumption 11,604.8 9,467.5 22.6 1) Including proportional capacities from investments consolidated using the equity method

GROUP LEGAL STRUCTURE On 16 October 2015, the company announced that it EWE Aktiengesellschaft (EWE AG) is the EWE Group’s had entered into an agreement with EnBW with the goal holding company. The company’s headquarters are of transferring the shares of the company held by EnBW located in Oldenburg, Germany. The company’s regis- back to EWE AG and its shareholders in several steps tered capital is held by three majority shareholders: over the coming years. The goal in this context is to find a new strategic partner for this 26 per cent share. »» Weser-Ems-Energiebeteiligungen GmbH (59 per cent) »» EnBW Energie Baden-Württemberg AG (26 per cent) »» Energieverband Elbe-Weser Beteiligungsholding GmbH (15 per cent)

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 51 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

The EWE AG management report has been combined RENEWABLES, GRIDS AND GAS STORAGE SEGMENT with that of the EWE Group, since both units’ perfor- This segment consists of the business areas Renewables, mance, financial position, and opportunities and risks of Grids and Gas Storage. In addition, this segment also future development are closely intertwined from a contains our waste water business. business perspective. Business areas The Group’s companies operate in several regionally Renewables interrelated market areas in Germany and abroad. There Investments and activities in the field of renewable were no major changes to the basis for consolidation energy, with a main focus on wind power. compared to 31 December 2014. Details regarding our subsidiaries, associated companies and investments can We made renewable energy a focus of our business be found in the ownership list in the notes to the activities early on, have made advancements in this field consolidated financial statements. and, as such, have played a key role in their acceptance and their level of development in our core regions today. Due to changes to management and control structures in Our Renewables business area, with a focus on wind the Board of Management, a corresponding change was power, encompasses a power generation capacity with made to the segments subject to reporting requirements an installed total output of approximately 245 mega- in the 2015 financial year. In conjunction with the deci- watts (MW). This figure includes the capacities of hol sion to account for swb in the future as a sub-Group, dings consolidated using the equity method, which are further changes were made to the segment structure reported at a proportional rate, such as our share in the which resulted from the newly filled Board of Manage- alpha ventus offshore wind park. We plan, build and ment’s new approach to its management and control operate renewable power generation plants, including duties. In this new method of segmentation, managerial within the scope of investment and partner models. We responsibility is reflected, on the one hand, in a focus on market our expertise in the construction and operation the non-current, asset-intensive and highly technological of offshore wind parks internationally. side of business and, on the other hand, as part of a focused effort to bring the energy and telecommuni Slightly increased power generation capacity cations businesses’ sales, wholesale and service areas from renewable energy sources 1) | G 02 closer together. One managing executive is responsible in megawatts

for each of these areas. As a result, the newly created 250 244.8 228.1 6.6 segments are as follows: 6.6 200

»» Renewables, Grids and Gas Storage 136.5 141.9 150 »» Sales, Services and Trading »» International 100 »» swb 85.0 96.3 50

In addition, there is also a Group Central Division 0 segment. 2014 2015

Wind, onshore Wind, offshore Biogas, photovoltaics, hydroelectric power

1) Including proportional capacities from investments consolidated using the equity method

EWE AG Annual Report 2015 52 GROUP MANAGEMENT REPORT

Grids Gas storage Efficient grid infrastructure for electricity, natural gas, Construction, acquisition and operation of systems to telecommunications and drinking water. store as well as inject and withdraw gaseous and liquid energy carriers, such as high-pressure natural gas, Power and telecommunications grids are a key factor hydrogen, liquefied petroleum gas and compressed air, when it comes to reorganising energy systems, and these as well as the provision of all corresponding services. are two of our core areas of expertise. Germany is an energy importer. Approximately 88 per In the Grids business area, we operate state-of-the-art, cent of the natural gas used in the country is imported. efficient power grids and natural gas networks in the Underground natural gas storage reservoirs are suitable Ems-Weser-Elbe region of Germany as well as natural for the seasonal and current allocation of imported and gas networks in Brandenburg, Rügen, and Nordvorpom- produced gas quantities. The result is a reduction in the mern. Thanks to low outage times, our distribution grids cost of investing in the network infrastructure. In addi- are some of the safest in Europe. As an independent tion, gas storage plays a key role in ensuring the security pipeline network operator, the EWE Group markets the of the energy supply as well as in compensating for transport capacities of an approximately 320-kilometre- unplanned fluctuations in price or demand as a result of long gas pipeline network. This network is connected to production outages. Our Gas Storage business area the European natural gas network at the cross-border operates a total of 38 underground reservoirs in loca- point in Oude Statenzijl, Netherlands. Furthermore, we tions throughout northern Germany, such as in Rüders- operate a wide telecommunications network and several dorf near Berlin, and sells storage capacity to internal drinking water networks in north-western Germany. and external customers. With a total storage capacity of The company is continuously pushing forward with the 2.1 billion cubic metres, we are one of the largest opera- expansion of broadband in the rural areas of north- tors of gas storage reservoirs in the German-European western Germany (number of new serving area interfaces natural gas market. in 2015: > 1,600 serving area interfaces). Waste water Further expanded power grids, natural gas Collection and purification of waste water as well as pipelines and, above all, fibre-optic networks associated additional tasks such as disposal and recycling | G 03 Network length in thousands of kilometres of residual materials.

180 173.3 175.4 21.2 22.5 In this business area, we offer different waste water 15.1 15.2 135 purification models (operator, management and partner-

55.3 55.6 ship models). We purified 17.4 million cubic metres of 90 water in the reporting year – a significant increase from the previous year (16.7 million cubic metres). In addition,

45 we draw up energy efficiency analyses, provide services 81.7 82.1 in the field of measurement and control technology, and

0 advise municipalities and industrial companies. 2014 2015 Power Natural gas Telecommunications – copper Key events Telecommunications – ﬁbre optic Investment model In a second subscription period until 2018, we are offering municipalities the opportunity to acquire a share of our network operator company up to a maximum of 25.1 per cent. The investment is associated with a guaranteed dividend. At the end of the first subscription

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 53 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

period in April 2015, an additional 18 municipalities gas pipeline network in the Eberswalde metropolitan decided to make an investment. Eleven municipalities area remain suspended since September 2014. that had already invested made the decision to increase their individual shares. Overall, 82 municipalities In Jesteburg (Harburg administrative district) and Sauen- invested a total of 58.1 million euros in EWE NETZ, siek (Stade administrative district), we are participating which corresponds to 3.1 per cent of the company’s in the tendering procedure above and beyond the area of shares. the existing gas network. These municipalities fulfil the criteria for systematic organic growth and are located Easement agreements directly adjacent to our existing gas pipeline network. In its easement agreements, the companies in the EWE Group are given the right to use public spaces Current natural gas storage situation within the contractual territory for the construction, Our Jemgum natural gas storage project (Emden/Bunde/ operation and maintenance of power lines and pipelines, Oude Statenzijl region) continues to proceed according as well as the associated equipment which serve to to plan. In December 2015, the last three out of a total directly supply end consumers with power and natural of eight underground reservoirs began regular gas. Within the scope of these agreements, a licence fee operations. Working gas volume increased as a result to must be paid to the municipality for the use of public a total of 360 million standard cubic metres. As such, the land. construction of additional storage capacities has been completed for the time being. We have seen a positive trend with regard to the awarding of these easement agreements in the Ems- Domestic natural gas extraction declined in the report- Weser-Elbe region. After all of the municipalities in the ing year, both as a result of the natural depletion of gas Leer administrative district extended their agreements, fields, from which approximately nine billion cubic the decision in the city of Norden has also been made metres of natural gas are extracted annually, as well as to the benefit of our Group. The tendering procedure for due to the political debate regarding the extraction the city of Aurich will begin anew in 2016. method of hydraulic fracturing. In addition to domestic production, the supply of natural gas in Germany is In Cuxhaven, Ganderkesee and the city of Geestland, the primarily imported from sources in Russia, Norway and responsible political committees once again decided to the Netherlands. The Dutch government has reduced award the usage rights to us. We are expecting a decision extraction from the Groningen region during the last two in Delmenhorst in 2016. We have seen an extremely pos- years by a total of approximately 40 per cent, down to itive trend in the Rügen/Vorpommern region, and were about 30 billion cubic metres. In the years 2013 and successful in all of the tendering procedures there. In 2014, this figure stood at about 50 billion and 42 billion Brandenburg, we were able to maintain our initial posi- cubic metres, respectively. The reason behind this tion as a network operator with only a few exceptions. reduction in production levels are the earthquakes in the As such, we were able to conclude nearly all easement Groningen extraction region, which are increasing in agreements in Brandenburg and the Rügen region with a intensity. The decline in the extraction and importation contractual term beyond the year 2030. In contrast, we of natural gas caused an increase in the demand for lost the competition for the easement agreement in storage capacity. Mühlenbecker Land (Oberhavel administrative district). SALES, SERVICES AND TRADING SEGMENT As such, we have entered into negotiations pertaining to This segment encompasses our Energy, Telecommunica- the transfer of the power grid to the operator Netzge- tions, Information Technology and Trading business areas. sellschaft Oyten. We do not expect to transfer the grid Here we develop industry-specific and customer-specific before the end of 2016/beginning of 2017. The negotia- system solutions, services and innovative products. tions with Alliander regarding the transfer of the natural

EWE AG Annual Report 2015 54 GROUP MANAGEMENT REPORT

Business areas encompasses a variety of services related to the procure- Energy and telecommunications ment and sales as well as balancing Group management Integrated, regional offering of products and services for for power and gas. Trading serves to provide market access energy and telecommunications. to our Group’s sales and generation activities. It safe- guards the contracted sales business through the timely This business area is characterised by the combined sale of procurement of power and gas as well as through hedges energy products and telecommunications. In the domestic to minimise price risks, among other ways. Through market, the sale of energy products takes up the leading activities on the stock exchange and in over-the-counter position in the competitive environment. Telecommuni trade, we have numerous national and inter national trade cations sales further strengthened its market position partners. during the reporting year thanks to a slight increase in customers. The business area’s clientele consists of private INTERNATIONAL SEGMENT households, industrial companies, commercial enterprises The International segment encompasses our activities and municipalities. Its focus of business activities lies in Turkey and Poland. primarily in north-western Germany, parts of Branden- burg, on the island of Rügen and the Ostwestfalen-Lippe Business areas region. The business area supports commercial customers Turkey nationwide. Through the establishment of new business The energy market in Germany offers only a limited activities, such as light contracting, power storage and number of growth opportunities. We have seen sales energy audits, we are currently transitioning into a service declining over the non-current, particularly in the classic provider for which – in addition to the classic products natural gas business. This is why we are also active in power, gas and heat – customer-specific services and growth regions abroad. Turkey is one of the fastest-grow- solutions, including within the scope of the digitisation of ing energy markets in the world and, as an energy transit the energy industry, will represent future features that country, is an important hub for the European energy will distinguish our company from the competition. supply. We are the largest foreign investor in the Turkish gas sector and within the scope of expanding network Information technology areas in Bursa and Kayseri, strive to establish a state-of- IT consulting services with a holistic approach, particularly the-art natural gas infrastructure in further cities. Our for the energy and telecommunications industries, the business area also possesses non-current gas trade and public sector, industrial companies and service providers. liquefied natural gas licences as well as a power trading licence. We supply natural gas to industrial customers, As one of the leading IT consulting companies in industrial zones, gas power plants and utility companies Germany with a wide network of branch offices and throughout the country. We have also supplied business additional locations abroad, we offer a broad spectrum customers with power since 2014. of consulting services for a variety of industries. Our key areas of expertise lie in consulting, system integration, Poland and applications and system management. We place a Natural gas: network and sales for household customers, focus on energy-related software products. businesses and industrial companies.

Trading In addition to Turkey, the distribution and sale of natural Energy trading business, primarily for our own sales and gas in Poland is also a key component of our business power generation activities. activities. Our focus here is on southern and eastern Poland. In the reporting year, we increased the number We are one of the leading suppliers in the field of direct of natural gas customers by about 7 per cent to 14,288. power sales from EEG power plants. We combine current In addition, we also offer contracting solutions and trading activities with the direct management of flexible energy consulting services. Our product range has also power generation capacities. Our Trading business area included the sale of power to business customers in

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 55 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Poland since early 2014. Since then, we have concluded Power generation capacity of swb renewables approximately 200 supply contracts with businesses and expanded | G 05 industrial customers. in megawatts 74.6 77.5 80 5.0 Number of natural gas customers in Turkey and 5.0 0.2 0.2 0.2 Poland once again increases 2.0 | T 004 60

2015 2014 Change in % 40

Turkey 922,939 866,133 6.6 20 Poland 14,288 13,395 6.7 67.4 71.7

0 2014 2015

SWB SEGMENT Wind, onshore Biogas Photovoltaics Hydroelectric power We are active in the cities of Bremen and Bremerhaven within the scope of our swb segment. swb and its subsidiaries are active in the fields of power, natural gas, heating, drinking water and telecommunications. The GROUP CENTRAL DIVISION SEGMENT former Conventional Generation and Disposal business The Group Central Division segment consists of EWE AG unit is contained within the swb segment. and VNG – Verbundnetz Gas Aktiengesellschaft (VNG).

We are also focused on expanding our product range in EWE AG manages the EWE Group as its holding com- the field of renewable energy in the swb segment as pany. Its duties lie in the strategic and cross-market well. As part of our sustainability strategy, we strive to development of the business areas as well as strategic achieve climate protection goals. Particular focal points planning and assuring the Group’s financing. In addition, include expanding the share of power generated from EWE AG performs centralised corporate services for the renewable sources, reducing emissions and the respon Group’s companies. sible use of energy as a resource. And with our approach of generating energy from waste, we are bridging the Per an agreement dated 30 March 2015, we acquired an gap between generation and disposal. additional 10.52 per cent of shares in VNG from Gaz- prom Germania GmbH, thereby increasing our stake in Conventional power generation capacity VNG to 74.2 per cent. We are striving to sell our stake in remains unchanged VNG to EnBW. This transaction is part of contractual | G 04 in megawatts agreement concluded with EnBW in October 2015.

1,200 1,045 1,045

900

600

300

0 2014 2015

Conventional energy (including waste to energy)

EWE AG Annual Report 2015 56 GROUP MANAGEMENT REPORT

GROUP STRATEGY RESEARCH AND DEVELOPMENT

Adjustments were made to the Group’s strategy in 2015 In light of the fact that the markets are changing signifi- to meet changing underlying conditions. The increasing cantly, we have made the decision to reorganise and digitisation of society is opening up new opportunities refocus our research and development activities. In the that EWE wants to take advantage of. future, the focus will lie more heavily on business model innovations than it has in the past. For this purpose, we The cornerstones focus, concentrated growth, sustaina- will pool existing innovation activities together and bility and regional roots continue to form the Group’s expand them further. Our goal is to unlock new business strategic framework. models for the Group and increase the added value to the market. In the 2015 business year, the primary focus Focus was on questions related to implementing the German With expertise in energy, telecommunications and infor- energy turnaround in terms of future technological mation technology, we unite the core competencies for a developments and solutions. forward-looking energy supply under one roof. In this context, we particularly focus on the activities that will RESEARCH FOCUS – SALES support our core business from a strategic and opera- The focus of the Regional Virtual Power Plant research tional perspective over the long term. project is the intelligent management of small, distri buted plants, with the goal being to stabilise the local Concentrated growth grid and optimise energy trading on the markets. The We want to generate profitable growth with the business necessary formation of pools – that is, the virtual combi- activities, technologies and partnerships that allow us to nation of the power plants – is carried out in the research play an active role in revolutionising the energy supply. project dynamically based on numerous pieces of infor- The focal points are currently on renewable energy mation and categories. A further focus is on the develop- sources and power grids. ment of communication interfaces as well as strategies for the interconnected operation of combined heat and Expanding our business in the provision of services in the power systems as a network. The project will be carried offshore sector will make further growth possible. In the out over a period of three years. We expect to see the field of power grids, we are striving to achieve growth results in 2017. through new partnerships to develop smart grid solutions. In the AgrarEnergie project, we are working with the And we also continue to systematically improve and agricultural industry to develop product packages for enhance our business model in Turkey based on the energy-efficient business operations at agricultural combination of energy, telecommunications and companies. This includes an online portal site which information technology. can be used to automatically collect and analyse the operating and consumption data of mechanical Sustainability and regional roots milkers, automatic feeders and lighting systems. We want to assume responsibility for the region and its people through sustainable corporate governance. We Intelligent energy management is also key to the future want to set the standard when it comes to our sustaina- of electric transportation. In the Controlled Charging 3.0 bility goals and performance indicators. project, we are researching controllable charging stations that function independent of vehicle type. This will result in the ability to trade free battery capacity on the energy markets.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 57 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

RESEARCH FOCUS – INFRASTRUCTURE RESEARCH AND DEVELOPMENT EXPENDITURES In the publicly funded Green Access project, we are con- In the 2015 business year, a total of 1.9 million euros ducting research into regulations in the distribution grid was spent on research and development (previous year: for the purpose of cost-effectively integrating renewable 2.6 million euros). energy sources at the low and medium voltage levels. A performance measurement system is used to determine CORPORATE MANAGEMENT AND SUPERVISION the technical and economic benefit with regard to optimising operations and an improved utilisation of operat- BOARD OF MANAGEMENT ing resources. We are carrying out the project, which will EWE AG’s Board of Management consisted of four continue until the end of 2018, together with partners. members as of 31 December 2015.

We are a member of the partner network green2store. On 1 October 2015, Matthias Brückmann assumed the In a nationwide field test, research is being conducted on role of Chief Executive Officer. Dr Heiko Sanders left the how to operate energy storage in an ideal manner to Board of Management of EWE AG at his own request on promote additional energy from renewable sources being 30 September 2015. Since the resignation of Dr Sanders, fed into the grid as well as ensure cost-effectiveness. Matthias Brückmann has taken over temporary responsi- The goal here is to make a significantly higher degree of bility for the finance department until Wolfgang Mücher storage capacity utilisation possible. The publicly funded joins the Board of Management on 1 March 2016. New project will end after four years at the end of 2016. additions to the executive team include Ines Kolmsee, head of technology, who joined on 1 May 2015, as well as ENERA RESEARCH PROJECT Michael Heidkamp, who has been responsible for the In December 2015, Germany’s Federal Ministry for Eco- sales department as of 1 November 2015. Nikolaus Behr nomic Affairs and Energy awarded funding expected to remains responsible for the personnel and IT depart- total approximately 50 million euros to a consortium of ments. 75 partners led by EWE from the Smart Energy Show- cases – Digital Agenda for the Energy Transition (SINTEG) SUPERVISORY BOARD funding programme. Within the scope of the project enti- The Supervisory Board of EWE AG comprised 20 tled enera, the partners want to demonstrate how, through members on 31 December 2015. the use of intelligent technologies, energy systems can be designed in a sustainable manner and operated more effi- After Rainer Janßen retired from the Supervisory Board ciently. The project will be carried out in a model region in on 31 December 2014, Gregor Heller was elected first north-western Germany. In this context, the enera project vice-chairman effective 1 January 2015. Hans Eveslage, views itself as major real-world test of the German energy third vice-chairman, left the Supervisory Board on turnaround, with its results being applicable nationwide. 27 April 2015. Heiner Schönecke was elected as his replacement. For the purposes of the project, the power grid in the administrative districts of Aurich, Friesland and Witt- In accordance with the German co-determination act mund, as well as in the cities of Emden and Lingen, will (Mitbestimmungsgesetz – MitbestG), the Supervisory be equipped with up to 40,000 intelligent measurement Board must consist of an equal number of shareholder systems over a period of four years. In addition, the pro- and employee representatives. The trade union ver.di ject participants will build storage systems, technically nominated three employee representatives. extend wind power plants and expand market models in collaboration with power trading centres to include The Supervisory Board appoints the members of the regional products, among other measures. The enera Board of Management and supervises and advises them consortium is investing 150 million euros of its own capi- in managing the company. The Supervisory Board regu- tal to carry out the project. The project will be launched larly discusses the company’s business performance, in the second half of 2016. planning and strategy together with the Board of

EWE AG Annual Report 2015 58 GROUP MANAGEMENT REPORT

Management, and approves the annual financial state- related special items. This includes valuation effects ments. The Supervisory Board is always involved in from derivative financial instruments, impairment (such fundamental decisions affecting the company. as goodwill impairment, impairment of tangible fixed assets and impairment of investments) and special items In order to carry out its duties in an ideal manner, the resulting from changes to the basis of consolidation as Supervisory Board has formed the following standing well as those resulting from restructuring measures. committees a working committee, a finance and audit committee, an executive committee of the Supervisory At the level of operative segments, the main key perfor- Board and a mediation committee pursuant to section mance indicator operating EBIT is complemented by 27, paragraph 3, of the MitbestG. specific figures such as gross profit, contribution margins, cash flow values and sales volume. Furthermore, invest- Further information regarding the Board of Management ments and their distribution across the individual seg- and Supervisory Board is available here: www.ewe.com/ ments represent a further focus of Group-wide reporting. en/ewe-group/company/management Internal and external Group reporting is continuously INTERNAL MANAGEMENT SYSTEM adjusted to meet the operative requirements of manag- The EWE Group uses a multilevel management system ing the EWE Group as well as current legal stipulations. which makes it possible to decentralise corporate responsibility and at the same time creates a high level ECONOMIC, POLITICAL AND REGULATORY of transparency. The internal management system differ- ENVIRONMENT entiates between the Group and the segment level. The operative segments Renewables, Grids and Gas Storage; ECONOMIC ENVIRONMENT Sales, Services and Trading; International; swb; and According to the Kiel Institute for the World Economy, Group Central Division form the basis of the internal global economic growth weakened in 2015. Worldwide reporting structures and external reporting (segment gross domestic product stood at 3.1 per cent, which was reporting). Internal and external reporting is based on the lowest growth since 2009, during the economic the same management information system. This techno- crisis. The economic recovery in the eurozone continued logical platform enables the use of a uniform database unabated. This trend was particularly driven by con- for a variety of reporting needs and ensures that the sumption by private households, which were under less content of information is the same between reporting financial pressure thanks to declining energy prices. The levels and within one reporting level. unemployment rate sank by 0.8 percentage points year over year and totalled 10.7 per cent in October. Real As the parent company, EWE AG has defined clear target gross domestic product increased by 0.6 per cent year values for measuring and controlling company perfor- over year. In Germany, the economic recovery continues. mance which secure the non-current success of the com- According to estimates by the German Council of Eco- pany. Integral components of this overarching objective nomic Experts, Germany recorded GDP growth in 2015 include non-current value creation, assuring adequate of 1.7 per cent. financing and stabilising the company’s external rating. The target values are represented by corresponding The German state of Lower Saxony’s economy was solid indicators. in the third quarter of 2015. Due to the weak euro in the first half of 2015, exports rose dramatically – an increase Earnings before interest and taxes is of key importance, that could be maintained in the third quarter. The strong represented by the leading key performance indicator trends in the European and North American markets operating EBIT. Operating EBIT represents earnings were overshadowed by the weakness of the Asian mar- before interest and taxes adjusted for non-management- ket. One in three industrial jobs in Lower Saxony is

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 59 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

related to the automotive industry. As such, in light of growth rate in the European Economic Area. Corporate the Volkswagen emissions scandal, future trends cannot investments and private consumption were the main be determined at the present time. drivers of Polish growth.

According to a business survey conducted by the Bremen ENERGY MARKET Chamber of Industry and Commerce in the autumn of According to preliminary calculations by the Working 2015, Bremen’s economy is chugging along smoothly. Group on Energy Balances (Arbeitsgemeinschaft Energie- Business prospects were viewed more positively than bilanzen – AGEB), energy consumption in Germany during the summer. The business climate index increased increased in 2015 by 1.3 per cent compared to the previ- and now stands at a pleasing 121 points, which is above ous year. Primary energy consumption in the reporting the non-current average value of 107 points. The uncer- year totalled 455.0 million tonnes of coal equivalent tainties regarding the further development of the global (million TCE), compared to 449.0 million TCE in the pre- economy and the direct effects of global flash points are vious year. This growth was due to the slightly colder also being felt in Bremen, however. The most noticeable weather compared to the very mild year before. Adjusted effect is on companies’ investment planning, with the for weather, energy consumption declined by approxi- total value of investments declining overall. mately 1.5 to 2 per cent. In a multi-year comparison, energy consumption is fluctuating at a low level. With After recording average economic growth of 4.7 per cent regard to CO2 emissions, the AGEB is expecting only a during the last decade, the trend of growth slowing slight increase from the previous year; adjusted for tem- significantly continued in Turkey in 2015. Real gross perature, a decrease of approximately 2 per cent. domestic product (GDP) growth will remain stable year over year at 3 per cent. The chronically high trade deficit Petroleum consumption in 2015 remained nearly did decline as a result of the generally cooling economy, unchanged year over year at 153.9 million TCE (-0.1 per but still does not change the fact that Turkish industry is cent). Despite experiencing slightly cooler weather the highly dependent on the import of energy and raw mate- previous year, sales of domestic heating oil did not rials. The country’s own deficit spending is made more increase in the reporting year, since consumers covered difficult due to an extremely low savings rate compared additional demand from stock on hand, even despite to other countries. The Turkish government has passed lower prices. Petroleum’s share of total primary energy measures to reduce the trade deficit. These include the consumption declined in the reporting year to 33.8 per increased use of energy from renewable sources, which cent (previous year: 34.3 per cent). will decrease the country’s dependence on energy imports, among other measures. Natural gas consumption increased by 5 per cent to 95.7 million TCE. This increase was primarily due to the The Turkish lira’s exchange rate was once again affected slightly cooler weather in the first half of the year com- by political developments in 2015. The currency lost pared to the extremely mild weather in the same period 30 per cent of its value between January and November the year before. The once again extremely mild weather 2015 and continues to face downward pressure. Due to in the fourth quarter of 2015 dampened growth. Power the lira’s loss in value, inflation increased and stood at generation from natural gas was once again on the 9.3 per cent in July 2015, reaching a level considerably decline, recording a drop of 7 per cent. Comprising 21 per higher than the central bank’s non-current inflation cent of total primary energy consumption, natural gas target of 5 per cent. The average unemployment rate slightly increased its share compared to the year before stood at 9.3 per cent during the summer of 2015. (20.4 per cent).

In contrast, 2015 was a successful year for the Polish Consumption of refined coal declined marginally in 2015 economy. With GDP growth of approximately 3.4 per to 57.7 million TCE (-0.7 per cent), while consumption of cent, the country once again recorded the fourth-highest lignite increased slightly year over year to 54.1 million

EWE AG Annual Report 2015 60 GROUP MANAGEMENT REPORT

TCE (0.9 per cent). Refined coal and lignite hold an natural gas and nuclear power for the first time in the approximately equal share (12.7 and 11.9 per cent, previous year, they were now able to extend their lead; respectively) and together comprise nearly one quarter their share of the German energy mix is expected to of total energy consumption in Germany. Consumption total 30.0 per cent in the reporting year (previous year: of nuclear power declined by approximately 6 per cent in 25.9 per cent). Overall, power generation from renew the reporting year to 34.1 million TCE, which can be able energy sources increased primarily due to the attributed to the Grafenrheinfeld nuclear power plant expansion of onshore wind power to 194.1 billion kilo- being taken offline in the middle of the year. Nuclear watt-hours (previous year: 162.5). In contrast, the share power’s percentage of Germany’s total energy mix of all other energy sources declined: lignite’s share of declined to 7.5 per cent in the reporting year (previous power generation decreased to 24 per cent (previous year: 8.1 per cent). year: 24.8), while refined coal power plants contributed 18.2 per cent (previous year: 18.9). Nuclear power’s In contrast, power from renewable energy sources share of power generation stood at 14.1 per cent (previ- increased their share by a total of 11 per cent to 57.3 mil- ous year: 15.5), with the share from natural gas at lion TCE. Onshore and offshore wind power recorded an 8.8 per cent (previous year: 9.7). As a result of priority increase of 50 per cent compared to the previous year. being given to feeding renewable energy sources into the Solar power’s share increased by 6 per cent. As a result, grid, the power generation structure’s reorganisation the share of the total energy mix from renewable energy continues to move forward to the disadvantage of sources increased slightly more than one percentage conventional sources of power. point to 12.6 per cent (previous year: 11.5 per cent). Share of power generation from renewable Primary energy consumption increases sources increases to 30 per cent | G 07 slightly due to weather conditions in billions of kilowatt-hours (previous year) | G 06 in millions of tonnes of coal equivalent (previous year) 194 (163) Renewables 8 (8) 155 (156) 57 (52) Other Lignite Renewables 647 34 (36) 154 (154) (628) Nuclear power Petroleum 32 (33) 118 (119) Other sources Reﬁned coal 455 1) of energy 54 (54) (449) Lignite 57 (61) Natural gas 92 (97) Nuclear power 58 (58) 96 (91) Source: Surveys by the German Association of Energy and Water Industries Reﬁned coal Natural gas

1) including power exchange balance: -6.2 m TCE (-4.4 m TCE) Source: Working Group on Energy Balances (AGEB) Energy prices International commodity prices, particularly of oil, gas According to preliminary calculations by the German and coal, as well as the prices of CO2 certificates are the Association of Energy and Water Industries, gross power predominant factors that affect price trends on the generation in 2015 increased by 3.1 per cent to 647.4 bil- power and gas markets. In the first half of 2015, the lion kilowatt-hours (previous year: 627.8 billion kilo- prices of the energy trading products observed did not watt-hours). After renewable energy sources became the fluctuate significantly from their levels at the beginning most important energy source for power generation of the year. In contrast, at the end of the year they had compared to the conventional energy sources coal, all declined considerably – with the exception of CO2

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 61 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

emissions certificates, the price of which increased. In Natural gas price development this context, the petroleum market, which is character- The price of natural gas deliveries in the following year at ised by its participants battling for market share, was the the Title Transfer Facility (TTF Cal 16) trading point in leading driver of price trends in the other markets, which the Netherlands already stood at a very low 20.75 euros were also the result of declining demand with a simul per megawatt-hour (MWh) at the beginning of the year. taneously increasing excess supply. This was primarily due to the low price of crude oil, which had already declined significantly in 2014. After Oil price development the Netherlands announced in February that it would cut The price of the front-month contract on the crude oil extraction at the largest European gas field near type Brent stood at above 56 US dollars per barrel (USD/ Groningen, the price of the contract increased to over bbl) at the beginning of the year. After the price of this 23 euros/MWh. The situation eased once again after crude oil from the North Sea declined to 46.59 USD/bbl Russia and the Ukraine agreed on a gas price as well as on 13 January, its lowest price in six years, it increased in payment and delivery terms for the second quarter. As May to over 67 USD/bbl. This intermediate high was due such, the price of the contract declined to nearly to the closing of several oil refineries in the United 21.50 euros/MWh. In the second half of the year, the States, Saudi Arabian military activities in Yemen and price of the contract essentially followed the downward reports that the petroleum reserves in the United States movement of the crude oil market. The unusually warm declined for the first time in 2015. But by early July, the winter towards the end of the year exerted additional price once again dropped to its level at the beginning of price pressure, causing the price of the TTF Cal 16 con- the year and the spotlight increasingly moved to the tract to close out the year at 15.17 euros/MWh – equal to fight for market share. The oil producing countries, in a 27 per cent decline compared to the beginning of the particular Saudi Arabia, produced at an extremely high year. level and contributed to a further increase in excess supply. Furthermore, the prospect of Iran returning to the oil Wholesale price of natural gas declines over market resulted in further price pressure. The price of the the course of the year by nearly 27 per cent | G 09 front-month contract closed the year at 37.28 USD/bbl, TTF front-year contract (ICE), in EUR/MWh

equal to approximately 34 per cent below the price of 24 crude oil at the beginning of the year. 22 Price of Brent crude declines over the course 20 of the year by approximately 34 per cent | G 08 Front-month contract (ICE), in USD/bbl 18

80 16

14 60 J F M A M J J A S O N D

20 J F M A M J J A S O N D

EWE AG Annual Report 2015 62 GROUP MANAGEMENT REPORT

Refined coal price development Price of CO2 certificates increases over the The market for steam coal continues to be shaped by a course of the year by nearly 14 per cent | G 11 massive oversupply. Starting the year at a price of 65 US EUA December 2015 (ICE), in EUR/t CO2

dollars per tonne (USD/t) and moving to slightly above 9 60 USD/t at mid-year, the price dropped by the end of the year to 44.11 USD/t. This price drop of nearly 33 per cent was caused by the developments in the crude oil 8 market and lower demand with a simultaneously excellent supply situation. 7

Price of refined coal declines over the course of the year by nearly 33 per cent | G 10 6 Front-year contract (EEX), in USD/t and translated into EUR/t, J F M A M J J A S O N D daily quotation (ECB)

68 Wholesale electricity price development 62 The price of the contract for base load deliveries (Base Cal 16) on the European Energy Exchange (EEX) stood at 56 32.36 EUR/MWh at the beginning of the year. This price 50 of the contract remained stable until mid-year, only interrupted by a temporary increase to nearly 34 EUR/ 44 MWh in February, which was primarily caused by

38 upheavals in the gas market due to the announced cuts J F M A M J J A S O N D to extraction in the Netherlands. As of July, the develop- USD/t EUR/t ments in the other described energy markets are having an effect on the electricity futures market. As a result, the price of the Base Cal 16 fell to 28.08 EUR/MWh at CO2 emissions certificate price development the end of the year, down 13 per cent compared to the The price of CO2 emissions certificates, EUA Dec 15, beginning of the year. The slightly increased price of CO2 stood at 7.09 euros per tonne of CO2 (EUR/t CO2) at the emissions certificates was the only factor which slowed beginning of the year. News about the introduction of a this decline. market stability reserve (MSR) and other considerations to reform the Emissions Trading System in order to cut Wholesale price of power declines over the the oversupply of certificates caused the price of the course of the year by approximately 13 per cent | G 12 contract to fluctuate widely in the first months of the Base load, front-year contract (EEX), in EUR/MWh

year. The fluctuations declined slightly as a result of the 35 emerging agreement between the European Parliament,

Commission and Council regarding the terms of the MSR, 33 and the price of the CO2 certificate increased to the

annual high of 8.67 EUR/t CO2 in the fourth quarter. 31 At the end of the reporting year, the price stood at

8.07 EUR/t CO2, or nearly 14 per cent higher than its 29 price at the beginning of the year.

27 J F M A M J J A S O N D

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 63 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Competition TELECOMMUNICATIONS MARKET Competition in the German energy market remains Total revenue in the market for telecommunications strong. As such, the German Association of Energy and services equalled 57.9 billion euros in 2015. As such, it Water Industries (BDEW) highlights the large number of declined by 0.4 billion euros compared to the previous market participants in the sales segment. In this regard, year (58.3 billion euros). While revenue generated for Germany is the leader compared to other countries in services in the field of mobile communications remained Europe: an average of 80 electricity providers and 30 to stable at 24.8 billion euros, revenue generated with 50 gas providers compete for consumers’ favour per landlines including the cable network continued to service area. decline, now down to 33.1 billion euros (previous year: 33.5 billion euros). As a result, landline revenue’s share of In addition, the BDEW’s latest surveys and calculations total revenue now stands at 57.2 per cent (previous year: show that between the beginning of liberalisation in 57.5 per cent), while the share of revenue from mobile 1998 and the end of 2015, almost 40 per cent of German communications increased to 42.8 per cent (previous households have switched electricity providers at least year: 42.5 per cent). Overall, the decline in average once – a significant increase compared to the results revenue per landline customer was a trend that contin- from the previous year (36.1 per cent). A similar signifi- ued in the reporting year. cant increase was also once again seen in the gas market: 31.2 per cent of households have signed up for a new gas As they had in previous years, cable network operators supplier at least once since 2006 (previous year: 27.6 per succeeded in expanding their market shares. Experts cent). Consumers’ increasing willingness to switch pro- expect that, in 2015, approximately 5.6 billion euros, viders coupled with further declining specific electricity equal to nearly 17 per cent of landline revenue, will be and natural gas sales – whether due to energy efficiency generated by cable networks (previous year: 5.1 billion measures or increasing self-supply – is driving competi- euros, equal to slightly more than 15 per cent). The abil- tive pressure upwards and, as such, margin pressure as ity to offer higher bandwidths in combination with an well. In addition to securing and expanding the customer aggressive pricing strategy has resulted in both Telekom base via a mix of customer loyalty and customer acquisi- Deutschland GmbH, Bonn (TDG) and alternative landline tion tools, EWE’s main focus is on expanding its offering telecommunications providers to continue to lose cus- of services in the field of energy efficiency and energy tomers to cable network operators. management as well as making changes to internal structures. Once again in 2015, alternative suppliers invested more than TDG. The difference in the value of investments of 0.6 billion euros is almost twice as high as in the previous year and is primarily due to alternative providers of telecommunications services investing more in upgrades to local infrastructure. In this context, our Group’s own telecommunications business EWE TEL installed over 1,600 new high-bandwidth serving area interfaces in 2015, creating the foundation for our own growth in contrast to the market trend.

EWE AG Annual Report 2015 64 GROUP MANAGEMENT REPORT

POLITICAL AND REGULATORY ENVIRONMENT Emissions trading extended to include market First report on the Energy Union published stability reserve With the formation of the Energy Union, a new strategic With regard to emissions trading, the EU approved the framework was created for the European Union’s energy introduction of a market stability reserve (MSR), which policy in 2015. In this context, a focus is being placed on will be added to the existing European Emissions Trading the following policy areas: supply security, solidarity, the System (EU-ETS) in 2019. In this context, in 2020 all internal energy market, energy efficiency, climate action, backloaded and unallocated allowances will be directly emission reduction, and climate research and innovation. placed in the reserve. The goal of this new, flexible In November 2015, the European Commission published approach is to react quickly to excess supply and scarcity its first report on the Energy Union one year on, which in the market in order to counteract market imbalances documented the current state of events and defined the and create stable incentives to invest in low-emission next steps, which will be reflected in legislative propo technologies. EWE was actively involved in the negotia- sals in 2016. In EWE’s opinion, a coherent energy policy tions regarding the introduction of the MSR and is framework at the European level is highly welcome given pleased with the outcome. an increasingly dynamic market environment. Electricity market reform bill passed Strategy for digital single market published On 4 November 2015, the German government passed a In 2015, the European Commission published its strategy bill to reform the electricity market. The aim of the bill is for the digital single market. In this context, it is pursuing to ensure supply security by strengthening market mech- the goal of tapping areas with growth potential and anisms, establishing a capacity reserve and extending making Europe a leader in the digital economy. Among the term of the grid reserves. On the contrary, the crea- other measures, the strategy entails restructuring the tion of a capacity market is not planned. EWE supports regulation of the telecommunications sector. In this the bill’s basic premises and welcomes the focus on price context, an important aspect for us is the future role of peaks and flexibility, since this fits with our Group’s regional telecommunications companies. In addition, the fundamental strategic orientation. At the same time, paper also contains several references to the digitisation not establishing a capacity market in conjunction with of the energy economy. The EU institutions compromis- market spreads that tend to be in decline may lead to ing on the network and information security guidelines increased pressure on conventional power generation. can be viewed as a partial success on the path to the digital single market. These guidelines will further harmonise the requirements placed on suppliers of key services (including energy providers) and digital service providers, as well as on member states themselves by creating a set of minimum standards.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 65 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Capacity reserve act passed Bill presented for a law regarding the digitisation Together with the electricity market reform bill, the of the energy transition German government also passed the capacity reserve On 4 November, the German government also passed a ordinance. This law primarily regulates the procurement bill for a law regarding the digitisation of the energy and use of the capacity reserve, the goal of which is to transition. This law sets forth the terms of the roll-out of protect the power supply in Germany against unplanned intelligent metering elements that must be installed for bottlenecks beginning in the winter half of 2017. EWE certain electrical consumers and power generators views the capacity reserve as a positive addition to the beginning in 2017. We support the roll-out of intelligent electricity market. In addition, it represents a further metering systems, since they form the foundation for the revenue option for our Group’s conventional power energy system being made more flexible with respect to generation capacities. The law contains many sensible the market and the grid. These are strategically impor- provisions but, as a result of the fixed mechanisms tant areas for EWE. At the same time, the bill also con- to offset costs, may lead to additional costs to those tains provisions that could have a negative impact on the responsible for the balancing groups and, as such, distribution grid operators in our Group – for example our Group. The applicability of the capacity reserve the insufficient price ceilings for the installation and ordinance is dependent on the electricity market reform operation of the new metering technology or the redefi- act entering force, which forms the legal basis for the nition of responsibilities in the field of energy balancing. ordinance. According to the bill, transmission system operators should be responsible for pre-compressing the individual New combined heat and power act passed measured data for plants with intelligent metering In December 2015, German parliament passed the systems, which would mean shifting the duties in energy new combined heat and power act (Kraft-Wärme- balancing from the distribution grid operator to the Kopplungsgesetz – KWKG). This law makes changes to transmission system operator. the framework and subsidies for existing as well as new, modernised and retrofitted combined heat and power Transition from low-calorific gas to high-calorific gas (CHP) plants. In this context, CHP plants with a capacity Due to the declining reserves of low-calorific gas in of more than two megawatts particularly benefit from Germany and the Netherlands, a transition to high- the provisions of this law. Due to the specific targets for calorific gas is absolutely essential in order to assume expanding CHP capacity – 110 terawatt-hours (TWh) by supply security in the market regions that up until now 2020 and 120 TWh by 2025 – and the associated have been supplied with low-calorific gas. Changes to increase in investment security, EWE expects this law to the subsidy plans for the Groningen gas field in Decem- have a positive effect on our Group. Furthermore, the ber 2015 confirm the continued decline of low-calorific new law improves the economic conditions governing gas reserves. The first market region transition in Ger- the construction of heating networks and storage facili- many began on 1 October 2015. We added areas to tran- ties and strengthens the business field of micro-CHP sition from low-calorific gas to high-calorific gas to the plants by increasing the subsidy for these systems. The gas network development plan in 2015. This will allow us new combined heat and power act came into effect on to begin securing the necessary high-calorific-gas 1 January 2016. The new requirements will only come capacities in a timely fashion and include high-calorific- into force after a notification by the EU, however. gas needs in the scenario simulations. On the basis of the network development plan, we plan to carry out this transition in 2021, with the Bremen supply area transitioning to the higher gas quality already in 2017.

EWE AG Annual Report 2015 66 GROUP MANAGEMENT REPORT

Provisions of the system stability ordinance Looming re-monopolisation in the implemented telecommunications industry The German system stability ordinance (Systemstabili In November 2015, the German Federal Network Agency tätsverordnung – SysStabV) requires network operators rejected our petition regarding the structural separation to retrofit certain customers’ personal solar power sys- of Telekom Deutschland GmbH (TDG) in terms of tems. Together with regional technicians, we successfully spinning off the telecommunications network into its retrofitted 20,884 solar power systems in our service own company. At the same time, the regulatory agency area. Due to the changes to the ordinance which came published a draft decision regarding access to the sub- into effect on 14 March of the reporting year, further scriber’s line and for the use of additional vectoring power generation systems – such as CHP, wind, biomass technology in the direct service area. With this regula- and hydroelectric power plants – are now included. In tory decision, the Federal Network Agency aims for TDG this case, however, the requirement to retrofit these to make the nearly comprehensive use of vectoring systems must be fulfilled by the plant operators, not the technology in the direct service area possible. Alternative network operator. In this context, the transmission providers should only be able to use this technology in network operators set forth the frequency values that the case that they have installed more serving area need to be set and then carry out random quality interfaces than TDG in the switching exchange area and controls, while EWE brings together the communication when these providers have pledged to more quickly roll between the transmissions network operators and the out the use of vectoring technology in the direct service plant operators and compensates the plant operators for area. costs that exceed their share. Prior to presentation of the draft, we offered the Federal Amendment to the act governing the provision of Network Agency to roll out the additional vectoring energy services requires energy audits technology in the direct service area across the entire The amended German act governing the provision of area that EWE offers telecommunications services and to energy services (Energiedienstleistungsgesetz – EDL-G) invest more than 70 million euros for this purpose. If the came into effect in April 2014, and sets forth that, in Federal Network Agency does not make significant future, all companies that are not small and medium-size changes to their draft decision, it would no longer be enterprises must carry out an energy audit at regular possible for EWE to roll out the technology across the intervals. We expect positive effects from the new law, entire service area. The Federal Network Agency’s deci- since we offer energy audits and additional products as sion represents a significant step backwards for further well as customer-specific energy efficiency and contract- expansion of the fibre-optic network and enables TDG to ing services. once again monopolise additional telecommunications regions. A final decision was not made in the reporting year. EWE reserves the right to take legal action against the Federal Network Agency’s decision.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 67 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Current situation of the EWE Group

OVERALL ASSESSMENT OF BUSINESS EARNINGS PERFORMANCE PERFORMANCE The ability of the EWE Group’s normal business opera- Overall, the Board of Management of EWE AG can look tions to generate earnings over the long term is of back on 2015 as a difficult yet successful business year. particular importance to both internal governance as On the one hand, necessary measures to adapt to diffi- well as the external communication of the current and cult market environment overall had a one-off negative future development of the Group’s earnings. Operating effect on the 2015 business year. Specific points to high- EBIT is an adjusted earnings figure which is used to light here in particular include impairments to the value illustrate and manage operative earnings performance. of conventional power plants, licences, goodwill and To calculate operating EBIT, EBIT is adjusted for special reserves for restructuring measures. As a result, the items related to derivatives, impairment, investments Group’s net result for the reporting period declined from and restructuring measures. The items classified as 146.3 million euros in 2014 to a loss of 9.4 million euros non-operating are determined based on defined items in 2015. On the other hand, operative earnings stabilised in the statement of profit and loss. slightly above last year’s results, at 428.1 million euros. Here we can already see the initial success of the effi- The following chart illustrates the reconciliation to the ciency measures we implemented. We plan to continue consolidated result for the period: this positive trend in operating EBIT in the 2016 business | T 006 year.

FORECAST DEVIATIONS in millions of euros 2015 2014

Operating EBIT 428.1 427.5 In the previous year, we drew up our earnings forecasts Derivatives -11.9 -36.0 based on a different segment structure. Because we Impairment -150.4 -41.1 made changes to our segment structure in the second Investments -0.1 4.3 half of the 2015 business year, we are not going to make Restructuring -53.7 any statements at this time pertaining to achieving the EBIT 212.0 354.7 targets set based on the old segmentation. At the Net interest income/ Group-wide level, operating EBIT for the 2015 business expense -180.9 -197.1 year fell within forecast expectations. Income taxes -40.5 -11.3 Consolidated result | T 005 for the period -9.4 146.3 Operating EBIT in millions 2015 target of euros 2014 in % 2015

EWE Group 427.5 -10 to +10 428.1

EWE AG Annual Report 2015 68 GROUP MANAGEMENT REPORT

SIGNIFICANT CHANGES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Summarised consolidated statement of comprehensive income | T 007

Change in millions of euros 2015 2014 in %

Revenue (excluding electricity and energy taxes) 7,819.3 8,134.2 -3.9 Material expenditures -6,067.4 -6,506.4 -6.7 Personnel expenses -727.3 -669.6 8.6 Other income and expenses -215.0 -254.7 -15.6 Income from investments -17.5 123.2 > -100 Write-offs -580.1 -472.0 22.9 EBIT 212.0 354.7 -40.2 Net interest income/expense -180.9 -197.1 -8.2 Earnings before tax 31.1 157.6 -80.3 Income taxes -40.5 -11.3 > -100 Earnings in the period -9.4 146.3 > -100

Thereof attributable to: Shareholders of the parent company -7.1 145.8 > -100 Minority shares -2.3 0.5 > -100 -9.4 146.3 > -100

In the 2015 business year, our Group generated revenue produced and capitalised assets) totalled -215.0 million (excluding electricity and energy taxes) of 7.8 billion euros (previous year: -254.7 million euros). The change euros (previous year: 8.1 billion euros). This corresponds from the previous period resulted primarily from valua- to a decline of 314.9 million euros, or 3.9 per cent, com- tion effects from derivative financial instruments and pared to the previous fiscal year. This decrease is primar- recognised hedges in the energy sector. ily due to a drop in the quantity of sales in the power business, as well as related to falling prices on the stock The value of write-downs increased from 472.0 million market. By contrast, material expenditures declined dis- euros to 580.1 million euros, since higher impairments proportionately by 439.0 million euros, or 6.7 per cent. were necessary compared to the previous reporting The cost of materials ratio improved from 80.0 per cent period. to 77.6 per cent as a result of lower impairments to the value of gas reserves and a reduction in low-margin The decrease in income from investments was predomi- business. In the reporting year, the share of revenue nantly due to the sale of EWE’s stake in VNG AG. This generated domestically and abroad remained unchanged holding, which was consolidated in the previous year at approximately 90 per cent and approximately 10 per using the equity method, contributed -24.7 million euros cent, respectively. to the Group’s total result (previous year: 98.3 million euros). The increase in personnel expenses compared to the 2014 business year resulted particularly from the imple- The interest result totalling -180.9 million euros resulted mentation of restructuring measures. primarily from interest on bearer bonds (public-sector bonds), bonds (private placement), interest on floating The balance of other operating income and other operat- bank debts and discounting non-current liabilities. This ing expenses (including inventory changes and internally improved interest result was primarily due to the

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 69 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

repayment of a loan due in the previous year with a value of 642.7 million euros.

The increase in income taxes compared to the previous year resulted primarily from income taxes relating to other periods.

SEGMENT PERFORMANCE

The following chart illustrates the changes to the segments’ operating result and external sales: | T 008

Operating income External sales

Change Change in millions of euros 2015 2014 in % 2015 2014 in %

Renewables, Grids and Gas Storage segment 314.4 312.1 0.7 1,951.8 1,823.2 7.1 Sales, Services and Trading segment 80.4 18.7 > 100.0 4,053.4 4,326.3 -6.3 International segment 25.3 18.4 37.5 759.4 773.0 -1.8 swb segment 90.3 40.2 > 100.0 1,052.1 1,208.3 -12.9 Group Central Division segment -82.3 38.1 > -100.0 2.6 3.4 -23.5 Total 428.1 427.5 0.1 7,819.3 8,134.2 -3.9

RENEWABLES, GRIDS AND GAS SALES, SERVICES AND TRADING SEGMENT STORAGE SEGMENT In our Sales, Services and Trading segment, consisting of In our Renewables, Grids and Gas Storage segment, EWE sales, telecommunications, trading and IT, we external revenue in the reporting period grew 7.1 per recorded a year-over-year decline in external revenue of cent year over year to 1,951.8 million euros (previous 6.3 per cent, down to approximately 4.1 billion euros year: 1,823.2 million euros). This increase in revenue (previous year: 4.3 billion euros). This decline resulted resulted primarily from passing on higher quantities of primarily from the quantity-related decrease in revenue energy generated from renewable sources. As such, this from power sales as well as lower proceeds from power segment contributed approximately 25.0 per cent to the trading. As such, this segment contributed approximately Group’s total revenue in the reporting period (previous 51.8 per cent to the Group’s total revenue in the report- year: 22.4 per cent). The segment’s operating EBIT ing period (previous year: 53.2 per cent). The segment’s totalled 314.4 million euros (previous year: 312.1 million operating EBIT improved to 80.4 million euros (previous euros). In this context, in the Renewables business area, year: 18.7 million euros). The elimination of negative the RIFFGAT offshore wind park’s first full year of opera- special items in the field of energy sales (such as the tion had a positive effect on both revenue as well as impairment of accounts receivable and subsequent EEG operating earnings. Lower revenue from the sale of calculations), the elimination of the one-off impairment connections as a result of the low market price of gas of gas supplies in the Trading business area and the one- storage was almost completely compensated for by off payment recognised in earnings which EWE received positive results in the Grids business area. within the scope of the settlement with Telekom Deutschland GmbH all had a positive effect on operating earnings compared to the previous year.

EWE AG Annual Report 2015 70 GROUP MANAGEMENT REPORT

Significant decline in power sales Decrease in international natural gas sales | G 13 | G 15 in millions of kilowatt-hours in millions of kilowatt-hours

14,000 13,495 30,000 28,220 11,984 47 25,902 2,498 48 1,818 10,500 22,500

7,626 6,872 19,958 15,597 7,000 15,000

3,500 7,500 3,372 3,294 8,215 10,257

0 0 2014 2015 2014 2015

Private customers Business customers Distributor Private customers Business customers Distributor

Slight increase in natural gas sales SWB SEGMENT | G 14 in millions of kilowatt-hours In our swb segment, external revenue in the reporting 31,797 32,000 30,827 period declined 12.9 per cent year over year to 1,052.1 2,242 3,511 million euros (previous year: 1,208.3 million euros). This

24,000 decline was primarily associated with the sale of power

15,030 15,091 from conventional power plants. As in the previous year, 16,000 negative price trends on the commodities market led to a decline in sales quantities. As such, this segment contrib-

8,000 uted approximately 13.5 per cent to the Group’s total rev- 13,555 13,195 enue in the reporting period (previous year: 14.9 per cent).

0 The segment’s operating EBIT totalled 90.3 million euros 2014 2015 (previous year: 40.2 million euros). The year-over-year Private customers Business customers Distributor improvement in operating EBIT is primarily the result of EWE entering into a new lease and operating agreement with a long-standing major customer. In addition, the INTERNATIONAL SEGMENT increase in drinking water prices which took effect on In our International segment, we recorded a decline in 1 August 2014 as well as the reduction in delivery costs external revenue of 1.8 per cent, down to 759.4 million had an effect during the entire reporting period. euros (previous year: 773.0 million euros). This decrease is primarily associated with the business in Turkey, where Significant decline in power sales by swb | G 16 earnings declined predominantly due to currency conver- in millions of kilowatt-hours

sion. This segment contributed approximately 9.7 per 3,500 3,289 cent to the Group’s total revenue in the reporting period 200

(previous year: 9.5 per cent). The segment’s operating 2,625 EBIT totalled 25.3 million euros (previous year: 18.4 mil- 1,998 180 lion euros). The improvement in operating EBIT particu- 1,750 larly resulted from an improved foreign currency result. 2,212 961

875 877 855

0 2014 2015

Private customers Business customers Distributor

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 71 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Slight decrease in natural gas sales by swb | G 17 in millions of kilowatt-hours

5,267 5,500 5,049 1,339 635 4,400

3,300 1,504 1,873

2,200 2,424 2,542 1,100

0 2014 2015

Private customers Business customers Distributor

GROUP CENTRAL DIVISION SEGMENT Our Group Central Division segment only generates a low level of revenue. The segment’s operating EBIT totalled -82.3 million euros (previous year: 38.1 million euros). These earnings resulted from the segment’s holding function and the holding companies attributed to it as well as other investments, and is shaped particularly by the declining investment income from VNG AG.

ASSET POSITION

| T 009

in millions of euros 31.12.2015 in % 31.12.2014 in %

Assets

Non-current assets 6,659.6 68.3 7,781.1 79.4 Current assets 3,084.7 31.7 2,019.8 20.6 Total assets 9,744.3 100.0 9,800.9 100.0

Liabilities

Equity 1,749.2 18.0 2,285.2 23.3 Non-current liabilities 5,312.9 54.5 5,513.2 56.3 Current liabilities 2,682.2 27.5 2,002.5 20.4 Total equity and liabilities 9,744.3 100.0 9,800.9 100.0

EWE AG Annual Report 2015 72 GROUP MANAGEMENT REPORT

As a result of its business activities, our Group has a high FINANCIAL POSITION intensity of investments with the associated capital | T 010 commitment. As such, fixed assets comprise approximately 68.3 per cent of the balance sheet total, whereby in millions Change this figure declined compared to 31 December 2014 by of euros 2015 2014 in % approximately 11.1 percentage points (1.1 billion euros) Cash flow from with a simultaneous increase in current assets of the operating same amount, 1.1 billion euros. This shift is primarily the activities 708.2 770.3 -8.1 result of the planned sale of EWE’s stake in VNG to Cash flow from investment EnBW, whereby the stake in VNG, the value of which had activities -594.6 -581.8 -2.2 been assessed up until this point using the equity Cash flow from method, was reclassified as an available-for-sale finan- financing cial asset (1,251.6 million euros). The payments for activities -77.3 -593.2 87.0 Changes to cash investments in the reporting period totalling approxi- and equivalents mately 666.9 million euros were primarily associated affecting cash with the Renewables, Grids and Gas Storage segment flow 36.3 -404.7 > 100.0 (257.4 million euros; predominantly for the expansion Currency conversion and upgrade of grid infrastructure as well as for renew and changes to able energy sources and gas storage) and the Group the basis of consolidation -11.5 2.5 > -100.0 Central Division segment (220.8 million euros; primarily Cash and cash for increasing EWE’s stake in VNG AG). Financing fixed equivalents at assets is carried out using equity and non-current debt. beginning of period 327.5 729.7 -55.1 The equity ratio stands at 18.0 per cent. The absolute Cash and cash equivalents at decline in equity is, on the one hand, the result of the the end of the buyback of 10 per cent of the company’s shares planned period 352.3 327.5 7.6 for 2016. EWE was required to reflect this transaction in equity on 31 December 2015 (written put options on own shares). On the other hand, the low result for the Cash flow from operating activities represents a key period also caused the equity ratio to decline. element of our financing. In the 2015 business year, EWE posted cash flow from operating activities totalling The increase in current liabilities resulted from the 708.2 million euros. planned stock buyback and is directly associated with change in equity. Cash flow from investing activities is shaped by investments in grid infrastructure, the acquisition of shares Non-current liabilities primarily encompass bonds, (primarily increasing EWE’s stake in VNG AG) and invest- pension reserves and contributions to building costs. ments in renewable energy sources and gas storage.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 73 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Cash flow from financing activities particularly contains EMPLOYEES OF THE EWE GROUP the dividends for the 2014 business year totalling 88.0 million euros, which were distributed to the share- CHANGES TO THE NUMBER OF EMPLOYEES holders of EWE AG in the 2015 business year. The sale of During the 2015 business year, our Group had an average EWE’s share of the grid investment model totalling of 8,855 employees (previous year: 9,154). This decline 13.8 million euros had the reverse effect. The value from was primarily recorded in the IT business unit and was the previous year contains the repayment of a loan due related to the sale of the EWE’s stake in AOV IT Services with a value of 642.7 million euros. GmbH and hmmh multimediahaus AG in December 2014. This figure includes all full-time and part-time The financial flexibility of our Group is secured thanks employees as well as trainees and temporary staff. to bilateral credit lines as well as due to a syndicated, revolving credit facility of 850.0 million euros valid until Avg. number of employees by segment | G 18 July of 2018. The current credit volume of 850.0 million (previous year) euros will be reduced to 809.0 million euros beginning in 627 (621) Group Central Division July 2017 and is due in July 2018. At the end of the 2,042 (2,000) reporting period on 31 December 2015, EWE had drawn Renewables, Grids and Gas Storage on a total of 175.0 million euros of this credit line. 2,166 (2,181) swb 8,855 Issuing bonds also represents another key component (9,154) of EWE’s financing. As of 31 December 2015, unsecured bonds quoted in euros with a total nominal value of 3,188 (3,534) 1,850.0 million euros have been issued. Issued bonds 832 (818) Sales, Services International with a value of 150.0 million euros will become mature and Trading and payable in 2016. Further bonds with a total nominal value of 1,650.0 million euros have maturity dates between 2017 and 2021. One bond with a value of 50.0 million euros will mature in 2032. Of those with HUMAN RESOURCES STRATEGY maturity date in 2017, bonds with a value of 200.0 mil- Vocational training lion euros earn a variable interest rate pegged to the As a predominantly local corporate Group, EWE has a three-month Euribor plus margins between 0.20 and non-current commitment to providing professional 0.28 per cent. The remaining bonds earn interest at fixed training to the young people from the region. Within the rates between 0.625 and 5.250 per cent, whereby the scope of internships as well as regional and nationwide share of bonds with maturity dates after 2019 and a total vocational training fairs and events, secondary school value of 1,550.0 million euros earn interest at rates of and university students are given the opportunity to 4.000 per cent and higher. acquire an in-depth look at EWE and its business and meet with company employees. A vocational training programme or combined degree and vocational training programme at EWE goes far beyond the mandatory training content. The young people who participate in a training programme at EWE are provided a comprehensive range of educational, mentoring and recreational activities – from communication training and in-depth economic knowledge to athletics and culture.

EWE AG Annual Report 2015 74 GROUP MANAGEMENT REPORT

University students also have the option to complete To do justice to the special role managers play in the their final project at EWE. After earning their degree, company’s development, the EWE Academy was graduates can choose from a variety of models (including introduced in 2011. The focus of the work here with over trainee programmes and entry-level positions) to launch 200 managers and young professionals is conveying their career at one of the EWE Group’s companies. modern and innovative concepts on topics such as strategy, leadership and management, as well as their In order to be qualified to meet the challenges posed by application in real-world management activities. demographic change, EWE introduced two new training Discussing strategic issues from all areas of the Group, programmes in 2015. The occupational profile ‘Kaufleute as well as topics related to management and corporate im Einzelhandel’ (retail salesperson) is tailored specifi- culture, ensures that managers effectively network cally to sales, and the aim in this regard is to train the throughout the entire Group. next generation of specialists to secure personnel for EWE’s regional locations. The occupational profile An extensive offering in the fields of health management ‘Anlagenmechaniker’ (systems technician) is tailored to and work-life balance round out EWE’s advanced training meet the technical requirements in the field of gas and staff retention activities. supply. Human resources 2017 Through the EWE Vocational Trainee Blog, the company After many years of continuous growth, EWE must make has provided applicants and interested parties on social adjustments with regard to human resource planning media a look behind the scenes since the summer of and will eliminate 500 jobs throughout the Group by the 2015. The editorial team consists of vocational trainees end of 2017. Different tools for eliminating these jobs and those participating in a combined vocational training have been negotiated with employee representatives, and degree programme. On this blog, they report on including arrangements for pre-retirement, part-time their personal experiences during day-to-day life as a employment and termination agreements. After a trainee and on events, seminars and trade shows. comprehensive training initiative for managers, human resource managers and the works council, the first Advanced training meetings were held with the affected employees in 2015. EWE brings together three sectors – energy, telecommunications and information technology – that are shaped Demographic change by rapid technological developments and stiff competi- From 2020 onwards, demographic change will have a tion. In order to successfully meet these challenges, the significantly noticeable effect on EWE as well. The company offers its employees a wide range of internal cohorts with high birth rates will enter retirement age, and external advanced training opportunities. EWE particularly in technical fields. In order to overcome the improves and enhances these programmes and picks up associated challenges, a variety of spheres of activity on current trends, such as in the field of digitisation or within the field of demographic management were in working with lean project methods. defined and implemented. These include improving health management, enhancing EWE’s employer brand and establishing strategic human resources planning to identify future capacity and productivity risks.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 75 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Gender quota In light of this, target quotas have been specified pursu- The EWE Group has a fundamental interest in further ant to the German law for the equal participation of increasing the percentage of women in management women and men in management positions in both the positions in the future. EWE wants to offer women and private and public sector. The proportion of women in men the same opportunities when filling management the Supervisory Board, Board of Management and positions. In this context, the company relies on tried- executive positions, as well as the top two levels of and-tested and new measures to further strengthen the management have been defined until 30 June 2017 in work-life balance and promote diversity in the profes- all EWE companies which are subject to the law. sional and career development. The aim here is ensure that key positions are filled by the best-suited candidate, regardless of gender.

Target percentages for the Supervisory Board and Board of Management of EWE AG | T 011

Board or level Percentage of women Target percentage Company of management (as of 31.12.2015) by 30.6.2017 Defined by: EWE AG Supervisory Board 5% 5% EWE AG Board of Management 20% 20% Supervisory Board

Target percentages for the top two levels of management of EWE AG | T 012

Percentage of women Target percentage Company Level of management (as of 31.12.2015) by 30.6.2017 Defined by: EWE AG Department heads 9.1% 12.5% EWE AG Team leaders 1) 24.0% 24.4% Board of Management 1) Note: The holding company is currently undergoing a restructuring phase. In light of this, it is possible that the management structure at the team leader level will change, which may require a change to the target percentage at this level.

EWE AG Annual Report 2015 76 GROUP MANAGEMENT REPORT

Events after the balance sheet date

Major conditions that were delaying the planned sale of EWE’s stake in VNG to EnBW AG were eliminated between the balance sheet date and the date this report was published. No other events with a significant impact on the EWE Group’s earnings, financial and assets position occurred after the balance sheet date yet before the publication of the Group’s consolidated financial statements.

Current situation of EWE AG

NOTES TO THE ANNUAL REPORT OF EWE AG, The interest result was primarily shaped by interest OLDENBURG, AS REQUIRED BY COMMERCIAL LAW payable on bonds, loans from credit institutes and the bonded loan as well as interest income from Group com- EWE AG manages the EWE Group as its holding panies. In the reporting year, the negative interest result company. Its duties lie in the strategic and cross-market of 118.2 million euros improved by 10.8 million euros development of the business areas as well as strategic year over year. Interest income declined by 15.5 million planning and assuring the Group’s financing. In addition, euros. Among other reasons, this decline (-3.6 million EWE AG performs centralised corporate services for the euros) was due to the final maturity of a securities-based Group’s companies. fund which generated corresponding interest income in prior years. In addition, interest earnings from one-off EARNINGS PERFORMANCE items from the previous year, such as a business tax The EWE AG’s earnings performance is primarily shaped refund from an audit, were eliminated (-7.7 million by the results of investments and interest earnings as euros). The reduction in interest payable (-26.3 million well as proceeds from the provision of general services euros) was primarily due to the repayment of bonds in to the Group’s companies. the reporting year.

Earnings from financial investments declined year over Other operating income and expenses as well as person- year by 22.3 million euros. Earnings from profit and loss nel costs and impairments are not fully comparable to transfer agreements decreased by 22.4 million euros; the previous year, since the merger of EWE swb ISIS earnings from investments declined by 34.3 million GmbH and EWE AG, which was carried out retroactively euros. The decline associated with profit and loss trans- on 1 January 2015, resulted in the transfer of assets and fer agreements is primarily due to lower earnings on the liabilities as well as human resources to EWE AG. Reve- part of EWE VERTRIEB GmbH and EWE GASSPEICHER nue from the service provider EWE swb ISIS GmbH is GmbH, despite EWE TEL GmbH having contributed an reflected after the merger in other operating income and improved result. The decline associated with investment is the primary reason behind the increase in this category earnings resulted from swb AG not distributing a divi- (+100.2 million euros). Similarly, the predominantly dend in the reporting year. The increased dividend from higher procurement of IT services led to an increase in VNG AG was not able to compensate for this effect. The other operating expenses (+54.8 million euros). Both negative development of earnings from investments was categories are primarily shaped by EWE AG passing on mitigated by 39.0 million euros less in write-downs on items as a result of its holding function. investments.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 77 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Personnel expenses totalling 70.4 million euros The value of current assets including deferred expenses significantly exceeded the previous year’s amount by and accrued income totalled 639.2 million euros at the 32.3 million euros, primarily as a result of the merger. In end of the reporting period. This item is dominated addition to an increase in wages and salaries (+25.6 mil- by accounts receivable from associated companies from lion euros) as well as the associated contributions to cash pooling and profit and loss transfer as well as social insurance, human resource measures within the liquid assets, and reflects EWE AG’s financing function. scope of the restructuring process led to additional Accounts receivable from associated companies increased personnel expenses of 6.7 million euros. by 6.5 million euros as result of contrasting effects in the areas cash pooling and loans, among others. Liquid assets Impairments increased year over year by 7.7 million increased by 22.1 million euros. Due to the early repay- euros to 20.0 million euros, primarily due to the sched- ment of a loan and simultaneous refinancing at lower uled impairment of intangible assets (+6.9 million euros). interest rates, accrued interest recognised in accruals This stems from the software that was transferred and deferrals stood 4.7 million euros lower at the end of together with IT to EWE AG as a result of the merger the reporting period. The decline in the value of current with EWE swb ISIS GmbH. assets including deferred expenses and accrued income of 6.3 million euros compared to the previous year is The low tax expenditure in the previous year can be predominantly the result of changes to the value of secu- attributed to special items, subject to contrary effects rities held (-31.6 million euros), which can be attributed from profit and loss transfer agreements and dividends to the final maturity of securities-based fund held in from investments. previous years.

Earnings from normal business operations stood at On the liabilities side, the 2.2-billion-euro increase in 210.8 million euros, 6.1 million euros less than in the equity thanks to the improved annual result led to a sta- previous year. Annual net profit totalled 126.8 million ble equity ratio of 42.2 per cent. In addition to equity, euros, equal to 32.9 million euros less that in the non-current assets are accompanied by non-current debt previous year. with a value of 2.1 billion euros. As such, non-current assets (4.6 billion euros) were not completely covered by ASSET POSITION non-current available capital (4.3 billion euros). EWE AG’s balance sheet total at the end of the reporting period stood at 5.2 billion euros and exhibited a The decrease in non-current liabilities was primarily well-balanced asset and capital structure. The balance attributed to liabilities to credit institutes – in part sheet is structured around EWE AG’s functions as the due to the early repayment of non-current loans and parent company of the EWE Group, in which the key refinancing with current loans. In contrast, the value of shareholdings are held. Fixed assets represent the domi- pension reserves increased by 30.9 million euros as a nant item on the asset side, with a value of 4.6 billion result of the merger and interest rate trends. Together euros, equal to 87.8 per cent of total assets. Financial with non-current euro bonds and other bonds with a assets comprise the lion’s share of fixed assets, with a total value of 1.7 billion euros, pension reserves with a value of 4.4 billion euros. The increase in value compared total value of 96.4 million euros formed the dominant to the previous year was primarily the result of the portion of non-current debt. acquisition of further shares of VNG AG. The decline in the value of loans receivable as a result of repayments received was accompanied by an increase in the value of shares of associated companies, which resulted from the acquisition of additional shares as well as capital increases. Write-downs on investments had the opposite effect.

EWE AG Annual Report 2015 78 GROUP MANAGEMENT REPORT

| T 013

in millions of euros 31.12.2015 in % 31.12.2014 in %

Assets

Fixed assets 4,588.3 87.8 4,363.0 87.1 Current assets 617.1 11.8 619.6 12.4 Accrued and deferred items 22.1 0.4 25.8 0.5 Total assets 5,227.5 100.0 5,008.4 100.0

Capital

Equity 2,206.7 42.2 2,167.9 43.3 Provisions 150.4 2.9 90.4 1.8 Liabilities 2,870.2 54.9 2,750.1 54.9 Accrued and deferred items 0.2 0.0 Total liabilities 5,227.5 100.0 5,008.4 100.0

FINANCIAL POSITION non-current loans to associated companies decreased Cash flow from operating activities totalled 148.6 mil- due to repayments received. Incoming payments from lion euros in the business year, with an annual net profit dividends or profit transfers from financial investments of 126.8 million euros, equal to 32.9 million euros lower led to a positive cash flow overall, despite higher than the result of the previous year. This formed the expenditures for investments. This income was lower basis of calculations. In contrast, changes to accounts than in the previous year, however, resulting in a receivable from and payable to associated companies, in comparatively low cash flow from investing activities. conjunction with profit and loss transfer agreements and cash pooling as well as the merger with EWE swb ISIS Cash flow from financing activities predominantly GmbH, had a positive effect on the cash flow position, reflects the repayment of bonds, the payment of resulting in an improvement of 88.0 million euros dividends from the previous year totalling 8.0 million compared to the previous year. euros and the partial refinancing via current loans. The value of liquid assets (cash and cash equivalents) Pursuant to German Accounting Standard 21, changes increased by 22.1 million euros. resulted in the classification of various items within the | T 014 individual cash flows. As such, interest and dividends received, which in the past had been classified under cash + = source of funds, flow from operating activities, is now classified pursuant – = application of funds in millions of euros 2015 2014 to German Accounting Standard 21 as cash flow from

investing activities and/or offset with interest paid in cash Cash flow from flow from financing activities. The previous year’s value operating activities 148.6 60.6 of the individual cash flows was adjusted accordingly. Cash flow from investing activities 151.4 344.9 Cash flow from Cash outflows from investing activities were predomi- financing activities -277.9 -813.9 nantly shaped by the purchase of additional shares of Changes to cash and VNG AG as well as the capital increase carried out by equivalents affecting cash flow 22.1 -408.4 EWE VERTRIEB GmbH. At the same time, the value of

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 79 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Investments In 2016, EWE AG plans to sell its stake in VNG to The value of investments carried out in the reporting EnBW AG and simultaneously purchase 10 per cent of its year totalled 413.4 million euros. own shares back from EnBW AG. The entire transaction will cause a significant change to EWE AG’s balance | T 015 sheet structure, affecting financial assets as a result of in millions of euros 2015 2014 the divestiture of the stake in VNG as well as liquid assets due to the inflow of the sale price. At the same Power supply systems 0.2 - time, EWE AG’s purchase of 10 per cent of the company’s Land and buildings 4.7 6.8 own shares will reduce share capital and capital reserves. Furniture and office equipment 1.6 0.4 Intangible assets 4.8 1) 1.5 IMPORTANT EVENTS AFTER THE END OF THE Financial assets 402.1 376.9 BUSINESS YEAR Total 413.4 385.6 Major conditions that were delaying the planned sale 1) Of this total, 0.5 million euros for plants under construction. of EWE’s stake in VNG to EnBW AG were eliminated between the balance sheet date and the date this report was published. The investments in financial assets totalling 402.1 million euros were primarily associated with the acquisition No other events with a significant impact on the of additional shares of VNG AG, Grünspar GmbH and the EWE AG’s earnings, financial and assets position investment in Trianel Windkraftwerk Borkum II GmbH & occurred after the balance sheet date yet before the Co. KG, as well as the capital increases carried out by publication of the annual report. E3/DC and EWE VERTRIEB GmbH. REPORT PURSUANT TO ARTICLE 312 OF THE FORECAST DEVIATIONS GERMAN STOCK CORPORATION ACT As expected, EWE AG generated annual net profit in Pursuant to article 312 of the German stock corporation the 2015 business year in the three-digit million range. act (Aktiengesetz – AktG), EWE AG has prepared a report Contrary to expectations, however, this total did not on its relationship to associated companies. This report exceed the value of net profits generated in the previous closes with the following statement by the Board of year. This was caused by the unscheduled impairment Management: of investments. ‘In the transactions specified in the report on EWE AG’s EXPECTED DEVELOPMENT OF EWE AG relationship to associated companies, our company – Due to its position as the Group’s parent company, based on the circumstances we were aware of at the EWE AG’s annual result is heavily influenced by the finan- time the transactions were carried out – received fair cial results and income from investments. Compared to compensation in each transaction.’ the completed business year, EWE AG is forecasting an improved result, particularly as a result of one-time special items as well as thanks to measures implemented to reduce the number of employees within the scope of the Group’s restructuring. The company expects to generate annual net profits at the same level as this year, except in the event of one-time special items.

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Key characteristics of the EWE Group’s accounting- related internal control system (pursuant to article 289, section 5, and article 315, section 2, number 5, of the German Commercial Code)

BASIC PRINCIPLES EWE draws up forecasts which are reviewed and adjusted at regular intervals. The Board of Management of The aim of EWE’s financial reporting activities is for our EWE AG as well as the boards of management and CEOs annual and interim reports to provide complete and cor- of the company’s main subsidiaries meet at regular rect information to all interested parties. Our account- intervals to evaluate quarterly and annual financial ing-related internal control system (ICS) aims to identify statements and update forecasts. possible sources of error and limit the resulting risks. The accounting-related ICS encompasses accounting and The individual companies are responsible for their own financial reporting across the entire EWE Group. bookkeeping, which is subject to respective local stan dards, whereby the accounting-related ICS is individually The Supervisory Board’s audit committee regularly tailored to the respective needs of the company on the reviews the effectiveness of the accounting-related ICS. basis of Group-wide guidelines. In its position as a hold- Once a year, the Board of Management reports to the ing company, EWE AG carries out central accounting audit committee regarding the risks from financial duties. This includes consolidating figures and analysing reporting, explains the implemented supervisory meas- the recoverability of goodwill and other intangible assets ures and illustrates how the correct implementation of on the balance sheet. Certain calculation processes, such these measures was verified. as calculating pension reserves, are pooled together and carried out by an external service provider, and are also STRUCTURE AND PROCESS subject to defined standards of quality consistent across the entire Group. The structure of the accounting-related ICS results from the organisation of EWE’s accounting and financial The accounting guidelines standardised across the Group, reporting process. which must be consistently applied by all units, form the conceptual framework for the preparation of the consoli- One of the main functions of this process is the manage- dated financial statements. EWE continuously analyses ment of the EW Group and its operative units. In this and takes into account new laws, accounting standards context, the targets set by the Board of Management of and other official statements with regard to their rele- EWE AG form the initial points of reference. Based on vance and effects on the Group’s consolidated financial these targets and EWE’s expectations with regard to the statements and summarised management report. company’s operative development, once a year the company creates its medium-term plans. These encom- The annual financial statements submitted by EWE AG pass target figures for the upcoming business year as and its subsidiaries, which are based on the accounting well as the following years. For current business years, entries recorded by each unit, form the data basis used

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 81 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

to prepare the consolidated financial statements. The Group’s financial statements are drawn up using the consolidation process based on the annual reports submitted. The steps required to prepare the consolidated financial statements undergo both manual as well as automated reviews.

Within the scope of external reporting, the members of EWE AG’s Board of Management must take a ‘balance sheet oath’ and sign an affidavit by the company’s representatives. By signing this statement, they confirm adherence to the mandatory accounting standards as well as the EWE Group’s accounting guidelines as codified in the Group’s accounting handbook, and that the figures presented give a true and fair view of the Group’s assets, liabilities, financial position and earnings situation.

Potential financial reporting risks are identified at the division level based on quantitative, qualitative and process-related criteria. The company’s generally binding guidelines represent a fundamental component of EWE’s ICS. In addition, EWE defined minimum requirements governing the key processes used to secure an integrated system of data collection and management. An annual review is used to verify whether the necessary monitoring measures were appropriate, actually took place and were carried out correctly. Furthermore, the ICS installed by the company is reviewed by the Group auditing department during the year as part of its auditing programme.

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Report on risks and opportunities

PRINCIPLES OF RISK AND OPPORTUNITY department monitors within the scope of regular audits MANAGEMENT the reliability and effectiveness of the early risk warning system as well as the fulfilment of legal requirements. Within the EWE Group, risks are defined as potentially negative deviations from the expected and planned The main duty of the Group’s risk management activities development of the company. The EW Group categorises is to coordinate and enhance integrated risk manage- risks as follows: strategic risks, market price and quantity ment on the basis of both Group-wide guidelines as well risks, risks from business operations, financial risks, risks as risk reporting to the Group’s Board of Management, to from major projects, and legal and compliance risks. Risk the supervisory committees and to the risk committee. management is viewed as an active and preventive process to manage internal and external risks to the Group’s Risks are identified early on, evaluated and reported to business activities. The risk management process encom- the EWE Group’s Group-wide risk management at the passes the identification, analysis and evaluation of risks level of the individual companies responsible for the risks as well as reporting on risks. Risk management entails in a structured, quarterly process in consideration of the measures to prevent, reduce and shift risks. Risk manage- Group-wide guidelines, while implementing appropriate ment is geared towards a medium-term planning period. measures and controls to manage and limit risk.

Opportunities for the EWE Group arise from its business The Group’s energy trading activities are subject to sepa- activities as well as trends in the company’s environ- rate risk guidelines. They create a framework for action ment. For example, new areas of potential can be created consistent with the company’s goals, particularly with by decisions affecting energy policy at the national and regard to monitoring and the separation of functions. international level or by tapping new markets. The EWE Tools for measuring risk with a special focus on energy Group strives to identify opportunities and take advan- trading form the foundation for ongoing reporting in this tage of them to generate earnings which exceed targets. area. EWE’s Board of Management regularly discusses strategic opportunities and enacts measures to exploit them. The gross assessment of risks in an integrated risk management process is carried out based on the probability Opportunities often stand directly opposite the of occurrence and potential amount of damage. In this corresponding risks and are assigned to the same context, the amount of damage can be assessed from a categories and reported in them. financial or qualitative perspective. In addition, the mitigating effect of existing measures is indicated specific to STRUCTURE AND PROCESS OF RISK AND each risk based on the probability of occurrence and OPPORTUNITY MANAGEMENT potential amount of damage. The net assessment of risks results from the gross assessment less the mitigating The early identification and proactive management of effect of effective controls and measures. All financial potential risks are of key importance to the EWE Group’s risk assessments are calculated with regard to targeted non-current, successful development. As such, this is EBIT. what the Group-wide risk management system is focused on. It is based on a standardised planning and A total of five levels have been defined for both the controlling process tailored specifically to the Group. probability of occurrence and potential amount of Within the EWE Group, the internal control system and damage, from which three aggregated net risk levels the risk management system are implemented through have been created (green for ‘low’, yellow for ‘medium’, an integrated risk management approach using standar red for ‘high’), as illustrated by the following matrix: dised methods and processes. The Group auditing

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 83 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

Likelihood of occurrence/damage | G 19

very likely “red” 70-100%

likely 50-70%

possible “yellow” 20-50%

unlikely 1-20% Likelihood of occurrenceLikelihood of very unlikely “green” 0-1%

low mild medium high catastrophic 0-10 million 10-40 million 40-100 million 100-250 million > 250 million euros euros euros euros euros

Potential damage

At the time this report was created, the EWE Group’s risk RISK AND OPPORTUNITY SITUATION management was not aware of any risks with a financial assessment that would have led to a net risk level in the OVERALL ASSESSMENT red range based on the application of the aforemen- Integrated risk management activities did not identify tioned system. any threats to the further existence of the EWE Group, neither at the level of individual risks, nor from the over- The risks identified at the individual company level are all risk position, during the 2015 business year. Similarly, incorporated into a consolidated report at the Group- no risks have arisen during the current 2016 business wide level based on their significance as it pertains to key year which pose a threat to the continued existence of target planning figures. The information from the contin- the EWE Group. uous, systematic early risk identification process as well as urgent risk reports received at short notice forms the STRATEGIC RISKS AND OPPORTUNITIES basis for assessing the EWE Group’s current risk situa- Changes to the international macroeconomic market tion. The Board of Management, supervisory committees environment as well as adjustments to underlying legal and the risk committee receive reports at regular inter- and social conditions increase the potential risk to the vals based on this information that are focused speci company’s non-current business development as it per- fically on the most important points. The risk committee tains to key financial target figures in the EWE Group’s is responsible for determining risk policy guidelines for individual segments. the EWE Group. This applies to the field of conventional power genera- The following section on the risk and opportunities tion, which is affected by the significant increase in the situation provides an overview of the risk levels of capacity from renewable energy sources available on the individually described risks. power market. In the field of gas storage, the competitive situation and market conditions are currently undergoing permanent changes that can lead to a reduction in existing earnings potential and make a more flexible

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marketing strategy necessary. With regard to revenue, MARKET PRICE RISKS AND OPPORTUNITIES AS WELL the sales department is facing a continuous decline in AS QUANTITY RISKS AND OPPORTUNITIES consumption due to changes to customers’ consumption Due to increasing competitive pressure in the national patterns and increasing energy efficiency. and international energy procurement and sales markets, the EWE Group is faced with constant high market price, The underlying conditions governing the energy sector quantity and margin risks, primarily in the areas of continue to be heavily influenced by the ‘German energy generation and sales. turnaround’ enacted by the German government. Renew- able sources of energy are becoming increasingly impor- The sales quantities in power and gas sales are secured tant. As a result, it is becoming increasingly necessary to via non-current procurement strategies. In the energy develop intelligent solutions to manage the distributed business with end consumers, the company faces the risk flows of energy and load, and make it possible to flexibly that actual sales deviate from forecast sales with regard balance supply and demand in powerful, efficient and to quantity or structure. For example, gas consumption safe power grids and gas pipeline networks. The EWE in particular is highly dependent on weather conditions. Group has effectively positioned itself in this environ- This results in quantity risks to both sales and network ment as a competitive and trustworthy market partici operations. On the other hand, the possibility of a pant. weather-related increase in consumption also exists. Unscheduled changes to cost elements outside of the Society’s increasing digitisation is creating opportunities EWE’s control could also have a negative effect on for energy service providers such as EWE. At the same margins, both in sales as well as in network operations. time, it is leading to a reduction in barriers to market From a financial perspective, these risks have been entry for competitors from other industries. categorised in the green net risk level.

In particular, the interaction between energy, telecom- In the field of conventional power generation, the attain- munications and information technology makes new able margins (‘spreads’) remain under pressure. Over the product offerings with increased customer benefit as course of the German energy turnaround, supply has well as competitive differentiation possible. In addition, increased as a result of additional capacities from renew- the combination of energy, telecommunications and able energy sources that are not or only slightly affected information technology creates the conditions necessary by the respective market prices due to subsidy mecha- to continue the stable and efficient operation of grids nisms. As such, the company faces the risk of temporar- and networks, despite ever-increasing demands. This is ily or permanently generating lower earnings than in the what the EWE Group’s business activities are geared past in this field. From a financial perspective, the com- towards. pany has categorised this risk in the green net risk level.

Furthermore, through the active participation in asso In the Turkish market, which is going through the process ciations relevant to EWE’s business units, the EWE Group of deregulation, imbalances still exist in the formation of takes advantage of the opportunity to play a construc- prices. The aforementioned effects of weather conditions tive role in political decision-making processes to shape apply in similar fashion to the Group’s gas business in the underlying regulatory conditions. Turkey, and result in the same opportunities and risks. From a financial perspective, the company has catego- Besides the German energy market, in recent years the rised this risk in the green net risk level. EWE Group has also established itself and its activities in the Turkish energy market. This results in additional In order to meet a wide variety of market and competi- growth opportunities that are, to a large extent, tive demands, flexible and customer-oriented product unaffected by the developments in the German market, and price strategies were developed early on and offered yet utilise the EWE Group’s existing areas of expertise. as market-driven product ranges. In conjunction with this, EWE is also further intensifying cross-business-unit

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 85 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

collaboration with regard to the development of FINANCIAL RISKS combined energy and telecommunications products as Financial risks result from the operative business an important competitive factor. activities of the Group’s respective business areas in the form of liquidity, credit and valuation risks. RISKS AND OPPORTUNITIES FROM BUSINESS OPERATIONS The EWE Group utilises a structured liquidity manage- Operative risks to the EWE Group result both from ment process to confront general liquidity risks, which is the operation of technologically complex systems at all used to manage and plan the changes to liquidity over stages of the value creation chain as well as due to the short, medium and long term. In addition, the EWE unscheduled interruptions to scheduled process work- Group maintains a sufficient level of liquidity reserves in flows. From a financial perspective, these risks have the form of liquid funds and credit lines to ensure the been categorised in the green net risk level. Group can meet its financial obligations at any time. Using adequate risk management tools on the basis of In order to reduce potential risks and systematically industry-specific risk guidelines, EWE continuously utilise opportunities that arise, the highly qualified monitors liquidity and evaluates specific items, and employees active as a part of EWE’s daily operations all implements appropriate, active risk management with participate in a continuous training system with the goal regard to relevant target figures. From a financial of securing and expanding their already high level of perspective, risks associated with liquidity have been qualification. This applies both with regard to current categorised in the green net risk level. and future requirements as well as pertaining to safety-related measures and legal provisions. Furthermore, EWE conducts an intensive analysis of wholesale partners’ extra quality assurance and coordinated redundancy creditworthiness with the goal of preventing or limiting concepts have been implemented to guarantee the relia- non-payment risks in Germany and abroad. In addition, bility of processes, which are continuously enhanced in non-fulfilment or malperformance on the part of suppliers line with the requirements. can lead to direct and indirect financial damage. The EWE Group addresses these risks with professional procure- EWE utilises state-of-the-art information and communi- ment processes and ongoing supplier management. From cations technology to efficiently support all of the indi- a financial perspective, the risks associated with non- vidual units’ business processes. Since the quality and, in fulfilment or malperformance on the part of wholesale particular, the high availability of the systems represents partners and suppliers have been categorised in the green a key competitive factor with regard to business success net risk level. and further business development, extensive high availability concepts pertaining to both hardware and software In general, the EWE Group is exposed to risks from are implemented while making use of the latest models changes in value that can inherently result from both to improve the quality of software development. Based increasing capital market interest rates as well as the on this high level of quality, the systems are permanently business prospects of individual companies becoming enhanced whilst taking advanced employee training permanently worse. The recoverability of investments is seminars, data security and data privacy into account. analysed on a regular basis and Group-wide management accounting as well as the enhancement of invest- At the operative level, in the coming years the EWE ments are both a part of a continuous management Group will continue to strive for the further intensified process. EWE is faced with a similar level of risk with collaboration of the Group’s individual business areas in regard to the recoverability of both individual assets and order to ensure the optimal use of existing expertise and Groups of assets (referred to as a cash-generating unit, resources. As a matter of principle, EWE works with or CGU). From a financial perspective, these risks have associated companies and partners to identify potential been categorised in the green net risk level. synergies that offer the possibility of additional earnings.

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EWE addresses the permanent risk of the Group’s exter- chargeable costs and/or investments (type, amount and nal rating becoming worse through the use of an ongoing time period of chargeable costs as well as the point in monitoring system as well as the implementation of time to first collect network usage fees) as well as the suitable countermeasures, when possible. method of calculation (such as via the underlying rate of return used by Germany’s Federal Network Agency as RISKS AND OPPORTUNITIES FROM MAJOR PROJECTS the basis for the network usage fees). In principle, this With regard to larger projects and investments, EWE risk exists both in Germany and abroad and can faces imminent risks pertaining to their completion potentially affect both past as well as upcoming periods. on schedule and within budget, and these risks are In 2015, EWE set aside reserves for the ongoing legal continuously monitored as part of the ongoing project proceedings in Turkey regarding the contested network management process. usage fees and, as a result, the financial risks stemming from the Group’s activities in the field of regulated busi- LEGAL AND COMPLIANCE RISKS ness have each been categorised in the green net risk Within the scope of its business activities in Germany level. and other countries in which it is active, the EWE Group is faced with numerous legal risks that result from both In the field of telecommunications, risks exists in con- general legal provisions as well as special, industry-spe- junction with regulations and competition. This can stem cific legal, regulatory and miscellaneous requirements. from both the level of specific fees as well as the unrestricted ability to use and market technical installations In the past, these have had an effect on gas supplier and capacities, and ultimately lead to sales limitations. contracts – for example, as a result of legal proceedings From a financial perspective, EWE has categorised these in which private customers fought the legal validity of risks in the green net risk level. general terms and conditions and the price adjustment clauses found therein. This is a risk that will continue to Market premiums can be collected from the distribution apply in the future as well. EWE continuously monitors grid operator for the generation of power from renew relevant developments, both with regard to legislation able energy sources, provided the company adheres to and case law, and evaluates them as they pertain to the legal stipulations governing feeding the power into possible effects on the Group’s business activities. From the grid. If these conditions are not met, the distribution a financial perspective, the company has categorised this grid operator can refuse payment of the market premium risk in the green net risk level. as well as demand repayment of previously paid out market premiums. From a financial perspective, EWE has In a similar manner, legal risks arise when business part- categorised these risks in the green net risk level. ners demand changes to non-current contracts by way of legal action to the detriment of the EWE Group. Changes In addition to general legal risks, the EWE Group is also to market prices which result in the contractually stipu- exposed to an increasing number of compliance risks. On lated terms of agreements becoming quite unfavourable the one hand, these risks result from increased activity for the claimant usually form the basis for these law- on the part of national and European Union lawmakers, suits. From a financial perspective, the company has and on the other from the unwavering public focus on categorised this risk in the green net risk level. the issue of compliance. The intensity with which alleged violations of compliance regulations are prosecuted Within the scope of EWE’s regulated business, risks remains high. exist with regard to the size of network charges. This can inherently affect both the amount of individual

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 87 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

EWE systematically addresses compliance-related issues To hedge energy trading and finance-related price risks, through its compliance organisation and its compliance the EWE Group utilises power futures, gas futures, coal management system. In this context, the wide range of swaps, oil swaps, EUA and CER futures contracts, and services and information offered in this regard is avail currency and interest rate hedges. able to all employees. EWE also offers in-person and online-based training seminars, both with a specific In some cases, hedge relationships are not recognised on focus on particular business areas as well as general the balance sheet. In addition, derivatives for which seminars for all employees. In addition to the compliance hedge accounting is not possible (IAS 39.88) or sensible officer employed at the EWE AG level, functionally are included within the scope of financial hedges. decentralised compliance officers are also used in many of the Group’s units as local points of contact. Beyond Risks also result from the use of derivative financial the binding code of conduct which applies consistently instruments even in the case that these financial instru- across the entire Group, a framework for acting in a ments are used exclusively for hedging purposes. The responsible manner and with integrity also exists, which credit risks that result from the use of derivative finan- is based on EWE’s corporate values. Furthermore, a cial instruments are subject to regular monitoring and whistle-blower system offers the ability to report illegal are limited using a limit system to prevent significant practices and rule violations with the EWE Group, which individual risks. Liquidity risks are taken into account as at the same time offers channels for both internal and part of liquidity planning. The valuation risks resulting external whistle-blowers to report violations. from the use of financial instruments are subject to a specific risk control process and are the subject of With regard to environmental risks, the EWE Group is internal reporting. This particularly includes regularly subject to numerous environmental protection laws and monitoring the effectiveness of hedge relationships regulations. Stipulations must be strictly adhered to and recognised on the balance sheet in accordance with documentation thereof must be ensured. Environmental IAS 39. In the event that derivative financial instruments risks from daily business operations are addressed using are not recognised on the balance sheet within the scope preventive measures. In addition, the EWE Group is of hedge accounting as set forth in IFRS, temporary insured against certain environmental risks. items as well as items from other accounting periods may be reflected on the consolidated statement of RISKS FROM THE USE OF FINANCIAL INSTRUMENTS comprehensive income. From a financial perspective, Within the scope of risk management activities carried the company has categorised this risk in the green out by the EWE Group, financial risks are identified, net risk level. evaluated and addressed. Risk management activities are carried out consistent with the guidelines defined Further information regarding the use of financial by the Board of Management of EWE AG. In this context, instruments can be found in the notes. financial instruments are regularly used when implementing hedging strategies.

Derivative financial instruments used to hedge currency, interest rate and commodity price risks are only entered into with contractual partners with a high degree of creditworthiness. No derivative financial instruments are used that are not directly associated with an underlying transaction. Individual items and Groups of items as well as anticipated business dealings can all serve as underlying transactions.

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Forecast report

BUSINESS ENVIRONMENT FORECAST significant increase in nominal wages may offset this, however. The Turkish government promised to increase According to forecasts by the Kiel Institute for the World the minimum wage by 30 per cent beginning in early Economy, global economic growth will remain modest in 2016, up to 1,300 Turkish lira per month. According to 2016. The economic experts expect to see an increase in labour market experts, this increase will push the entire global output by 3.4 per cent. The ifo Institute is expect- wage structure upwards and drive purchasing power ing the trade balance of most commodity-exporting, higher. newly industrialising countries to become worse. In addition, as a result of the strong US dollar, exports are The National Bank of Poland is forecasting that the going to grow noticeably slower than imports in the country will maintain the rate of GDP growth recorded United States. in 2015 of approximately 3.4 per cent in 2016 as well. Due to the positive export figures recorded up until the With growth of 1.7 per cent, real gross domestic product summer of 2015, the economic development agency in the eurozone will lie only slightly above its 2015 level. Germany Trade & Invest is expecting foreign trade to The experts expect domestic demand to be the primary become a further pillar supporting economic growth in driver of the recovery. The only slight general upward the country. In addition, the agency believes that slowing trend in prices and comparatively low energy prices will growth in China and the ongoing negative economic benefit private households. A more relaxed environment trends in Russia will not have any effect on the recovery is expected in the labour market as a result of moderate in Poland over the medium term. wage increases. According to the ifo Institute’s assessment, employment rates will continue to rise, the FUTURE POLITICAL AND REGULATORY unemployment rate will remain nearly unchanged at CONDITIONS 10.7 per cent. European Commission announces new strategies In Germany, the ifo Institute is forecasting aggregate and laws for the energy sector output in 2016 to expand at a rate of 2.1 per cent, with At the level of the European Union, far-reaching strate- increased demand due to the influx of immigrants being gies and legislative proposals are on the agenda for 2016 a key growth driver. Real growth domestic product will which, within the context of the energy sector, focus on grow at a rate of 1.9 per cent. As a result of the underly- the EU’s climate and energy policy goals for the period ing conditions for the German economy remaining of time from 2021 to 2030, on future market design and favourable, the experts are expecting the economic supply security. As such, in the first half of 2016, the recovery to continue. Thanks to low capital market and European Commission will submit a legislative proposal loan interest rates, financing terms for new corporate for an amendment to the security of gas supply regula- and construction investments also remain favourable. tion and a strategy for heating and cooling generation. Consumers’ discretionary income will increase as a result Legislative proposals regarding European power market of oil prices declining once again. design, revisions to the energy efficiency directive and an amended version of the renewable energy directive are The Turkish government is forecasting real GDP growth all expected in the second half of 2016. In addition, the in 2016 of 4 per cent. The European Commission’s negotiations on the previously proposed reform of the growth forecast for Turkey stands at 3.7 per cent. EU Emissions Trading System will be continued. According to estimates by the German-Turkish Chamber of Industry and Commerce, domestic purchasing power For the telecommunications sector, the European will decrease as a result of the weak Turkish lira and Commission has announced that it will submit extensive relatively high inflation. In addition, consumers will feel legislative proposals in 2016 after conducting a review of the effects of the currency devaluation in 2016. The the current regulatory framework. In this context, the

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 89 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

focus of these proposals is expected to be on the issues EXPECTED PERFORMANCE of network access regulation, radio frequencies, communication services, and the role of regulatory agencies and EXPECTED PERFORMANCE OF THE EWE GROUP | T 016 committees. in millions of euros 2016 2015 FOCUS ON GERMANY’S POWER MARKET ACT At the national level, both the power market act (Strom- Development of EWE Group earnings (operating EBIT) marktgesetz) and the law governing the digitisation of by segment compared to the energy transition will dominate the political agenda the previous year in 2016. In November 2015, the German government Renewables, Grids and Gas Storage segment +5% to +15% 314.4 presented the bills drafted by the cabinet for both laws. Sales, Services and Based on the current timetable, both laws are scheduled Trading segment +5% to +35% 80.4 to enter into effect during the first half of 2016. Both International segment +5% to +20% 25.3 laws will reshape the German power market and have an swb segment -45% to -30% 90.3 effect on our business activities with regard to the value Group Central chain steps of generation, distribution, trading and sales. Division segment - -82.3 EWE will closely follow both processes and contribute Operating EBIT, Group +0% to +15% 428.1 the Group’s point of view to the public dialogue.

Another issue on the agenda for 2016 is the amendment The energy sector has been undergoing a far-reaching to Germany’s renewable energy sources act (Erneuer- transition for several years. In a radically changing mar- bare-Energien-Gesetz – EEG). The current EEG stipulates ket environment, we are forced to react to systematic that the subsidies for power from renewable energy changes and continuous profit setbacks in the energy sources not be determined politically, but in a competi- business. As a result, measures have become necessary tive tendering procedure. In this context, the provisions which will improve our earnings situation as quickly as governing onshore wind power are particularly relevant possible and further have a sustained effect over the to EWE, since we are pursuing the construction of long term. The current market changes are exerting additional power stations of this type. In December particular pressure on conventional power generation. 2015, Germany’s Federal Ministry for Economic Affairs The sales markets in power generation are highly and Energy (BMWi) presented key features of the competitive and are changing as a result of the German amendment. The government plans to complete the energy turnaround. Sales margins are becoming increas- legislative procedure by the summer of 2016. ingly tighter, the cost pressure is immense and competition continues to increase. Energy sales are also subject In addition, the German government is planning to to sustained strong competition. In this context, EWE is amend the ordinance on incentive regulation (Anreiz focusing on customer loyalty measures (private custom- regulierungsverordnung). After publication of the Federal ers), the acquisition of new business customers and, at Network Agency’s evaluation report from 2014 and the the same time, the development of new areas of key points presented by the BMWi in March 2015, an business. When it comes to the future of our Group, the agreement has not yet been reached between the minis- Managing Board has a positive outlook, since EWE try and the German states regarding the provisions opened up new areas of business and placed a focus on governing how to take investment costs into account. renewable energy sources, networks and energy services in a timely manner. In addition, EWE plans to syste matically take advantage of new growth opportunities through innovation. EWE is tapping the joint potential offered by energy, telecommunications and information technology – as the first company in Germany to do so.

EWE AG Annual Report 2015 90 GROUP MANAGEMENT REPORT

As such, we already bring together today the key skills In sales, EWE primarily expects to see positive effects in required for sustainable, intelligent energy systems. In the energy business in the area of procurement costs, terms of the ongoing decentralisation of the energy the assignment of an adjusted ‘normal year’ and the supply, this will become absolutely crucial. elimination of negative special items in the gas business (particularly the reduction of working gas volume and EXPECTED PERFORMANCE IN THE RENEWABLES, delivery cost items from other accounting periods). At GRIDS AND GAS STORAGE SEGMENT the same time, we also expect to see declining average In the Renewables, Grids and Gas Storage segment, consumption rates of power and gas on the part of pri- EWE expects to improve operating EBIT in 2016 vate consumers (due, among other reasons, to increasing compared to the previous business year. energy efficiency) and reduced margins in the business with business customers (as a result of increasing com- The regulated network fees in the fields of power and gas petition). An expected one-time payment from a further have a direct effect on operating earnings. Based on the settlement with Telekom Deutschland GmbH (subject to assumption of a normal year as far as weather conditions a condition precedent) as well as the expansion of the are concerned, EWE is forecasting a slight increase in IT service and licensing business will have a positive regulated revenue compared to the current reporting effect on operating earnings in this segment. period. The deactivation of the RIFFGAT offshore wind park on 23 November 2015 as a result of the damaged EWE plans to make investments totalling 77 million euros power lead in the transmission grid caused a decline in in the Sales, Services and Trading segment in 2016. Key earnings in 2015. In 2016, EWE will be entitled to com- investments include approximately 50 million euros for pensatory payments for the lost feed-in tariffs, which the expansion of broadband networks and the BSA pro- means the company does not expect the loss of the wind gramme (provision of IT interfaces as well as guarantee- park to have any significant effect on earnings. EWE ing technical availability in conjunction with vectoring). continues to expect steady earnings contributions from the gas storage business, and as a result, we are forecast- EXPECTED PERFORMANCE IN THE ing an improved operating EBIT overall for 2016. With INTERNATIONAL SEGMENT regard to the outlook for 2016, the margin of fluctuation In the International segment, EWE expects an increase takes into account both the tendency towards auctions in operating EBIT in the 2016 business year compared to and short-dated contracts in the sale of storage capaci- 2015. ties as well as the significant effect of wind conditions on revenue in the field of renewable energy sources. With regard to the gas trading business in Turkey, high gas trading quantities for 2016 support this positive EWE plans to invest approximately 222 million euros in trend. The development of earnings for the regions Bursa the Renewables, Grids and Gas Storage segment in 2016, and Kayseri are heavily shaped by regulatory plans. with investments primarily falling into two categories: Overall, this will lead to higher operating earnings investments in power grid, gas pipeline and telecommu- generated by Bursagaz and a slight decline in earnings nications network infrastructure (approx. 114 million generated by Kayserigaz. EWE expects to bring the grid euros), and investments in onshore and offshore wind expansions Develi (Kayseri) and Iznik (Bursa) online in parks (approx. 62 million euros). 2016, meaning we are forecasting an increase in both the number of customers as well as gas revenue. We will EXPECTED PERFORMANCE IN THE SALES, continue to push forward with business development in SERVICES AND TRADING SEGMENT Turkey. As such, we are not only working on tapping the In the Sales, Services and Trading segment, EWE expects Bünyan region (Kayserigaz), but also on entering the to improve operating EBIT in 2016 compared to the Turkish telecommunications market. previous business year. Weather-related fluctuations in sales are not foreseeable and not preventable, however.

EWE AG Annual Report 2015 GROUP MANAGEMENT REPORT 91 50 Company background 76 Current situation of EWE AG 67 Current situation of the 80 Key characteristics EWE Group 82 Report on risks and opportunities 76 Events after the balance sheet date 88 Forecast report

The investments planned for 2016 in the International expects the quantity of power sold to remain constant, segment total approximately 54 million euros and pri- while natural gas and heat will record a slight increase in marily apply to developing business areas in Turkey sales quantity, and drinking water will see a moderate (52 million euros). In addition to new acquisitions, decline in sales. investments in grids and expansion in the Bursa and Kayseri regions are also planned. EWE expects to see further growth in 2016 in the contracting business and in technical services. In the EXPECTED PERFORMANCE IN THE SWB SEGMENT external services business, EWE’s goal is on moving the In the swb segment, EWE expects operating EBIT in 2016 focus to high-margin areas of business. Together with to decline compared to the previous business year. the restructuring measures implemented across the Group and the associated reduction in human resources, This will primarily result from the unfavourable situation we are forecasting increasing earnings in this area begin- in the market for power generation from conventional ning in 2016. sources as well as the extremely positive earnings situation from sales, conventional power generation and EWE plans to make investments totalling approximately disposal in the 2015 business year, which received a 103 million euros in the swb segment in 2016. The focus boost thanks to special items. As a result of the financial here is on investments in grid infrastructure as well as pressure in the field of conventional power generation, investments in a wind park project (with approximately slowly increasing spreads are expected over the long 58 million euros and 22 million euros earmarked for term, since we are forecasting a shortage of conventional each, respectively). power generation capacity. FORWARD-LOOKING STATEMENTS In the conventional power generation business, the company expects to record a stable operating EBIT adjusted All statements made are based on current knowledge for special items in 2016. The continuing decline in and assumptions. They represent estimates that we have market prices for power and increasing auditing costs are formulated on the basis of all information available to us a key reason why EWE is forecasting a strong decline in at the present time. In the event that the underlying operating EBIT for the disposal business area in 2016 assumptions do not occur or additional risks develop, compared to the previous year. actual results could deviate from expected results. As such, we cannot assume liability for these statements. Operating EBIT in the area of renewable energy sources is highly dependent on weather conditions, although the Oldenburg, 15 February 2016 wind yields incorporated into investment decisions are based on current wind forecasts. We expect to generate The Board of Management increasing earnings as a result of the continued investment in wind parks in the coming years.

In the infrastructure business area, EWE is striving to achieve further efficiency increases and incorporate them into ongoing operations. Assuming normal weather conditions, the operating EBIT of the grid operators will Matthias Brückmann Michael Heidkamp increase slightly in the 2016 business year.

The Sales business area must face stronger competition with only limited pricing options when it comes to the sale of power and natural gas. In this context, EWE Ines Kolmsee Nikolaus Behr

EWE AG Annual Report 2015

CONSOLIDATED FINANCIAL STATEMENTS 2015 CONSOLIDATED CONSOLIDATED

94 Consolidated income statement of the EWE Group STATEMENTS FINANCIAL 95 Consolidated statement of comprehensive income of the EWE Group 96 Statement of financial position of the EWE Group 98 Statement of changes in equity of the EWE Group 100 Statement of cash flows of the EWE Group 101 Notes to the consolidated financial statements of EWE AG 188 Responsibility statement 189 Auditor’s report 94 CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statement of the EWE Group

FROM 1 JANUARY TO 31 DECEMBER 2015

| T 017

in millions of euros Note 2015 2014

Revenue 5 8,200.4 8,508.8 Electricity and energy taxes 5 -381.1 -374.6 Revenue (excluding electricity and energy taxes) 7,819.3 8,134.2

Inventory changes 1.5 -0.6 Internally produced and capitalised assets 6 65.5 79.1 Other operating income 7 324.6 288.3 Material expenditures 8 -6,067.4 -6,506.4 Personnel expenses 9 -727.3 -669.6 Amortisation, depreciation and impairment 10 -580.1 -472.0 Other operating expenses 11 -606.6 -621.5 Profit/loss from financial investments accounted for using the equity method 12 -20.4 113.6 Other profit/loss from investments 13 2.9 9.6 EBIT 1) 212.0 354.7

Interest income 14 16.8 33.4 Interest expenses 14 -197.7 -230.5 Earnings before tax 31.1 157.6

Income taxes 15 -40.5 -11.3 Earnings in the period -9.4 146.3

Thereof attributable to: Shareholders of the parent company -7.1 145.8 Minority shares -2.3 0.5 -9.4 146.3 1) Earnings before Interest and Taxes

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 95 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Consolidated statement of comprehensive income of the EWE Group

FROM 1 JANUARY TO 31 DECEMBER 2015

| T 018

in millions of euros Note 2015 2014

Earnings in the period -9.4 146.3 Actuarial gains and losses from performance-based pension plans and similar obligations 29 174.6 -381.6 Deferred taxes on pensions -50.8 118.0 Sum of other comprehensive income and expenses recognised outside profit and loss without future reclassification to profit and loss 123.8 -263.6 Balancing items for foreign currency translation from international subsidiaries -16.6 5.5 Cash flow hedges 39 -145.5 -0.9 Deferred taxes on accruals for cash flow hedges 38.6 -0.5 Fair value of available-for-sale financial assets 51.0 98.1 Deferred taxes on accruals for available-for-sale financial assets -0.4 -0.5 Share of other comprehensive income comprising financial assets accounted for using the equity method 19 3.0 -11.8 Sum of other comprehensive income and expenses recognised outside profit and loss with future reclassification to profit and loss -69.9 89.9 Other income after taxes 53.9 -173.7

Comprehensive income after taxes 44.5 -27.4

Thereof attributable to: Shareholders of the parent company 49.2 -28.9 Minority shares -4.7 1.5 44.5 -27.4

EWE AG Annual Report 2015 96 CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position of the EWE Group

AS AT 31 DECEMBER 2015

ASSETS

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in millions of euros Note 31.12.2015 31.12.2014

Non-current assets Intangible assets 16 874.5 972.3 Property, plant and equipment 17 5,120.1 5,178.6 Investment property 18 5.7 9.4 Investments accounted for using the equity method 19 126.0 1,240.0 Other financial assets 20 429.4 333.1 Income tax refund claims 35 3.1 2.7 Other non-financial assets 2.4 2.8 Deferred taxes 35 98.4 42.2 6,659.6 7,781.1

Current assets Inventories 21 218.2 299.8 Trade receivables 22 895.1 970.5 Other financial receivables and assets 23 234.9 233.7 Income tax refund claims 35 10.9 14.6 Other non-financial receivables and assets 24 122.0 174.6 Liquid assets 25 352.0 326.6 1,833.1 2,019.8 Non-current assets held for sale 26 1,251.6 3,084.7 2,019.8 Total assets 9,744.3 9,800.9

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 97 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

EQUITY AND LIABILITIES

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in millions of euros Note 31.12.2015 31.12.2014

Equity 27 Share capital 243.0 243.0 minus written put options on own shares -24.3 Capital reserves 1,619.2 1,619.2 minus written put options on own shares -480.5 Accumulated earnings 684.5 781.7 Accumulated other consolidated profit/loss -317.6 -373.9 Equity attributed to the shareholders of the parent company 1,724.3 2,270.0 Minority shares 24.9 15.2 1,749.2 2,285.2

Non-current liabilities Construction grants 28 694.9 712.3 Provisions 29 2,119.4 2,187.0 Bonds 30 1,677.2 1,822.0 Liabilities to financial institutions 31 267.3 297.8 Other financial liabilities 33 400.4 322.2 Income tax liabilities 35 1.4 Other non-financial liabilities 34 10.5 12.7 Deferred taxes 35 141.8 159.2 5,312.9 5,513.2

Current liabilities Construction grants 28 51.0 51.6 Emission rights 18.0 22.7 Provisions 29 130.7 96.8 Bonds 30 171.4 23.4 Liabilities to financial institutions 31 296.1 289.0 Trade payables 32 667.8 839.5 Other financial liabilities 33 1,198.4 554.2 Income tax liabilities 35 67.6 18.5 Other non-financial liabilities 34 81.2 106.8 2,682.2 2,002.5 Total equity and liabilities 9,744.3 9,800.9

EWE AG Annual Report 2015 98 CONSOLIDATED FINANCIAL STATEMENTS

Statement of changes in equity of the EWE Group

FROM 1 JANUARY TO 31 DECEMBER 2015

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Equity attributed to Share capital Capital reserves Accumulated the shareholders of of the EWE Group of the EWE Group earnings Cumulated other consolidated comprehensive income Cumulated other consolidated comprehensive income the parent company Minority shares Equity

Changes to valuations using Revaluation Accruals for Difference as a the equity method reserve pursuant Accruals for available-for-sale result of currency Valuation of not recognised in millions of euros to IFRS 3 cash flow hedges financial assets conversion pension obligations IFRS 5 in profit or loss

As of 01.01.2014 243.0 1,609.5 726.0 74.5 -12.1 14.7 -77.0 -199.2 -0.1 2,379.3 16.4 2,395.7 Net profit/loss for the period 145.8 145.8 0.5 146.3 Other comprehensive income -1.4 97.6 4.5 -263.6 -11.8 -174.7 1.0 -173.7 Total comprehensive income -28.9 1.5 -27.4

Capital increase 9.7 9.7 9.7 Dividend payments -88.0 -88.0 -0.6 -88.6 Changes to the basis of consolidation -0.8 -0.8 -2.9 -3.7 Other changes -1.3 -1.3 0.8 -0.5 As of 31.12.2014 243.0 1,619.2 781.7 74.5 -13.5 112.3 -72.5 -462.8 -11.9 2,270.0 15.2 2,285.2

Net profit/loss for the period -7.1 -7.1 -2.3 -9.4 Other comprehensive income -106.9 50.6 -14.2 123.8 3.0 56.3 -2.4 53.9 Total Comprehensive income 49.2 -4.7 44.5

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

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 99 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

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Net profit/loss for the period -7.1 -7.1 -2.3 -9.4 Other comprehensive income -106.9 50.6 -14.2 123.8 3.0 56.3 -2.4 53.9 Total Comprehensive income 49.2 -4.7 44.5

EWE AG Annual Report 2015 100 CONSOLIDATED FINANCIAL STATEMENTS

Statement of cash flows of the EWE Group

1 JANUARY TO 31 DECEMBER 2015/ SOURCE OF FUNDS (+), APPLICATION OF FUNDS (-)

| T 022 See Note, in millions of euros section 43 2015 2014

EBIT 1) 212.0 354.7 Amortisation, depreciation and impairment 586.3 474.8 Write-ups -6.7 Release of construction grants -57.4 -65.8 Interest paid -126.4 -155.6 Interest payments received 16.0 30.3 Income tax payments/refunds -74.7 -95.9 Profit/loss from the divestiture of fixed assets 5.4 2.6 Non-cash foreign currency profit/loss -3.5 Non-cash changes to the value of accruals 137.2 64.6 Changes to valuations using the equity method recognised in profit or loss 75.3 -70.9 Non-cash profit/loss from financial derivatives -10.5 59.1 Other non-cash income and expenses 38.2 -6.1 Changes in inventory 79.3 111.9 Change in accounts receivable and other assets 130.8 425.7 Change in accounts payable and other liabilities -303.3 -348.9 Cash flow from operating activities 708.2 770.3

Incoming payments from construction grants 46.5 46.1 Incoming payments from the divestiture of intangible assets 1.0 Payments for investments in intangible assets -46.7 -33.6 Incoming payments from the divestiture of fixed assets 9.0 34.6 Payments for investments in fixed assets -373.6 -353.7 Incoming payments from the divestiture of other non-current assets 16.8 48.4 Payments for investments in other non-current assets -246.6 -334.1 Incoming payments from the divestiture of shares in fully consolidated companies 9.5 Cash flow from investment activities -594.6 -581.8

Incoming payments from allocations to equity 13.8 9.7 Payments from equity changes -4.1 Payments to shareholders of the parent company and other shareholders without a controlling interest (dividends) -88.6 -88.6 Incoming payments from the acquisition of financial liabilities 481.7 285.7 Payments from the repayment of financial liabilities -483.9 -799.3 Other net payments from financing activities -0.3 3.4 Cash flow from financing activities -77.3 -593.2

Change in cash and cash equivalents 36.3 -404.7 Change in cash and cash equivalents related to currency translation and consolidation -11.5 2.5 Cash and cash equivalents at the beginning of the period 327.5 729.7 Cash and cash equivalents at the end of the reporting period 352.3 327.5 1) Earnings before Interest and Taxes

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 101 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Notes to the consolidated financial statements of EWE AG

1. INFORMATION ABOUT THE COMPANY In addition to the income statement, which is prepared according to the total cost method, and the statement of comprehensive EWE Aktiengesellschaft (hereinafter referred to as ‘the company’ income, the statement of financial position, statement of cash or ‘EWE AG’) and its subsidiaries (hereinafter referred to together flows and the statement of changes in equity are all shown as the ‘EWE Group’) are active in the fields of energy supply separately. Segment reporting is included in the explanatory (particularly power and gas), energy generation, sales and trading, notes. water supply, information technology and telecommunications. From a regional standpoint, the company carries out these activi- The recognition of individual items was changed by marginal ties in the Ems-Weser-Elbe region, in the German state of Lower amounts. Corresponding previous year’s values were adjusted Saxony, in the German city of Bremen and, with regard to gas accordingly. supply operations, also in the German state of Brandenburg, the island of Rügen, and the countries of Poland and Turkey. Slight deviations may result in the calculation of total values and percentages in the consolidated financial statements as a result of EWE AG’s headquarters are located at Tirpitzstrasse 39 in Olden- rounding. burg, Germany (postcode 26122). The company is registered in the commercial register at the Oldenburg district court under HRB 33. The consolidated financial statements for the business year ending on 31 December 2015 were approved by the Board of 2. ACCOUNTING PRINCIPLES Management for review by the Supervisory Board on 15 February 2016. 2.1 PRINCIPLES GOVERNING THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements and the Group manage- EWE AG’s consolidated financial statements dated 31 December ment report of EWE AG for the 2015 business year will be 2015 were prepared pursuant to article 315a, section 1 of the published in the German Federal Gazette. German Commercial Code in accordance with the binding Inter national Financial Report Standards (IFRS) from the International 2.2 CONSOLIDATION METHODS Accounting Standards Board (IASB), London, Great Britain, as The consolidated financial statements comprise the annual well as interpretations by the IFRS Interpretations Committee financial statements of EWE AG and its subsidiaries dated (IFRS IC), applicable on 31 December 2015, insofar as they were 31 December 2015. approved for use in the European Union (EU). Further applicable legal provisions set forth in the German Commercial Code were Subsidiaries are fully consolidated from the date of acquisition also adhered to. onward; that is, from the period of time that the Group gains full control over the company. Consolidation ends as soon as the par- In general, the consolidated financial statements were prepared ent company no longer has control of the company. Subsidiaries’ based on the acquisition and production costs principle, with the financial statements are prepared using uniform accounting meth- exception of derivative financial instruments and available-for- ods for the same reporting periods as the parent company’s finan- sale financial assets, which are valued at fair value. The carrying cial statements. All intra-Group balances, transactions, unrealised values of assets and liabilities recognised on the statement of profits and losses from intra-Group transactions and dividends – financial position which represent underlying transactions within whilst taking deferred taxes into account – are eliminated in full. the scope of fair value hedges and are otherwise recognised at amortised costs are matched to the changes in fair values attri A subsidiary’s comprehensive income is also attributed to butable to the risks hedged within the scope of effective hedging minority shares, even if this would lead to a negative balance. relationships. The consolidated financial statements were prepared in euros. All values are rounded up or down to the nearest Changes to the level of a stake in a subsidiary which do not cause million euros unless otherwise indicated. a loss of control are recognised as an equity transaction.

EWE AG Annual Report 2015 102 CONSOLIDATED FINANCIAL STATEMENTS

If the parent company loses its controlling interest in a subsidiary, As a result of another shareholder’s controlling stake in Hanse- the following steps are taken: wasser Ver- und Entsorgungs-GmbH, Bremen (HVE), EWE AG does not have control of this company. As a result, HVE is recognised as »» The subsidiaries’ assets (including goodwill) and liabilities a joint venture in the consolidated financial statements. Gemein- are booked out; schaftskraftwerk Bremen GmbH & Co. KG, Bremen (GKB), is rec- »» The carrying amount of all minority shares in the former ognised as a joint venture despite a majority stake in the company, subsidiary are booked out; since a qualified majority is required to make major decisions. »» The cumulated exchange rate differences recognised in Trianel Windkraftwerk Borkum II GmbH & Co. KG is recognised as equity are booked out; an associated company despite a majority stake in the company, »» The fair value of the consideration received is recorded; since the other partners hold a majority of voting rights as set »» The fair value of the remaining share in the company is forth in the consortium agreement. recorded; »» Earnings surpluses or deficits are recognised on the income The schedule of the Group’s investments is published in the statement; German Federal Gazette pursuant to article 313, section 2, nos. »» The components of other comprehensive income attributable 1–4, and section 3 of the German Commercial Code. The subsi to the parent company are reassigned to the income diaries, investments accounted for using the equity method and statement or retained earnings, if required by IFRS. other investments included in the consolidated financial statements are listed in section 45 of these notes.

The following changes to the basis for consolidation took place during the 2015 business year:

| T 023

Type of consolidation and number Germany International Total

Full consolidation 01.01.2015 48 7 55 Additions 2 2 Disposals 2 2 31.12.2015 48 7 55

Companies accounted for using the equity method 01.01.2015 10 10 Additions 1 1 Reassignments pursuant to IFRS 5 1 1 31.12.2015 10 10

Total 01.01.2015 58 7 65 Additions 3 3 Reassignments pursuant to IFRS 5 1 1 Disposals 2 2 31.12.2015 58 7 65

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 103 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The additions to fully consolidated companies resulted from The agreed upon contingent consideration is recorded at fair value companies being founded during the business year. on the date of acquisition. Subsequent changes to the fair value of contingent consideration which represent an asset or a liability are 2.3 SUMMARY OF KEY ACCOUNTING METHODS recognised either in profit or loss or other comprehensive income The key accounting methods applied in the preparation of these in accordance with IAS 39. If the contingent consideration does consolidated financial reports for the EWE Group are presented in not fall within the scope of IAS 39, it is valued in accordance with the following. The methods described herein were consistently the corresponding IFRS. applied to the reporting periods presented, except where otherwise indicated. Upon initial recognition, goodwill is valued at acquisition costs measured as the value of the transferred consideration which a) Mergers and goodwill exceeds the value of identifiable assets and liabilities acquired by Mergers are accounted for using the acquisition method. The the Group. If this consideration falls below the fair value of the acquisition costs of an acquisition are calculated as the total of net assets of the acquired subsidiary, the difference is recognised the consideration transferred valued at fair value on the date of in profit and loss. acquisition and the shares without a controlling influence in the acquired company. In every merger, the acquiring company values After the initial recognition, goodwill is valued at acquisition cost the shares without a controlling influence in the acquired com- minus accumulated impairment losses. For the purpose of impair- pany either at fair value (known as the full goodwill method) or ment testing, the goodwill acquired within the scope of a business according to the corresponding share of identifiable net assets combination is allocated as of the date of acquisition to the (known as the purchased goodwill method) of the acquired cash-generating unit of the Group that is expected to profit from company. Costs incurred as part of the business combination are the combination. This applies independent of whether other recorded as expenses. assets or liabilities of the acquired company are also allocated to this cash-generating unit or not. If the EWE Group acquires a company, it evaluates the suitable classification of designation of financial assets and acquired If goodwill was allocated to a cash-generating unit and one of this financial liabilities in accordance with the contractual terms, unit’s business areas is sold, the goodwill attributable to the sold economic data and the prevailing conditions at the time of acqui- business area is taken into consideration as a component of the sition. This also includes separating embedded derivatives from carrying value of the business area when calculating the profit or the host contract. loss from the sale. The value of the sold portion of goodwill is calculated on the basis of the relative value of the sold business In case of gradual business combinations, the share of equity in area and the remaining portion of the cash-generating unit. the acquired company previously held by the buyer is revalued at fair value on the date of acquisition and the resulting profit or loss recognised in profit or loss.

EWE AG Annual Report 2015 104 CONSOLIDATED FINANCIAL STATEMENTS

b) Investments in associates and joint ventures c) Classification in current and non-current Investments by the EWE Group in an associate or joint venture are The EWE Group classifies its assets and liabilities on the income accounted for using the equity method. An associate is an entity statement in current and non-current. over which the EWE Group has significant influence. Joint ventures are companies which stand under joint control with another party. An asset is classified as current when:

According to the equity method, the investment in another company »» Realisation of the asset is expected within the normal is recognised at acquisition cost plus the changes to the share of the business cycle or the asset is held for sale or use within company’s net assets held by the EWE Group occurring after the this time period; acquisition date. The goodwill associated with the company is »» The asset is primarily held for trading purposes; contained within the carrying value of the investment and is neither »» Realisation of the asset is expected within twelve months subject to scheduled depreciation nor a separate impairment test. after the end of the reporting period; »» The asset is cash or a cash equivalent, except in the case The EWE Group’s share of a company’s net profit/loss for a period that the exchange or use of the asset to fulfil an obligation is recognised in the EWE Group’s profit/loss. Changes recognised is restricted for a period of at least twelve months after directly in the company’s other comprehensive income are recorded the end of the reporting period. by the Group according to its share and disclosed cumulated in the Group’s statement of changes in equity. All other assets are classified as non-current.

As a matter of principle, subsidiaries’ financial statements are A liability is classified as current when: prepared as of the same reporting date as the financial statements of the EWE Group. Changes to accounting methods applied in a »» The fulfilment of the liability is expected within the consistent manner across the Group are carried out insofar as normal business cycle; necessary. »» The liability is primarily held for trading purposes; »» Fulfilment of the liability is expected within twelve At the end of each reporting period, the EWE Group assesses months after the end of the reporting period; whether objective information is available which indicates that an »» The company does not have the unrestricted ability to investment in a company accounted for using the equity method postpone fulfilment of the liability by at least twelve months could be impaired. In the event of an impairment, the difference after the end of the reporting period. between the recoverable amount of the investment in the company and the carrying amount of the investment in the company is All other liabilities are classified as non-current. recognised in profit and loss as an impairment loss. Deferred tax assets and liabilities are classified as non-current In the event of the loss of significant influence or joint control, the assets or liabilities. Group values all retained investments in the former company accounted for using the equity method at fair value. Differences between the carrying value of an investment in companies accounted for using the equity method at the time of the loss of significant influence or joint control and the fair value of the retained investment as well as consideration received are recognised in profit and loss under consideration of any amounts transferred from other comprehensive income.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 105 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

d) Fair value measurement »» Level 1: Quoted (non-adjusted) prices for identical assets The EWE Group measures the fair value of financial instruments or liabilities in active markets; for reporting and/or accounting purposes at the end of each »» Level 2: Valuation methods in which the lowest-level input reporting period. parameter material to the overall fair value measurement is directly or indirectly observable in the market; Fair value is the price that would be received to sell an asset or »» Level 3: Valuation methods in which the lowest-level input paid to transfer a liability in an orderly transaction between parameter material to the overall fair value measure- market participants at the measurement date. When measuring ment is unobservable. fair value, the company assumes that the transaction in which the sale of the asset or transfer of the liability takes place is carried In the case of assets and liabilities that are disclosed in the finan- out in either: cial statements on a recurring basis, the Group decides whether reclassifications between the levels of the hierarchy have taken »» The principal market for the asset or liability, or place by assessing the classification at the end of each reporting »» The most advantageous market for the asset or liability period (based on the input parameters of the lowest level that are in the absence of a principal market. significant to the entire measurement of fair value).

In this context, the Group must have access to the principal e) Foreign currency translation market or the most advantageous market. The EWE Group’s consolidated financial statements are prepared in euros, the functional currency of the parent company. Each The fair value of an asset or a liability is measured based on the company within the EWE Group determines its own functional assumptions that market participants would take into account currency. The items contained in the financial statements of the when pricing the asset or liability. In this context, it is further respective company are valued using this functional currency. assumed that the market participants would act in their best financial interest. Foreign currency transactions and balances Foreign currency transactions are initially translated by the Measuring the fair value of a non-financial asset is carried out Group’s companies into the functional currency at the respective taking into account the ability of the market participant to gen applicable exchange rate on the date of the transaction. erate economic benefit from the highest and best use of the asset or through its sale to another market participant who will find the Monetary assets and liabilities in a foreign currency are translated highest and best use for the asset. into the functional currency at the end of every reporting period using the exchange rate applicable on that date. The Group utilises valuation techniques that are appropriate given the respective circumstances and for which sufficient data are All exchange differences are recognised in profit and loss, with the available to measure fair value, maximising the use of relevant exception of monetary items that are part of a net investment by observable inputs and minimising the use of unobservable inputs. the EWE Group in a foreign operation. These are disclosed in other comprehensive income until the sale of the net investment and All assets and liabilities for which fair value has either been then reclassified in profit and loss upon disposal. measured or disclosed in the financial statements are categorised into different levels of the fair value hierarchy described in the Non-monetary items that are carried at historical acquisition following, based on the input parameters of the lowest level that or production cost in a foreign currency are translated using is significant to the entire measurement of fair value: the exchange rate applicable at the date of the transaction. Non-monetary items carried at fair value in a foreign currency are translated using the exchange rate applicable when the fair value was determined.

EWE AG Annual Report 2015 106 CONSOLIDATED FINANCIAL STATEMENTS

Group companies f) Revenue recognition The assets and liabilities of foreign operations are translated Revenue is recognised independent of when payment is received at within the scope of consolidation at the exchange rate applicable the point in time when it is likely that the economic benefit will at the end of the reporting period. The translation of revenue flow to the Group and the amount of revenue can be measured and expenses is carried out using an average exchange rate. The with reliability. Revenue is measured at the fair value of the consid- resulting exchange differences within the scope of consolidation eration received or receivable in due consideration of contractually are recognised in other comprehensive income. The amount stipulated payment terms, whereby taxes and other fees are not recognised in other comprehensive income for a foreign operation taken into account. Furthermore, the following list of criteria must is reclassified to profit and loss upon the disposal of this foreign be satisfied before revenue is recognised: operation. Sale of goods All goodwill resulting in conjunction with the acquisition of a Revenue is recognised when the significant rewards and risks foreign operation and every adjustment of the carrying value of associated with ownership of the sold goods have been transferred the assets and liabilities resulting from the acquisition of this to the buyer. This usually occurs when the goods have been foreign operation to their fair value are treated as assets and delivered to the buyer. liabilities of the foreign operation and translated using the exchange rate applicable at the end of the reporting period. When it comes to supplying customers with power or gas, transfer of the significant rewards and risks to the buyer occurs when the The following exchange rates were used for the foreign currency power or gas flows through the meter. Since meter readings at the translation of individual financial statements prepared in a foreign end of the reporting period cannot be acquired in a timely fashion, currency: portions of revenue are calculated using statistical methods.

| T 024 The electricity and energy taxes paid by Group companies are Rate at the openly deducted from revenue. 1 Euro end of the period Average rate 31.12. 31.12. Revenue from feed-in tariffs passed on to companies generating 2015 2014 2015 2014 power from renewable energy sources is disclosed as a share of

Polish złoty (PLN) 4.26 4.27 4.18 4.18 total revenue. This revenue is offset by the payments to these Turkish lira (TRY) 3.18 2.83 2.91 2.91 companies disclosed under material expenditures.

Rendering of services Revenue generated from telecommunications and IT services is recognised upon rendering the service. In the case of multicom ponent contracts, revenue is recognised separately for each identifiable valuation unit (component). In this context, revenue is recognised on the basis of the fair value of the individual components. Contracts which govern the delivery of product packages and/or the provision of a combination of services must be separated out into their individual components, with a separate revenue amount assigned to each component. The price of the entire multicomponent business deal is divided on the basis of the proportional fair value of the different components.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 107 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

In the systems business, revenue is recognised when there are h) Taxes substantial indications of a purchase agreement, the products Current income tax have been delivered or the services rendered, the sale price or The current tax refund claims and tax liabilities for the current fees have been or will be set, and recoverability is sufficiently period are measured at the amount expected to be recovered guaranteed. from or paid to the tax authorities. Tax calculations are based on the tax rates and tax laws applicable at the end of the reporting Revenue from contracts for services rendered by time or material period in the countries in which the EWE Group is active and expenditure is recognised when the hours worked have been generates taxable income. completed and the direct costs at the contractually stipulated hourly rate have been incurred. Current taxes that relate to items recognised directly in equity are not recognised in profit and loss, but instead in equity. The proportional dissolution of customers’ construction subsidies Management regularly evaluates individual tax matters with over the time period of the useful life of house connection lines is regard to whether room for interpretation exists in light of reflected in revenue. applicable tax provisions. Tax provisions are set aside as and when required. Interest For all financial instruments valued at amortised cost, interest Deferred taxes income and interest payable is recognised using the effective Deferred taxes are formed using the liability method on tempo- interest rate. This is the discount rate used to exactly discount rary differences existing at the end of the reporting period future incoming and outgoing payments over the expected term between the carrying value of an asset or liability disclosed on of the financial instrument (or a shorter period, if applicable) to the statement of financial position and their tax bases. the net carrying value of the financial asset or financial liability. Interest income is disclosed in profit and loss. Deferred taxes are recognised for all taxable temporary differences with the exception of: Usage fees Revenue from usage fees is deferred and recognised on a prorated »» deferred tax liabilities from the initial recognition of goodwill basis in accordance with the economic import of the relevant or an asset or liability from a transaction other than a business agreements. combination which, at the time of the transaction, does not affect the accounting or taxable profit, Dividends »» deferred tax liabilities arising from taxable temporary differ- Dividend income is recognised when the right to receive payment ences associated with investments in subsidiaries, associates is established. and interests in joint arrangements, but only to the extent that the company is able to control the timing of the reversal g) Government grants of the differences and it is probable that the reversal will not Government grants are recognised when there is reasonable occur in the foreseeable future. assurance that grants will be received and that the company will comply with any conditions attached to the grant. Grants received as compensation for costs are recognised as income over the period necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis. Grants relating to an asset are recognised as deferred income on the statement of financial position and are recognised in profit and loss in equal instalments over the estimated useful life of the asset.

EWE AG Annual Report 2015 108 CONSOLIDATED FINANCIAL STATEMENTS

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

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 109 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

If the intention to sell is abandoned, the affected asset or the Scheduled depreciation using the straight-line method is based on affected disposal group must be measured at this time with the the following useful periods: lower of the following two values: | T 025

»» amortised original carrying amount, Years »» recoverable amount as set forth in IAS 36. Buildings up to 50 A valuation difference resulting from the reclassification must Technical equipment and machinery be recognised in profit and loss. Power supply systems 8 – 45 Gas supply systems 10 – 55 j) Property, plant and equipment Other technical equipment and machinery 3 – 50 Items of property, plant and equipment are carried at acquisition Gas storage 33 – 40 or manufacturing cost including existing rehabilitation and Other equipment, furniture and office equipment 5 – 14 removal obligations measured at present value, less accumulated scheduled depreciation and/or accumulated impairment losses. In addition to direct costs, manufacturing costs also include directly An asset is removed from the statement of financial position on attributable indirect costs. disposal or when it is withdrawn from use and no future economic benefits are expected from its further use or disposal. The profit Subsequent acquisition/manufacturing costs – for example, or loss resulting from retirement of the asset is calculated as the as a result of expansion or replacement investments – are only difference between the net proceeds from the sale and the carry- recorded as a portion of an asset’s acquisition/manufacturing ing amount of the asset and is recognised in profit and loss in the costs or as a separate asset (if applicable) if it is probable that an period in which the asset was retired. economic benefit will flow to the EWE Group in the future and the cost of the asset can be reliably determined. Expenses for repairs The residual values, useful lives and depreciation methods of and maintenance that do not represent a major replacement assets are reviewed at the end of each business year and adjusted investment are recognised as an expense in profit and loss in the prospectively, if necessary. business year they were incurred. k) Leases Assets classified as property, plant and equipment are depreciated Determining whether an agreement contains a lease is based on the using the straight-line method, with the exception of land. economic import of the agreement at the time the agreement was concluded and requires an assessment as to whether fulfilment of the contractual agreement depends on the use of a particular asset or assets and whether the agreement grants a right to use the asset, even if this right is not explicitly stipulated in an agreement.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership to the Group. At commencement of the lease term, finance leases are recorded as an asset and a liability at the lower of the fair value of the asset and the present value of the minimum lease payments. Finance lease payments are apportioned between the finance charge and the reduction of the outstanding liability so as to produce a

EWE AG Annual Report 2015 110 CONSOLIDATED FINANCIAL STATEMENTS

constant periodic rate of interest on the remaining balance of the Transfers to, or from, investment property are only made when liability over the term of the lease. Finance charges are recognised there is a change in use. When a property is transferred from in profit and loss. investment property to owner-occupied property, acquisition and/ or manufacturing costs for the purposes of subsequent measure- Leased assets are depreciated over the useful life of the asset. If ment are set at amortised acquisition and/or manufacturing costs transfer of ownership to the EWE Group at the end of the lease at the time of the change in use. If an owner-occupied property is term is not sufficiently certain, however, the leased asset is reclassified as an investment property, this property is accounted depreciated over either the expected useful life of the asset or for using the method set forth in the section ‘Property, plant and the term of the lease, whichever is shorter. equipment’ up until the time of the change in use.

For operating leases, lease payments are recognised as an expense The fair value of investment property was calculated by indepen in profit and loss over the lease term on a straight-line basis. dent appraisers or the specialised department of the respective pro perty using the German income approach (Ertragswertmethode). l) Borrowing costs In the event that a valuation report was not prepared for a property, Borrowing costs that are directly attributable to the acquisition, the value of the property was determined pursuant to the German construction or production of an asset and for which a substantial regulation on the determination of value of properties (Valuation period of time is required to get the asset ready for its intended Ordinance (Wertermittlungsverordnung) with annexes Wert V and use or sale are capitalised as part of the acquisition and/or Wert R). manufacturing cost of that asset. All other borrowing costs are recognised as an expense in the period in which they were In this context, either the income approach or the asset value incurred. Borrowing costs comprise interest and other costs method was used, depending on the utility of the appraised pro incurred to a company in conjunction with borrowings. perty. The appraisals using the income approach were carried out primarily using the rent values attainable over the long term as m) Investment property well as the rental property yield rates typical for the area. When Investment property is initially measured at acquisition and/or using the asset value method, appropriate market adjustment manufacturing cost including transaction costs. The cost of premiums or discounts were taken into account, which vary replacing a portion of an investment property is included in the according to region. When carrying out the appraisals, the carrying amount of the property at the time it is incurred, if the appraiser utilised property market reports and information from recognition criteria are met. The carrying amount does not contain property valuation committees. In addition, data from current the cost of ongoing maintenance of the property. Within the scope property certificates and information and documents provided by of subsequent measurement, the investment property is accounted the company was also incorporated into the appraisal. for at amortised cost less accumulated depreciation and accumulated impairment losses. To the extent that property values are determined based on appraisals from previous years, an internal adjustment of property An investment property is derecognised on disposal or when the values is carried out, as well as a review whether any major investment property is permanently withdrawn from use and no changes to the parameters used in the appraisal have occurred. future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit and loss in the period the asset was derecognised.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 111 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

n) Intangible assets The length of the useful life of intangible assets, such as software, Intangible assets which are not acquired as part of a business licences, customer lists and usage or operating permits is deter- combination are initially measured at acquisition or manufactur- mined based on economic aspects or contractual stipulations. ing cost. The acquisition cost of intangible assets acquired as part of a business combination is equal to the fair value of the assets In the case of intangible assets with indefinite lives, an impair- on the date of acquisition. In the following periods, intangible ment test is carried out once annually for the individual asset or at assets are carried at acquisition or manufacturing cost less the level of the cash-generating unit. These intangible assets will accumulated amortisation and impairment losses. With the not be amortised. The useful life of an intangible asset with an exception of the portion eligible for capitalisation, development indefinite useful life is reviewed each reporting period to deter- costs are not capitalised and recognised in profit and loss in the mine whether events and circumstances continue to support an period in which they were incurred. indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is Intangible assets are classified either as intangible assets with accounted for as a change in an accounting estimate. finite lives or indefinite lives. The profit or loss resulting from retirement of intangible assets is Intangible assets with finite lives are depreciated over their useful calculated as the difference between the net proceeds from the economic life and assessed for possible impairment if information sale and the carrying amount of the asset and is recognised in exists which indicates that the intangible asset may be impaired. profit and loss in the period in which the asset was retired. The period and method of depreciation for intangible assets with a finite useful life are reviewed at least at the end of every report- Trademarks and licences ing period. The necessary changes to the method or period of Acquired trademarks and licences are carried at amortised depreciation due to changes to the anticipated useful life or to acquisition/manufacturing cost. Trademarks and licences acquired the anticipated use of the future economic benefit of the asset within the scope of a business combination are measured at fair are accounted for as changes in accounting estimates. The value on the acquisition date. Trademarks and licences have finite depreciation of intangible assets with a finite life is recognised in useful lives and are measured at acquisition/manufacturing cost profit and loss. less accumulated amortisation and impairment losses. They are amortised on a straight-line basis over a period of between 15 and Scheduled depreciation using the straight-line method is based 25 years. on the following useful periods: Acquired software licences are capitalised on the basis of the | T 026 costs incurred upon purchase as well as to prepare the software Years for its intended use. These costs are amortised over an estimated useful life of three to five years. Permits, licences and rights 15 – 60 Computer software and licences 3 – 5 Customer list 5 – 17

EWE AG Annual Report 2015 112 CONSOLIDATED FINANCIAL STATEMENTS

Contractual relationships with customers Emission rights Contractual relationships with customers that are acquired within Emission rights (CO2 certificates) are disclosed as intangible assets the scope of a business combination are recognised at fair value under non-current other non-financial receivables and assets. on the acquisition date. Contractual relationships with customers Initial measurement upon acquisition (in the case of purchase) is have a finite useful life and are carried at amortised acquisition carried out at acquisition cost and then subsequently carried at costs less scheduled amortisation. Amortisation is carried out on amortised average acquisition cost, whereby a comparison with a straight-line basis over the expected length of the relationship. the net recoverable amount is carried out. Emission rights held at the end of the reporting period which are intended to be surren- Research and development costs dered in the following year pursuant to effective use are recog- Research costs are recognised as an expense in the period nised as a liability. This liability is measured at the amortised incurred. Development costs of an individual project are only acquisition cost of the respective right. In the event that actual capitalised as an intangible asset if the EWE Group can emissions exceed emission certificates granted and held at the demonstrate the following: end of the reporting period, provisions are created equal to the market value of the emission rights the company must acquire. »» The technical feasibility of completion of the intangible asset which makes internal use or sale of the asset possible; o) Financial instruments – initial recognition and subsequent »» The intention to complete the intangible asset and the measurement ability to use it or sell it; I. Financial assets »» How the asset will generate future economic benefit; Initial recognition and measurement »» The availability of resources for the purposes of completing Pursuant to IAS 39, financial assets are either classified as the asset; financial assets recognised at fair value through profit or loss, as »» The ability to reliably determine the expenses associated loans and receivables, as held-to-maturity investments, as availa- with the intangible asset during its development. ble-for-sale financial assets or as derivatives that were designated as a hedging instrument and are effective as such. The EWE Group After initial measurement, development costs are carried using determines the classification of its financial assets upon initial the cost model – that is, at acquisition cost less accumulated recognition. amortisation and impairment losses. Amortisation begins upon completion of the development stage and from the point of time Financial assets are measured at fair value upon initial recognition. when the asset can be used. It is carried out over the period of In the case of financial assets not recognised at fair value through time during which future benefit is expected. During the develop- profit or loss, this also includes transaction costs directly associ- ment stage, an annual impairment test is carried out. ated with the acquisition of the assets.

The development costs incurred in the EWE Group do not Purchases or sales of financial assets which specify the transfer currently meet the recognition criteria set forth in IAS 38 and are of the assets within a specific time period determined by the pro- therefore not recognised. visions or conventions of the respective market (market-based purchases) are recognised on the trade date – that is, the date on which the EWE Group accepted the obligation to purchase or sell the asset.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 113 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The EWE Group’s financial assets encompass cash and current Derivatives embedded in host contracts are recognised separately deposits, accounts receivable, receivables from loans granted and and measured at fair value when the economic risks and charac- other receivables, listed and unlisted financial instruments, and teristics of the embedded derivative are not closely related to derivative financial instruments. those of the host contract and the host contracts were not designated as held for trading or as assets at fair value through Subsequent measurement profit or loss. Changes to fair value are recognised in profit and The subsequent measurement of financial assets is dependent loss. Reappraisal is only carried out upon a change to the contrac- on their classification as follows: tual terms which lead to a significant change in cash flows that would have otherwise resulted from the contract. Financial assets at fair value through profit or loss The group of financial assets measured at fair value through profit Loans and receivables or loss contains financial assets held for trading as well as finan- Loans and receivables are non-derivative financial assets with cial assets designated on initial recognition as to be measured at fixed or determinable payments that are not quoted in an active fair value with fair value changes in profit or loss. Financial assets market. After their initial recognition, these financial assets are are classified as held for trading when they were acquired for the subsequently measured at amortised acquisition costs less purpose of selling or buyback in the short term. This category impairment losses using the effective interest method. Amortised includes derivative financial instruments held by the EWE Group acquisition costs are calculated taking a premium or discount not designated as hedging instruments in hedging relationships as upon acquisition, as well as fees and costs, into account that set forth in IAS 39. Derivatives, including embedded derivatives represent an integral component of the effective interest rate. separated from their host contract, are classified as held for The proceeds from amortisation using the effect interest method trading. are disclosed in profit and loss. The losses from impairment are disclosed in profit and loss. Accounts receivable, other financial Financial assets at fair value through profit or loss are disclosed at receivables and cash and cash equivalents were assigned to this fair value on the statement of financial position, whereby changes category. to fair value are disclosed in profit and loss. Held-to-maturity financial investments The EWE Group has not classified any financial assets upon initial Non-derivative financial assets with fixed or determinable recognition as financial assets at fair value through profit or loss. payments and fixed dates of maturity are classified as held-to-maturity financial investments when the Group intends The EWE Group evaluates its financial assets held for trading and is able to hold these assets to maturity. After their initial (with the exception of derivatives) with regard to whether the recognition, held-to-maturity financial investments are subse- Group still intends to sell the assets in the near future. If the EWE quently measured at amortised acquisition costs less impairment Group cannot trade these assets as a result of inactive markets losses using the effective interest method. Amortised acquisition and management no longer has the intention to sell these assets costs are calculated taking a premium or discount upon acquisi- in the near future, the EWE Group can decide to reclassify these tion, as well as fees and costs, into account that represent an financial assets in certain cases. Reclassification as loans and integral component of the effective interest rate. The proceeds receivables, available-for-sale or held-to-maturity assets is from amortisation using the effect interest method are disclosed dependent on the type of asset. Such reclassification has no effect in profit and loss. The losses from impairment are disclosed in on financial assets classified using the fair value option; once an profit and loss. During the reporting periods ending 31 December instrument is put in the fair-value-through-profit-and-loss 2015 and 2014, the EWE Group did not hold any held-to-maturity category, it cannot be reclassified out. financial investments.

EWE AG Annual Report 2015 114 CONSOLIDATED FINANCIAL STATEMENTS

Available-for-sale financial assets In the event that a financial asset is classified out of the available- Available-for-sale (AfS) financial assets include equity and debt for-sale category, the fair value at the time of reclassification is instruments. Equity instruments classified as available-for-sale are specified as the new carrying amount and all earlier profits and all those instruments neither designated as held for trading nor on losses associated with this asset which were accumulated outside initial recognition as one to be measured at fair value through of profit and loss in equity are reversed in profit and loss over the profit or loss. The debt instruments in this category include all remaining term of the financial investment using the effective those that should be held for an indefinite period of time and that interest method. The difference between the new amortised can be sold as a reaction to liquidity needs or changes in market acquisition cost and the expected cash flows is reversed over the conditions. remaining term of the asset using the effective interest method. If a subsequent impairment of the asset is determined, the accumu- After initial recognition, available-for-sale financial assets are lated amount recognised directly in equity must be reclassified in measured in the following periods at fair value. Unrealised profits profit and loss. With respect to the EWE Group, this category or losses are recognised in other comprehensive income and dis- encompasses investments in associates, other investments and closed in the reserves for available-for-sale financial instruments. securities. If this type of asset is derecognised, the accumulated profit or loss is reclassified in profit and loss. If an asset is impaired, the accum Derecognition ulated loss is reclassified in profit and loss and removed from the A financial asset (or a share of a financial asset or a share of a reserves for available-for-sale financial instruments. If the fair group of similar financial assets) is derecognised when one of the value of an unquoted equity instrument cannot be determined following criteria is met: with sufficient reliability, the portions are measured at cost (less impairment losses, if applicable). »» The contractual rights to receive the cash flows from a financial asset are lost. The EWE Group evaluates its available-for-sale financial assets »» The EWE Group has transferred the contractual rights to with regard to whether the ability and intention to sell the assets receive the cash flows from the financial asset to a third party in the near future is still given. If the EWE Group cannot trade or has retained the contractual rights to receive the cash flows these assets as a result of inactive markets and management’s from the asset, but has assumed a contractual obligation to intention to sell these assets in the near future has changed signi immediately pass those cash flows on under an arrangement ficantly, the EWE Group can decide to reclassify these financial that meets the conditions of IAS 39.19 (known as pass- assets in certain, very specific cases. Reclassification into the through agreements) and, in this context, either (a) has trans- category loans and receivables is only allowed if the financial ferred substantially all of the risks and rewards of ownership of assets fulfils the definition of a loan and receivable and the EWE the financial asset, or (b) has neither retained nor transferred Group intends and is able to hold this asset for the foreseeable substantially all of the risks and rewards associated with the future or until its maturity. Reclassification into the category financial asset, yet has transferred control of the asset. held-to-maturity financial investments is only allowed if the EWE Group intends and is able to hold this asset until its maturity.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 115 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

In the event that the EWE Group transfers its contractual rights to Financial assets carried at amortised acquisition cost cash flows from an asset or enters a pass-through agreement and, When it comes to financial assets measured at amortised acquisi- in this context, neither retains nor transfers substantially all of the tion cost, EWE initially determines on an individual basis whether risks and rewards associated with the financial asset, yet main- objective evidence exists for the impairment of financial assets tains control of the asset, the EWE Group continues to recognise which are of major importance to the company, and on an the asset to the extent to which it has a continuing involvement in individual or collective basis for financial assets deemed not of the asset. In this case, the EWE Group also recognises an associ- major importance to the company. If the EWE Group determines ated liability. The transferred asset and the associated liability are that no objective evidence of impairment exists for an individually recognised in such a way that takes the rights and obligations assessed financial asset (whether deemed of significant impor- retained by the EWE Group into account. tance to the company or not), the financial asset is added to a group of financial assets with similar credit risk statistics and this If continuing involvement formally guarantees the transferred group is then collectively assessed for impairment. Assets individ- asset, the level of continuing involvement is recognised as the ually assessed for impairment which are recognised as impaired lesser of the original carrying amount of the asset and the highest (either for the first time or on a continued basis) are not included value of the consideration received that the EWE Group would in a collective assessment of impairment. potentially need to pay back. If objective evidence exists that an asset has become impaired, II. Impairment of financial assets the impairment loss is calculated as the difference between the The EWE Group assesses at the end of each reporting period carrying amount of the asset and the present value of the future whether objective evidence exists that a financial asset or group cash flows expected to be derived from the asset (with the excep- of financial assets is impaired. A financial asset or group of finan- tion of expected future loan defaults not yet occurred). The pres- cial assets is only considered impaired if objective evidence exists ent value of the expected future cash flows is discounted by the as a result of one or more events that occurred after the initial financial asset’s original effective interest rate. If a loan has a vari- recognition of the asset (an ‘impairment event’) and this event has able interest rate, the discount rate used to assess the impairment an effect on the expected future cash flows of this financial asset loss corresponds with the current effective interest rate. or group of financial assets that can be estimated with reliability. Evidence of impairment may exist if there are indications that a The carrying amount of the asset is reduced using a valuation debtor or a group of debtors faces considerable financial difficul- account, and the impairment loss is recognised in profit and loss. ties, in the event of non-payment or delayed payment of interest Receivables (including the associated impairment loss) are or principal payments, if insolvency or another reorganisation derecognised when they are classified as unrecoverable and all process is likely and if observable data indicate a measurable guarantees have been invoked and realised. If the amount of an reduction in expected future cash flows, such as changes in arrears estimated impairment loss increases or decreases during a or economic conditions that correlate with payment defaults. subsequent reporting period as a result of an event which occurred after recognising the impairment loss, the previously recognised impairment loss is increased or decreased by adjusting the valuation account and recognised in profit and loss. If a derecognised receivable is reclassified as recoverable as a result of an event that occurred after derecognition, the corresponding value is directly recognised in profit and loss.

EWE AG Annual Report 2015 116 CONSOLIDATED FINANCIAL STATEMENTS

Available-for-sale financial assets III. Financial liabilities With regard to available-for-sale financial assets, the EWE Group Initial recognition and measurement assesses at the end of each reporting period whether objective Financial liabilities within the terms of IAS 39 are classified as evidence exists that a financial asset or group of financial assets is either financial liabilities at fair value through profit or loss or impaired. financial liabilities measured at amortised acquisition cost. The EWE Group determines the classification of its financial liabilities For equity instruments classified as available for sale, a significant upon initial recognition. or ongoing decline in the fair value of the instrument below its acquisition cost would represent an objective indication. The cri- All financial liabilities are measured at fair value through profit terion ‘significant’ is evaluated based on the original acquisition and loss upon initial recognition; in the case of loans, less directly cost of the financial investment, and the criterion ‘ongoing’ based attributable transaction costs. on the period of time in which the fair value of the asset stood below its original acquisition cost. If evidence of impairment Subsequent measurement exists, the accumulated losses – resulting from the difference The subsequent measurement of financial liabilities is dependent between acquisition cost and current fair value minus any even- on their classification as follows: tual impairment losses from this instrument recognised earlier in profit and loss – are classified out of other reserves and recognised Financial liabilities at fair value through profit or loss in profit and loss. Impairment losses from equity instruments are Financial liabilities measured at fair value through profit or loss not reversed out of profit and loss; any later increase in the fair comprise financial liabilities held for trading as well as other value of the instrument is recognised directly in other comprehen- financial liabilities classified upon initial recognition as to be sive income. Impairment losses associated with available-for-sale measured at fair value with fair value changes in profit or loss. unquoted equity instruments carried at acquisition cost cannot be reversed. Financial liabilities are classified as held for trading when they were acquired for the purpose of selling in the short term. This When measuring impairment of debt instruments classified as category includes derivative financial instruments held by the available for sale, the same criteria is used as for financial assets EWE Group not designated as hedging instruments in hedging carried at amortised acquisition cost. The amount recognised for relationships as set forth in IAS 39. Derivatives embedded in host the purposes of impairment is, however, the accumulated loss that contracts that are recognised separately are also classified as held results from the difference between amortised acquisition cost for trading, with the exception of derivatives that were designated and current fair value minus any eventual impairment losses from as a hedging instrument and are effective as such. this instrument recognised earlier in profit and loss. Profit or loss from financial liabilities that are classified as held When the fair value of a debt instrument increases in a subse- for trading is recognised directly in profit and loss. quent reporting period and the increase can objectively be attri buted to an event that occurred after the recognition of impair- The EWE Group has not classified any financial liabilities upon ment in profit and loss, the increase in fair value is recognised in initial recognition as financial liabilities at fair value through profit profit and loss. or loss.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 117 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Other financial liabilities measured at amortised acquisition cost Derecognition A financial liability is derecognised when the liability’s underlying Loans obligation is either discharged, cancelled or expires. After their initial recognition, interest-bearing loans are sub sequently measured at amortised acquisition cost using the If an existing financial liability is replaced with another financial effective interest method. Profits and losses are recognised in liability to the same lender with substantially changed contract profit and loss when the liabilities are derecognised, as well as terms or if the terms of an existing liability are themselves within the scope of amortisation using the effective interest substantially changed, this replacement or change of terms is method. accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The differ- Amortised acquisition costs are calculated taking a premium or ence between the respective carrying amounts is recognised in discount upon acquisition as well as fees and costs into account profit and loss. that represent an integral component of the effective interest rate. Amortisation using the effect interest method is disclosed in IV. Offsetting financial instruments profit and loss. Profits and losses are recognised in profit and loss Financial assets and liabilities are only offset (with the net amount when the liabilities are derecognised. reported) when the company has a legally enforceable right to set off the amounts at the present time and intends either to settle Trade payables and other financial liabilities on a net basis or to realise the asset and settle the liability Trade payables are payment obligations for goods and services simultaneously. acquired within the scope of normal business operations. These liabilities are classified as current liabilities when payment is due V. Fair value of financial instruments within a period of one year or less (or during the normal business The fair value of financial instruments traded on active markets is cycle, if this is longer). In all other cases, they are classified as determined by the quoted market price at the end of the reporting non-current liabilities. period or the publicly quoted price (buyer’s offered bid price in the case of long positions and ask price in the case of short positions) Trade payables are measured at fair value upon initial recognition. without deduction of transaction costs. Subsequent measurement is carried out at amortised cost. The fair value of financial instruments not traded on any active Financial guarantees market is determined using suitable valuation techniques. The Financial guarantees issued by the EWE Group are contracts that valuation techniques include the use of recent arm’s-length require the issuer to make specified payments to reimburse the market transactions between knowledgeable, willing and inde- holder for a loss it incurs because a specified debtor fails to make pendent parties, reference to the current fair value of another payment when due as specified in the terms of the debt instru- instrument that is substantially the same, discounted cash flow ment. Financial guarantees are measured at fair value upon initial analysis, and other valuation models. recognition, less the transaction costs directly associated with issuing the guarantee. Subsequent measurements of the liability An analysis of the fair value of financial instruments and further are made using the best-possible estimate of the expenses needed details regarding how financial instruments are measured can be to fulfil the current obligation on the reporting date or the value found in section 40. assessed higher less accumulated amortisation.

EWE AG Annual Report 2015 118 CONSOLIDATED FINANCIAL STATEMENTS

p) Derivative financial instruments and hedge accounting Hedges that meet the stringent criteria of hedge accounting are Initial recognition and subsequent measurement accounted for as follows: The EWE Group uses derivative financial instruments such as forward exchange contracts, interest rate swaps, commodities futures Fair value hedges and commodities swaps to hedge currency exchange, interest rate The change in the fair value of the derivative interest rate hedging and commodities price risks. These derivative financial instruments instrument is recognised in profit and loss. The change in the fair are measured at fair value upon conclusion of the contract and value of the hedged item that can be attributed to the risk being remeasured at fair value in the subsequent reporting periods. hedged is carried as a portion of the carrying amount of the hedged Derivative financial instruments are carried as financial assets item and is also recognised in profit and loss. when their fair value is positive and as financial liabilities when their fair value is negative. When it comes to fair value hedges that are related to hedging items carried at amortised acquisition cost, the change to the Changes to the fair value of commodities futures that fall within carrying amount is reversed through profit and loss over the the scope of IAS 39 are recognised in profit and loss. remaining term until maturity. Amortisation using the effective interest method can begin as soon as there is a correction, but is For the purpose of accounting for hedging relationships, hedges not allowed to begin later than the point in time in which the are classified as follows: hedged item is no longer adjusted to match changes in fair value attributable to the hedged risk. »» As a fair value hedge when used to hedge the exposure to changes in the fair value of a recognised asset or recognised If the hedged item is derecognised, the non-amortised fair value is liability or a previously unrecognised firm commitment; immediately recognised in profit and loss. »» As a cash flow hedge when used to hedge the exposure to variability in cash flows that is attributable to a particular risk If an unrecognised firm commitment is classified as a hedged item, associated with a recognised asset, a recognised liability or a the subsequent accumulated change in the fair value of the firm highly probable forecast transaction or the currency risk of an commitment that can be attributed to the hedged risk is carried as unrecognised firm commitment; an asset or liability with a corresponding profit or loss. »» As a hedge of a net investment in a foreign operation.

At the beginning of a hedging relationship, the relationship itself as well as the EWE Group’s risk management objectives and strategies for undertaking the hedge are formally defined and documented. This documentation includes identification of the hedging instrument, the hedged item or hedged transaction as well as the nature of the risk being hedged and a description of how the company will assess the effectiveness of achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented. These types of hedging relationships have been assessed as highly effective to offset the risks from changes in fair value or cash flows. They are assessed on an ongoing basis with regard to whether they were highly effective during the entire reporting period for which hedging relationship was defined.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 119 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Cash flow hedges Classification in current and non-current The effective portion of profit or loss from a hedging instrument is Derivative financial instruments that are not designated as recognised in other comprehensive income and accumulated in hedging instruments and are not effective as such are classified the reserves for cash flow hedges, while the ineffective portion is as either current or non-current or divided into a current and immediately recognised in profit and loss. non-current portion on the basis of an evaluation of the facts and circumstances (i.e. the underlying contractual cash flows). The EWE Group uses forward exchange contracts as a hedging instrument to hedge the exchange rate risks resulting from firm »» If the EWE Group holds a derivative for a period of more than commitments and forecast transactions as well as commodities twelve months after the reporting date for the purpose of futures to hedge risks stemming from the volatility in the price of hedging against economic risks (and does not account for it as goods. Coal swaps are used to hedge currency and market price a hedging relationship), the derivative is classified in accord- risks in relation to coal. Further details can be found in section 39. ance with the underlying item as non-current (or divided into a current and non-current portion). The accumulated gains and losses recognised in other comprehen- »» Embedded derivatives that are not closely related to their host sive income and the cash flow reserve are ‘recycled’ into profit contracts are classified in accordance with the cash flows from and loss in the reporting period in which the hedged transaction the host contract. affects profit or loss – for example, when hedged financial gains or »» Derivative financial instruments that are designated as losses are recognised or when a forecast sale is carried out. If a hedging instruments and are effective as such are classified in hedge results in the recognition of a non-financial asset or non- accordance with the classification of the underlying hedged financial liability, the gain or loss that was previously recognised item. The derivative financial instrument is only divided into a in other comprehensive income is included in the initial cost of the current and non-current portion when it can be classified with acquired non-financial asset or liability. reliability as such.

If the forecast transaction or firm commitment is no longer q) Inventories expected to occur, the accumulated profits or losses previously Inventories are initially measured at acquisition or manufacturing recognised in equity are ‘recycled’ into profit and loss. If the cost. Acquisition and manufacturing costs include all costs associ- hedging instrument expires or is sold, terminated or exercised ated with purchase, conversion or processing as well as other costs without being replaced or rolled over into another hedging instru- incurred in bringing the inventories to their present location and ment, or if the hedge no longer meets the hedge accounting crite- condition. ria, the profits or losses previously accumulated in other comprehensive income will remain in the reserve until forecast Incidental acquisition costs include customs duties, all non- transaction or firm commitment affects profit or loss. deductible taxes, external transport and handling costs (such as transport costs that are itemised separately on an invoice) as well The EWE Group has entered into interest rate swaps to hedge risks as other costs that can be directly attributed to the procurement from interest rate changes from which the Group receives variable of inventories. Directly attributable costs can comprise both direct cash flows and pays fixed cash flows. Provided these interest rate and indirect costs. swaps meet the criteria of hedge accounting, namely with regard to hedge effectiveness, the resulting changes to the market value of these financial instruments will be accounted for within the scope of hedge accounting over the course of their term. Further details can be found in section 39.

EWE AG Annual Report 2015 120 CONSOLIDATED FINANCIAL STATEMENTS

Trade discounts, rebates and deductions are subtracted as Impairment losses from ongoing operations including impairment reductions in acquisition costs. of inventories are recognised in profit and loss.

Inventories are stated at the lower of cost of acquisition or At the end of the reporting period, an assessment is carried out manufacture and net realisable value. Net realisable value is the for all assets, with the exception of goodwill, as to whether there estimated selling price in the ordinary course of business, less the are any indications that a previously recognised impairment loss estimated cost of completion and the estimated costs necessary no longer exists or has decreased. If such an indication exists, the to make the sale. EWE Group estimates the asset’s or the cash-generating unit’s recoverable amount. A previously recognised impairment loss is If the circumstances which originally led to a write-down no only reversed if the assumptions used to determine the recover longer exist or if clear indications of an increase in net realisable able amount have changed since the recognition of the last value due to a change in economic conditions exist, the write- impairment loss. The reversal is limited in such a manner that down must be reversed. The write-down must be reversed in such the carrying amount of an asset cannot exceed its recoverable a manner that the new carrying amount is equal to the lower amount or the carrying amount that would have resulted (taking value of acquisition and manufacturing cost on the one hand, and scheduled depreciation into account) had no impairment loss been the newly determined net realisable value on the other hand. As recognised for the asset in previous years. A reversal is recognised such, the original acquisition and manufacturing costs form the in profit and loss except if the asset is accounted for using the upper limit. revaluation method. In this case, the reversal is treated as an increase in the value of the revaluation. r) Impairment of non-financial assets At the end of each reporting period, the EWE Group assesses The following additional criteria also apply to certain specific whether there is any indication that a non-financial asset may be assets: impaired. If there is an indication that an asset may be impaired or if an annual assessment of an asset’s recoverability is required, Goodwill the EWE Group estimates the asset’s recoverable amount. In this Goodwill is tested for impairment annually. An impairment test is context, the recoverable amount is the higher of an asset’s or a additionally carried out when circumstances exist which indicate cash-generating unit’s fair value less costs of disposal and its that goodwill may be impaired. value in use. The recoverable amount must be determined for each individual asset unless an asset no longer generates cash To test for impairment, the recoverable amount of the cash- flows that are predominantly independent of the cash flows of generating unit or group of cash-generating units is calculated to other assets or other groups of assets. If the carrying amount of which the goodwill has been allocated. An impairment loss is an asset or cash-generating unit exceeds the respective recover recognised if the carrying amount of the unit exceeds the recoverable amount, the asset is impaired and is written down to its able amount of the unit. An impairment loss recognised for recoverable amount. To calculate value in use, the expected future goodwill cannot be reversed in subsequent periods. cash flows are discounted to their present value using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset. To calculate fair value less disposal costs, recent market transactions are used, if avail able. If no such transaction can be identified, a suitable valuation technique is applied. This is based on valuation multiples, stock exchange prices of quoted shares of subsidiaries or other indicators of fair value available.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 121 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Intangible assets Provisions for contingent losses An impairment test is carried out once annually for all intangible Provisions for contingent losses are recognised – when the general assets with indefinite lives. Depending on the individual case, this requirements for the recognition of provisions are fulfilled – for test is carried out for each individual asset or at the level of the onerous contracts in the amount that the unavoidable costs asso- cash-generating unit. An impairment test is additionally carried ciated with the contract exceed the expected economic benefit out when circumstances exist which indicate that the asset may from the contract. be impaired. Provisions for rehabilitation and deconstruction s) Cash and cash equivalents Provisions are recognised for rehabilitation and deconstruction Cash and cash equivalents include cash on hand, bank balances obligations after decommissioning underground chambers and gas and current deposits with a term of less than three months. To fields in the present value of the obligation. These are capitalised calculate the value of cash and cash equivalents for the statement and depreciated and/or the provisions are discounted. The of cash flows, cash-pooling receivables are also included. expenditure resulting from the interest added to the provision for rehabilitation is recognised in profit and loss. The reversal of t) Provisions provisions for rehabilitation is recognised in other comprehensive Basic principles income. A provision is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, the outflow of Changes to estimates or adjustments to the discount rate when resources with economic benefit to fulfil the obligation is probable remeasuring provisions for rehabilitation have repercussions on and the amount can be estimated reliably. If the Group expects to the valuation of underground natural gas storage facilities. The be reimbursed for some or all of the expenditure required to settle adjustments when measuring provisions are added to the acquisi- a provision (such as in the case of an insurance contract), the tion costs of the underground natural gas storage facilities in the reimbursement is recognised as a separate asset if it is virtually event of an increase in the obligation and subtracted from the certain that reimbursement will be received. The expenditure acquisition costs of the underground natural gas storage facilities required to settle a provision is recognised in profit and loss less in the event of a decrease in the obligation. If the decrease in the the reimbursement. value of the provision on the liabilities side exceeds the carrying amount of the underground natural gas storage facility on the Provisions are measured at discounted present value using a pre- assets side, the difference is recognised immediately in profit and tax discount rate that reflects the current market assessments of loss. the time value of money and the risks specific to the liability. Increases to the provision resulting purely from the addition of Provisions for warranty claims accrued interest are recognised as interest expenses in profit and If a multitude of similar obligations exist – such as in the case of a loss. mandatory warranty – the probability of a negative effect is calculated on the basis of this group of obligations. A provision is Provisions are classified according to their maturity. Provisions or recognised as a liability even in cases when the probability of a portions of provisions whose obligations are expected to reach negative effect with regard to an individual obligation contained maturity within twelve months after the end of the reporting within this group is slight. period are disclosed as current provisions. Provisions that will reach maturity after twelve months are classified as non-current.

EWE AG Annual Report 2015 122 CONSOLIDATED FINANCIAL STATEMENTS

Provisions for emissions certificates VBL. These pension commitments must, in principle, be treated as If it becomes apparent over the course of the year that an insuffi- a multi-employer-defined benefit plan as set forth in IAS 19. As a cient number of emission allowances are held – that is, emissions result of a lack of information as set forth in IAS 19.34 with regard have already occurred and the level of emissions exceeds the to the defined benefit plan, this pension plan is accounted for as a number of emission allowances held that were allocated or pur- defined contribution plan. In the event that the plan is under- chased additionally for the entire year – a provision is recognised funded, the participating employers are required to compensate for the remaining emission allowances that need to be purchased. for this underfunding. In this context, the amount of the addi- In contrast, provisions for future emissions are prohibited, even if tional contribution obligation is calculated by VBL and allocated planning indicates that there is a high probability that emissions precisely according to cause across all members as a prorated will exceed the number of emission allowances held. contribution in the form of the currently open-ended reorganisation fee. Upon exiting the VBL system, the company may be u) Pensions and other employee benefits obligated to payment of compensation in order to balance out a Pensions and similar obligations potential future amount of underfunding allocated to its portion Provisions for pensions and similar obligations are recognised for of the plan. The portion of VBL’s total insurance plan allocated to immediate pension obligations to employees (including former EWE AG is marginal compared to the obligations of other partici- employees) with an entitlement and claim to company pension pating companies. The company does not plan to leave the VBL benefits. Collective labour agreements, labour-management system. agreements and individual commitments form the legal basis of these obligations within the EWE Group. They are accounted for Other long-term employee benefits pursuant to IAS 19 using the projected unit credit method. In this Other long-term employee benefits primarily encompass context, the future obligations are measured using actuarial valua- obligations from employment anniversary bonuses. As such, tion methods, as well as estimates of the relevant influencing employees receive a one-time bonus payment on the 25th and 40th variables (including but not limited to interest rate, probability of anniversaries of their hiring that is predominantly based on their death and salary and retirement trends). Based on this method, respective salary. Similar long-term obligations include partial the expenditure required for the additional unit of benefit entitle- retirement agreements with employees. At the EWE Group, these ment is attributed to the period of service in which the additional agreements were generally entered into using the ‘block model’. unit was earned. In this context, the additional unit of benefit The resulting obligations are calculated using actuarial principles entitlement is viewed as the portion of the entire scheduled future based on the prepaid expense method. In cases in which these benefit that is attributed to the corresponding business year while obligations (the amount to be paid) are balanced against plan taking vesting provisions into account. assets, the obligations are offset by the fair value of the applicable plan assets. Within the scope of introducing a defined contributions unit- based benefit plan, the association EWE-Treuhandverein e. V. was Termination benefits founded in 2009. Insofar as assets are transferred to EWE- Termination benefits are paid when an employee is laid off before Treuhandverein e. V. for the purpose of financing company pension reaching the usual age of retirement or leaves the employment plans, these assets represent offsettable plan assets within the relationship with the company voluntarily in return for a sever- terms of IAS 19.8. Several deferred compensation commitments ance payment. The EWE Group recognises severance payments if entered into by the company are financed by the Versorgungs the Group has a clearly verifiable obligation to terminate employ- kasse Energie (energy pension fund), meaning that the actuarial ment contracts with current employees based on a detailed, reserves formed there are accounted for as plan assets. formal plan that cannot be rescinded, or if the Group has a clearly verifiable obligation to provide a severance package upon volun- In addition to direct benefits, groups of employees are also com- tary termination of employment by employees. pulsorily insured through VBL (Pension Institution of the Federal Republic and the Länder). In order to finance these benefits, the This particularly includes individual contracts entered into with company must pay annual allocations and reorganisation fees to employees governing early retirement. These employees have

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 123 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

been released from their job duties yet continue to receive a IFRIC 21 – Levies: reduced salary until they reach the earliest retirement age set This interpretation stipulates that a company which is active in a forth by the provisions of statutory pension insurance for specific market must recognise a liability for the levies payable to employees in an ongoing employment relationship. Benefits that the government agency responsible for this market when the are due later than twelve months after the end of the reporting business activity that triggers the payment of the levy takes place. date are discounted to their present value. The interpretation also clarifies that, in the case of an obligation that is triggered on reaching a minimum threshold, the liability is v) Construction grants first recognised when that minimum threshold is reached. This Construction subsidies include subsidies for investments and interpretation had no effect on the EWE Group’s consolidated construction costs. financial statements.

The EWE Group receives construction cost subsidies for power, gas Improvements to IFRS (2010 – 2012) and IFRS (2011 – 2013): and water connections for customers in contracts with standard In December 2013, the IASB issued a collective standard amending terms and customers in contracts with special terms. Construc- a number of IFRS, which primarily comprise clarifications. These tion grants are recognised as a liability and released over the amendments and further amended standards had no material useful life parallel to the fixed assets for which they were received. effect on the EWE Group’s consolidated financial statements. This release is carried out in revenue, since the receipt of construction cost grants is closely related to the company’s actual power 3. KEY DISCRETIONARY JUDGEMENTS, ESTIMATES AND and gas business and therefore applies to the EWE Group’s normal ASSUMPTIONS business activities. When preparing the EWE Group’s consolidated financial state- Investment grants are recognised as a liability and released over ments, management makes discretionary judgements, estimates the useful life parallel to the fixed assets for which they were and assumptions that have an effect on the value of the earnings, received. The grants are released to profit and loss. expenses, assets and liabilities disclosed at the end of the reporting period as well as the disclosure of contingent liabilities. As a 2.4 ACCOUNTING CHANGES result of the uncertainty associated with these assumptions and Amended standards estimates, however, events can occur that lead to significant No changes to the accounting principles used in comparison to adjustments to the carrying amount of the affected assets or the previous year occurred during the reporting period, with the liabilities in future periods. exception of the following standards and interpretations, which were first applicable to this reporting period: The most important future-related assumptions as well as other main sources of uncertainty surrounding estimates at the end of »» Amendment to IAS 19 – Employee Benefits the reporting period, on the basis of which there is a significant »» IFRIC 21 – Levies risk that a considerable adjustment will be necessary to the carrying amount of assets and liabilities within the next business year, The application of these standards is explained in more detail in are explained below. The assumptions and estimates by the Group the subsequent sections. are based on parameters that applied at the time the consolidated financial statements were prepared. These circumstances and Amendment to IAS 19 – Employee Benefits: assumptions regarding future developments can change, however, The amendment to IAS 19 governs the recognition of contribu- due to market fluctuations and market conditions that fall outside tions from employees or third parties to the pension plan as a of the Group’s sphere of influence. Such changes are first reflected reduction in service cost, insofar as it reflects the service rendered in the Group’s assumptions after they occur. in the reporting period. This amendment must be applied retroactively. Early adoption is permitted. This amendment had no effect on the EWE Group’s consolidated financial statements.

EWE AG Annual Report 2015 124 CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL value on 31 December 2015. Pursuant to IAS 19.83, the discount Goodwill is tested for impairment at least once annually or when- rate used is determined by reference to market yields at the end of ever appropriate indicators from internal or external sources of the reporting period on high-quality corporate bonds (with an AA information indicate that goodwill may be impaired. This impair- rating or better), with currencies and terms of bond yields used ment test is based on assumptions about the future which require consistent with the currency and estimated term of the obligation estimates related to future cash flows of cash-generating units being discounted. In the event that a sufficient market is not avail- that encompass goodwill. These estimates can have an effect on able for the terms required, yield is interpolated or extrapolated the calculation of these cash flows and lead to extraordinary for these terms based on the available yield structure as set forth depreciation of the goodwill. The core assumptions used to in IAS 19.86. determine the recoverable amount for the cash-generating unit are presented in section 16. OBLIGATIONS FROM REHABILITATION AND DECONSTRUCTION INTANGIBLE ASSETS AND PROPERTY, PLANT AND The provisions for the rehabilitation and deconstruction of EQUIPMENT underground gas storage facilities are based on external reports The calculation of these assets’ expected useful life and impair- and/or information from the facility manager. With regard to ment is based on management assessments. Technological underground gas storage facilities and wind parks, the cost of progress, a deterioration of the market situation or damage can rehabilitation and deconstruction in the event of abandonment is lead to the extraordinary depreciation of these assets. estimated. This amount is discounted to date at the end of the reporting period. The value of provisions for rehabilitation must FAIR VALUE OF FINANCIAL INSTRUMENTS be reassessed at the end of each reporting period and adjusted to In the event that fair value of recognised financial assets and a different, new, best-possible estimate, if applicable. Changes financial liabilities cannot be determined using data from an with regard to the expected dates and values of payments active market, it is calculated using valuation techniques, includ- required to fulfil the obligation as well as changes to the discount ing the discounted cash flow method. The parameters used as rate lead to adjustments to the provisions for rehabilitation recog- input for this model are supported by observable market data, nised outside of profit and loss. where possible. If this is not possible, the calculation of fair value represents, to a certain extent, a discretionary judgement. The INCOME TAXES discretionary judgements affect input parameters such as liquidity The calculation of actual and deferred taxes is associated with risk, credit risk and volatility. Changes to the assumptions assumptions. The use of deferred tax assets is dependent on the regarding these factors can have an effect on the recognised fair ability to achieve sufficient taxable income. value of these financial instruments (for more information, see section 40). EEG RECOGNITION Revenue from feed-in tariffs passed on to companies generating ACCRUALS FOR PENSIONS AND SIMILAR OBLIGATIONS power from renewable energy sources is disclosed as a share of The valuation of pension obligations is carried while taking actu total revenue. This revenue is offset by the payments to these arial assumptions into account which relate to demographic companies disclosed under material expenditures. For more (probability of death) and financial variables (interest rate, future information, see sections 5 and 8. salary increases, pension trends). For more information, see section 29. In this context, the discount rate is derived taking into PROVISIONS FOR THE 2017 STAFF REDUCTION PROGRAMME account the specific structure of the payment flows of the obliga- The EWE Group has decided to reduce its staff by approximately tions earned. This calculation is based on the pension obligations 500 employees by 2017. Provisions for these job cuts being carried that exist at the end of the reporting period. The calculations are out through early retirement and severance agreements and carried out based on the yield curves of German federal bonds, recognised as an expense in profit and loss were formed on the the DJ EuroStoxx 50 index and the iBoxx index with regard to the basis of average values. The total cost incurred during the current market yield of high-quality corporate bonds as of their current business year amounts to approximately 54 million euros.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 125 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

CHANGES TO ESTIMATES Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Due to changes to the outlook in the energy sector, the EWE Assets between an Investor and its Associate or Joint Venture: Group is assuming that coal power plants and the associated The amended versions of IFRS 10 and IAS 28 were issued in activities will only be used until approximately 2030. An according September 2014. The effective date of the amendments to these adjustment to useful lives and earnings expectations was carried standards was deferred indefinitely. They address conflicts out on the basis of this assumption, which has already lead to between the requirements of IFRS 10 and IAS 28 in relation to the impairment of fixed assets, permits and goodwill in the current loss of control over a subsidiary that is contributed to an associate business year. For more information, see section 10. or a joint venture. The amendments clarify that an investor must recognise the full gain or loss from the sale or contribution of 4. ISSUED STANDARDS WHOSE APPLICATION IS assets to an associate or joint venture if the assets sold or contri NOT YET MANDATORY buted constitute a business within the terms of IFRS 3 Business Combinations. In the event that a company retains a stake in a Issued standards whose application is not yet mandatory are listed former subsidiary that does not constitute a business within the below. This list refers to issued standards and interpretations for terms of IFRS 3 after its loss of control, the gain or loss from the which the EWE Group has determined at its reasonable discretion remeasurement of the remaining share is recognised at fair value that future application will have an effect on the information only to the extent of the unrelated investors’ interests in that disclosed as well as on the Group’s assets, liabilities, financial associate or joint venture. The amendments should apply prospec- position and earnings situation. The EWE Group intends to apply tively. Early adoption is permitted. The amendments simply limit these standards as soon as their application becomes mandatory. the existing conceptual differences between IFRS 10 and IAS 28 and do not have any effect on the Group’s assets, liabilities, IFRS 9 – Financial Instruments: financial position and earnings situation. On 24 July 2014, the IASB issued the final version of IFRS 9, which contains the results of all stages of the IFRS 9 project and replaces Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment both IAS 39 Financial Instruments: Recognition and Measurement Entities: Applying the Consolidation Exception: as well as earlier versions of IFRS 9 Financial Instruments. IFRS 9 is With these amendments, the following three major clarifications first applicable to business years beginning on or after 1 January were made in the context of applying the consolidation exception 2018. Early adoption of the final standard (IFRS 9 (2014)) is for investment entities: permitted at any time. The standard must be applied retroactively. Companies also have the option of only adopting the provisions »» Exemption from preparing consolidated financial statements: pertaining to the disclosure of impairments attributable to their The exemption from preparing consolidated financial state- own credit risk without simultaneously adopting the other provi- ments is applicable to an investment entity that is subsidiary sions of IFRS 9 (2014). The standard contains new provisions of an investment entity, if the investment entity measures all governing classification, measurement and impairment as well as of its subsidiaries at fair value. hedge accounting. After an initial review, the Group does not »» A subsidiary providing services that relate to the parent expect any significant effect on disclosures and measurement. In investment entity’s investment activities: Subsidiaries should contrast, the Group expects to see operative simplifications in the only be consolidated if they themselves are not investment field of hedge accounting. entities and provide services related to the parent investment entity’s investment activities. All other subsidiaries of an investment entity should be measured at fair value.

EWE AG Annual Report 2015 126 CONSOLIDATED FINANCIAL STATEMENTS

»» Application of the equity method by a non-investment entity IFRS 15 – Revenue from Contracts with Customers: investor with regard to an investment in an associate or joint The new provisions of IFRS 15 were issued on 11 September 2015 venture that is an investment entity: The amendment to and are applicable to all annual reporting years that begin on or IAS 28 Investments in Associates and Joint Ventures will allow after 1 January 2018 (including retroactive application to the an investor to retain the fair value measurement applied by previous year, if applicable). The standard introduces a new model the associate or joint venture to its interests in subsidiaries of recognising revenue with five steps of analysis that must be when applying the equity method. applied to all contracts with customers. The core principle of the standard is that a company must recognise revenue at the point in The amendment is applicable to annual reporting periods begin- time that goods or services are transferred to the customers in the ning on or after 1 January 2016. This amendment must be applied amount of consideration that the company can expect to receive retroactively. Early adoption is permitted. The amendment does in return for transferring these goods and services. The principles not have any effect on the Group’s assets, liabilities, financial of IFRS 15 offer a structured approach to measuring and recognis- position and earnings situation. ing revenue. The standard is applicable to all types of industries and companies and supersedes all existing requirements related to Amendment to IFRS 11 – Accounting for Acquisitions of the recognition of revenue. The EWE Group is currently analysing Interests in Joint Operations: the effects of the new standard on the consolidated financial The amendment to IFRS 11 was issued in May 2014 and is first reports within the scope of an introductory project. At the present applicable to annual reporting periods that begin on or after 1 Janu- time, EWE cannot make any quantitative statements regarding the ary 2016. The amendment stipulates that a joint operator which standard’s effects. We expect material effects on business models accounts for the acquisition of an interest in a joint operation that with customer contracts that contain multiple components, such constitutes a business within the terms of IFRS 3 Business Combina- as for our telecommunications business or IT services. This is due tions must apply the relevant principles for business combinations to the fact that each individual component of a contract will need in IFRS 3 and other standards and disclose the information required to be measured and disclosed separately based on the relative relevant for business combinations. Furthermore, it clarifies that a individual sale prices. Although the amount of revenue generated previously held interest in a joint operation does not need to be by a contract does not change fundamentally when viewed over remeasured when a further interest in the same joint operation is the entire term of the contract, the recognition of revenue pursu- acquired and joint control is maintained. In addition, an exception ant to IFRS 15 can, however, take an entirely different course as to the scope of application was added with the goal of more compared to the current requirements; it may be necessary to precisely clarifying that changes are not applied when the parties separate a financing component out and disclose this in the (including the company reporting) that share joint control stand Group’s interest income and expense. This means the more multi- under the common control of one party. The amendment applies faceted the contractual relationships between the Group and its both to the first-time acquisition of an interest in a joint operation customers are, the more complex it will be to disclose this revenue as well as the acquisition of a further interest in the same joint in the Group’s accounting. This will also be reflected in the infor- operation. The amendments should apply prospectively. Early mation provided in the Notes, the extent of which will increase adoption is permitted. Adoption of the standard had no effects on significantly. As a result, the Group must reorganise and adjust its the EWE Group’s consolidated financial statements. current accounting processes.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 127 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

IFRS 16 – Leases: Amendments to IAS 16 and IAS 41 – Bearer Plants: The new provisions of IFRS 16 were issued on 13 January 2016 and The amendments to IAS 16 and IAS 41 were issued in June 2014 are applicable to all annual reporting years that begin on or after and are first applicable to annual reporting periods that begin on 1 January 2019 (including retroactive application to the previous or after 1 January 2016. As a result of these amendments, biologi- year, if applicable). The standard stipulates that, in the future, cal assets that meet the definition of a bearer plant no longer fall lessees must recognise all lease agreements. Lessors are still into the scope of IAS 41, but instead solely into the scope of required to classify leases according to the existing requirements IAS 16. After initial recognition, bearer plants are measured at cost of IAS 17. Prior application of the standard is permissible, but only before reaching maturity pursuant to IAS 16. After reaching matu- if IFRS 15 is also applied. The effects on the EWE Group’s consoli- rity, either the cost model or the revaluation model is used. In the dated financial statements are currently being reviewed. The future, the produce generated by the bearer plants will also be standard will lead to further disclosures in the EWE Group’s con- recognised at fair value less disposal costs pursuant to IAS 41. solidated financial statements, among other things. IAS 20 Accounting for Government Grants and Disclosure of Government Assistance is applicable to government grants related Amendment to IAS 1 – Presentation of Financial Statements: to bearer plants. This amendment must be applied retroactively. As part of its overarching ‘Disclosure Initiative’ for the purpose of Early adoption is permitted. These amendments will not affect the evaluating and improving presentation and disclosure principles, EWE Group’s consolidated financial statements. the IASB issued initial amendments to IAS 1 Presentation of Finan- cial Statements. These include limited changes whose goal is to Amendments to IAS 27 – Equity Method in Separate Financial encourage companies to use more of their own judgement when Statements: disclosing and presenting information. For example, this applies The amendments to IAS 27 were issued in August 2014 and are to the clarification that materiality considerations apply to all first applicable to annual reporting periods that begin on or after parts of the financial statements and that providing immaterial 1 January 2016. The amendments reinstate the equity method as information can limit the usefulness of financial information. an accounting option in an entity’s separate financial statements, Furthermore, companies should use more judgement with regard whereby investments in subsidiaries, joint ventures and associates to the position and order of information provided in the financial can either be accounted for at amortised acquisition cost, in statements. The amendments are effective for annual periods accordance with IAS 39 or IFRS 9 or using the equity method. beginning on or after 1 January 2016. Early adoption is permitted. The selected method must be applied for each category of invest- The standard will lead to further disclosures in the EWE Group’s ments. This amendment must be applied retroactively. Early consolidated financial statements. adoption is permitted. Adoption of the standard had no effects on the EWE Group’s consolidated financial statements. Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation: Improvements to IFRS (2012 – 2014): The amendments to IAS 16 and IAS 38 were issued in May 2014 In December 2014, the IASB issued an additional collective and are first applicable to annual reporting periods that begin on standard amending a number of different IFRS, which primarily or after 1 January 2016. The amendments more precisely define comprise clarifications. These amendments are applicable to the accounting principle in IAS 16 and IAS 38 by which revenue annual reporting periods beginning on or after 1 January 2016. reflects a pattern of generation of economic benefits that arise The application of this collective standard had no material from the operation of the business (of which the asset is part). effects on the EWE Group’s consolidated financial statements. Revenues, however, do not represent the economic benefit that is consumed through the use of the asset. As a result, the relationship between the generated revenue and the expected future total revenue cannot be used for the depreciation of fixed assets, but instead – and only in extremely limited cases – for the depreciation of intangible assets. The amendments should apply prospectively. Early adoption is permitted. These amendments will not affect the EWE Group’s consolidated financial statements.

EWE AG Annual Report 2015 128 CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE INCOME STATEMENT 8. MATERIAL EXPENDITURES

| T 028 5. REVENUE in millions of euros 2015 2014 Net revenue contains the payments received from distribution grid operators as compensation for feeding power into the grid as Expenditures for raw materials, consumables and supplies 5,288.9 5,737.1 stipulated by the EEG totalling 1,416.4 million euros (previous Expenditure on third-party services 778.5 769.3 year: 1,332.3 million euros). Correspondingly, the original com- Total 6,067.4 6,506.4 pensation payments for feeding power into the grid pursuant to the EEG are disclosed in material expenditures. Material expenditures include expenses from EEG compensation Revenue is presented by product and service as part of segment guaranteed by law paid to distributed power generators for reporting (section 42). feeding power into the grid, which is offset by compensation received from distribution grid operators (for more information, 6. INTERNALLY PRODUCED AND CAPITALISED ASSETS see section 5).

Internally produced and capitalised assets include construction 9. PERSONNEL EXPENSES and expansion measures within supply networks | T 029 and the expansion of wind power parks. in millions of euros 2015 2014 7. OTHER OPERATING INCOME Wages and salaries 585.0 537.4 | T 027 Social security costs and expenses related to pension plans and for support 142.3 132.2 in millions of euros 2015 2014 Total 727.3 669.6

Derivative financial instruments 110.1 61.1 Rent and leases 28.5 27.6 The average number of employees during the business year Foreign currency profits 24.5 15.1 totalled: Reimbursement claims 22.9 3.4 Income from combined heat and | T 030 power load equalisation/surcharges 18.9 18.5 Reversal of provisions 11.4 15.4 2015 2014 Reversal of impairments 6.6 2.7 Full-time employees 7,726 7,986 Biogas cost allocation 6.5 6.4 Part-time employees 983 1,008 Administration water utilities 3.8 3.0 Trainees and temporary staff 146 160 Divestiture of fixed assets 3.3 8.0 Total 8,855 9,154 Income from pollutant emission rights 0.9 3.0

Income from reversal of write-downs (see section 17) 1.4 Other 87.2 122.7 The increase in personnel expenses and simultaneous decrease Total 324.6 288.3 in the number of employees was primarily due to the implemen tation of restructuring measures.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 129 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

10. AMORTISATION, DEPRECIATION AND IMPAIRMENT 11. OTHER OPERATING EXPENSES

| T 031 The Group re-estimated the remaining useful lives of its coal power plants during the reporting year as a result of changes to in millions of euros 2015 2014 the outlook in the energy sector (including declining power plant spreads and the shift away from CO2-intensive power generation). Licence fees (see section 44) 124.4 121.9 The Group currently assumes that the power plants and the asso- Derivative financial instruments 96.6 125.0 Advertising and sponsorships 36.2 34.7 ciated activities, including generation of district heating, will only Rent and leases 30.8 29.7 be in use until 2030. This re-evaluation resulted in a reduction in Fees and consulting 26.8 25.1 expected future cash flows. On the basis of the expected power Fair value changes to hedged items 20.3 plant spreads, earnings from district heating and the underlying IT expenses 18.7 16.7 capitalisation rate, fair values less disposal costs were calculated Combined heat and power act (KWKG) 15.7 11.2 as the recoverable amount (level 3 measurement pursuant to Other taxes 14.7 14.8 IFRS 13). This amount totalled 91.5 million euros for generation Foreign currency losses 13.2 14.4 CGU and 65.9 million euros for district-heating licences. The Impairment of trade receivables 13.1 15.5 measurement led to impairments of the remaining goodwill Insurance premiums 10.5 8.7 attributed to the generation CGU (31.4 million euros), the power Printing, postal and shipping costs 10.3 8.5 plants disclosed as property, plant and equipment (43.9 million Disposal of intangible assets and euros) and district-heating licences (53.5 million euros). These property, plant and equipment 9.1 14.4 impairments totalling 128.8 million euros are all attributed to the Allocations to write-downs 4.4 1.2 swb segment. Goodwill impairments in the generation CGU Expenses from pollutant emission rights 0.9 3.0 totalling 21.9 million euros were recognised in the previous year, Offshore liability reallocation charge 0.3 17.5 as well as impairments of individual power plants transferred to Other 160.6 159.2 cold reserves totalling 16.3 million euros. Total 606.6 621.5

Furthermore, other impairments on fixed assets totalling 5.4 million euros and goodwill totalling 10.0 million euros were recognised in the reporting year. Foreign currency expenses were offset by 24.5 million euros in foreign currency income (previous year: 15.1 million euros). The classification by segment can be found in segment reporting (see section 42). 12. PROFIT/LOSS FROM FINANCIAL INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

| T 032

in millions of euros 2015 2014

Profit/loss from financial investments accounted for using the equity method -20.4 110.8 Income from the disposal of financial investments accounted for using the equity method 2.8 Total -20.4 113.6

Income from the disposal of financial investments accounted for using the equity method in the previous year was resulted entirely from the sale of EWE’s interest in MVR Müllverwertung Rugen- berger Damm GmbH & Co. KG.

EWE AG Annual Report 2015 130 CONSOLIDATED FINANCIAL STATEMENTS

Profit/loss from financial investments accounted for using the 14. NET INTEREST INCOME/EXPENSE equity method is composed of the following: | T 035 | T 033 in millions of euros 2015 2014 in millions of euros 2015 2014 Interest and similar income 16.4 30.8 Hansewasser Ver- und Interest and similar expenses -153.7 -167.5 Entsorgungs-GmbH 5.4 4.7 Interest components of allocations to DOTI Deutsche Offshore-Testfeld- und Pension provisions -37.4 -51.8 Infrastruktur-GmbH & Co. KG 0.6 4.4 Provisions for rehabilitation -6.3 -6.0 Gemeinschaftskraftwerk Bremen GmbH & Co. KG -2.4 -1.7 Other provisions 0.1 -5.2 VNG – Verbundnetz Gas Income from interest rate derivatives 2.6 Aktiengesellschaft 1) -24.7 98.3 Total -180.9 -197.1

MVR Müllverwertung Rugenberger Damm GmbH & Co. KG 3.9 Other associates 0.7 1.2 Total -20.4 110.8 15. INCOME TAXES

1) The result in 2014 was influenced by positive special items. | T 036

in millions of euros 2015 2014 13. OTHER PROFIT/LOSS FROM INVESTMENTS Tax expense for the current period 117.5 83.1 | T 034 Tax expense/(income) from previous periods 11.1 -13.8 in millions of euros 2015 2014 Current income tax 128.6 69.3

Income from investments 10.9 12.0 Temporary differences -87.0 -55.3 Profit from the sale of investments 0.5 1.8 Loss carryforwards -1.1 -2.7 Appreciation of financial assets 5.3 Deferred taxes -88.1 -58.0 Income from the transfer of profits 0.2 Total 40.5 11.3 Losses from the sale of investments -1.2

Expenses from the transfer of losses -1.0 -3.2 Other expenses from investments -1.3 -2.6 The EWE Group’s weighted average tax rate for 2015 totalled Impairment of financial investments -6.2 -2.7 30.0 per cent (previous year: 30.0 per cent). As in the previous Total 2.9 9.6 year, this figure consists of federal and state corporate income

tax, the solidarity surcharge and local trade tax.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 131 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The taxes on the EWE Group’s earnings before taxes deviates from the theoretical tax expense which would result from application of the weighted average group tax rate to the Group’s earnings before taxes as follows:

| T 037

in millions of euros 2015 2014

Earnings before tax 31.1 157.6 Fictitious tax expense 9.3 47.3 Deviation as a result of the basis for assessment of local trade tax 4.6 -7.7 Deviation from the expected tax rate Deviation as a result of differences to the group tax rate -4.2 -9.4 Permanent deviations 10.9 2.4 Use of loss carryforwards 0.3 5.1 Non-deductible expenses 5.6 5.1 Tax-free income -1.3 -2.1 Associates accounted for using the equity method 6.1 -33.3 Non-periodic taxes 7.8 -20.8 Other 1.4 24.7 Effective tax expense 40.5 11.3 Effective tax rate in per cent 130.2 7.2

EWE AG Annual Report 2015 132 CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE STATEMENT OF FINANCIAL POSITION

16. INTANGIBLE ASSETS

| T 038

in millions of euros 31.12.2015 31.12.2014

Concessions, industrial property rights, licences and similar rights 417.6 501.4 Advance payments 49.2 16.1 Goodwill 311.8 358.9 Intangible assets with an indefinite useful life 95.9 95.9 Total 874.5 972.3

The development of intangible assets is as follows:

| T 039

Concessions, industrial property Intangible rights, licences assets with and similar Advance an indefinite in millions of euros rights payments Goodwill useful life Total

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

Accumulated amortisation As of 01.01.2015 368.3 414.4 782.7 Scheduled depreciation during the reporting period 40.8 40.8 Impairment during the reporting period 53.5 41.4 94.9 Reclassifications -0.3 -0.3 Currency adjustments -13.6 -23.1 -36.7 Disposals 1.7 1.7 Stand: 31.12.2015 447.0 432.7 879.7

Carrying value As of 31.12.2015 417.6 49.2 311.8 95.9 874.5

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 133 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

| T 040

Concessions, industrial property Intangible rights, licences assets with and similar Advance an indefinite in millions of euros rights payments Goodwill useful life Total

Acquisition/manufacturing cost As of 01.01.2014 869.0 0.2 768.0 95.9 1,733.1 Changes to the basis of consolidation/acquisitions -7.2 -4.9 -12.1 Additions 17.5 16.1 33.6 Reclassifications 3.7 -0.1 3.6 Currency adjustments 10.1 10.2 20.3 Disposals 23.4 0.1 23.5 As of 31.12.2014 869.7 16.1 773.3 95.9 1,755.0

Accumulated amortisation As of 01.01.2014 349.7 383.3 733.0 Changes to the basis of consolidation/acquisitions -6.4 -6.4 Scheduled depreciation during the reporting period 41.8 41.8 Impairment during the reporting period 21.9 21.9 Reclassifications -0.7 -0.7 Currency adjustments 5.1 9.2 14.3 Disposals 21.2 21.2 As of 31.12.2014 368.3 414.4 782.7

Carrying value As of 31.12.2014 501.4 16.1 358.9 95.9 972.3

Development costs were not capitalised due to not meeting the Goodwill and intangible assets with an indefinite useful life requirements for capitalisation. These costs were – similar to With regard to impairment testing, goodwill and brands acquired research costs – recognised as an expense. In the 2015 business within the scope of business combinations are attributed to the year, a total of 1.9 million euros was spent on research and following cash-generating units (CGU): development (previous year: 2.6 million euros). »» Conventional power generation Impairment of intangible assets was recognised in profit and loss »» Waste disposal as depreciation, amortisation and impairment. »» wesernetze »» swb sales No limitations to EWE’s property rights to intangible assets exist; »» Telecommunications furthermore, no intangible assets were used as collateral for »» Other liabilities.

EWE AG Annual Report 2015 134 CONSOLIDATED FINANCIAL STATEMENTS

Major goodwill and intangible assets with an indefinite useful life attributed to CGEs in 2015:

| T 041

in millions of euros WACC in % Goodwill Brand Total

CGU Conventional power generation 4.38 Waste disposal 4.38 57.8 57.8 wesernetze 3.59 159.9 159.9 swb sales 4.38 28.6 95.9 124.5 Telecommunications 4.55 42.8 42.8 from 3.56 Other to 10.37 22.7 22.7 Total 311.8 95.9 407.7

Major goodwill and intangible assets with an indefinite useful life attributed to CGEs in 2014:

| T 042

in millions of euros WACC in % Goodwill Brand Total

CGU Conventional power generation 4.89 31.4 31.4 Waste disposal 4.89 57.8 57.8 wesernetze 4.04 159.9 159.9 swb sales 4.86 33.6 95.9 129.5 Telecommunications 4.28 42.8 42.8 from 3.19 Other to 10.09 33.4 33.4 Total 358.9 95.9 454.8

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 135 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

EWE Group conducts its annual impairment testing on 30 Septem- Underlying assumptions for the calculation of ber of each year. An impairment test is additionally carried out fair value less disposal costs when circumstances exist which indicate that the asset may be Estimation uncertainty exists with regard to the following key impaired. The CGU’s recoverable amount is calculated on the basis assumptions used in the calculation of fair value: of fair value less disposal costs. In this context, information was used that was not based on observable market data and, as such, is »» Discount rates (all CGUs) classified in level 3 of the fair value hierarchy. »» Trends in spreads and capacity (conventional generation) »» Production quantities and waste prices (disposal) The fundamental assumptions which management used as the »» Grid fee trends (wesernetze) basis for calculating fair value less disposal costs of CGUs with a »» Changes in the size of the customer base carrying amount attributed to them contain a discounted growth (swb sales, telecommunications) rate into perpetuity of 1.0 per cent. The value of goodwill impairment required as a result of the impairment tests carried out for Discount rates (all CGUs) the aforementioned CGUs can primarily be attributed to the The discount rates represent current market estimates with regard conventional power generation CGU (31.4 million euros; previous to the specific risks attributed to the respective CGU. Calculation year: 21.9 million euros) as well as the swb sales CGU (5.1 million of the discount rate takes the specific circumstances of the EWE euros; previous year: 0.0 million euros) and is recognised in profit Group and its CGUs into account and is based on their weighted and loss under amortisation, depreciation and impairment. average cost of capital (WACC). The weight average costs of capital include both external financing as well as equity. Equity costs Fair value less disposal costs of the CGUs is calculated based on are derived from investors’ expected rate of return. External finan- current planning and assumptions. As a general principle, a planning cing costs are derived from the market price of industry-specific horizon of three years which then continues into perpetuity was bonds. The risk specific to a CGU is included through the applica- used. For projects with a definite term, the length of this term was tion of individual beta factors. The beta factors are determined used accordingly. annually on the basis of publicly accessible market data.

Discount rates reflect current market evaluations of the specific Trends in spreads and capacity (conventional generation) risks of each individual CGU as at 30 September of the respective The spread results from the difference between revenue from year and are based on the cash-generating units’ weighted average power sales (which depends on price trends) and the raw material cost of capital (WACC). costs for gas or coal as well as emissions certificates. Expected raw material costs are predominantly based on existing contracts The discount rates were derived from capital market data for and/or futures market prices that were extrapolated out into per- industry-specific peer groups. They take expectations with regard petuity. In this context, power plant scheduling is also based on to the risk-free market interest rate and the specific risks of the the achievable spreads. Management makes estimates with regard respective CGU into account. The individual WACC after taxes cal- to capacities. Management assumed as the basis for terminal culated in this manner was used for the respective planning horizon. value a remaining production quantity after allocation to cold The respective discount rates used are listed in the table above. reserves and abandonment as well as a normal year, which resulted from an estimate of expected spreads.

EWE AG Annual Report 2015 136 CONSOLIDATED FINANCIAL STATEMENTS

Production quantities and waste prices (disposal) Sensitivity analysis of the underlying assumptions Management’s estimates are based on past experience, existing The effects of the major underlying assumptions on the recover- contracts and an estimation of the otherwise unused capacity/ able amount are explained in the following: production quantity. A capacity-oriented production quantity and a normal year were assumed as the basis for terminal value. With Discount rates regard to waste prices, a normal year is oriented on the last year For all of the aforementioned CGUs, an increase in the WACC used with detailed planning. as the basis of up to 1.0 per cent (previous year: 0.85 per cent) would not lead to any additional impairment. Grid fee trends (wesernetze) Profit and loss related to grids is heavily affected by regulatory 17. PROPERTY, PLANT AND EQUIPMENT influences, particularly the regulation of grid fees (specification of | T 043 an upper limit), as well as the awarding of concession agreements. On the basis of management’s experience, EWE will continue to in millions of euros 31.12.2015 31.12.2014 assume that existing concession agreements will be awarded in the future and that an adequate earnings position is guaranteed Real estate and buildings 438.2 452.1 from regulated grid fees. Technical equipment and machinery Power supply systems 1,712.6 1,751.8 Gas supply systems 1,733.8 1,663.8 Changes in the size of the customer base Other 1,101.3 1,102.5 (swb sales, telecommunications) Other equipment, furniture and Changes in the size of the customer base have a major effect on office equipment 50.8 59.1 profit and loss in the swb sales and telecommunications CGUs Advance payments made and and, as such, a direct effect on the absolute contribution to cover construction in progress 83.4 149.3 existing fixed costs. In this context, based on historic fluctuation Total 5,120.1 5,178.6 rates, EWE assumes that the size of the customer base in the swb sales and telecommunications CGUs will remain essentially stable.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 137 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Property, plant and equipment has changed as follows:

| T 044

Other Advance equipment, payments Technical furniture made and Real estate equipment and and office construction in millions of euros and buildings machinery equipment in progress Total

Acquisition/manufacturing cost As of 01.01.2015 872.1 11,473.0 267.0 168.0 12,780.1 Changes to the basis of consolidation Additions/disposals due to mergers and carve-outs 0.1 0.1 0.2 Additions 3.2 336.9 13.1 68.9 422.1 Reclassifications 4.7 156.2 -42.1 -127.9 -9.1 Reclassification into available-for-sale assets Currency adjustments -0.2 -17.5 -0.6 -1.4 -19.7 Disposals 4.8 81.4 12.4 5.0 103.6 As of 31.12.2015 875.0 11,867.3 225.1 102.6 13,070.0

Accumulated amortisation As of 01.01.2015 420.0 6,954.9 207.9 18.7 7,601.5 Changes to the basis of consolidation Additions/disposals due to mergers and carve-outs 0.1 0.1 Scheduled depreciation during the reporting period 20.7 358.6 15.6 394.9 Impairment during the reporting period 48.8 0.5 49.3 Reclassifications -0.1 37.1 -36.9 0.1 Reclassification into available-for-sale assets Currency adjustments -7.0 -0.4 -7.4 Disposals 3.8 72.8 12.0 88.6 Write-ups As of 31.12.2015 436.8 7,319.6 174.3 19.2 7,949.9

Carrying value As of 31.12.2015 438.2 4,547.7 50.8 83.4 5,120.1

EWE AG Annual Report 2015 138 CONSOLIDATED FINANCIAL STATEMENTS

| T 045

Other Advance equipment, payments Technical furniture made and Real estate equipment and and office construction in millions of euros and buildings machinery equipment in progress Total

Acquisition/manufacturing cost As of 01.01.2014 857.3 10,905.1 270.9 572.0 12,605.3 Changes to the basis of consolidation -0.4 8.2 -3.3 4.5 Additions/disposals due to mergers and carve-outs 0.1 0.1 Additions 12.7 254.6 15.5 88.8 371.6 Reclassifications 7.8 477.6 1.3 -490.3 -3.6 Reclassification into available-for-sale assets 26.8 26.8 Currency adjustments 4.4 0.2 0.2 4.8 Disposals 5.3 203.7 17.7 2.7 229.4 As of 31.12.2014 872.1 11,473.0 267.0 168.0 12,780.1

Accumulated amortisation As of 01.01.2014 401.8 6,745.8 205.6 18.7 7,371.9 Changes to the basis of consolidation 6.9 -2.6 4.3 Additions/disposals due to mergers and carve-outs 0.1 0.1 Scheduled depreciation during the reporting period 21.0 345.2 20.1 386.3 Impairment during the reporting period 2.4 17.4 0.6 1.3 21.7 Reclassifications 0.2 0.5 0.7 Reclassification into available-for-sale assets 9.8 9.8 Currency adjustments 0.5 0.1 -0.1 0.5 Disposals 3.8 170.9 16.5 1.2 192.4 Write-ups -1.4 -1.4 As of 31.12.2014 420.0 6,954.9 207.9 18.7 7,601.5

Carrying value As of 31.12.2014 452.1 4,518.1 59.1 149.3 5,178.6

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

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 139 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

18.INVESTMENT PROPERTY

The changes to investment property were as follows:

| T 046

in millions of euros 2015 2014

Acquisition/manufacturing cost As of 01.01. 22.6 28.5 Disposals 9.2 5.9 As of 31.12. 13.4 22.6

Accumulated amortisation As of 01.01. 13.2 17.0 Scheduled depreciation during the reporting period 0.2 0.3 Disposals 5.7 4.1 As of 31.12. 7.7 13.2

Carrying value As of 31.12. 5.7 9.4

Combination of profit/loss in the period from financial investments:

| T 047

in millions of euros 31.12.2015 31.12.2014

Rental income from investment property 0.8 1.2 Operating expenses (including repairs and maintenance), with which rental income was generated 0.4 0.6 Profit/loss from financial investments 0.4 0.6

The Group is not limited in any way with regard to its ability to Property classified as investment property had a fair value of sell investment property, and the Group has not entered into any 10.1 million euros at the end of the reporting period (previous contractual obligations to sell, construct or develop investment year: 13.3 million euros). property. Furthermore, the Group has no contractual obligations with regard to the repair, maintenance or improvement of investment property.

EWE AG Annual Report 2015 140 CONSOLIDATED FINANCIAL STATEMENTS

19. INVESTMENTS ACCOUNTED FOR USING THE EQUITY Consolidated financial information about companies accounted METHOD for using the equity method (all of which are not listed on the stock exchange) is presented in the following table. In this context, Interests in companies accounted for using the equity method the figures presented do not represent the share attributable to developed as follows: EWE AG, but the full amount.

| T 048 | T 049

in millions of euros 2015 2014 Balance sheet 31.12.2015 Other in millions of euros associates Opening balance on 01.01. 1,240.0 882.4 Group share of profit/loss -20.4 110.8 Non-current assets 789.6 Dividends collected -54.9 -39.9 Current assets 89.3 Changes in basis for consolidation -19.3 of this total, cash and cash equivalents 29.2 Addition 214.8 324.7 Non-current liabilities 424.9 Reclassification -1,251.6 Current liabilities 166.0 Disposal -4.9 -6.9 Total assets 878.9 Changes recognised outside profit and loss 3.0 -11.8 Closing balance on 31.12. 126.0 1,240.0 | T 050

Balance sheet 31.12.2014 VNG – Verbund- Other in millions of euros netz Gas AG associates The additions in the previous year and the current reporting year resulted primarily from the purchase of an additional interest in Non-current assets 2,739.6 783.9 VNG – Verbundnetz Gas Aktiengesellschaft. Current assets 2,024.0 71.4 of this total, Reclassification applies to the interest in VNG – Verbundnetz Gas cash and cash equivalents 40.7 19.1 Aktiengesellschaft, which was classified as non-current assets held Non-current liabilities 1,193.6 457.6 for sale (see section 26). Current liabilities 1,872.8 112.2 Total assets 4,763.6 855.3 The interests in associates held by the Group at the end of the repor- Equity 1,697.2 ting period on 31 December 2015 encompass goodwill with a value of Recognised using the equity method (47.89%) 812.8 18.1 million euros (previous year: 22.9 million euros). This goodwill is Acquisition of additional interests contained within the Sales, Services and Trading segment (previous (15.79%) including proportional year: Sales and Trading and Central Divisions/Consolidation). effects from preliminary purchase price allocation and proportional profit/loss 304.5 As at the end of the reporting period on 31 December 2015, the Recognised using the equity unrecognised share of losses from associates has accumulated to method (63.68%) 1,117.3 -0.1 million euros (previous year: -0.8 million euros). Of this total, 0.7 million euros (previous year: -0.8 million euros) applies to the current reporting period.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 141 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

| T 051 21. INVENTORIES

Income statement 2015 Other | T 054 in millions of euros associates in millions of euros 31.12.2015 31.12.2014 Revenue 108.4 Amortisation, depreciation and impairment -24.6 Gas supplies 123.8 228.2 Interest 0.8 Raw materials, consumables and supplies 54.7 58.5 Interest expenses -7.7 Goods in process, work in progress 9.2 7.7 Tax result -9.1 Finished goods and goods for resale 4.6 3.8 Profit/loss 2.7 Advance payments 25.9 1.6

Total 218.2 299.8

| T 052 Inventories contain impairment losses of 9.0 million euros Income statement 2014 VNG – Verbund- Other (previous year: 19.5 million euros). in millions of euros netz Gas AG associates

Revenue 9,977.9 121.2 No limitations on the right of disposal or other encumbrances Amortisation, depreciation exist. and impairment -142.5 -22.7 Interest 5.0 1.8 Interest expenses -45.0 -5.6 Tax result 31.6 -8.7 Profit/loss 178.7 7.2

20. OTHER NON-CURRENT FINANCIAL ASSETS

| T 053

in millions of euros 31.12.2015 31.12.2014

Interests 259.4 192.1 Loans 97.8 102.7 Derivative financial instruments 64.5 29.9 Other 7.7 8.4 Total 429.4 333.1

EWE AG Annual Report 2015 142 CONSOLIDATED FINANCIAL STATEMENTS

22. TRADE RECEIVABLES

Trade receivables are payable within one year:

| T 055

of this total: overdue and not individually impaired as at the end of the reporting period neither overdue Less Between Between Between Carrying nor than 30 and 91 and 181 and More than in millions of euros value impaired Total 30 days 90 days 180 days 360 days 360 days as at 31.12.2015 Trade receivables 895.1 638.3 256.8 172.0 62.8 10.6 4.1 7.3 as at 31.12.2014 Trade receivables 970.5 626.3 344.2 281.8 25.2 9.3 8.4 19.5

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

| T 056 | T 057

in millions of euros 31.12.2015 31.12.2014 in millions of euros 2015 2014 Derivative financial instruments 126.4 90.7 Total impairment on 01.01. 41.7 45.3 Receivables from companies with Exchange rate differences -0.5 0.2 which an investment relationship exists 56.7 62.0 Changes to the basis for consolidation/merger 0.2 -0.4 Receivables from contract manufacturing 10.1 14.9 Allocations 4.4 1.2 Securities 4.8 37.8 Use -1.9 -1.9 Remaining other financial assets 36.9 28.3 Reversals -6.6 -2.7 Total 234.9 233.7 Reclassifications -2.0

Total impairment on 31.12. 35.3 41.7

Additions to the impairment of trade receivables are reflected in profit and loss under other operating expenses, while amounts from the reversal of impairments are disclosed as a part of other operating income.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 143 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Other financial receivables and assets are payable within one year.

| T 058

of this total: overdue and not individually impaired as at the end of the reporting period neither overdue Less Between Between Between Carrying nor than 30 and 91 and 181 and More than in millions of euros value impaired Total 30 days 90 days 180 days 360 days 360 days as at 31.12.2015 Other financial receivables and assets 234.9 229.5 5.4 2.1 0.3 0.1 2.9 as at 31.12.2014 Other financial receivables and assets 233.7 229.3 4.4 0.9 0.1 0.1 3.3

Impairment of other financial receivables and assets is presented 24. OTHER NON-FINANCIAL RECEIVABLES AND ASSETS in the following table: Other non-financial receivables and assets are payable within | T 059 one year. in millions of euros 2015 2014 | T 060

Total impairment on 01.01. 1.9 0.3 in millions of euros 31.12.2015 31.12.2014 Allocations 1.6 Total impairment on 31.12. 1.9 1.9 Value-added tax 45.0 22.8 Advance payments 28.7 66.7 Emission allowances 26.6 36.1 Prepaid expenses 7.7 9.0 Additions to the impairment of other financial receivables and Remaining other non-financial assets 14.0 40.0 assets are reflected in profit and loss under other operating Total 122.0 174.6 expenses, while amounts from the reversal of impairments are

disclosed as a part of other operating income.

EWE AG Annual Report 2015 144 CONSOLIDATED FINANCIAL STATEMENTS

25. LIQUID ASSETS The capital reserve primarily results from the provisions of article 272, section 2, no. 4 of the German Commercial Code. See section 43 for more information on the composition of cash and cash equivalents in the statement of cash flows. In 2015, EWE entered into an agreement with EnBW AG, subject to certain conditions, regarding the transfer of the interest in VNG 26. NON-CURRENT ASSETS HELD FOR SALE held by EWE to EnBW. Within the scope of this agreement, EWE has agreed to buy back 10 per cent of its own shares currently held The interest in VNG accounted for using the equity method was by EnBW (treasury shares), among other conditions. Since EWE classified as held for sale as a result of the decision to sell. The can no longer withdraw from this obligation as of the end of the interest has been measured at its carrying amount. reporting period, the company must recognise as a liability written put options on its own shares at the present value of the The interest is attributed to the Group Central Division segment. obligation and deduct this amount from equity as set forth in Management expects to finalise the sale in the 2016 business year. IAS 32.23. To ensure continued disclosure in the following year, EWE decided to deduct the value from equity in such a way as if 27. EQUITY the treasury shares were already purchased. As such, the nominal value (24.3 million euros) will be openly deducted from subscribed The categorisation of and changes in equity are presented in the capital and the value exceeded this amount (480.5 million euros) statement of changes in equity. will be openly deducted from the capital reserve.

The subscribed capital of EWE AG totalling 242,988 thousand NET INCOME OF EWE AG euros (previous year: 242,988 thousand euros) is divided into The Board of Management suggests to the general meeting of 242,988 (previous year: 242,988) registered shares, each with a shareholders that from the net income of EWE AG totalling value of 1,000 euros. 228,783,747.47 euros, a dividend of 88,000,534.08 euros and a special dividend of 137,500,000.00 euros be paid out to the A total of 26 per cent of the share capital of EWE AG is held by company’s shareholders. Management further suggests that the EnBW Energie Baden-Württemberg AG (EnBW), Karlsruhe. remaining 3,283,213.39 euros be carried forward onto new Weser-Ems-Energiebeteiligungen GmbH (WEE), Oldenburg, account. continues to hold 59 per cent of the company, and Energieverband Elbe-Weser Beteiligungsholding GmbH (EEW), Oldenburg, also The minority shares show the shares held by third parties in continues to hold 15 per cent. Ems-Weser-Elbe Versorgungs- und Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Entsorgungsverband Beteiligungsgesellschaft mbH (EWE-Verband Kayseri, Turkey; Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve GmbH), Oldenburg, is the owner of WEE. Ems-Weser-Elbe Versor- Taahhüt A.Ş., Bursa, Turkey; and EWE NETZ GmbH, Oldenburg. gungs- und Entsorgungsverband (EWE-Verband), Oldenburg, is the The latter is related to the municipal EWE grid investment model. sole shareholder of EWE-Verband GmbH and EEW. The members of the EWE-Verband include districts and cities in our supply area between the Ems, Weser and Elbe rivers.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 145 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

28. CONSTRUCTION GRANTS

| T 061

31.12.2015 31.12.2014

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

Construction grants 694.9 51.0 712.3 51.6

Construction grants primarily consist of grants for construction costs. They are released over the useful life of the assets for which they were received. The release is recognised in profit and loss under revenue.

29. PROVISIONS

| T 062

31.12.2015 31.12.2014

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

Provisions for pensions and similar obligations 1,736.1 1,736.1 1,905.3 1,905.3 Personnel-related obligations 95.1 17.1 112.2 56.6 3.9 60.5 Rehabilitation obligations 253.9 253.9 195.6 195.6 Remaining other provisions 34.3 113.6 147.9 29.5 92.9 122.4 Total 2,119.4 130.7 2,250.1 2,187.0 96.8 2,283.8

EWE AG Annual Report 2015 146 CONSOLIDATED FINANCIAL STATEMENTS

PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS recognition of the actual extent of the obligation and the expen- EWE AG primarily grants pension benefits through aged-based ses. As long as plan assets exceed the present value of the guaran- schemes and deferred-compensation plans. In addition to these teed minimum benefit, there is no disclosure in profit and loss and plans, in which the majority of EWE employees are enrolled, expenses regularly correspond to the contributions made, which in individual contractual benefit commitments also exist. The essence corresponds to the accounting treatment of a defined retirement benefits paid out by the EWE Group to its employees contribution plan. At the same time, this ensures that the mini- correspond with the definition of defined benefit plans for mum obligation under labour law is always covered by plan assets, post-employment benefits as set forth in IAS 19 (revised 2011). which is enough to satisfy the defined benefit element of the plan’s structure. The obligations encompass both pension benefits currently being paid out as well as entitlements to future benefit payments. As a result, this model essentially transfers the funding risk for the retirement benefits to the entitled employees while still taking the The characteristic feature of obligations under defined benefit guaranteed benefit in the amount of the contributions during the plans is that the EWE Group has to fulfil them in the amount vesting period into account. In return, the employees have the granted and therefore bears both the funding risk and the opportunity to earn appropriate returns on the capital invested. biometric risks (i.e. longevity risk). Current contribution payments in the form of annual service costs Plans with previously granted pension entitlements were rolled are recognised as personnel expenses for the respective period over to EWE-wide regulations in 2001. In these plans, the pension and disclosed in the EBIT. The net interest expense is disclosed in commitments largely depend on the length of service and the net interest income/expense. employee’s average compensation over the twelve months of employment prior to termination or retirement. The EWE Group is The balance sheet items for the defined benefit and defined not obligated to form plan assets for plans with pension entitle- contribution pension obligations are as follows: ments. | T 063

In the case of the unit-linked direct benefits model introduced in in millions of euros 31.12.2015 31.12.2014 2009, the Group companies participating in this model transfer an annual benefit contribution to the EWE-Treuhandverein e. V. (trust Present value of financial obligations funded via EWE-Treuhandverein 23.0 17.9 association) association for each entitled employee. EWE-Treu- Fair value of plan assets handverein e. V. has trust by-laws that govern, in particular, the (EWE-Treuhandverein) -23.0 -17.9 purpose of the association, membership and the bodies of the Present value of financial obligations association and their responsibilities. It is managed by the Board not funded via EWE-Treuhandverein 1,738.4 1,907.5 of Management that has been appointed in accordance with the Fair value of plan assets -2.3 -2.2 by-laws. The benefit contributions which accumulate over the Carrying amount 1,736.1 1,905.3 vesting period plus the returns earned on them are annuitised upon the occurrence of an event which results in eligibility to receive benefits. In this context, the participating Group company The following values have been recognised in profit and loss: guarantees the value of the nominal contributions. The defined | T 064 benefit obligation (DBO) of the direct commitment is recognised as the difference between the present value of the guaranteed in millions of euros 2015 2014 obligation and plan assets. Similarly, current service cost results from the maximum of the current service cost of guaranteed Current service cost 42.6 29.7 obligations and contributions to the plan. Finally, if plan assets Net interest expense 37.4 51.8 exceed the present value of guaranteed obligations, the interest Past service cost 1.8 Total 80.0 83.3 income from plan assets is considered equal to the interest expense, yet opposite in sign. This results in the appropriate

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 147 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The following table shows the change in the present value of cent (previous year: 14 per cent); cash and cash equivalents, 10 per the obligations: cent (previous year: 7 per cent); and other investments, 1 per cent (previous year: 3 per cent). | T 065

in millions of euros 2015 2014 The following table shows the change in the present value of the obligation: Present value at the beginning of the period 1,925.5 1,529.8 | T 067 Current service cost 42.6 29.7 in millions of euros 2015 2014 Interest cost 37.8 52.3

Actuarial (gains)/losses not Carrying amount at the beginning recognised in profit and loss -174.1 383.1 of the period 1,905.4 1,515.8 of this total, changes in Expense recognised in profit and loss 80.3 83.3 demographic assumptions Pension payments from company of this total, changes in assets and contributions to financial assumptions -148.9 401.3 EWE-Treuhandverein -75.0 -75.3 Past service cost 1.8 Actuarial (gains)/losses -174.6 381.6 Pension payments from Carrying amount at the end company assets -70.4 -71.2 of the reporting period 1,736.1 1,905.4 Present value at the end of the reporting period 1,761.4 1,925.5 All actuarial gains and losses of -174.4 million euros (previous year: 381.6 million euros) were recognised in other comprehensive The following table shows the performance of plan assets: income.

| T 066 Pension obligations were calculated using the 2005 G Klaus in millions of euros 2015 2014 Heubeck actuarial tables and based on the following main actuarial assumptions: Present value at the beginning of the period 20.1 14.1 | T 068 Interest income 0.4 0.5 Calculation assumptions/ Income from plan assets not parameters (in per cent) 31.12.2015 31.12.2014 included in net interest income 0.2 1.6 Employer contributions 3.3 3.0 Discount rate 2.50 2.00 Deferred compensation 1.2 1.0 Interest rate for plan assets 2.50 2.00 Other -0.1 Future salary increases 2.50 2.50 Fair value at the end of the reporting period 25.2 20.1 Future pension increases 1.75 1.75 Labour turnover rate 0.00 0.00

Since 2010, the trust assets have been invested in Fidelity target- In contrast to the aforementioned assumptions, the pension date funds with target dates between 2015 and 2040, with the obligations calculated as at the end of the reporting period for the capital invested on the basis of the expected retirement dates of swb segment are based on an annual rate of pension progression the entitled employees. There is a quoted price in an active market of 1.0 per cent (plus a premium of 0.7 per cent (previous year: as defined in IFRS 13 for all target funds in which the trust assets 0.7 per cent) of the DBO for expected one-off payments in lieu are invested. Trust assets consist of the following: shares, 74 per of pension adjustments, as well as an average labour turnover rate cent (previous year: 76 per cent); fixed income securities, 15 per of 1.25 per cent annually (previous year: 1.25 per cent annually)),

EWE AG Annual Report 2015 148 CONSOLIDATED FINANCIAL STATEMENTS

as in the previous year. Obligations with historically higher adjustment rates have been measured using the adjustment rates observed in the past and expected to continue over the long term, including a rate of pension progression of 4.0 per cent, similar to the previous year.

Pension payments for 2016 are expected to total 70.1 million euros. Contributions to plan assets are expected to total 4.5 million euros.

Changes to the applicable actuarial assumptions would have the following effects on the defined benefit pension obligation:

| T 069 Effect on the present value of obligations not financed via EWE-Treuhandverein in millions of euros 2015 2014

Change in the assumption regarding the discount rate Increase by 1.0% -245.9 -284.9 Decrease by 1.0% 319.4 374.1 regarding future salary increases Increase by 0.5% 36.5 44.2 Decrease by 0.5% -34.3 -41.4 regarding inflation Increase by 0.5% 50.9 58.5 Decrease by 0.5% -46.5 -53.2 regarding life expectancy Reduction in mortality rate by 10% 61.5 70.3

The sensitivity analyses shown each take only changes to one assumption into account, with the remaining assumptions remaining unchanged with respect to the initial calculation; that is, potential correlation effects between the individual assumptions are not taken into consideration.

The average duration of the defined benefit pension obligation weighted on the basis of the present value of the obligation (Macaulay duration) is 17.1 years (previous year: 18.3 years).

Defined contribution pension plans in the EWE Group relate to statutory pension insurance. In 2015, the expense related to employer contributions totalled 57.4 million euros (previous year: 60.5 million euros).

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 149 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Statement of provisions | T 070

Changes recognised Opening outside Closing balance on profit and Other Interest balance on in millions of euros 01.01.2015 Additions loss Reversals changes effect Used 31.12.2015

Provisions for pensions and similar obligations 1,905.4 38.2 -174.6 37.4 -70.3 1,736.1 Miscellaneous provisions Personnel-related obligations 60.6 65.5 -0.6 1.7 -0.2 -14.8 112.2 Rehabilitation obligations 195.6 3.9 48.1 6.3 253.9 Remaining other provisions 122.2 63.7 -10.9 -2.8 0.1 -24.4 147.9 Total 2,283.8 171.3 -126.5 -11.5 -1.1 43.6 -109.5 2,250.1

Personnel-related provisions encompass, among other items, Provisions for rehabilitation are recognised at the amount needed obligations stemming from partial retirement plans and service to settle the obligation, discounted to the end of the reporting anniversaries as well as restructuring provisions for staff reduction period. A discount rate of 2.5 per cent p.a. was used in the within the scope of the ‘Human resources 2017’ programme. reporting year (previous year: 3.5 per cent p.a.). The expenditure resulting from the interest added to the provision for rehabili Provisions for rehabilitation are primarily formed to cover the cost tation is recognised in profit and loss as an interest expense. of rehabilitation and deconstruction of underground gas storage facilities and wind farms in the event of abandonment. The Furthermore, the provisions include costs for the rehabilitation of provisions for underground gas storage facilities are formed as a a property including the disposal of existing waste due to ground result of legal obligation under the German mining ordinance for contamination from the past operation of a natural gas plant. In drilling, underground storage and raw material extraction by addition, a provision was formed for the obligation to carry out means of drilling in Lower Saxony and the German federal mining the demolition of the Hafen power plant and a gas pipeline. act (Bundesberggesetz – BBergG). The amount of provisions to recognise for underground gas storage facilities is based on exter- The remaining other provisions are primarily related to contingent nal expert reports. Provisions for underground gas storage facili- obligations arising from pending transactions, process risks, ties and wind farms are disclosed under non-current liabilities, as invoicing and storage obligations as well as obligations for no rehabilitation or deconstruction work is expected in the near environmental restoration measures. future.

EWE AG Annual Report 2015 150 CONSOLIDATED FINANCIAL STATEMENTS

30. BONDS

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

| T 071

Carrying amount Carrying amount in millions of euros Nominal volume Interest rate Maturity date on 31.12.2015 on 31.12.2014

Bearer bond 50.0 3.750% July 2015 49.3 Bearer bond 50.0 3.500% July 2015 49.9 Bearer bond 50.0 3.680% July 2015 49.8 Bearer bond 50.0 3.500% November 2015 49.9 Three-month Bearer bond 50.0 Euribor + 0.20% July 2016 50.0 Three-month Bearer bond 50.0 Euribor + 0.20% September 2016 50.0 Bearer bond 50.0 1.350% November 2016 50.0 49.9 Three-month Bearer bond 50.0 Euribor + 0.25% January 2017 50.0 Three-month Bearer bond 50.0 Euribor + 0.28% March 2017 50.0 Bearer bond 50.0 0.625% December 2017 49.9 49.8 Eurobond (15 years) 500.0 4.875% October 2019 499.7 499.6 Eurobond (9 years) 500.0 4.125% November 2020 481.5 478.1 Eurobond (12 years) 500.0 5.250% July 2021 496.3 495.7 Bearer bond 50.0 4.000% September 2032 49.9 49.9 Accrued interest 21.3 23.5 Total 1,848.6 1,845.4

31. LIABILITIES TO FINANCIAL INSTITUTIONS

| T 072

31.12.2015 31.12.2014

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

Liabilities to financial institutions 267.3 296.1 297.8 289.0

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 151 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The fixed-interest liabilities to financial institutions totalling 255.8 million euros (previous year: 492.6 million euros) generally carry an average interest rate of 3.97 per cent p.a. (previous year: 4.71 per cent p.a.); the variable-interest liabilities to financial institutions totalling 307.6 million euros (previous year: 94.2 million euros) generally carry an average interest rate of 0.80 per cent p.a. (previous year: 1.46 per cent p.a.). The average remaining fixed-interest period for fixed-interest liabilities is from 36 days to 4.37 years (previous year: 311 days to 2.59 years) and for the variable-interest liabilities 299 days (previous year: 3.64 years).

32. TRADE PAYABLES

Trade payables are due within one year and are primarily denominated in euros.

33. OTHER FINANCIAL LIABILITIES

| T 073

31.12.2015 31.12.2014

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

Liabilities to companies with which an investment relationship exists 543.8 45.2 Derivative financial instruments 136.4 338.2 67.3 211.8 Liabilities from contributions by silent partners 225.0 225.0 Security deposits 130.1 123.6 Human resource liabilities 2.2 56.8 3.0 52.8 Liabilities from guaranteed dividends 28.3 2.0 15.7 1.5 Research and development 1.1 1.7 2.9 2.3 Grant agreements with EWE Research Institute 5.0 5.0 5.0 Remaining other financial liabilities 7.4 120.8 3.3 112.0 Other financial liabilities 400.4 1,198.4 322.2 554.2

The security deposits primarily comprise payments that Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey, and Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey, receive from all new customers upon

EWE AG Annual Report 2015 152 CONSOLIDATED FINANCIAL STATEMENTS

conclusion of a contract and which are repayable upon termination of the contract. These liabilities are classified as current as customers have the ability to terminate their contract at any time. These security deposits cannot be realised otherwise.

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

34. OTHER NON-FINANCIAL LIABILITIES

| T 074 31.12.2015 31.12.2014

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

Tax liabilities 47.6 71.0 Advance payments for orders 22.8 27.8 Remaining other non-financial liabilities 10.5 10.8 12.7 8.0 Other non-financial liabilities 10.5 81.2 12.7 106.8

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 153 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

35. DEFERRED TAXES

Deferred tax assets and liabilities are distributed across the following items:

| T 075

31.12.2015 31.12.2014

in millions of euros Assets Liabilities Assets Liabilities

Intangible assets 0.8 136.7 3.1 160.5 Property, plant and equipment 12.3 546.9 12.6 557.1 Other assets 5.8 40.5 9.4 25.5 Non-current assets 18.9 724.1 25.1 743.1

Inventories 0.3 10.3 0.4 34.2 Receivables 3.2 4.5 3.2 4.7 Other assets 30.8 135.5 34.6 87.1 Current assets 34.3 150.3 38.2 126.0

Construction grants 189.7 189.7 Emission allowances 1.0 1.0 Pension provisions 241.9 0.4 294.3 0.1 Other provisions 92.1 1.4 66.3 5.2 Liabilities 58.9 6.8 40.5 16.8 Non-current liabilities 582.6 9.6 590.8 23.1

Construction grants 9.4 6.5 9.1 Emission allowances 9.8 4.4 Other provisions 17.4 3.0 11.8 4.0 Liabilities 182.8 6.2 106.7 9.6 Current liabilities 219.4 15.7 132.0 13.6

Deferred taxes on balance sheet items 855.2 899.7 786.1 905.8 Loss carryforwards 1.1 2.7 Deferred taxes before offsetting 856.3 899.7 788.8 905.8 Offsetting -757.9 -757.9 -746.6 -746.6

Deferred taxes after offsetting 98.4 141.8 42.2 159.2

EWE AG Annual Report 2015 154 CONSOLIDATED FINANCIAL STATEMENTS

Tax loss carryforwards for which no deferred tax assets were Obligations to acquire intangible assets and property, recognised totalled 3.3 million euros at the end of the reporting plant and equipment period (previous year: 14.9 million euros). Tax loss carryforwards EWE has entered into contractual commitments with a value of are not limited in their realisability. 10.7 million euros related to the purchase of intangible assets (previous year: 14.9 million euros). EWE has entered into contrac- No deferred tax assets are recognised for the aforementioned tax tual commitments with a value of 81.3 million euros related to loss carryforwards, as it is not probable that the tax assets will be the purchase of property, plant and equipment (previous year: realised in the foreseeable future. 52.7 million euros). These mainly relate to purchase commitments in conjunction with the construction of wind turbines and the Temporary differences for which no deferred tax assets were expansion of electricity grids, gas pipelines and telecommuni recognised in profit and loss totalled 0.0 million euros, as in the cations networks as well as technical facilities. previous year. Other contingent liabilities and obligations | T 076 As part of an interest in a power plant company, EWE is obligated in millions of euros 31.12.2015 31.12.2014 to contribute financing for the new construction of a power plant proportionate to the size of the interest. The amount of the Tax receivables 14.0 17.3 contribution is calculated on the basis of the investment plan Tax liabilities -69.0 -18.5 agreed upon and totals 4.7 million euros less payments rendered Current income tax -55.0 -1.2 (previous year: 9.9 million euros). EWE also has a contingent

Deferred tax assets 98.4 42.2 obligation to provide additional contributions of no more than Deferred tax liabilities -141.8 -159.2 5 per cent of its share of equity amounting to 2.2 million euros Deferred taxes -43.4 -117.0 (previous year: 2.2 million euros). EWE does not currently expect Total -98.4 -118.2 this obligation to provide additional contributions to be called

upon.

Temporary differences in connection with interests in subsidiaries EWE holds additional contingent liabilities totalling 5.4 million and associates for which no deferred tax liabilities were recognised euros (previous year: 0.0 million euros) in conjunction with an in the reporting year (in line with IAS 12.39) totalled 353.4 million asset swap. euros (previous year: 377.5 million euros). Furthermore, EWE has also entered into non-current, market- 36. CONTINGENT RECEIVABLES/LIABILITIES AND OTHER standard purchase contracts for the supply of power and gas. OBLIGATIONS 37. LEASES Contingent receivables On 31 December 2015, EWE held contingent receivables totalling Obligations from operating leases 9.8 million euros (previous year: 18.2 million euros), which Financial obligations from operating leases are primarily associated primarily comprise sureties received. with real estate, vehicles, an underground gas storage facility and other property, plant and equipment. The leases have different Sureties and guarantees terms and conditions. The lease payments for office buildings are At the end of the reporting period, EWE had made sureties and regularly adjusted in line with price indices. guarantees totalling 102.9 million euros (previous year: 102.7 million euros), of which 32.6 million euros (previous year: 32.6 million euros) were to creditors of an associate and 0.3 million euros (previous year: 0.3 million euros) stood in conjunction with financial liabilities.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 155 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The following table shows future accumulated minimum lease 39. DERIVATIVE FINANCIAL INSTRUMENTS AND payments from non-terminable operating leases: HEDGE ACCOUNTING

| T 077 a) Strategy and objectives in millions of euros 31.12.2015 31.12.2014 The EWE AG Board of Management defines the risk management policy for the EWE Group. The implementation of this policy is the Up to one year 24.6 26.5 responsibility of the appropriate departments across the Group. After more than one year Financial risks are identified, evaluated and hedged against. The and up to five years 69.8 74.0 After more than five years 88.8 88.9 risk management activities are implemented in line with the Total 183.2 189.4 Group-wide guidelines. The prior approval of the risk committee is

required for hedging strategies which deviate from the guidelines. The risk committee is also informed on a regular basis about the Minimum lease payments from leases recognised in profit and loss extent and value of risk exposure. in the 2015 reporting period totalled 27.4 million euros (previous year: 28.7 million euros) and the contingent rental payments Derivative financial instruments used to hedge currency, interest 0.0 million euros (previous year: 0.2 million euros). rate and commodity price risks are only entered into with contractual partners with a high degree of creditworthiness. To hedge 38. CAPITAL MANAGEMENT price risks, the EWE Group utilises power futures, gas futures, coal swaps, oil swaps, EUA and CER futures contracts and forward The Group’s objectives with respect to capital management exchange contracts. include securing the company’s continued existence as a going concern, optimising its capital structure and maintaining financial In some cases, hedge relationships are not recognised on the flexibility. balance sheet. In addition, derivatives for which hedge accounting is not possible (IAS 39.88) or sensible are included within the Non-current capital management at the EWE Group is based on scope of financial hedges. an analysis of the optimal capital structure considering both equity and borrowings. Activities to optimise the capital structure An effectiveness test using either the critical term match method, focus on minimising the total cost of capital and implies a target the cumulative dollar-offset method or by means of regression rating in the A range for the EWE Group. analysis is carried out to assess the effectiveness of a hedging relationship (fair value and cash flow hedges). Equity consists of equity attributable to the parent company’s shareholders and minority interests. The total volume of the derivatives shown below is shown without offsetting. The amount of total volume allows conclusions to be Equity and total assets stood at: drawn as to the extent of the use of derivatives. It does not reflect the Group’s risk, however, since the derivative transactions at the | T 078 end of the reporting period are offset or, in the future, will be in millions of euros 31.12.2015 31.12.2014 offset by hedged items with countervailing risks.

Total equity 1,749.2 2,285.2 Equity ratio in % 18.0 23.3 Total assets 9,744.3 9,800.9

EWE AG Annual Report 2015 156 CONSOLIDATED FINANCIAL STATEMENTS

b) Derivatives without a hedging relationship The following table shows the derivatives which do not qualify for hedge accounting but are still used to hedge an existing risk position.

| T 079

Nominal volume Fair value

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Currency derivatives 332.6 112.1 0.7 3.1 Commodity derivatives Power futures 0.1 1.0 -0.2 -0.3 Other commodity derivatives 1,226.3 1,485.0 -47.2 -40.1 Other derivatives 213.2 -5.6 Total 1,559.0 1,811.3 -46.7 -42.9

c) Fair value hedges previously hedged item which exists upon dissolution of the Fair value hedges are recognised for commodities in order to hedging relationship in the reporting period remains accounted for hedge gas price risks (fair value change risk) derived from fixed- until settlement. Changes in the value of the hedged item and the price sales already concluded. Hedging instruments consist of hedge are recognised in other operating income or expenses, hedges based on the TTF gas price index. Changes to the fair depending on whether the difference between the changes in value of the derivatives attributable to the hedged risk totalling value of the hedged item and the hedge result in a net gain or net -20.3 million euros were recognised in profit and loss in the loss. The ineffectiveness of the aforementioned hedging relation reporting period (previous year: -26.4 million euros). The fluctua- ships in fair value hedging is of minor significance. The fair values tions in the market value of the hedged items were correspon- of derivatives used as fair value hedges consisted of negative dingly recognised in profit and loss. The market value of the market values of 27.8 million euros.

The following table shows the derivatives in a fair value hedge:

| T 080

Nominal volume Fair value

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Commodity derivatives (fair value hedges) 203.1 -27.8

d) Cash flow hedges Cash flow hedges are primarily used in the Group’s business operations to hedge price risks in the purchase of gas, the purchase of coal and CO2 certificate trading, as well as to hedge foreign currency risks.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 157 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

To hedge cash flow fluctuations stemming from future, highly At the end of the reporting period, the recognised fair values of probable gas purchases, financial price hedges are used (such as derivatives used as currency cash flow hedges were made up of TTF swaps), while electricity forward contracts are used to hedge positive market values of 17.7 million euros (previous year: 12.1 mil- against cash flow fluctuations from highly probable electricity lion euros) and negative market values totalling 3.2 million euros purchases. These contracts are realised in profit and loss within (previous year: 0.8 million euros). In the reporting period, the effec- the following two business years. tive portion of currency cash flow hedges with a value of 12.1 million euros (previous year: 11.3 million euros) was recognised in other At the end of the reporting period, the recognised fair values of comprehensive income. The basis adjustment totalled -9.8 million derivatives used as commodity cash flow hedges were made up euros (previous year: 0.1 million euros). Currency hedging transac- of positive market values of 75.0 million euros (previous year: tions resulted in an effect recognised in profit and loss totalling 30.7 million euros) and negative market values totalling 326.5 mil- -0.7 million euros (previous year: -1.4 million euros). lion euros (previous year: 130.0 million euros). In the reporting period, the effective portion of commodity cash flow hedges with To hedge foreign currency risks, EWE uses forward exchange a value of -178.6 million euros (previous year: -83.3 million euros) contracts whose settlement and recognition in profit and loss was recognised in other comprehensive income. The ineffective can fall within the next two years. portion totalled 4.5 million euros (previous year: 0.7 million euros). The basis adjustment totalled 10.9 million euros (previous At the end of the reporting period, as in the previous year, EWE did year: 15.1 million euros). Commodity hedging transactions resul- not hold any derivatives used in the context of interest rate cash ted in an effect recognised as an expense in profit and loss total- flow hedges. The accumulated profit and loss from interest rate ling 54.7 million euros (previous year: 55.6 million euros). The derivatives previously recognised directly in equity (provisions for hedged cash flows will be received in the following three years. cash flow hedges) was recognised in profit and loss in the previous The entire impact on profit and loss is expected within the same year upon repayment of a bank loan totalling 0.5 million euros. period of time. Derivatives related to cash flow hedges:

| T 081

Nominal volume Fair value

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Currency derivatives 231.4 195.7 14.5 11.3 Commodity derivatives Power futures 1,055.1 764.7 -5.0 -18.8 Other commodity derivatives 893.7 462.9 -246.5 -80.5 Total 2,180.2 1,423.3 -237.0 -88.0

40. ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS

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

EWE AG Annual Report 2015 158 CONSOLIDATED FINANCIAL STATEMENTS

Carrying amounts, bases of recognition and fair values according to measurement categories | T 082

Measure- ment Carrying Carrying category amount on Fair value on amount on Fair value on under IAS 39 31.12.2015 Basis of recognition under IAS 39 31.12.2015 31.12.2014 Basis of recognition under IAS 39 31.12.2014

Fair value Fair value recognised Fair value recognised Fair value outside of recognised in outside of recognised in Amortised Acquisition profit and profit and Amortised Acquisition profit and profit and in millions of euros costs costs loss loss costs costs loss loss

Assets Other non-current assets Loans and receivables LaR 105.5 105.5 105.5 111.1 111.1 111.1 Interests AfS 259.4 1.3 258.1 259.4 192.1 1.1 191.0 192.1 Financial assets measured at fair value Derivatives without a hedging relationship FAHfT 25.2 25.2 25.2 14.0 14.0 14.0 Derivatives with a hedging relationship n/a 39.3 39.3 39.3 15.9 15.9 15.9 Trade receivables LaR 895.1 895.1 895.1 970.5 970.5 970.5 Other receivables and assets Securities AfS 31.6 31.6 31.6 Securities FAHfT 4.8 4.8 4.8 6.2 6.2 6.2 Remaining financial assets LaR 103.6 103.6 103.6 105.4 105.4 105.4 Liquid assets LaR 352.0 352.0 352.0 326.6 326.6 326.6 Financial assets measured at fair value Derivatives without a hedging relationship FAHfT 72.9 72.9 72.9 63.8 63.8 63.8 Derivatives with a hedging relationship n/a 53.5 53.5 53.5 26.8 26.8 26.8

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 159 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Carrying amounts, bases of recognition and fair values according to measurement categories | T 082

EWE AG Annual Report 2015 160 CONSOLIDATED FINANCIAL STATEMENTS

| T 083

Equity and liabilities Bonds FLAC 1,848.6 1,848.6 2,113.9 1,845.5 1,845.5 2,240.6 Liabilities to financial institutions FLAC 563.4 563.4 578.4 586.9 586.9 607.0 Trade payables FLAC 667.8 667.8 667.8 839.5 839.5 839.5 Miscellaneous liabilities FLAC 1,124.2 1,124.2 1,126.3 597.3 597.3 599.0 Financial liabilities measured at fair value Derivatives without a hedging relationship FLHfT 144.9 144.9 144.9 120.6 120.6 120.6 Derivatives with a hedging relationship n/a 329.7 329.7 329.7 158.5 130.7 27.8 158.5

Of this total, aggregated by IAS 39 valuation categories: Loans and receivables (LaR) 1,456.2 1,456.2 1,456.2 1,513.6 1,513.6 1,513.6 Available-for-sale financial assets (AfS) 259.4 1.3 258.1 259.4 223.7 1.1 222.6 223.7 Financial assets held for trading (FAHfT) 102.9 102.9 102.9 84.0 84.0 84.0 Financial liabilities measured at amortised cost (FLAC) 4,204.0 4,204.0 4,486.4 3,869.2 3,869.2 4,286.1 Financial liabilities held for trading (FLHfT) 144.9 144.9 144.9 120.6 120.6 120.6

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 161 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

| T 083

EWE AG Annual Report 2015 162 CONSOLIDATED FINANCIAL STATEMENTS

Fair value of financial instruments is measured solely on a Listings on active markets are used as a reference for the measure- recurring basis. ment of commodity derivatives. If there are no listings available (due to insufficient liquidity in the market, for example), fair Fair value is the price that would be received to sell an asset or values are calculated on the basis of recognised valuation paid to transfer a liability in an orderly transaction between techniques. When available, trades that are identical to stock market participants at the measurement date. exchange transactions on the over-the-counter market are measured on the basis of the published closing rates of the respective Available-for-sale financial assets encompass securities and stock exchange. The fair values of unlisted products are measured non-consolidated interests that are not traded on an active on the basis of publicly available broker quotes or, if not available, market. The fair value of unlisted equity instruments is generally on the basis of recognised valuation techniques using internal calculated using the discounted cash flow method. Unlisted equity data. The risk of default is measured. Energy deals conducted as instruments whose fair value could not be reliably measured due part of commodity transactions are generally subject to EFET to a lack of sufficient recent planning data are measured at cost. (European Federation of Energy Traders) agreements. Risks of EWE had no intention to dispose of these instruments as at the default are accounted for by taking netting agreements into end of the reporting period. consideration.

Trade receivables, other receivables and assets as well as cash With regard to derivatives, the credit and debit value adjustment and cash equivalents have short periods until maturity, which is (CVA/DVA) resulted in an expense of minor significance, similar to why their carrying amounts at the end of the reporting period the previous year. generally correspond with fair value. The maximum default risk is reflected by the carrying amounts of the assets recognised on The fair value of exchange-traded bonds corresponds to the the statement of financial position. nominal value of the bonds multiplied by the quoted price at the end of the reporting period. As of 31 December 2015, the fair The fair value of derivative financial instruments is dependent on value of the bonds exceeds their carrying amount. trends in the underlying market factors. The respective fair values are measured and reviewed at regular intervals. The fair value of other non-exchange traded, fixed-interest bonds or fixed-interest liabilities to credit institutions is measured as the Derivative financial instruments are governed by conventional present value of the payments stemming from these liabilities offsetting agreements. Derivative transactions are generally based on the respective applicable yield curve. When it comes to conducted on the basis of standard agreements which enable the floating-rate liabilities to credit institutions, it is assumed that the netting of all outstanding transactions with business partners. carrying amount will generally correspond to fair value due to the regular adjustments made to the interest rates on the basis of Interest rate swaps, forward exchange contracts, coal swaps, gas current market parameters. price hedging contracts (swaps) and CO2 forwards are measured using the standard market valuation method with maximum Trade payables and other liabilities primarily have short maturi- consideration given to observable market data such as currency ties; the carrying amounts are therefore generally equivalent to spot and futures rates, yield curves and hourly price forward fair value. curves.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 163 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

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

| T 084

31.12.2015

in millions of euros Level 1 Level 2 Level 3 Total

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

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

| T 085

31.12.2014

in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value Interests 191.0 191.0 Securities 37.8 37.8 Derivative financial instruments 95.1 25.4 120.5 Total 37.8 95.1 216.4 349.3

Financial liabilities at fair value Derivative financial instruments 235.4 43.7 279.1 Total 235.4 43.7 279.1

The levels of the fair value hierarchy and their application to Level 3: Inputs for assets and liabilities that are not based on assets and liabilities are described below: observable market data.

Level 1: Quote prices (unadjusted) in active markets for identical At the end of each reporting period, a review is conducted to deter- assets or liabilities. mine if there is reason to reclassify assets or liabilities into or out of a valuation level. During the reporting period ending 31 December Level 2: Inputs other than quoted market prices that are obser 2015, EWE did not reclassify any assets or liabilities between vable for the asset or liability, either directly (i.e. prices) levels 1 and 2 of the fair value hierarchy, nor did it reclassify any or indirectly (i.e. derived from prices). assets or liabilities into or out of level 3 of the hierarchy.

EWE AG Annual Report 2015 164 CONSOLIDATED FINANCIAL STATEMENTS

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

| T 086

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

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

| T 087

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

Balance on 01.01.2014 50.3 5.0 9.5 Other operating income and other operating expenses recognised in profit and loss 20.4 34.2 Gains and losses from other interests recognised in profit and loss (market fluctuations of available-for-sale financial instruments) -1.7 Gains and losses recognised in other comprehensive income (market fluctuations of available-for-sale financial instruments) 96.2 Purchases 0.2 Sales -0.1 Reclassifications 46.1 Balance on 31.12.2014 191.0 25.4 43.7

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 165 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

The fair values of interests classified in level 3 are calculated using which there are still no active markets. This particularly applies to the discounted cash flow method based on planning figures from gas contracts linked to oil prices, the valuation of which is depen- several periods for the cash flows to be discounted and assuming dent on future changes in the wholesale market prices of gas and sustainable terminal value. This category includes non-exchange- oil, among other factors. All else being equal, when gas prices rise traded equity instruments with fair values that can be determined or oil prices fall, the market price of these supply contracts rises. with a sufficient degree of reliability. A hypothetical change to the To measure the value of contracts with volume flexibility, EWE WACC by +/- 1 per cent would result in a theoretical decrease in utilises a valuation model which includes Monte Carlo simulations fair values of 58.0 million euros (previous year: decrease of that makes it possible to determine a price of the contract 32.7 million euros), or an increase of 109.6 million euros (previous options. year: increase of 52.6 million euros). A hypothetical change to EBIT by +/- 10 per cent would result in a theoretical increase in fair b) Offsetting financial instruments values of 24.9 million euros (previous year: increase of 17.8 million The following overview shows the financial assets and financial euros), or a decrease of -24.9 million euros (previous year: liabilities that have not been offset, yet are subject to global decrease of 17.3 million euros). netting agreements or similar agreements. The fair value of pledged collateral is margin payments made from emission As of 31 December 2015, level 3 derivative financial instruments certificate futures. include gas contracts, which also apply to trading periods for

| T 088

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

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

| T 089

Fair value of Offsetting of financial assets and financial Values that financial liabilities as of 31.12.2014 Recognised Disclosed cannot be collateral in millions of euros gross values Offsetting net values offset received Net value

Derivatives (assets) 120.6 120.6 -37.4 83.2 Derivatives (liabilities) 279.1 279.1 -37.4 -3.7 238.0

EWE AG Annual Report 2015 166 CONSOLIDATED FINANCIAL STATEMENTS

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

| T 090

from interest from subsequent measurement Net profit/loss

Impairment loss/ Currency reversal of in millions of euros at fair value translation impairment 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Loans and receivables (LaR) 16.4 30.9 11.3 0.7 -13.1 -10.3 14.6 21.3 Available-for-sale financial assets (AfS) -6.2 -2.7 -6.2 -2.7 Financial instruments held for trading (FAHfT and FLHfT) 13.5 -61.3 13.5 -61.3 Financial liabilities measured at amortised cost (FLAC) -153.7 -167.5 -153.7 -167.5 Total -137.3 -136.6 13.5 -61.3 11.3 0.7 -19.3 -13.0 -131.8 -210.2

Interest income and expense from financial instruments is recognised in the item net interest income/expense. Other components of net profit/loss are recognised in other operating income and expenses as well as in profit/loss from investments.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 167 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

41. RISK MANAGEMENT The EWE Group manages its liquidity by maintaining a sufficient supply of cash, cash equivalents and lines of credit with banks, Liquidity risks and by means of the cash inflows from operations. Financial Liquidity risk refers to the risk of a company not being able to flexibility is secured with bilateral lines of credit and, in particular, meet its financial obligations as necessary. In order to ensure that through the existing syndicated revolving credit facility of it remains solvent, the EWE Group obtains the majority of the 850 million euros, whose term ends in July 2018. The current funds needed to finance working capital and investments from the credit volume of 850 million euros will be reduced to 809 million proceeds of business operations and external financing. The EWE euros beginning in July 2017 and is due in July 2018. This credit Group continually monitors the risk of a possible liquidity shortfall line serves to provide general operating working capital. As of using liquidity planning which takes the maturity periods of 31 December 2015, a total of 175 million euros has been drawn financial investments and financial assets as well as expected cash on from this credit line (previous year: 0 million euros). The flows from operating activities into account. value of bilateral credit lines available at the end of the reporting period totalled 434 million euros (previous year: 462 million Within the scope of operative liquidity management, the EWE euros). Of this amount, 54 million euros (previous year: 90 million Group pools all of its liquid assets on a daily basis. In this context, euros) has been drawn on in some form, including as guarantees, Group companies with excess liquidity are obligated to pool it among other reasons. centrally and provide companies with liquidity shortfalls with the funds they require. These funds are held or invested centrally by The EWE Group has not made any financial covenants whatsoever EWE AG. This enables liquidity demands and surpluses to be in relation to financing agreements. managed according to the needs of the Group as a whole as well as for individual Group companies. The liquidity held with banks as well as the current and non- current lines of credit provide EWE AG sufficient flexibility to Furthermore, Group companies are also provided funds for cover the Group’s liquidity needs. non-current financing purposes. Fundraising on the banking and capital markets is generally carried out by EWE AG at the level The following overview shows future repayments on the primary of the parent company. financial liabilities.

EWE AG Annual Report 2015 168 CONSOLIDATED FINANCIAL STATEMENTS

Interest payments and principle repayments | T 091

in millions of euros Cash flows

31.12.2015 < 1 year 1–5 years > 5 years

Original financial liabilities: Bonds -224.5 -1,419.0 -600.3 Liabilities to financial institutions -305.1 -264.7 -15.8 Liabilities from guaranteed dividends -2.0 -11.1 -25.0 Trade payables -667.8 -5.5 -0.1 Remaining financial liabilities -858.4 -45.3 -364.5

| T 092

in millions of euros Cash flows

31.12.2014 < 1 year 1–5 years > 5 years

Original financial liabilities: Bonds -81.5 -923.2 -1,399.8 Liabilities to financial institutions -301.8 -292.5 -27.1 Liabilities from guaranteed dividends -1.5 -5.8 -14.5 Trade payables -838.8 -1.7 -0.1 Remaining financial liabilities -340.7 -53.5 -374.2

Cash flows from power derivatives (not own use) | T 093

31.12.2015 31.12.2014

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

Cash outflows -372.2 -184.4 -241.2 -124.2 Cash inflows 287.0 211.6 195.6 204.8 Net cash flows -85.2 27.2 -45.6 80.6

These cash flows relate to power derivatives with negative market outflows from all transactions with power derivatives (power values of 75.1 million euros (previous year: 46.1 million euros) as purchases and sales). The own-use positions relevant in this regard well as positive market values totalling 69.9 million euros (previ- are not disclosed in the above table because they do not represent ous year: 27.0 million euros). Meaningful financial information can financial instruments as defined under IFRS. only be derived from an overall view of all cash inflows and

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 169 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Cash flows from natural gas derivatives (not own use) | T 094

31.12.2015 31.12.2014

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

Cash outflows -534.1 -162.3 -560.1 -238.0 Cash inflows 113.2 15.9 159.4 14.9 Net cash flows -420.9 -146.4 -400.7 -223.1

These cash flows relate to natural gas derivatives with negative »» Loss of receivables for physical goods and financial market values of 294.1 million euros (previous year: 180.4 million transactions; euros) as well as positive market values totalling 46.3 million »» Repurchase risk arising from purchase contracts and euros (previous year: 58.4 million euros). Meaningful financial price increases; information can only be derived from an overall view of all cash »» Non-acceptance risk arising from sales contracts, inflows and outflows from all transactions with natural gas deriva- if prices have since declined. tives (purchases and sales). The own-use positions relevant in this regard are not disclosed in the above table because they do not Potential default risks are limited by means of specific clauses in represent financial instruments as defined under IFRS. Natural gas framework agreements with trading partners. These framework derivatives are included within the item other commodity deriva- agreements set forth the general terms for individual contracts in tives (excluding own use). order to allow them to be transacted efficiently. Together with the joint arrangements for amending the framework agreement – Credit risks usually a framework agreement from the European Federation of Credit risk describes the threat of a financial loss if a business or Energy Traders (EFET) or a German framework agreement for finan- trading partner is not able to meet its contractual obligations. cial futures (Deutscher Rahmenvertrag für Finanztermingeschäfte – Within the scope of normal business operations, trade receivables DRV) – they help ensure that business is conducted in an orderly are continuously monitored. The risk of default is taken into and risk-focused manner. The framework agreements include stipu- account through the recognition of provisions for specific doubtful lations governing collateral to be provided, if necessary, as well as accounts receivable as well as a general allowance for doubtful on measures to protect the parties from losses due to insolvency, accounts receivable. The most significant credit risks to which the among other clauses. EWE Group is exposed arise in the business with customers in contracts with special terms, in energy trading and the investment To minimise the credit risk from energy trading partners, business is of liquid assets. In order to limit credit risks arising from financial preferably only conducted with trading partners with very good to difficulties or insolvency in the business with customers in excellent credit ratings. To determine their credit score, all trading contracts with special terms, offers are only presented to new partners are subject to an internal ranking process carried out on a customers with excellent credit ratings. regular basis. After they have been classified in a rating category, a limit is set for the maximum market value of open positions with Trading deals can give rise to risks stemming from financial difficul- this partner. This internal credit rating encompasses both quantita- ties or the ability to deliver on the part of the business and trading tive and qualitative factors. If available, scores from external rating partner. The risk can come to bear if the trading partner defaults agencies and providers of business reports (Standard & Poor’s, (such as in the case of insolvency), and can consist of: Moody’s, Fitch, D & B) are used wherever possible. Transactions are only permitted with trading partners for whom a limit in euros has been specified, and with whom the specified limit has not yet been reached. The energy trading division is obligated to ensure that the

EWE AG Annual Report 2015 170 CONSOLIDATED FINANCIAL STATEMENTS

limits are not exceeded. The risk controlling division continuously In contrast, derivatives used for the physical fulfilment of non- monitors compliance with limits. financial items in accordance with the company’s expected purchase, sale or usage requirements (‘own use’) are not included. In connection with the investment of cash and cash equivalents, the These items are not accounted for within the scope of IAS 39. As EWE Group is exposed to losses if the counterparty does not meet such, the following sensitivities do not reflect the actual economic their contractual payment obligations. Cash and cash equivalents risks and merely serve to fulfil the disclosure requirements of are therefore invested solely with financial institutions as instant IFRS 7. The economic sensitivity is regarded as low. access and term deposits. Furthermore, risk is also managed by diversifying across counterparties by means of a limit system. With the exception of CO2 transactions, no cash flow effects result from the specified market value fluctuations. In CO2 Market price risks trading, market value fluctuations are compensated for financially Market price risks are the risks of fluctuations in the fair value or through a margin deposit specified within the terms of margin future cash flows of a financial instrument due to market risks. agreements. Within the EWE Group, this primarily applies to price risks related to commodities, currency exchange and interest. Sensitivity analyses assume a change in the respective underlying market price or exchange rate of +/- 10 per cent and/or interest of The sensitivities used in measuring power, natural gas, coal and +/- 100 percentage points across all recognised supply years and/ emissions rights derivatives as well as for currencies and interest or periods. rates are shown below. In this context, only those derivatives accounted for as financial instruments under IAS 39 and whose Power market value fluctuations affect shareholders’ equity and/or profit To measure, manage and limit the market price risks which affect and loss were included. the entire power portfolio, a number of different strategies are applied in conjunction with dynamic price and volume limits. The amount of these limits is determined for a supply year and the risk controlling team monitors compliance on a regular basis.

Overview of market price risk – power:

| T 095

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Power futures requiring physical fulfilment using hedge accounting +10% 4.7 -5.5 using hedge accounting -10% -4.7 5.5 Total +10% 4.7 -5.5 Total -10% -4.7 5.5

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 171 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

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

Overview of market price risk – natural gas:

| T 096

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Natural gas futures requiring physical fulfilment using hedge accounting +10% 2.6 using hedge accounting -10% -3.8 not using hedge accounting +10% -1.3 -1.3 not using hedge accounting -10% 1.9 2.1

Natural gas futures requiring financial fulfilment using hedge accounting +10% 17.5 55.3 25.8 using hedge accounting -10% -17.5 -55.3 -25.8 not using hedge accounting +10% 15.8 24.8 not using hedge accounting -10% -15.8 -24.8 Total +10% 14.5 41.0 57.9 25.8 Total -10% -13.9 -40.2 -59.1 -25.8

EWE AG Annual Report 2015 172 CONSOLIDATED FINANCIAL STATEMENTS

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 efficient hedging relationship for the coal swaps used as hedging instruments. The items were translated from US dollars into euros at the end of the respective reporting period.

Overview of market price risk – coal:

| T 097

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Coal swaps using hedge accounting +10% 5.2 10.9 using hedge accounting -10% -5.2 -10.9 not using hedge accounting +10% 1.3 1.6 not using hedge accounting -10% -1.3 -1.6 Total +10% 1.3 1.6 5.2 10.9 Total -10% -1.3 -1.6 -5.2 -10.9

CO2 certificates Overview of market price risk – CO2 certificates:

| T 098

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

CO2 futures using hedge accounting +10% 0.9 1.5 using hedge accounting -10% -0.9 -1.5 not using hedge accounting +10% 1.5 1.9 not using hedge accounting -10% -1.5 -1.9 Total +10% 1.5 1.9 0.9 1.5 Total -10% -1.5 -1.9 -0.9 -1.5

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 173 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Currencies The Group is mainly exposed to foreign exchange risks which result from trading commodities, primarily natural gas and coal, in foreign currencies. This risk is due to the variability of future cash flows resulting from volatile exchange rates, in particular EUR/USD, USD/TRY and EUR/PLN. The Group uses hedges in line with its risk management policy to minimise this risk.

In this context, the EWE Group assumes the hedging relationship consisting of the hedged items (e.g. planned coal purchases) and the foreign currency futures contracts is highly efficient.

Overview of foreign exchange risk:

| T 099

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Coal swaps using hedge accounting +10% -4.9 -3.2 using hedge accounting -10% 4.0 2.6 not using hedge accounting +10% -0.1 -0.3 not using hedge accounting -10% 0.2

Forward exchange contracts using hedge accounting +10% 6.1 -15.1 using hedge accounting -10% -4.2 18.3 not using hedge accounting +10% -1.3 -3.2 not using hedge accounting -10% 1.6 5.1 Total +10% -1.4 -3.5 1.2 -18.3 Total -10% 1.6 5.3 -0.2 20.9

EWE AG Annual Report 2015 174 CONSOLIDATED FINANCIAL STATEMENTS

Interest The purpose of EWE’s interest rate risk management is to manage and monitor the interest-bearing and interest-rate-sensitive assets and liabilities on the statement of financial position. The objective is to mitigate the impact of interest rate fluctuations and risks on the Group’s earnings and assets position. The majority of the interest rates on the EWE Group’s financial liabilities are fixed contractually, either directly or indirectly. As a result, changes in interest rates only have an appreciable impact on EWE’s net interest income or expense when the Group takes on new financing or intends to make refinancing arrangements.

The sensitivity analyses for interest rate risk are based on the following assumptions:

Changes in the market interest rates for fixed-interest primary financial instruments only have an effect on profit and loss for the period if these are carried at fair value. Fixed-interest financial instruments carried at amortised cost are not subject to interest rate risk.

Floating-rate financial liabilities and interest derivatives based on variable interest rates can lead to earnings volatility and, in the case of designated cash flow hedges, to volatility in shareholders’ equity.

Overview of interest rate risks:

| T 100

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

in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Floating rate liabilities to credit institutes not using hedge accounting +100 bp -1.9 -1.0 not using hedge accounting -100 bp 1.3 1.0

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

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 175 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

42. SEGMENT REPORTING Energy and telecommunications sales as well as energy trading and the information technology business are consolidated in the The segments in the EWE Group are determined in accordance Sales, Services and Trading segment. with internal reporting approaches. Due to changes to management and control structures in the Board of Management, a The International segment encompasses EWE’s business activities corresponding change was made to the segments subject to in Turkey and Poland. reporting requirements in the 2015 financial year. In conjunction with the decision to account for swb in the future as a sub-Group, The swb segment consists of the swb sub-Group. This segment changes were made to the segment structure which resulted from encompasses the provision of energy and water services, the newly filled Board of Management’s new approach to its particularly supplying energy and water to the municipalities management and control duties. In this new method of segmen of Bremen and Bremerhaven and their surrounding areas. tation, managerial responsibility is reflected, on the one hand, in a focus on the non-current, asset-intensive and highly technological In addition to EWE AG as a holding company for the Group’s side of business and, on the other hand, in a focus on further property portfolio, the Group Central Division segment encom- bringing the energy and telecommunications businesses’ sales, passes the investments managed directly by EWE AG as well as wholesale and service areas closer together. One managing the companies consolidated at the Group-wide level. This is also executive is responsible for each of these areas. where EWE’s interest in VNG is disclosed.

As a result, the newly created segments are as follows: Depreciation, amortisation and impairment apply to intangible »» Renewables, Grids and Gas Storage assets and property, plant and equipment. »» Sales, Services and Trading »» International Payments for investments apply to intangible assets, property, »» swb plant and equipment, and financial investments. »» Group Central Division

In addition to power generation from renewable energy sources as well as the gas storage business, the Renewables, Grids and Gas Storage segment also encompasses power grids, natural gas pipelines and telecommunications networks.

EWE AG Annual Report 2015 176 CONSOLIDATED FINANCIAL STATEMENTS

The following table shows external sales by product and service:

| T 101

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

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

| T 102

Renewables, Sales, Group 2014 Grids and Gas Services and Central in millions of euros Storage Trading International swb Division Group

Power 1,964.3 2,556.8 2.1 973.5 -884.9 4,611.8 Natural gas 507.6 1,615.3 770.6 247.1 -506.5 2,634.1 ICT 54.5 600.5 0.2 -155.6 499.6 Other 101.0 95.8 0.1 233.4 -41.6 388.7 External sales 2,627.4 4,868.4 773.0 1,454.0 -1,588.6 8,134.2

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

| T 103

Germany Germany International International Group Group in millions of euros 2015 2014 2015 2014 2015 2014

External sales 7,059.9 7,361.2 759.4 773.0 7,819.3 8,134.2 Segment assets 8,639.8 7,653.3 596.4 606.9 9,236.2 8,260.2 Payments for investments 636.4 695.4 30.5 26.0 666.9 721.4

Of total sales generated outside of Germany, 718.1 million euros (previous year: 736.3 million euros) were generated in Turkey. The segment assets for Turkey total 537.3 million euros (previous year: 551.3 million euros).

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

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 177 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

SEGMENT REPORTING 31 DECEMBER 2015 (I/II)

| T 104

Renew ables, Grids Renewables, Sales, Sales, and Gas Grids and Services Services and Inter Storage Gas Storage and Trading Trading national International in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014

REVENUE (excluding electricity and energy taxes) External sales 1,951.8 1,823.2 4,053.4 4,326.3 759.4 773.0 Sales between the segments 832.0 804.1 473.3 542.1 Total revenue (excluding electricity and energy taxes) 2,783.8 2,627.3 4,526.7 4,868.4 759.4 773.0

PROFIT/LOSS Segment profit/loss (operating EBIT) 314.4 312.1 80.4 18.7 25.3 18.4

OTHER INFORMATION Segment assets 3,727.6 3,659.5 1,407.3 1,471.1 596.4 607.0

Financial investments and securities Investments in associates accounted for using the equity method 70.1 73.0 36.6 35.4 Income tax refund claims and deferred tax assets Consolidated assets Segment liabilities 2,334.7 2,325.5 1,369.8 1,398.1 399.9 399.5 Financial liabilities (bonds, liabilities to credit institutions) Deferred tax liabilities, provisions for taxes and income tax liabilities Consolidated liabilities Payments for investments 257.4 215.0 80.6 71.0 30.5 26.0 Other operating income 61.1 78.3 198.8 142.9 31.2 16.6 Material expenditures -1,882.4 -1,780.0 -4,036.4 -4,387.9 -697.3 -721.1 Personnel expenses -188.5 -161.6 -231.7 -237.9 -19.7 -17.1 Scheduled depreciation -220.9 -202.3 -65.9 -71.2 -15.4 -15.3 Impairment -4.2 -1.0 -3.8 -1.3 -0.9 -0.4 Other operating expenses -282.4 -272.5 -353.8 -355.2 -33.0 -31.2 Profit/loss from investments 2.4 1.7 3.0 18.7 -1.1 Profit/loss from interests in associates 0.6 4.3 0.9 -17.4 9.2 Significant non-cash items -6.6 83.1 -22.5 77.9 2.1 -1.7 Employees (average) 2,042 2,000 3,188 3,534 832 818

EWE AG Annual Report 2015 178 CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT REPORTING 31 DECEMBER 2015 (II/II)

| T 105

Group Group Central Central swb swb Division Division Group Group in millions of euros 31.12.2015 31.12.2014 31.12.2015 31.12.2014 31.12.2015 31.12.2014

REVENUE (excluding electricity and energy taxes) External sales 1,052.1 1,208.3 2.6 3.4 7,819.3 8,134.2 Sales between the segments 224.2 245.7 -1,529.5 -1,591.9 Total revenue (excluding electricity and energy taxes) 1,276.3 1,454.0 -1,526.9 -1,588.5 7,819.3 8,134.2

PROFIT/LOSS Segment profit/loss (operating EBIT) 90.3 40.2 -82.3 38.1 428.1 427.5

OTHER INFORMATION Segment assets 2,437.1 2,485.1 1,067.8 37.5 9,236.2 8,260.2

Financial investments and securities 269.7 241.1 Investments in associates accounted for using the equity method 19.3 11.5 1,120.1 126.0 1,240.0 Income tax refund claims and deferred tax assets 112.4 59.6 Consolidated assets 9,744.3 9,800.9 Segment liabilities 1,713.3 1,712.7 -445.6 -930.4 5,372.1 4,905.4 Financial liabilities (bonds, liabilities to credit institutions) 2,412.0 2,432.4 Deferred tax liabilities, provisions for taxes and income tax liabilities 210.9 177.9 Consolidated liabilities 7,995.0 7,515.7 Payments for investments 77.6 71.4 220.8 338.0 666.9 721.4 Other operating income 75.8 75.1 -42.3 -24.6 324.6 288.3 Material expenditures -841.5 -1,061.1 1,390.2 1,443.7 -6,067.4 -6,506.4 Personnel expenses -215.7 -190.7 -71.7 -62.3 -727.3 -669.6 Scheduled depreciation -112.6 -116.9 -21.1 -22.7 -435.9 -428.4 Impairment -135.3 -40.4 -0.5 -144.2 -43.6 Other operating expenses -132.1 -125.5 194.7 162.9 -606.6 -621.5 Profit/loss from investments 3.3 2.7 -5.8 -12.4 2.9 9.6 Profit/loss from interests in associates 2.8 -24.7 117.5 -20.4 113.6 Significant non-cash items -77.6 -17.7 -78.2 -113.3 -182.8 28.3 Employees (average) 2,166 2,181 627 621 8,855 9,154

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 179 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Operating EBIT can be reconciled as follows to earnings before Non-cash investments of 48.5 million euros (previous year: taxes (EBT): 17.9 million euros) primarily relate to the capitalisation of rehabilitation provisions. | T 106

in millions of euros 2015 2014 As of 31 December 2015, cash and cash equivalents were not subject to any restrictions on use. Operating EBIT 428.1 427.5 Derivatives -11.9 -36.0 44. INFORMATION ON EASEMENTS Impairment -150.4 -41.1 Investments -0.1 4.3 A number of easements – that is, agreements governing the use of Restructuring -53.7 public property for electricity and natural gas, and concession EBIT 212.0 354.7 agreements in the water sector – exist between companies in the Interest 16.8 33.4 EWE Group and the local authorities in EWE’s network areas. Interest expenses -197.7 -230.5 EBT 31.1 157.6 In its easement agreements, the companies in the EWE Group are

given the right to use public spaces within the contractual terri- 43. STATEMENT OF CASH FLOWS tory for the construction, operation and maintenance of power lines and pipelines as well as the associated equipment which Liquid assets comprise the item cash and cash equivalents on the serve to directly supply end consumers with power and natural statement of financial position, which consist of 352.0 million gas. The water concession agreements obligate the local authori- euros (previous year: 326.6 million euros) as well as cash-pooling ties in the contract territory agree to grant EWE the exclusive use receivables of 0.3 million euros (previous year: 0.9 million euros). of public spaces for the installation and operation of pipelines for Liquid assets encompass cash in hand and bank balances. to directly supply the public with water. Within the scope of these agreements, a licence fee must be paid to the municipality for the To calculate cash flow from operating activities, the additions to use of public land. and reversals of provisions are presented as non-cash changes in provisions and the use of provisions is shown in changes in liabi These agreements are generally entered into for a period of lities and other components of equity and liabilities. Cash flow 20 years. If the easements are not renewed, EWE is legally from operating activities includes dividends received totalling obligated to transfer the local distribution facilities to the new 65.8 million euros (previous year: 51.9 million euros). energy supplier in return for reasonable consideration.

Cash flow from financing activities includes profit distributions or dividends totalling 88.0 million euros (previous year: 88.0 million euros) to EWE shareholders and 0.6 million euros (previous year: 0.6 million euros) to shareholders with minority interests.

EWE AG Annual Report 2015 180 CONSOLIDATED FINANCIAL STATEMENTS

45. SELECTION OF SIGNIFICANT SHAREHOLDINGS PURSUANT TO ARTICLE 313, SECTION 2 OF THE GERMAN COMMERCIAL CODE AS OF 31.12.2015

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

Associates Consolidated: 1) 4) Bioenergie Schwarme GmbH, Bremen, Germany 100.00 1,090 273 1) 4) BREKOM GmbH, Bremen, Germany 100.00 11,597 1,347 2), 4) BTC Business Technology Consulting AG, Oldenburg, Germany 100.00 12,902 1) 2), 4) BTC IT Services GmbH, Oldenburg, Germany 100.00 1,463 1) 4) Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey 80.00 81,400 15,555 2), 4) Energieversorgung Weser-Ems GmbH, Oldenburg, Germany 100.00 170,171 1) 4) Enervis Enerji Servis Sanayi ve Ticaret A.Ş., Istanbul, Turkey 100.00 8,655 4,331 3) EWE Biogas GmbH & Co. KG, Wittmund, Germany 100.00 1,185 -42 1) 4) EWE Bürgerwindpark Köhlen GmbH & Co. KG, Oldenburg, Germany 100.00 76 -16 1) 4) EWE Enerji A.Ş., Istanbul, Turkey 100.00 5,089 1,305 1) 3) EWE energia Sp. z o. o., Międzyrzecz, Poland 100.00 88,043 1,041 2), 4) EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg, Germany 100.00 5,206 2), 4) EWE GASSPEICHER GmbH, Oldenburg, Germany 100.00 160,090 2), 4) EWE IMMOBILIEN GmbH, Oldenburg, Germany 100.00 26 5) 2), 4) EWE NETZ GmbH, Oldenburg, Germany 96.92 222,799 2), 4) EWE Offshore Service & Solutions GmbH, Oldenburg, Germany 100.00 25 3) EWE Polska Sp. z o.o., Poznań, Poland 100.00 97,073 1,442 2), 4) EWE TEL GmbH, Oldenburg, Germany 100.00 95,908 2), 4) EWE TRADING GmbH, Oldenburg, Germany 100.00 30,026 4) EWE Turkey Holding A.Ş., Istanbul, Turkey 100.00 332,731 6,227 2), 4) EWE VERTRIEB GmbH, Oldenburg, Germany 100.00 152,156 1) 2), 4) EWE WASSER GmbH, Cuxhaven, Germany 100.00 14,21 1) 4) EWE Windpark Betreibergesellschaft mbH, Oldenburg, Germany 100.00 393 -125 1) 4) EWE Windpark Hatten GmbH, Hatten, Germany 100.00 184 -66 1) 4) EWE Windpark Köhlen GmbH & Co. KG, Oldenburg, Germany 100.00 746 -119 1) 4) EWE-WINDSERVICE GmbH, Krummhörn, Germany 100.00 501 477 2), 4) Gastransport Nord GmbH, Oldenburg, Germany 100.00 20,790 1) 4) Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey 80.00 21,629 7,128 1) 2), 4) nordcom Niedersachsen GmbH, Oldenburg, Germany 100.00 525 1) 4) Offshore-Windpark RIFFGAT GmbH & Co. KG, Oldenburg, Germany 99.58 356,626 34,370

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 181 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

T 107

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

Associates Consolidated: PRO CONSULT 1) 4) Management- und Systemberatung GmbH, Mainz, Germany 100.00 263 163 1) 4) Riffgat Beteiligungs GmbH & Co. KG, Oldenburg, Germany 100.00 93,547 8,115 1) 4) swb Abrechnungsservice GmbH, Bremen, Germany 100.00 517 -330 4) swb AG, Bremen, Germany 100.00 253,847 -4,401 1) 4) swb Beleuchtung GmbH, Bremen, Germany 99.00 250 2,223 1) 4) swb Bremerhaven GmbH, Bremerhaven, Germany 100.00 1,980 3,892 1) 4) swb CREA GmbH, Bremerhaven, Germany 100.00 77 -1,938 1) 4) swb Entsorgung GmbH & Co. KG, Bremen, Germany 100.00 140,693 10,617 1) 4) swb Erzeugung AG & Co. KG, Bremen, Germany 100.00 -51,737 4,770 1) 4) swb Erzeugung und Entsorgung AG & Co. KG, Bremen, Germany 100.00 189,463 24,004 1) 4) swb Services AG & Co. KG, Bremen, Germany 100.00 3,097 -2,788 1) 4) swb Vertrieb Bremen GmbH, Bremen, Germany 100.00 7,249 18,256 1) 4) swb Vertrieb Bremerhaven GmbH & Co. KG, Bremerhaven, Germany 100.00 -3,404 2,666 1) 4) swb Windpark Am Zolltor GmbH & Co. KG, Bremerhaven, Germany 100.00 2,269 269 1) 4) swb Windpark Essel GmbH & Co. KG, Bremerhaven, Germany 100.00 1,982 -18 1) 4) swb Windpark Weserufer GmbH & Co. KG, Bremerhaven, Germany 100.00 3,751 342 1) 4) wesernetz Bremen GmbH, Bremen, Germany 99.00 211,002 21,905 1) 4) wesernetz Bremerhaven GmbH, Bremerhaven, Germany 99.00 34,469 4,976 1) 4) wesernetz Stuhr GmbH & Co. KG, Bremen, Germany 100.00 6,792 974 1) 4) wesernetz Weyhe GmbH & Co. KG, Bremen, Germany 100.00 4,088 820 1) 4) Windfarm Elsdorf II GmbH, Oldenburg, Germany 100.00 -809 369 1) 4) Windfarm Märkisch-Linden GmbH & Co. KG, Kränzlin, Germany 85.20 8,578 171 Windpark Industriehäfen GmbH & Co. KG 1) 4) (formerly swb Windpark Industriehäfen GmbH & Co. KG), Bremerhaven, Germany 74.90 1,792 192 Zweite EWE Offshore Beteiligungs GmbH, Oldenburg, Germany 100.00 327,210 2), 4)

Other interests: BIBER GmbH – Bildung Betreuung Erziehung, Oldenburg, Germany 100.00 73 2), 4) 3) E3/DC GmbH, Oldenburg, Germany 100.00 -5,711 -2,114 1) 3) ENRO Ludwigsfelde Energie GmbH, Ludwigsfelde, Germany 100.00 7,716 455 EWE Urbanisation Dienstleistungs GmbH (UDG), Bremen, Germany 100.00 2,374 2), 4) 3) Grünspar GmbH, Münster, Germany 90.00 1,263 -1,386 1) 2), 4) PBB GmbH, Oldenburg, Germany 100.00 26 proNaturWatt GmbH, Oldenburg, Germany 100.00 25 2), 4) 1) 3) SOCON Sonar Control Kavernenvermessung GmbH, Giesen, Germany 62.00 6,432 1,839 1) 3) TEWE Energieversorgungsgesellschaft mbH Erkner, Erkner, Germany 100.00 4,745 279

EWE AG Annual Report 2015 182 CONSOLIDATED FINANCIAL STATEMENTS

| T 107

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

Associates Consolidated: 1) 3) DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG, Oldenburg, Germany 47.50 180,047 4,927 1) 7) Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen, Germany 51.76 51,129 -3,032 6) 4) hanseWasser Bremen GmbH, Bremen, Germany 38.20 51,774 12,855 1) 4) Hansewasser Ver- und Entsorgungs-GmbH, Bremen, Germany 51.00 54,392 10,553 3) htp GmbH, Hanover, Germany 50.00 30,476 3,370 1) 7) swb Weserwind GmbH & Co. KG, Bremen, Germany 50.00 2,066 532 Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg, Germany 100.00 8) 3), 10) VNG – Verbundnetz Gas Aktiengesellschaft, Leipzig, Germany 74.21 873,693 223,844 1) 7) Weserkraftwerk Bremen GmbH & Co. KG, Bremen, Germany 50.00 7,288 -996 1) 4) Windpark Köhlen GmbH, Oldenburg, Germany 50.00 -192 -134 1) 3) Windpark Spolsen GmbH & Co. KG, Zetel, Germany 40.00 2,006 433

Other interests: 1) 3) Gasversorgung Angermünde GmbH, Angermünde, Germany 49.00 1,973 164 1) 3) Stadtwerke Ludwigsfelde GmbH, Ludwigsfelde, Germany 20.00 12,499 2,310 1) 3), 9) Stadtwerke Strausberg GmbH, Strausberg, Germany 38.38 11,747 1,477 1) 3) Städtische Betriebswerke Luckenwalde GmbH, Luckenwalde, Germany 20.00 13,029 2,155 1) 3) Verkehr und Wasser GmbH, Oldenburg, Germany 26.00 8,000 -1,821 1) Indirect investment 2) Control (including partial control) and/or profit and loss transfer agreements exist with this company. 3) Equity and annual profit/loss figures are from 2014 4) Equity and annual profit/loss figures are from 2015 5) A 95.12% interest is held indirectly. 6) This company is recognised under the equity method as part of Hansewasser Ver- und Entsorgungs-GmbH, Bremen, Germany. 7) Preliminary annual profit/loss from 2015 8) This company was founded in 2015; figures for 2015 are not yet available. 9) This company has entered into a profit/loss transfer agreement with another company. 10) Accounted for as an associate until 30 September 2015; recognised from 1 October 2015 onward pursuant to IFRS 5.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 183 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

46. RELATED PARTY DISCLOSURES SHAREHOLDERS/INVESTORS IN EWE AG

| T 108 Transactions with companies included in the consolidated financial statements were eliminated in the course of consolidation. in millions of euros 2015 2014 The following are deemed related companies of the EWE Group: Purchase of properties and buildings on other assets 0.7 »» Shareholders with a controlling interest (EWE-Verband GmbH) Purchase of energy 58.0 94.6 or the shareholder with the largest controlling interest Sale of energy 25.6 42.0 (EWE-Verband) of EWE AG; Services purchased 1.0 0.2 »» Companies that exert significant influence on EWE AG Services rendered 14.1 13.1 (the investor EnBW); Receivables 1.2 0.6 »» Parties under the influence of the shareholders or the investor; Liabilities 0.6 1.4

»» Non-consolidated affiliated companies; »» Associates accounted for under the equity method; and »» Interests measured pursuant to IFRS 5. ASSOCIATES ACCOUNTED FOR UNDER THE EQUITY METHOD AND ASSETS MEASURED PURSUANT TO IFRS 5 Related persons in key positions include the members of the Board | T 109 of Management and the Supervisory Board of EWE AG. in millions of euros 2015 2014 Relationships with the Group of shareholders are primarily of a financial nature as well as for the exchange of commercial Purchase of goods 0.3 services. Sale of goods 0.1 Purchase of energy including grid usage fees 1) 49.4 56.0 The majority of the relationships with the Group of companies Sale of energy 2) 21.9 34.1 accounted for under the equity method and the assets measured Services purchased 3) 7.1 4.3 pursuant to IFRS 5 are supply and service relationships for natural Services rendered 24.2 16.7 gas as well as financial relationships. All transactions are conclu- Financing (loan receivables) 15.6 16.0 ded on standard market terms. Consideration paid for financial agreements (loans) 0.2 0.2 The following table shows the transactions with related parties: Consideration received for financial agreements (loans) 0.2 Guarantees, securities and warranties granted 58.2 58.2 Receivables 5.8 6.5 Liabilities 4) 2.9 6.1 Secured outstanding liabilities 0.1 1) Of this total, 40.0 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.0 million euros) 2) Of this total, 6.3 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.0 million euros) 3) Of this total, 0.8 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.0 million euros) 4) Of this total, 0.7 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.0 million euros)

EWE AG Annual Report 2015 184 CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED AFFILIATED COMPANIES

| T 110

in millions of euros 31.12.2015 31.12.2014

Loans 5.0 10.8 Receivables 13.5 14.8 Cash-pooling receivables 0.4 1.1 Other receivables 0.2 Trade payables 2.9 3.8 Cash-pooling liabilities 15.8 15.2 Other liabilities 1.1 3.5

The local authorities and municipalities in our supply area between the rivers Ems, Weser and Elbe comprise the Ems-Weser-Elbe Versorgungs- und Entsorgungsverband (supply and disposal association). They are supplied with power, natural gas, and telecommunications and information services at standard market rates.

The EWE Group concluded no significant transactions with related individuals. The supply of power, natural gas and telecommunications services to related parties takes place at rates and with terms and conditions comparable to those agreed upon with external third parties.

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 185 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

INFORMATION ON THE BOARDS OF EWE AG

SUPERVISORY BOARD

Dr Stephan-Andreas Kaulvers Jürgen Humer Chairman of the Supervisory Board General manager of ver.di trade union for the Weser-Ems district, Chairman of the Board of Management of Bremer Landesbank, Verden (Aller), Germany Bremen, Germany Aloys Kiepe Gregor Heller (until 31 December 2015) ver.di trade secretary for the Weser-Ems district, Emden, Germany First deputy chairman Account manager, EWE VERTRIEB GmbH, Haselünne, Germany Jürgen Krogmann (since 27 April 2015) Mayor of the city of Oldenburg, Oldenburg, Germany Dr Frank Mastiaux Second deputy chairman Peter Marrek Chairman of the Board of Management of EnBW AG, Düsseldorf, Chairman of the Group works council of swb AG, Wilhelmshaven, Germany Germany

Heiner Schönecke Peter Meiwald Third deputy chairman Member of German Bundestag (parliament), Westerstede, Member of the Landtag (state parliament) of Lower Saxony, Germany Neu-Wulmstorf, Germany Immo Schlepper Bernhard Bramlage ver.di regional department director, Lower Saxony-Bremen, Fourth deputy chairman Oldenburg, Germany District administrator of the district of Leer, Leer, Germany Ulrike Schlieper Wolfgang Behnke SPD party chairwoman on the Friesland district council, Chairman of the Group works council of EWE AG, Sande, Germany Osterholz-Scharmbeck, Germany Richard Venning Stefan Brok (until 31 December 2015) Employee of Field Service EWE TEL GmbH, Spenge, Germany Chief executive officer of Aral AG, Gronau, Germany Johann Wimberg (since 27 April 2015) Eckhard Dibke District administrator of the Cloppenburg administrative district, Member of the works council of wesernetz Bremen/Bremerhaven Cloppenburg, Germany GmbH, swb Beleuchtung GmbH, Langen, Germany Thomas Windgassen Carsten Hahn Head of the Cuxhaven-Delmenhorst region, Chairman of the general works council of EWE AG, EWE VERTRIEB GmbH, Cuxhaven, Germany Osterholz-Scharmbeck, Germany Dr Hans-Josef Zimmer Member of the Board of Management of EnBW AG, technology, Steinfeld (Rhineland-Palatinate), Germany

EWE AG Annual Report 2015 186 CONSOLIDATED FINANCIAL STATEMENTS

BOARD OF MANAGEMENT

Matthias Brückmann (since 1 October 2015) Chief Executive Officer (CEO) of EWE AG, Oldenburg, Germany

Michael Heidkamp (since 1 November 2015) Chief Sales Officer (CSO) of EWE AG, Bad Zwischenahn, Germany

Ines Kolmsee (since 1 May 2015) Chief Technology Officer (CTO) of EWE AG, Tutzing, Germany

Nikolaus Behr Chief Human Resources Officer and IT (CHRO/CIO) of EWE AG, Bremen, Germany

Dr Werner Brinker (until 30 September 2015) Chairman of the Board of Management of EWE AG, Rastede, Germany

Dr Heiko Sanders (until 30 September 2015) Chief Financial Officer (CFO) of EWE AG, Wiesmoor, Germany

Total compensation paid to the members of the Board of Manage- ment for their activities as company executives and in committees of subsidiaries totalled 3.8 million euros (previous year: 3.5 million euros). The members of the Supervisory Board received compensation totalling 1.1 million euros (previous year: 1.0 million euros). This total includes 0.6 million euros (previous year: 0.5 million euros) for their duties as employees.

The provision for pension obligations to active members of the Board of Management increased during the business year by 1.3 million euros (previous year: 5.6 million euros).

The provision for pension obligations to former members of the Board of Management and their surviving dependants totalled 33.3 million euros (previous year: 23.1 million euros); payments totalled 1.1 million euros (previous year: 1.0 million euros).

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 187 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

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

The companies consolidated within the EWE Group made use of EWE AG’s consolidated financial statements are incorporated into the following services from the auditors of the consolidated the consolidated financial statements of EWE-Verband GmbH. financial statements, Ernst & Young GmbH Wirtschaftsprüfungs- gesellschaft (EY), as well as from companies in the international 50. EVENTS AFTER THE END OF THE REPORTING PERIOD EY network. Major conditions that were delaying the planned sale of EWE’s | T 111 stake in VNG to EnBW AG were eliminated between the balance in millions of euros 2015 sheet date and the date this report was published. No other events with a significant impact on the EWE Group’s earnings, Auditing the annual financial statements 1.5 financial and assets position occurred after the balance sheet date Other auditing services 0.1 yet before the publication of the Group’s consolidated financial Other services 0.8 statements. Total 2.4

Oldenburg, Germany, 15 February 2016

Of the fees paid for auditing services, a total of 0.2 million euros is applicable to companies in the international EY network. The Board of Management 48. USE OF ARTICLE 264, SECTION 3 OF THE GERMAN COMMERCIAL CODE

The following subsidiaries made use of the exemption under article 264, section 3 of the German Commercial Code during the 2015 business year: Matthias Brückmann Michael Heidkamp »» EWE TEL GmbH, Oldenburg, Germany »» EWE IMMOBILIEN GmbH, Oldenburg, Germany »» nordcom Niedersachsen GmbH, Oldenburg, Germany »» Zweite EWE Offshore Beteiligungs GmbH, Oldenburg, Germany Ines Kolmsee Nikolaus Behr

EWE AG Annual Report 2015 188 CONSOLIDATED FINANCIAL STATEMENTS

Responsibility statement

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

Oldenburg, Germany, 15 February 2016

The Board of Management

Matthias Brückmann Michael Heidkamp

Ines Kolmsee Nikolaus Behr

EWE AG Annual Report 2015 CONSOLIDATED FINANCIAL STATEMENTS 189 94 Consolidated income statement 98 Statement of changes in equity 95 Consolidated statement of 100 Statement of cash flows comprehensive income 101 Notes to the consolidated financial 96 Statement of financial position statements

Auditor’s report

We have audited the consolidated financial statements – consis- the annual consolidated financial statements and the manage- ting of the income statement, the statement of comprehensive ment report is evaluated on the basis of random samples. Our income, the statement of financial position, the statement of audit also includes assessing the annual financial statements of changes in equity, the statement of cash flows and the notes – as the consolidated companies, the definition of the basis of well as the Group management report for the business year from consolidation, the accounting and consolidation principles used 1 January to 31 December 2015, prepared by EWE Aktiengesell- and the important estimates made by management, as well as schaft, Oldenburg, Germany. Preparing these consolidated finan- evaluating the overall presentation of the annual consolidated cial statements and Group management report in accordance with financial statements and the Group management report. We both IFRS as approved for use in the EU as well as with the believe that our audit provides a reasonable basis for our opinion. additional commercial legal regulations set forth in article 315a, section 1 of the German Commercial Code is the responsibility of Our audit did not lead to any objections. the legal representatives of the company. Our responsibility is to express an opinion on the consolidated financial statements and In our opinion, based on the knowledge we gained from our audit, the Group management report based on the audit we have the consolidated financial statements comply with IFRS as they undertaken. are to be applied in the EU as well as the provisions of the German Commercial Code as set forth in article 315a, section 1, and We conducted our audit of the consolidated financial statements convey a true and fair view of the Group’s net assets, financial in accordance with section 317 of the German Commercial Code, position and results of operations. The Group management report taking into consideration the generally accepted accounting prin- is consistent with the consolidated financial statements, and ciples as set out by the Institute of Public Auditors in Germany as a whole provides a suitable view of the Group’s position and (IDW). These standards require us to plan and perform audits in adequately presents the opportunities and risks associated such a way that misstatements and violations materially affecting with the Group’s future performance. the presentation of assets, financial position and profitability results in the consolidated financial statements in accordance with the applicable accounting rules and in the Group manage- Bremen, Germany, 18 February 2016 ment report are detected with reasonable certainty. Knowledge of the Group’s business activities, its economic and legal environ- Ernst & Young GmbH ment and expectations of possible misstatements are taken into Wirtschaftsprüfungsgesellschaft account when determining auditing procedures. Within the scope of the audit, both the effectiveness of the Group’s internal control Boelsems Hantke system and the evidence supporting the information disclosed in (auditor) (auditor)

EWE AG Annual Report 2015 191

ANNUAL FINANCIAL STATEMENTS OF EWE AG FOR 2015

(pursuant to the German Commercial Code)

192 Statement of financial position of EWE AG, Oldenburg, Germany 193 Income statement of EWE AG, Oldenburg, Germany

EWE AG Annual Report 2015 192 ANNUAL FINANCIAL STATEMENTS OF EWE AKTIENGESELLSCHAFT FOR 2015

Statement of financial position of EWE AG, Oldenburg, Germany

AS AT 31 DECEMBER 2015

ASSETS

| T 112

in millions of euros 31.12.2015 31.12.2014

Fixed assets Intangible assets 20.8 4.9 Property, plant and equipment 203.4 202.6 Financial assets 4,364.1 4,155.5 4,588.3 4,363.0

Current assets Accounts receivable and other assets 395.2 388.2 Securities 0.0 31.6 Cash and cash equivalents 221.9 199.8 617.1 619.6

Accrued and deferred items 22.1 25.8 5,227.5 5,008.4

EQUITY AND LIABILITIES

| T 113

in millions of euros 31.12.2015 31.12.2014

Equity Share capital 243.0 243.0 Capital reserves 1,642.8 1,642.8 Revenue reserves 92.1 192.1 Net profit 228.8 90.0 2,206.7 2,167.9

Provisions 150.4 90.4

Liabilities 2,870.2 2,750.1

Accrued and deferred items 0.2 0.0 5,227.5 5,008.4

EWE AG Annual Report 2015 ANNUAL FINANCIAL STATEMENTS OF EWE AKTIENGESELLSCHAFT FOR 2015 193 192 Statement of financial position 193 Income statement

Income statement of EWE AG, Oldenburg, Germany

FROM 1 JANUARY TO 31 DECEMBER 2015

| T 114

in millions of euros 2015 2014

Profit/loss from financial investments 384.2 406.5 Net interest income/expense -118.2 -129.0 Other operating income 202.7 102.5 Personnel expenses -70.4 -38.1 Amortisation, depreciation and impairment -20.0 -12.3 Other operating expenses -167.5 -112.7

Income from operations 210.8 216.9 Taxes -84.0 -57.2 Annual net profit 126.8 159.7

Profit carried forward from previous year 2.0 5.4 Withdrawals from allocations to revenue reserves 100.0 0.0 Allocations to reserves 0.0 -75.1 Net profit 228.8 90.0

EWE AG Annual Report 2015 195

SERVICE

196 List of abbreviations 196 Index 199 List of graphics 199 List of tables 200 Financial calendar 2016

EWE AG Annual Report 2015 196 SERVICE

List of abbreviations

AfS Available-for-Sale FLHfT Financial Liabilities Held for Trading AGEB Working Group for Energy Balances GKB Gemeinschaftskraftwerk Bremen GmbH & Co. KG (Arbeitsgemeinschaft Energiebilanzen e. V.) HGB German Commercial Code (Handelsgesetzbuch) AktG German Stock Corporation Act (Aktiengesetz) HVE Hansewasser Ver- und Entsorgungs-GmbH BBergG German federal mining act (Bundesberggesetz) IAS International Accounting Standards bbl barrel IASB International Accounting Standards Board BDEW German Association of Energy and Water Industries ICE Intercontinental Exchange (Bundesverband der Energie- und Wasserwirtschaft) IDW German Institute of Auditors (Institut der Wirtschaftsprüfer) BMWi Bundeswirtschaftsministerium IFRS International Financial Reporting Standards bp Base points (Basispunkte) IFRS IC IFRS Interpretation Committee BSA Broadband Service Analyzer IT Information Technology BVOT “German mining ordinance for drilling, underground storage kWh Kilowatt hours (Kilowattstunden) and raw material extraction by means of drilling in Lower KWKG combined heat and power act Saxony (Bodenschätzen durch Bohrungen im Land (Kraft-Wärme-Kopplung Gesetz) Niedersachsen)” LaR Loans and Receivables CER future contracts Certified Emisson Reduction MSR Market stability reserve (Marktstabilitätsreserve) CO2 carbon dioxide MW Megawatts (Megawatt) CVA/DVA Credit Value Adjustment/Debit Value Adjustment MWh Megawatt-hour (Megawattstunde) DBO Defined Benefit Obligation NCG Net Connect Germany DRV “German framework agreement for financial futures PLN Polish złoty (Deutscher Rahmenvertrag für Finanztermingeschäfte)” SINTEG Digital Agenda for the Energy Transition DVA Debit Value Adjustment SysStabV System Stability Ordinance (Systemstabilitätsverordnung) EBIT Earnings before interest and taxes TDG Telekom Deutschland GmbH EBT Earnings before taxes TRY Turkish lira ECB European Central Bank TTF Title Transfer Facility (TTF Cal 16) EEG Renewable Energy Act (Erneuerbare-Energien-Gesetz) TWh Terawatt-hours EEW Energieverband Elbe-Weser Beteiligungsholding GmbH USD US dollar EEX European Energy Exchange (Strombörse London) VBL State insurance agency (Versicherungsanstalt des EFET European Federation of Energy Traders Bundes und der Länder) EnBW AG EnBW Energie Baden-Württemberg AG VNG AG Verbundnetz Gas Aktiengesellschaft EU European Union WACC Weighted Average Cost of Capital EU-ETS “European Emissions Trading System WEE Weser-Ems-Energiebeteiligungen GmbH (Europäisches Emissionshandelssystem)” EUA future contracts European Union Allowance EWE TEL Group-owned Telecommunications Company EY Ernst & Young GmbH Wirtschaftprüfungsgesellschaft FAHfT Financial Assets Held for Trading FLAC Financial Liabilities Measured at Amortised Cost

Index

Accounting methods U2, 101, 103, 104, U3 Cash flow U2, 58, 72, 73, 78, 95, 98, 100, 101, 113, 114, 115, 117, 118, 119, 120, Annual General Meeting 39, 42 121, 124, 129, 144, 155, 156, 157, 162, 165, 167, 168, 169, 170, 173, 174, 179, 189 Appropriation of net profit 43 Cash flow hedges 95, 98, 119, 155, 156, 157, 174 Assets position 76, 79, 174, 187 Cash and cash equivalents 72, 78, 100, 113, 121, 140, 144, 147, 162, 170, 179, 192 Associated companies 51, 77, 78, 79, 85 Capital expenditure U2, 176 Capital management 155 Balance sheet total U2, 72, 77, U3 CO2 certificate 60, 62, 112, 156, 172 Boards 80, 185 Company management 200 Bonds 39, 44, 45, 68, 72, 73, 76, 77, 78, 97, 124, 135, 150, 160, 162, 168, 177, 178 Compliance 82, 86, 87, 170 Borrowing costs 110 Credit facility 73, 167 Currency futures 173

EWE AG Annual Report 2015 SERVICE 197 196 List of abbreviations 198 List of tables 196 Index 200 Financial calendar 2016 198 List of graphics U3 5-year financial summary EWE Group

Default risks 169 Leases 21, 109, 110, 127, 128, 129, 154, 155 Deferred taxes 95, 96, 97, 101, 107, 108, 124, 130, 153, 154 Legal and compliance risks 82, 86 Depreciation, amortisation and impairment 133, 175 Liquidity risk 85, 87, 124, 167 Derivatives 67, 87, 100, 103, 112, 113, 116, 119, 130, 155, 156, 157, 158, 160, 162, 165, 168, 169, 170, 174, 179 Market price risks 84, 119, 170 Derivative financial instruments 58, 68, 87, 101, 113, 116, 118, 119, 128, 129, 141, 142, 151, 155, 162, 163, 164, 165 Non-financial liabilities 97, 152 Discount rates 135, 136 Non-financial receivables 96, 112, 143 Dividend 39, 52, 73, 76, 77, 78, 98, 100, 101, 107, 140, 144, 151, 166, 168, 179 Operating leases 110, 154, 155 Earnings position 42, 136 Other income 68, 95 Easements 179 EBT 179 Pension provision 130, 153 EBIT, operating EBIT 39, 58, 67, 69, 70, 71, 89, 90, 91, 177, 178, 179 Personnel expenses 68, 77, 94, 128, 146, 177, 178, 193 EBITDA, operating EBITDA U2, U3 Emissions rights 170 Rating 45, 58, 86, 155, 169 Employees U2, 1, 32, 33, 34, 35, 41, 43, 46, 47, 73, 74, 79, 85, 87, 122, 123, 124, Renewable energy 1, 16, 20, 21, 24, 25, 29, 34, 46, 50, 51, 55, 56, 57, 60, 72, 83, 128, 146, 147, 177, 178 84, 86, 88, 89, 90, 91, 106, 124, 175 Equity U2, 50, 71, 72, 77, 78, 97, 97, 98, 99, 100, 101, 102, 103, 104, 107, 108, 114, renewable energy sources act (EEG) 20, 89 116, 119, 135, 140, 144, 152, 154, 155, 157, 160, 162, 165, 170, 174, 179, 180, 181, Research and development 29, 47, 56, 57, 112, 133, 151 182, 189, 192, U3 Result for the period U2, 67, 72, U3 Equity method 50, 51, 68, 72, 94, 95, 99, 100, 102, 104, 126, 127, 129, 130, 131, Risks and opportunities (management) 82, 83, 84, 85, 86 140, 144, 177, 178, 182, 183 Equity ratio 41, 72, 77, 155, U3 Sales 21, 35, 38, 39, 40, 42, 50, 51, 53, 54, 56, 57, 58, 59, 63, 68, 69, 70, 71, 73, 74, 84, 86, 89, 90, 91, 101, 108, 112, 133, 134, 135, 136, 140, 156, 164, 168, 169, Fair value 95, 101-106, 108-114, 116-118, 120, 122, 124-127, 129, 135, 146,147, 175, 176, 177, 178, U3 155-166, 170, 174 Segment reporting 58, 101, 128, 129, 175, 177, 178 Fair value hedges 101, 118, 156 Sensitivity analysis 136 Financial instruments 58, 68, 87, 101, 105, 107, 112, 113, 114, 116, 117, 118, 119, 124, Strategy 34, 46, 47, 55, 56, 57, 63, 64, 73, 74, 84, 88, 155 125, 128, 129, 141, 142, 151, 155, 157, 162, 163, 164, 165, 166, 168, 169, 170, 174 Subscribed capital 144 Financial investments 76, 78, 94, 113, 114, 129, 130, 139, 167, 175, 177, 178, 193 Subsidiaries 28, 33, 51, 55, 80, 95, 101, 102, 104, 107, 108, 120, 125, 126, 127, Financial liabilities 97, 100, 103, 116, 117, 118, 124, 151, 152, 154, 160, 163, 165, 154, 186, 187 166, 167, 168, 174, 177, 178 Supervisory Board 42, 43, 57, 58, 75, 80, 101, 183, 185, 186 Financial position U2, 51,72, 78, 81, 95, 96, 97, 99, 101, 107, 109, 113, 125, 126, System Stability Ordinance (SysStabV) 66 132, 162, 174, 179, 188, 189, 192, U3 Financial risks 82, 85, 86, 87, 155 Transaction costs 110, 112, 116, 117 Financing 21, 42, 44, 45, 55, 58, 72, 73, 76, 77, 78, 88, 100, 122, 126, 135, 154, Transparency 46, 47, 58 167, 174, 179, 183 Forecast 20, 67, 79, 80, 84, 88, 90, 91, 118, 119 Value in use 120 Foreign currency risk 156, 157 WACC 134, 135, 136, 165 Goodwill 58, 67, 80, 102, 103, 104, 106, 107, 108, 120, 124, 125, 129, 132, 133, Write-downs 39, 68, 76, 77, 128, 129 134, 135, 140 Guarantees 115, 117, 146, 154, 167, 183

Hedge accounting 87, 118, 119, 125, 155, 156, 170, 171, 172, 173, 174 Hedges 54, 68, 87, 95, 98, 101, 118, 119, 155, 156, 157, 171, 173, 174

Infrastructure business area 91 Impairment losses 103, 109, 110, 111, 112, 113, 114, 116, 120, 141 Intangible assets 77, 79, 80, 96, 100, 111, 112, 121, 124, 127, 129, 132, 133, 134, 153, 154, 175, 192 Interest rate risk 174 Interest rate swaps 118, 119, 162 Inventories 96, 119, 120, 141, 153

EWE AG Annual Report 2015 198 SERVICE

List of graphics

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MANAGEMENT G06 Primary energy consumption increases Current situation of the EWE Group slightly due to weather conditions 60 G01 Performance of the EWE bonds in 2015 44 G07 Share of power generation from renewable G13 Significant decline in power sales 70 sources increases to 30 per cent 60 G14 Slight increase in natural gas sales 70 GROUP MANAGEMENT REPORT 2015 G08 Price of Brent crude declines over the G15 Decrease in international natural gas sales 70 course of the year by approximately G16 Significant decline in power sales by swb 70 Company background 34 per cent 61 G17 Slight decrease in natural gas sales by swb 71 G09 Wholesale price of natural gas declines G18 Avg. number of employees by segment 73 G02 Slightly increased power generation over the course of the year by nearly capacity from renewable energy sources 51 27 per cent 61 Report on risks and opportunities G03 Further expanded power grids, natural gas G10 Price of refined coal declines over the pipelines and, above all, fibre-optic course of the year by nearly 33 per cent 62 G19 Likelihood of occurrence/damage 83 networks 52 G11 Price of CO2 certificates increases over G04 Conventional power generation capacity the course of the year by nearly remains unchanged 55 14 per cent 62 G05 Power generation capacity of swb G12 Wholesale price of power declines over the renewables expanded 55 course of the year by approximately 13 per cent 62

List of tables

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OVERVIEW Current situation of EWE AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF EWE AG T001 Group key figures K2 T013 Explanation of assets position 78 T014 Financial Position | source of funds/ T023 Changes to the basis for consolidation application of funds 78 MANAGEMENT during the 2015 business year 102 T015 Investments 79 T024 Exchange rates used for the foreign T002 Sustainability strategy 47 currency translation of individual Forecast report financial statements 106 GROUP MANAGEMENT REPORT 2015 T025 Property, plant and equipment | T016 Expected performance of the EWE Group 89 Scheduled depreciation using the Company background straight-line method 109 CONSOLIDATED FINANCIAL T026 Intangible assets | Scheduled depreciation T003 Select key performance indicators 50 using the straight-line method 111 T004 Number of natural gas customers in STATEMENTS T027 Other operating income 128 Turkey and Poland once again increases 55 T028 Material expenditures 128 T017 Consolidated income statement of T029 Personnel expenses 128 Current situation of the EWE Group the EWE Group 94 T030 Number of employees 128 T018 Consolidated statement of comprehensive T031 Other operating expenses 129 T005 Forecast deviations 67 income of the EWE Group 95 T032 Profit/loss from financial investments T006 Consolidated result for the period 67 T019 Statement of financial position of accounted for using the equity method 129 T007 Summarised consolidated statement of the EWE Group | Assets 96 T033 Profit/loss from financial investments comprehensive income 68 T020 Statement of financial position of accounted for using the equity method 130 T008 Segment Performance | Operating result the EWE Group | Equity and liabilities 97 T034 Other profit/loss from investments 130 and external sales 69 T021 Statement of changes in equity of T035 Net interest income/expense 130 T009 Asset position 71 the EWE Group 98-99 T036 Income taxes 130 T010 Financial position 72 T022 Statement of cash flows of the T037 Effective tax expense 131 T011 Target percentages for the Supervisory EWE Group 100 T038 Intangible assets 132 Board and Board of Management of EWE AG 75 T012 Target percentages for the top two levels of management of EWE AG 75

EWE AG Annual Report 2015 SERVICE 199 196 List of abbreviations 198 List of tables 196 Index 200 Financial calendar 2016 198 List of graphics U3 5-year financial summary EWE Group

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T039 Development of intangible assets 2015 132 T069 Effects of changes to the applicable T103 External sales, assets and capital T040 Development of intangible assets 2014 133 actuarial assumptions on the defined expenditure by region 176 T041 Major goodwill and intangible assets benefit pension obligation 148 T104 Segment reporting 31 December 2015 with an indefinite useful life T070 Statement of provisions 149 (I/II) 177 attributed to CGEs in 2015 134 T071 Outstanding bonds 150 T105 Segment reporting 31 December 2015 T042 Major goodwill and intangible assets T072 Liabilities to financial institutions 150 (II/II) 178 with an indefinite useful life T073 Other financial liabilities 151 T106 Operating EBIT 179 attributed to CGEs in 2014 134 T074 Other non-financial liabilities 152 T107 Selection of significant shareholdings T043 Property, plant and equipment 136 T075 Deferred taxes | Deferred tax assets pursuant to article 313, section 2 of T044 Development of property, plant and and liabilities 153 the German Commercial Code 180-182 equipment in 2015 137 T076 Deferred taxes | Temporary differences 154 T108 Shareholders/investors in EWE AG 183 T045 Development of property, plant and T077 Leases 155 T109 Associates accounted for under the equipment in 2014 138 T078 Equity ratio 155 equity method and assets measured T046 Development of investment property 139 T079 Derivatives without a hedging pursuant to IFRS 5 183 T047 Combination of profit/loss in the period relationship 156 T110 Non-consolidated affiliated companies 184 from financial investments 139 T080 Derivatives in a fair value hedge 156 T111 Auditor’s fees and services rendered 187 T048 Investments accounted for using T081 Derivatives related to cash flow hedges 157 the equity method 140 T082 Carrying amounts, bases of recognition T049 Consolidated financial information and fair values according to ANNUAL FINANCIAL STATEMENTS OF about companies accounted for using measurement categories | Assets 158-159 EWE AG the equity method in 2015 140 T083 Carrying amounts, bases of recognition T050 Consolidated financial information and fair values according to T112 Statement of financial position of about companies accounted for using measurement categories | Equity EWE AG, Oldenburg | Assets 192 the equity method in 2014 140 and liabilities 160-161 T113 Statement of financial position of T051 Income statement 2015 for other T084 Allocation of financial instruments EWE AG, Oldenburg | Equity and liabilities 192 associates 141 measured at fair value 2015 163 T114 Income statement of EWE AG, Oldenburg 193 T052 Income statement 2014 for other T085 Allocation of financial instruments T115 5-year financial summary EWE Group U3 associates 141 measured at fair value 2014 163 T053 Other non-current financial assets 141 T086 Changes to fair values in level 3, 2015 164 T054 Inventories 141 T087 Changes to fair values in level 3, 2014 164 T055 Trade receivables 142 T088 Offsetting of financial assets and T056 Changes to impairments of trade financial liabilities 2015 165 receivables 142 T089 Offsetting of financial assets and T057 Other financial receivables and assets 142 financial liabilities 2014 165 T058 Maturities of other financial receivables T090 Net profit/loss by valuation category 166 and assets 143 T091 Interest payments and principle T059 Impairment of other financial repayments 2015 168 receivables and assets 143 T092 Interest payments and principle T060 Other non-financial receivables repayments 2014 168 and assets 143 T093 Cash flows from power derivatives T061 Construction grants 145 (not own use) 168 T062 Provisions 145 T094 Cash flows from natural gas derivatives T063 Balance sheet items for the defined (not own use) 169 benefit and defined contribution T095 Overview of market price risk | power 168 pension obligations 146 T096 Overview of market price risk | natural T064 Values that have been recognised in gas 171 profit and loss 146 T097 Overview of market price risk | coal 172 T065 Change in the present value of the T098 Overview of market price risk | CO2 obligations 147 certificates 172 T066 Performance of plan assets 147 T099 Overview of foreign exchange risk 173 T067 Change in the present value of T100 Overview of interest rate risks 174 the obligation 147 T101 External sales by product and service T068 Pension obligations calculation 2015 176 using the 2005 G Klaus Heubeck T102 External sales by product and service actuarial tables 147 2014 176

EWE AG Annual Report 2015 200 SERVICE

Financial calendar 2016

27.04.2016 Annual Report 2015 – Press conference of financial statements

29.08.2016 Interim Report 2016

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Published by This annual report contains forward-looking statements based on assump- EWE Aktiengesellschaft tions and estimates by the management of EWE AG. Although company Tirpitzstraße 39 management believes that these assumptions and estimates are accurate, 26122 Oldenburg, Germany actual future developments and results may differ considerably from these assumptions and estimates due to a wide variety of factors. These factors Team editorial and text may include changes in the general economic situation, in the statutory and EWE Aktiengesellschaft regulatory framework for Germany and the EU, and in the sector. EWE AG Corporate Communication is neither liable for, nor guarantees that future developments and the actual Phone: +49 (04 41) 48 05-18 30 results achieved in future will coincide with the assumptions and estimates E-mail: [email protected] made in this annual report. EWE AG neither intends nor assumes any obligation to update forward-looking statements to reflect events or devel- Wolfgang Witte, Aurich, Germany (p. 16–35) opments after the date of this report. This annual report also exists in German; in the event of any divergences, the German version of the annual Concept and design report has precedence over the English version. Both language versions are Kirchhoff Consult AG, Hamburg, Germany available for download from www.ewe.de. www.kirchhoff.de

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EWE AG Annual Report 2015 SERVICE U3 196 List of abbreviations 198 List of tables 196 Index 200 Financial calendar 2016 198 List of graphics U3 5-year financial summary EWE Group

5-year financial summary EWE Group

| T 115

in millions of euros 2015 2014 2013 2012 2011

Sales 7,819.3 8,134.2 8,862.6 8,587.7 7,452.1 Operating EBITDA 864.0 849.2 983.2 954.6 599.5 Operating EBIT 428.1 427.5 497.9 512.7 179.3 EBIT 212.0 354.7 410.9 404.3 -124.3 Result for the period -9.4 146.3 57.2 138.8 -281.9

Cash outflows for capital expenditure (total) 666.9 721.4 573.5 615.2 623.3 Cash flow from operating activities 708.2 770.3 406.4 658.8 356.4

Balance sheet total 9,744.3 9,800.9 10,370.4 10,469.4 9,793.9 Equity ratio in % 18.0 23.3 23.1 23.6 26.1 Net financial position 4,237.1 4,120.7 3,832.7 3,781.4 3,782.1

Employees (on average) 8,855.0 9,154.0 9,163.0 9,049.0 8,828.0 Full time employees (FTE) 8,465.0 8,538.0 8,813.0 8,703.0 8,530.0 The accounting methods applied may result in rounding differences of +/- one unit (euro, per cent, etc.).

EWE AG Annual Report 2015