Integrated Report 2017 Monitoring change/media/ewe_com/pdfs im inhalt...Consulting System...

Monitoring change

Integrated Report 2017

Our business modelEWE Group

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64%Weser-Ems-Energie-beteiligungen GmbH

20%Energieverband Elbe-Weser Beteiligungsholding GmbH

6%EnBW Energie Baden- Württemberg AG

10%Treasury shares EWE AG

BWhere we are headedEWE – The leading energy company in northern Germany.

How we create value

Segments

Renewables, Grids and Gas Storage

Sales, Services and Trading International swb Group Central Division

Environment Plants and Networks Employees Know-how Social aspects and

relationships Finance

Resources

Electricity

■■ Generation■■ Trading■■ Networks■■ Sales

Gas

■■ Procurement■■ Storage■■ Trading■■ Networks■■ Sales

Telecommunications

■■ Networks■■ Sales

Information technology

■■ Consulting■■ System integration ■■ System management

8,250.5Revenue (millions of euros) excluding electricity and energy taxes (2016: 7,566.3 million euros)

Value creation Distribution of value creation

in millions of euros 2017 2016

Material 6,333.6 5,761.7

Staff 711.9 722.5

Interest 158.7 219.5

Taxes 128.6 119.5

Group key figures

Key non-financial figures

2017 2016Change

in %

Specific CO2 emissions from electricity generation (grams per kWh) 504 563 −10.5

Installed electrical capacity (in MW)

thereof Renewable 426 374 13.9

thereof Conventional 947 1,221 −22.4

Unavailability of networks (in minutes) per customer 5.8 5.5 5.5

Natural fluctuation (in %) 2.1 –

Health rate (in %) 94.6 95.2*

Accident rate (accidents per 1,000 employees) 8.1 10.7 −24.3

Customer satisfaction quality index 2.23 –

Information security training rate (in %) 79 –

Employees trained in corruption prevention 3,700 –

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

* Industry average for 2016

Key financial figures

in millions of euros 2017 2016Change

in %

Turnover 8,250.5 7,566.3 9.0

Operating EBITDA 937.4 969.9 −3.4

Operating EBIT 503.4 534.6 −5.8

EBIT 503.8 649.2 −22.4

Earnings in the period 256.1 332.9 −23.1

Payments for investments (total) 525.6 469.2 12.0

Cash flow from operating activities 655.8 471.7 39.0

Total assets 9,097.1 8,435.2 7.8

Equity ratio in % 22.9 23.0

Net financial position 3,311.3 3,399.7 −2.6

Employees (average) 9,134 9,048 1.0

Employees (full-time equivalent, FTE) 8,651 8,607 0.5

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

Company

02 Interview with the Board of Management06 Report from the Supervisory Board08 Our strategy

Our resources

11 Combined non-financial declaration of EWE AG

12 Key issues14 Responsible management17 Environment20 Plants and networks22 Employees25 Know-how26 Social aspects and relationships28 Finance

Combined management report and consolidated financial statements

32 Combined management report62 Consolidated financial statements

More information

150 About this report151 Responsibility statement152 Independent auditor’s report158 Independent auditor’s limited

assurance report160 GRI content index164 List of abbreviations, Index166 Table of contents168 Dates in 2018, Legal notice, Disclaimer

169 EWE Group five-year overview

Content

References to additional information in the report

Kayseri

Istanbul

Bursa

TURKEY

Poznań

Międzyrecz

POLAND

Customers

855,000Telecommunications customers(2016: 777,000)

1.4million electricity customers(2016: 1.3 million)

1.8 million gas customers(2016: 1.8 million)

Around 9,000 employees generate annual turnover of 8 billion euros at EWE, making us one of the larg-est municipal companies in Germany. Our customers in north-west Germany, Brandenburg and on Rügen benefit from innovative energy products and high- performance telecommunications. EWE has also made a name for itself in Poland and Turkey as a reliable supplier and driver of modern energy markets. The Group, based in Oldenburg, has its own power generation capacity based on renewable and conventional energy sources. Furthermore, EWE companies operate advanced, secure networks for electricity, natural gas and telecommunica-tions. Nationwide IT solutions complete our portfolio.

Our company

The Ems-Weser-Elbe region

We have been active in our core regions for more than 80 years. Today, we offer an integrated product range consisting of electricity, gas, telecommunications and information technology services.

Bremen (swb)

since 2009 part of EWE Group

Brandenburg /Rügen

since 1990

Turkey

since 2007

Poland

since 1999

Employees

9,134Average in 2017(2016: 9,048)

BrandenburgHanover

BremenOldenburg

GERMANY

Rügen


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How we create value

Segments





Resources

Electricity


Gas


Telecommunications







Material 6,333.6 5,761.7

Staff 711.9 722.5


Taxes 128.6 119.5


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How we create value

Segments





Resources

Electricity


Gas


Telecommunications







Material 6,333.6 5,761.7

Staff 711.9 722.5


Taxes 128.6 119.5

Mr Dohler, you are a proven energy expert with years of experience in the industry. You have been the Chief Executive Officer of EWE for three months. Can you remember what your first impressions were of the company?

Stefan Dohler: I was impressed by the way the staff identified with the company in the first few weeks in which I spent a lot of time travelling around the business re-gion. They are committed to EWE. For me, this ties in closely with the proximity of EWE to its customers. We are always there to help, be it with energy or telecom-munications. I thought that was something very special. Additionally, the degree of innovation of the staff caught my eye when I first arrived. Although focused on our core business, they are always thinking outside of the box.

Let us reflect a little before I ask you to look outside of that box. The dismissal of the CEO and other vacant seats on the Board of Management, not to mention suspicions of corruption in subsidiaries. How is EWE faring?

Stefan Dohler: My two colleagues Wolfgang Mücher and Michael Heidkamp have had a tough and difficult year. The effort they made is not something you can expect from just anyone. The allegations have been investigated and many have proven unfounded. They have also established a rules system for all personnel.

Are regulations a magic bullet?

Stefan Dohler: For me, the most important thing is that compliance is a cultural aspect. I can have as many rules as I want, yet compliance takes place in the head and heart. The most helpful thing is to use your brain. When following any rules,

Interview with the Board of Management

The Board of Management of EWE AG:

Michael Heidkamp Chief Sales Officer

Stefan Dohler Chief Executive Officer

Wolfgang MücherChief Financial Officer

(from left)

our employees should ask themselves the following question: What does compli-ance mean here and now in my everyday work? A culture like this works not by pointing the finger, but by helping out.

Let us talk about business operations. In the annual report, you rate the current net income for the year as good to satisfactory. Where did you perform better than expected? And where did you not fare as well?

Wolfgang Mücher: 2017 was a good business year for EWE. And as 2016 was also a good business year, we can be satisfied on balance. When we look at the individual lines of business, we see that our grid business performed exceptionally well. 2017 was also a good wind year, although our gas storage business did suffer the occa-sional setback. In terms of marketing, we made strategic investments and were therefore able to attract a number of new customers throughout the Group. This had an impact on our operating EBIT. In spite of a small setback in the later stages, we achieved outstanding results with regard to trading. Despite some highly chal-lenging general conditions, our international interests performed better than we expected at the start of the year. Even swb can look back on a positive business year, not least due to the avoided grid fees. However, the situation in conventional gen-eration did necessitate a valuation allowance for the power plants in Bremen.

What is happening with your fossil fuel power plants?

Stefan Dohler: When it comes to fossil fuel power plants, I am happy to be at EWE as the major operators of power plants are under significantly more pressure. There will certainly be excess capacity in the market for a while yet. We will continue to see price pressure in wholesale. Fortunately, we have power plants in Bremen with long-term leases, so we will not feel this price pressure directly for at least some of the quantity of electricity.

And renewables? How is EWE coping with the low feed-in remuneration that will result from the invitations to tender?

Stefan Dohler: Firstly, I am not surprised by the price level as it was formed through competition. Secondly, our customers want more green energy and we provide our customers with what they want. Thirdly, we know that the German government has set a target of 65 per cent renewables by 2030. A very large proportion of this will be from wind energy and a very large proportion of that energy will be generated in north-western Germany. This means that we can play a key role in wind energy. Therefore, it must not be our objective to invest as much capital as possible in wind farms; instead, we can ensure their development, construction, operation and inte-gration into the energy system. The capital can even come from partners, be it pen-sion funds or public participation.

“ We have to do it well and we have to be able to stem it.”

C O M PA N Y 3

Is the sale of electricity, gas and high-speed Internet still the core business of EWE?

Michael Heidkamp: Looking back at 2017, the answer is a resounding yes. The major-ity of our customers purchases our traditional products. We are happy to report sig-nificant growth in our electricity customers. This shows that we are bucking the trend.

Will the same be true in the future?

Michael Heidkamp: We are certain that the delivery of energy will remain the core element of our products. But we are working to merge our business with commod-ities into services or better system services. In the future, we want to be able to provide our customers with all household-related products from a single source. The world is becoming increasingly complex for customers, so we are making things simpler for them and in doing so becoming unique. Our corporate strategy can be summarised as follows: we make it bright for customers (electricity), we make it bright and fast (Internet), we make it bright, fast and warm (gas) and we make it bright, fast, warm and secure (household technology). We are developing a modular product range that is no longer focused on merely supplying energy. Additionally, we are working on a new IT platform so as to remain competitive in the future.

How important is regionality in EWE’s business model?

Michael Heidkamp: Most of the people who live in the regions are our customers. And it should remain that way. Regionality is important to these customers, as reflected by the growing frequency of visits to our shops. We are also creating value in the region. We are investing 1.2 billion euros in the expansion of the fibre optic network in order to speed up the region. We are making sure that the rural areas on our doorstep are not being left out.

How do your activities in Poland and Turkey fit with regionality?

Michael Heidkamp: Regionality is not the be-all and end-all to us. We are also seek-ing out business opportunities in new markets. We have a business region in Branden-burg / Rügen and we are operating in a market in Poland. Poland is the country with the strongest economic growth in Central Eastern Europe. By 2024, normal house-holds there will still be subject to tariff approval, yet even now competition for business customers is free. We will export the things we can already do well in our domestic market.

“ We are creating value in the region.”

Stefan Dohler, Chief Executive Officer

Michael Heidkamp, Chief Sales Officer

4 EWE Integrated Report 2017

How is your business in Turkey faring?

Wolfgang Mücher: Our colleagues in Turkey have done some excellent work. How-ever, our business has suffered due to the exchange rates: gas prices for customers are in the local currency and essentially set by the government, whereas purchasing is based on the price of oil and is carried out in dollars. It is also a business that is hard to control from here in Germany.

How does the 2018 business year look?

Wolfgang Mücher: Investments are a challenging issue. We have a number of invest-ments on the horizon. Market region transition, fibre optic network expansion, elec-tricity grid expansion and new business models. Regulatory effects will also have a considerably negative impact on our income from network operations in 2018. Nevertheless, we feel we are in a good position, although we are aware that we need to increase our efficiency further.

Mr Dohler, earlier on in your career you went to sea. Looking at EWE now, is it in calm waters or in need of a change of course?

Stefan Dohler: Last year was stormy. Yet our ship is robust and stable, capable of braving the high seas. This is due to our staff who, as we have already mentioned, have done an extremely good job. The Board of Management will soon be filled and then we will compare our current two-year-old strategy with our latest findings from the market. We aim to reveal our new – or should I say adjusted – course to the public in summer.

Can you at least say something about the rough direction of EWE’s new course?

Stefan Dohler: As Mr Heidkamp has already indicated, one focal point will be con-centrating on the needs of our customers. We do not want to tell the world what it needs – that does not work any more. Therefore, we will listen closely over the next few weeks and then answer two questions: Is our current business doing as well as we think? And what can we do better in this business that will define our future? And the second question: How quickly are we driving innovation, for in-stance in terms of the results of the enera project or our major investments in the fibre optic network? This needs entrepreneurial courage. We have to do it well and we have to be able to stem it. In other words, we have to have the talent to speed up and slow down simultaneously as if we were rally drivers, not seafarers.

Thank you for the interview.

The interview was held by the independent editor Wolfgang Witte.

Wolfgang Mücher, Chief Financial Officer

C O M PA N Y 5

Dear Sir or Madam,

Over the course of the 2017 business year, the Super-visory Board continuously monitored the company’s management and received regular, comprehensive reports from the Board of Management on the com-pany’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 nine meetings in 2017, the Supervisory Board dealt in particular with the annual and consolidated financial statements, the current results of operations (including the risk management system), investments and their financing, and individual transactions of particular importance, and passed resolutions on the matters assigned to it by law or the articles of incorporation. The Supervisory Board provided guidance regarding the company’s strategic focus, regarding its commit-ment to the Turkish market in light of the current po-litical situation and regarding resolutions on planned investments in the growing field of wind energy. Among other items on its agenda, the Supervisory Board approved the awarding of contracts for per-missible non-audit services to the auditor by provid-ing written consent in lieu of holding a meeting.

Additionally, the Supervisory Board received re-ports on the new statutory requirements regarding non-financial reporting and on how the Board of Management plans to structure the future non- financial statements of EWE AG. In this regard and going beyond its statutory duty, the Supervisory Board decided to have the content of the non- financial statements audited by the audit firm Ernst & Young with limited assurance.

Additionally, the Supervisory Board passed resolu-tions to terminate the appointment and dissolve

the employment contract of the Chairperson of the Board of Management Matthias Brückmann. Addi-tionally, the Supervisory Board passed resolutions to fill vacant seats on the Board of Management and appointed Mr Stefan Dohler as Chairperson of the Board of Management. Ms Marion Rövekamp has been appointed Head of Human Resources and Dr Urban Keussen has been appointed Head of Tech-nology. The newly appointed members of the Board of Management all take up office in the 2018 busi-ness year as the appointments were made for dates in the 2018 business year. The Group auditing department provided the Supervisory Board with regular reports on the audits carried out. External forensic investigations have been commissioned following anonymous reports of legal violations, especially in connection with donation promises and the illegal awarding of contracts. The results of the investigation were the subject of intense scru-tiny by the Supervisory Board.

The Supervisory Board of EWE AG has undergone the following changes since 1 January 2017: Dr Frank Mastiaux, Mr Peter Meiwald and Dr Stephan- Andreas Kaulvers have stepped down as represen-tatives of the shareholders on the Supervisory Board. Mr Bernd-Carsten Hiebing, Mr Henning R. Deters and Mr Jürgen Löcke have been appointed to the Supervisory Board as representatives of the shareholders. Mr Bernhard Bramlage has taken over from the previous Chairperson of the Supervisory Board. Mr Jürgen Löcke has been elected a new member and Chairperson of the finance and audit committee. Additionally, Mr Wolfgang Behnke stepped down from the Supervisory Board as at the end of 31 December 2017.

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

Report from the Supervisory Board


Together with the Board of Management, the Super-visory Board committees prepared the meetings and the resolutions of the Supervisory Board. All in all, the steering committee met 14 times, the work-ing committee five and the finance and audit com-mittee a total of four times. No meetings of the mediation committee were held pursuant to Sec-tion 27 (3) MitbestG.

The annual financial statements of EWE AG pre-pared by the Board of Management in accordance with the German Commercial Code (HGB), the con-solidated financial statements prepared in accord-ance with IFRS and the combined management report for EWE AG and the Group for the 2017 busi-ness year have been audited by the accounting firm Ernst & Young GmbH, which was elected as auditor at the Annual General Meeting on 16 May 2017, and subsequently hired by the Supervisory Board. The auditors’ reports were distributed to the members of the Supervisory Board, officially acknowledged and incorporated into the discussion and review of the annual and consolidated financial statements. The auditors participated in the meeting of the finance and audit committee on 15 March 2018 and the Supervisory Board meeting dealing with the financial statements on 12 April 2018, where they reported on the major findings of their audit and were available to answer questions. Having conclu-sively examined the annual financial statements and consolidated financial statements prepared by the Board of Management, the management report for EWE AG and the Group management report as well as the proposal for the appropriation of net prof-it, the Supervisory Board expresses no objections. The Supervisory Board today adopted the annual financial statements, approved the consolidated financial statements and concurred with the Board of Management’s proposal for the appropriation of net profit.

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

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

1. The factual statements of the report are correct

2. The consideration paid by the company for the transactions mentioned was not inappropriately high.”

Each member of the Supervisory Board was provid-ed 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 ex-pressly states that it has no objections to the state-ments by the Board of Management at the end of the report on transactions with affiliated companies.

The Supervisory Board would like to thank and ex-press its appreciation to the Board of Management, all employees and the members of the works coun-cils for their hard work in the 2017 business year.

Oldenburg, 12 April 2018

The Supervisory Board

Bernhard Bramlage Chairperson

C O M PA N Y 7 C O M PA N Y 7


Our strategyEWE offers all the conditions needed for energy, telecommunications and mobility markets to converge. We also bring this expertise and experience to the enera project. This project aims to show how the energy transition can work in a region where electricity generation from renewable sources is already double consumption at times.

How can we reliably provide our custom-ers with an increasing level of renewable energy?

How can life with more and more renew-able energy be made more convenient for our customers?

Everyone in the energy industry is asking these two questions. EWE hopes to provide answers through enera: with funding from the German Federal Ministry for Economic Affairs and Energy, more than 30 companies from across Germany have come together under this name to form a research con-sortium with two goals.

■■ In the model region around Aurich, Wittmund and Friesland, enera is building a ‘power grid of the future’ that will allow energy producers and consumers to ensure a stable supply together with network operator.

■■ Additionally, enera is testing and developing new products for private households in the model region. These products are based on data gener-ated by networking the parties named above.

Smart meters

As a first step, 29,000 households and companies in the model region are having a smart meter in-stalled. Current legislation requires that customers who receive at least 10,000 kilowatt-hours of elec-tricity per year are equipped with a smart meter. However, most private households do not reach this limit. For that reason, enera is covering a large pro-portion of the costs incurred.

A smart meter gives customers a detailed, up-to-the-minute overview of how much electricity their ap-pliances and devices have consumed. This makes it possible to identify ‘power guzzlers’. Each device can also be operated using a mobile phone. For example, the home lighting system can be changed without having to go from lamp to lamp. Furthermore, the smart meter makes it possible to adjust power con-sumption in line with level of electricity generated by wind and solar power systems. Washing machines, tumble dryers and hot water boilers, for instance, can be turned on when there is a strong wind or at night, when less power is generally needed.

Anyone who not only uses electricity, but also gen-erates it or would like to provide other consumers with access to unused electricity from a domestic energy storage system or car battery can also con-trol this using the smart meter. In theory, it would even be possible to establish local electricity trad-ing. Last but not least, the communication interface of the smart meter can be used to protect against fire and water damage. The idea is that all of this should be as straightforward as possible so that it is accepted by as many customers as possible.

Against this background, enera is developing apps and tariffs that bring together a range of functions and that can be used to set automatic programmes. Although the power consumption habits of individ-ual customers follow complex rules (which can be transparent if desired), users should be able to operate this system very easily and without spend-ing too much time. The companies involved in the enera project stress that they do not want to be alone when it comes to developing new products.

C O M PA N Y 9

In order to attract as much creativity as possible to the model region, enera is therefore developing a platform where all interested developers can offer apps, for example. The development process behind the new energy supply of tomorrow will therefore have many fathers and mothers.

Smart grid

The smart meter not only makes life easier, but should also make the distribution of renewable electricity reliable and affordable.

A key reason why the model region was chosen is that coastal power generation today is already double peak consumption on some days. However, the cabling in this region dates back to a long time before the energy transition. These power lines were designed for a supply to meet the needs of households and businesses at that time. Today, they have to carry twice the amount of electricity during peak hours. The grid would have to be expanded at substantial cost unless it could be used more inten-sively with the existing copper cables.

Given these circumstances, enera is connecting a large number of sensors, digital measuring and con-trol devices, and flexible transformers to the grid in

order to obtain information about local network conditions and to strategically enhance its transport capability. The smart power grid therefore supplies not only power, but also important data that is indispensable for on-demand control.

Smart electricity trading

In order to provide customers with more and more renewable energy, enera is doing more than just digitalising the grid and embracing customers as active partners: a third important element is the integration of renewable electricity into the power market. This may sound complicated, but it essen-tially comes down to one very specific question: How reliable are our daily weather forecasts? After all, the sooner and more accurately everyone in-volved knows when (and where) sufficient quantities of renewable electricity will be available, or when (and where) it could become scarce, the better elec-tricity exchanges can be used to ensure intensive production processes, replenishing storage systems and providing an optimal supply to private house-holds in line with their needs. The power supply would thus follow the principles of the market econ-omy: the demand and supply of electricity would balance each other out, making it easier and easier to avoid strong price fluctuations in the future.

… with digital intelligence in meters, on the grid and in electricity trading.

For the energy supply of tomorrow

More information about enera see chap-ter ➞ Our resources, Know-how


Our resources

Pursuant to the German Corporate Social Respon-sibility Directive Implementation Act (CSR-RUG), the report contains the non-financial group state-ment of EWE AG in accordance with Section 315b et seq. of the German Commercial Code (HGB) which is compiled with the non-financial statement of the parent company in accordance with Sec-tion 289b et seq. HGB.

In doing so, we are tying our reports in with our previous sustainability reports. We report on how we create value for our company, the environment and society in the section entitled ‘Our resources’. As part of a materiality analysis, we redefined the non-financial aspects of relevance to our reporting in the 2017 business year. The identified aspects and the materiality analysis process are also pre-sented in this section. All information that is part of the non-financial statement is marked with the symbol NFS . GRI 102-49

Reporting boundaries

Unless indicated otherwise, all disclosures and figures in the non-financial reports concern the 2017 business year (1 January to 31 December), as do the financial reports. The EWE Group comprises EWE Aktiengesellschaft (also referred to as EWE AG), an ‘Aktiengesellschaft’ (public limited company) incorporated under German law, as well as its subsidiaries. If the non-financial statement deviates from the basis of consolidation, a footnote will define the scope of consolidated Group companies. Due to the varying materiality requirements of the GRI Standards and the CSR-RUG, no recognised sus-tainability reporting framework was used to prepare the non-financial statement. GRI 102-45

NFS

Combined non-financial statement of EWE AG

O U R R E S O U RC E S 11

1 The materiality analysis under the guidelines of the Global Reporting Initiative (GRI) contains an analysis of the effects of the activity of the company on non-financial aspects as well as an analysis of decision-usefulness for important stakeholders

Financial and non-financial factors form the basis of our corporate success. They enable us to generate economic, ecological and societal value, yet our business activities also have an effect on the environment and society. We determined the key aspects for EWE and our surrounding area in the 2017 materiality analysis.

Key issues

2017 materiality analysis

In 2017, we carried out a materiality analysis to identify the significant non-financial aspects for EWE and its stakeholders. Firstly, we utilised the non-financial aspects of the Group’s strategy, the issues from the 2016 sustainability report and the ten aspects of sustainability from the materiality analysis in 2013.

The relevance of this list of issues to the business of EWE has been evaluated by an internal team of experts. The evaluation was based on the CSR-RUG which is anchored by Section 315b et seq. HGB in conjunction with Section 289b et seq. HGB. Addi-tionally, we factored in the opinions of our stake-holders in order to evaluate the effects on the environment and society and in line with the ma-teriality criteria of the GRI Standards 1.

EWE employees from a range of Group roles surveyed a range of stakeholders and discussed and prioritised the list of issues.

Our relevant stakeholders: GRI 102−40

■■ Customers■■ Employees■■ Shareholders■■ Investors■■ Suppliers / business partners■■ Society / politicians

Finally, EWE validated and approved the collected results from the workshops with the Board of Management and Supervisory Board. GRI 102–46

The key non-financial issues identified in our 2017 materiality analysis are presented in the following materiality matrix. The X-axis shows the relevance of the issues to the business of EWE; the Y-axis shows the effects of the business activities of EWE on the non-financial aspects.

Only the highly relevant issues in the top right sec-tion of the matrix have been identified as key in the sense of the CSR-RUG. These issues are part of our non-financial statement.

Therefore, EWE covers the legally required environ-mental, employee and social aspects as well as corruption prevention in its reports. The aspect of observing human rights was taken into account in the materiality analysis and not identified as a key reporting aspect in the sense of the CSR-RUG.

Other reporting aspects in accordance with the GRI

Biodiversity, internal resource consumption, supply chain and data protection are also key in accordance with the GRI and are voluntarily reported on beyond the specifications of the CSR-RUG. Our key issues are presented in the following sections: Responsible management, Environment, Plants and networks, Employees, Social aspects and relationships and Finance. The following table shows the allocation of the key issues. GRI 102–46

NFS


Key issues Section

Corruption prevention

Supply chain Responsible management

Environmental protection

Internal resource consumption

Biodiversity Environment

Security of supply and network stability Plants and networks

Working conditions

Education and advanced training

Health management and occupational safety Employees

Customer satisfaction and service quality

Information security

Data protection Social aspects and relationships

Economic responsibility Finance

NFS

NFS

NFS

NFS

NFS

NFS

NFS

NFS

NFS

5

4

3

2

1

53 421


Data protection

Biodiversity

Supply chain


Health management and occu pa-tional safety

Working conditions

Impa

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n-fin

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al a

spec

ts

Business relevance

Our material topics

Part of the non-financial statement

Customer satisfaction and service qualityEnvironmental protection

Economic responsibility



Security of supply and network stability

GRI 102–44 GRI 102–46 GRI 102–47


Responsible management

opportunities and risks. Therefore, in 2016, the EWE Group strategically reoriented itself with the change and increased its ability to adapt to the changing market situation through partnerships and collaborations.

Likewise, the restructuring project ‘Holding 2.0’ redefined the Group’s concept of management in 2016. Following the project, the management of the EWE Group is focused on both financial and non-financial aspects. A target agreement system with monetary, non-monetary, strategic and oper-ational targets was implemented for executive employees.

The organisational responsibilities as part of man-agement and controlling are defined and document-ed in Group guidelines, including in the Group fi-nance and risk management, Group controlling and Group development guidelines. Additionally, so as to minimise negative effects on the company, envi-ronment and society, the following guidelines have been implemented: information security; health, safety and environment; crisis and emergency man-agement and data protection.

EWE AG was designed to be a management holding company. Its duty is to preserve and increase the value of the Group. Therefore, the Board of Manage-ment controls the Group and its segments.

The strategic orientation of the management levels is often examined in management meetings, with consideration for internal analyses and considera-tions of the landscape in which the EWE Group is operating.

Additionally, at irregular intervals we factor the in-terests of our stakeholders into a materiality anal-ysis from which we derive the key non-financial is-sues for the EWE Group.

In order to control financial and non-financial con-cerns, measurable targets are agreed on the basis of statistics or progress criteria and frequently ex-amined in management meetings.

In the energy sector, established business models are losing more and more profitability due to recent technological developments, changing customer behaviour and adjustments to the competitive landscape. New business models give rise to both

R

NFS For more de-tailed information on the business model, see ➞■Combined management report / Business conditions and general frame-work / The EWE Group


Our code of conduct

Integrity and transparent business processes are key prerequisites for responsible management. In 2012, EWE set out guidelines for these in a code of conduct centred on the principles of sustainability, fairness and safety which sets out rules for avoiding conflicts of interest, dealing with business partners, gifts and sensitive company information.

Risk management

EWE has established an integrated risk manage-ment system across the Group in order to quickly identify and actively manage potential risks in con-nection with its business activities. The system makes it possible to identify and analyse key risks. Additionally, the internal control system for con-trolling and limiting key risks is documented and its effectiveness is tested annually. The Board of Management of EWE AG receives monthly reports on the results of the system; the supervisory com-mittees receive quarterly reports.

Corporate responsibility

Our business is carried out in a regulatory environ-ment. This environment affects the course of busi-ness. Additionally, we operate in markets with in-tense competition. We meet these corporate challenges with strategic measures. For example, we invest in our grid infrastructure and are capable of meeting the requirements of our strong customer base. Our central risk management system enables us to systematically track the key risks of our fields of business and Group activities, evaluate them and define control measures to avoid or minimise them.

NFS Crisis management

We have established a crisis and business continu-ity management system to protect and maintain our most vital business processes and the infra-structure required for them to function. We use this system to continuously analyse potential threat scenarios such as natural disasters, IT disruptions or attacks on our infrastructure, determine their effects and then derive specific measures and plans that can be put into place in such cases in order to keep our operations running.

Key risks as part of non-financial reporting

In line with the legislation that has been in effect since 1 January 2017, we consider the risks that have significant negative effects on the aspects identi-fied in our non-financial reports in addition to the key risks to our business activities.

Therefore, we have identified and assessed key risks relating to the individual concerns of the heads of our departments. The Group-wide risk management department has examined the risk assessments car-ried out for each individual concern with regard to risks that could very likely have serious negative effects on the concern. Finally, the risk inventory documented in the integrated risk management was examined.

These examinations have not identified any risks that could be considered highly likely to have a serious negative effect on the concerns as at the reporting date.


We are aware that we are very much in the public eye and that integrity is a key prerequisite for the success of our company. Strict adherence to the laws and regulations is a key prerequisite to avoiding potentially significant legal and economic risks for EWE and its stakeholders.

NFS

NFS


Concept

EWE does not tolerate corruption or bribery. This means that at EWE, it is forbidden to offer, promise or accept incentives, preferences, favours or other advantages intended to influence a business deci-sion or give that impression. We have codified this in an internal code of conduct as well as in our code of conduct for suppliers that our business partners must follow.

EWE has established a compliance management system (CMS) in which central duties are fulfilled by the compliance officer. The compliance officer is assisted by a compliance committee chaired by a number of different roles. Additionally, on the level of individual companies, compliance officers are appointed to manage the implementation of the compliance regulations in subsidiaries. They report to the management of each company and notify the compliance officer of related develop-ments. Quarterly reports are submitted to the Board of Management on the basis of these reports. Other compliance-related duties are carried out by the Group auditing department, risk management department and certain special officers.

Selected measures in 2017

In its meeting on 8 September 2017, the Super visory Board of EWE AG discussed and agreed a final eval-uation of the results of the final reports of the audit firm KPMG which investigated possible misconduct at EWE in spring and summer 2017.

In 2016, we started subjecting the compliance or-ganisation to an external audit and identifying room for improvement. We have been implementing im-provement measures since early 2017. These include the introduction of independent compliance and data protection roles at EWE AG. Human resources have been expanded here and in the decentralised EWE companies. Besides additional training cours-es, we also provided a mandatory e-learning course on corruption prevention in the majority of the companies.

1 EWE AG, EWE NETZ GmbH, EWE TEL GmbH, EWE VERTRIEB GmbH, EWE DIREKT GMBH, EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE TRADING GmbH, EWE OSS GmbH

For more details, see■➞ Combined management report / Report on risks and opportunities / Legal and compliance risks


In 2017, more than 3,700 employees 1 in the EWE Group were trained on corruption pre-vention with a mandatory e-learning course (EWE AG: 418 employees). EWE will strive to reach a larger number of employees over the next few years, including by means of a stand-ard Group-wide learning management system.

3,700employees in the EWE Group were trained on corruption prevention

418employees at the EWE AG were trained on corruption prevention

Results

Environmental protection

Concept

The EWE Group has established environmental management systems pursuant to EMAS and ISO 14001 for the majority of its power plants and com-panies. In this context, power plants are also as-sessed in terms of their environmental risks during failure-free and disrupted operation and, if neces-sary, risk minimisation measures are implemented. We also have a crisis and emergency management system which describes the steps to take in the event of an emergency such as major disruption in a power plant. EWE is expanding its onshore wind activities and is pursuing selected investments in offshore wind. We are withdrawing from marketing conventional generation, although we remain com-mitted to conventional customer power plants and heat generation.

From 2018 onwards, the environmental protection officer of the EWE Group will prepare annual re-ports for the Board of Management. These reports will contain CO2 statistics as well as the results of the verification of compliance with environmental legislation.

NFS

1 Taken into consideration are conventional combined heat and power stations, power stations, waste incineration plants, wind farms, biogas plants and hydroelectric power stations of the EWE Group, including proportional capacities of holdings consolidated using the equity method, although not including emissions of block 4, which is operated by a third party using furnace gas. Unlike in previous years, a small number of estimates were factored into the CO2-emission data

EWE strives to link economic success with responsibility for protecting nature and the environment. Therefore, we have introduced Group guidelines on environmental management and anchored the protection of nature and the environment in our code of conduct. This applies to our power plants, our conduct and our products.

EEnvironment

By 2020, the Group aims to lower the specific CO2-emissions from our electricity generation 1 by 40 per cent compared to 2005, expand renewable energy and withdraw from conventional generation.


■■ We have expanded our development capacity by acquiring two wind development companies, TURBOWIND Energie GmbH and the Gewi regen-erative Energien Group.

■■ EWE’s subsidiary swb CREA has opened wind farms with a capacity of 15.5 megawatts (MW).

■■ EWE ERNEUERBARE ENERGIEN increased its re-newable energy generation capacity by acquiring four wind farms with a total output of 38 MW.

■■ The highly efficient natural gas power plant Ge-meinschaftskraftwerk Bremen (GKB) in which EWE holds an interest through its subsidiary swb closed its first year of operation with an output of 1.9 million megawatt hours of electricity.


1 Taken into consideration are conventional combined heat and power stations, power stations, waste incineration plants, wind farms, biogas plants and hydroelectric power stations of the EWE Group, including proportional capacities of holdings consolidated using the equity method, although not including emissions of block 4, which is operated by a third party using furnace gas. Unlike in previous years, a small number of estimates were factored into the CO2-emission data

2 Internal generation capacity, capacities of holdings consolidated using the equity method and block 4, which is operated by a third party using furnace gas, have been taken into consideration. In this diagram, waste to energy is fully allocated to conventional generation even if, according to the EEG, around half of the energy generated from waste is considered renewable. Only the values for the 2017 reporting year have been checked

The specific CO2-emissions from electricity gen-eration have fallen from 563 grams per kilowatt- hour (g / kWh) in 2016 to 504 g / kWh 1 in 2017. Compared to the initial value in 2005, the spe-cific CO2 figure has therefore decreased by 39 per cent. Therefore, the target of a 40 per cent re-duction set in 2014 has almost been achieved already. One reason for this development is the high electricity generation of GKB. Besides the

good wind year in 2017, other reasons include the fact that the RIFFGAT offshore wind farm was operational all year for the first time and that onshore wind power has been expanded.

39%Reduction of the specific CO2 emissions compared to 2005

Results

0

100

200

300

400

500

erneuerbar konventionellJahr 2016Jahr 2017

0

300

600

900

1200

1500

Jahr 2016Jahr 2017

Offshore wind

Other*

2017

425

2016

374

Onshore wind

* Biogas, solar power, hydroelectric

274220

9

12142

142

500

400

300

200

100

0

Internal generation capacity 2

as at 31.12. in megawatts

Renewable

NFS

1,500

1,200

900

600

300

00

100

200

300

400

500

erneuerbar konventionellJahr 2016Jahr 2017

0

300

600

900

1200

1500

Jahr 2016Jahr 2017 2017

947

Conventional

2016

1,221

Natural gas

Light oilWaste to energy

Furnace/converter gas

Coal

156

307

200

200

422553

83

75

86

86

NFS

400

500

600

700

800

900

200720062005 2008 2009 2010 2011 2012 2013 2014 2015 2016

400

500

700

600

800

900

Specific CO2-emissions from electricity generation 1

Grams CO₂ per kilowatt-hour

828 815790 784 786

728 728

658

722

540

536563

504

NFS

2017



Concept

The responsible use of resources also involves inter-nal energy consumption resulting from, for example, our properties or fleet of vehicles. Therefore, EWE has introduced certified energy management sys-tems in companies with high levels of energy con-sumption. As we consume less energy than we generate ourselves, internal resource consumption is not part of the non-financial statement.

The energy policy of each company forms the frame-work for its energy targets. The objective is to op-timise energy consumption and increase energy ef-ficiency. We take this objective into account when planning, building and renovating buildings and pow-er plants and when we procure products, systems and services. For example, by the end of 2019 we aim to lower the consumption of heat and electricity per square metre of usable floor area in our adminis-trative buildings and communal utility services by 7.5 per cent compared to 2014.

In accordance with ISO 50001, the Board of Man-agement and the management of the companies carry out annual inspections of the energy manage-ment system in order to ensure that it remains suit-able, appropriate and effective. These inspections encompass energy policy, energy target achieve-ment and the implementation of efficiency meas-ures from the energy programme. They also assess compliance with statutory regulations and the ef-fects of new legal provisions on the organisation.


■■ By optimising the cooling of a second large data processing centre of EWE TEL and making other improvements to efficiency, the annual electric-ity consumption level has been lowered by around 400,000 kWh.

■■ The lighting in EWE’s main warehouse has been switched to LED technology. This is expected to save over 100,000 kWh of electricity per year.

Biodiversity

Their positive impact on our carbon footprint not-withstanding, wind farms also represent encroach-ment into our environment. Therefore, EWE makes sure that its expansion of wind energy is compati-ble with consideration for the necessary environ-mental specifications. It is important to EWE to cre-ate alternative habitats for plants and animals when it builds power plants. For example, when building the Bakum wind farm, EWE created alternative habi tats in the vicinity. Arable land and farmland were converted and depressions and a body of water were created.

In 2017, eleven EWE Group companies with par-ticularly high consumption levels introduced an energy management system.

The electricity consumption of the adminis-trative buildings, communal utility services and shops was lowered from 129 kWh per square metre in 2014 to 117 kWh per square metre in 2017. This represents a decrease of 9.3 per cent compared to 2014. We were there-fore able to meet the target originally set for 2019 in 2017.

9.3%Reduction of the electricity consumption compared to 2014

Results


Due to the energy revolution and especially the expansion of renewable energy, network operators are being forced to integrate many decentralised power plants into the network, some of which are dependent on the weather. Digitisation has given us the means of creating an intelligent energy system. In this regard, network operators are legally obliged “to, where economically reasonable, operate, maintain, optimise as necessary, strengthen and expand a secure, reliable and high-capacity energy supply network without discrimination” 1. Specifically, therefore, we are obliged to maintain network stability and security of supply.

PPlants and networks

Network stability and security of supply

Concept

There are two electricity distribution network op-erators in the EWE Group: EWE NETZ operates elec-tricity and gas networks in north-western Lower Saxony and gas networks in areas of Brandenburg and Mecklenburg-Vorpommern; wesernetz is the network operator in Bremen. Both are facing differ-ent challenges. Whereas EWE NETZ largely operates inland and has to integrate a large number of renew-able energy power plants there, wesernetz has to meet the new requirements of an urban area such as the growing significance of e-mobility in the transport sector.

For our customers, the reliability of the supply and in turn the stability of the network in Germany and Europe are what count. Therefore, we gauge the unavailability of the electricity supply, i.e. the av-erage duration of all supply disruptions experienced by an end consumer connected to the network of a network operator in one year.

NFS

In order to ensure the necessary network stability and security of supply, the technical conditions such as voltage, current, short circuit current and relia-bility of supply are regularly tested. Besides the eco-nomic aspects, adherence to such thresholds is a key planning criterion for our measures.

Additionally, the ageing behaviour of the equipment is monitored in order to control network stability and security of supply. Damage is assessed system-atically with damage codes so as to identify any in-crease in disruption frequency early on.

The reliability of the supply is tested annually and reported to the German Federal Network Agency and the Network Technology / Network Operation Forum (FNN) by 30 April each year.

1 German government. Energy Industry Act (EnWG), Federal Law Gazette, 2005


Measures

■■ For the first time, in line with ISO 55000, the 2017 budget plans were based on asset simula-tions that can simulate the ageing of the network over a number of years. From these results, we derive investment measures through which we can control the condition of our assets and ensure reliable network operation.

■■ EWE NETZ was one of the first network opera-tors in Germany to apply a peak cap at a substa-tion in Manslagt. This makes it possible to con-nect around 50 per cent more renewable energy to the network with no expensive cable network expansion measures.

■■ EWE’s demonstration project ‘enera’ creates an intelligent energy system based on renewable energy in a model region (see ‘Our Strategy’). As part of ‘enera’, a flexibility market is being de-veloped in order to improve the coordination of flexibility and support network stability. This is expected not only to lead to better conditions

in EWE’s own network, but also contribute to the stability of the networks of upstream network operators.

■■ In the ‘Green Access’ project, EWE is working with partners in industry and the business world to test current medium and low-voltage network automation solutions with a view to creating a stable, reliable distribution network.

1 The network lengths here deviate from the management report. They are based on the Group as a whole, whereas disclosures are by segment in the management report2 As the unavailability figure is first calculated for the purposes of the non-financial statement and then reported to the German Federal Network Agency

by 30 April, we have calculated a forecast based on the average values from 2013 to 2016 for the current 2017 report3 Source: German Federal Network Agency

Network lengths in km 1

2017 2016Change

%

Power 93,800 93,300 0.5

Gas 73,100 72,000 1.5

Telecommunications 40,300 39,100 3.2

of which copper cable 15,300 15,200 0.2

of which fibre optic 25,100 23,900 5.1

In 2017, the unavailability in the grids of EWE NETZ, wesernetz Bremen and wesernetz Bremerhaven was 5.8 minutes per customer on average (2016: 5.5 minutes) 2. The average in Germany was 12.8 minutes in 2016 3.

5.8 minutesUnavailability in the grids per customer

Results

For more details about enera see chapter ➞ Our strategy

For more details, see■➞ Combined management report / Report on risks and opportunities / Legal and compliance risks

Network lengths

As links between decentralised energy generation and consumption, our energy networks are a cru-cial factor in an efficient, reliable energy supply.

Our telecommunications network, which we are continuously expanding, serves as the basis for our full range of telecommunications services.


Working conditions

Concept

We strive to remain an attractive employer in an environment characterised by profound change pro-cesses. To this end, we want to enable our personnel to balance their professional and private lives. As an employer, we offer collective wage and bargaining agreements, a company pension scheme and in-house health management. We analyse our natural fluctuation in this context 1.

Group-wide conceptual frameworks such as its per-sonnel strategy and collective bargaining policy form the framework in which its operating com-panies act. As the architect of the framework, the Group’s personnel department monitors compliance with these regulations and supports the Group com-panies as a designer, advisor or service provider.

NFS Selected measures in 2017

■■ The social partners entered into the bargaining agreement ‘Mobile Working’ in order to increase flexibility in the selection of working hours and location.

■■ EWE OSS GmbH became the first company to establish a comprehensive collective wage agree-ment in the field of offshore services. Addition-ally, eight bargaining agreements have been signed between the social partners.

Energy, telecommunications and information technology provide a diverse field of work for an average of 9,134 employees in the EWE Group, 607 of whom work at EWE AG. Our success is the result of their skills and motivation. We rely on fair, appreciative collaboration and have set this standard down in the EWE code of conduct, with which EWE and all employees undertake to comply. Our activities are focused on three aspects:

EEmployees

1 Therefore, the departures from an EWE Group company due to employee termination, retirement or death are considered relative to the average number of full-time and part-time employees in that company. Managing directors, trainees, interns, apprentices, temporary staff and student trainees are not taken into consideration

2 EWE AG, EWE NETZ GmbH, EWE VERTRIEB GmbH, EWE GASSPEICHER GmbH, EWE ERNEUERBARE ENERGIEN GmbH and EWE TRADING GmbH


In 2017, the natural fluctuation1 in the EWE com-panies subject to the EWE framework collective wage agreement 2 was 2.1 per cent. For EWE AG, the natural fluctuation 1 was 1.9 per cent.

2.1%natural fluctuation in EWE companies

Results

1.9%natural fluctuation in EWE AG


Concept

The objective of education and advanced training is to strengthen the future competitiveness of EWE through the qualification of personnel and manag-ers. The training departments in the Group are re-sponsible for advanced training and ensuring that the Group has a sufficient supply of young personnel. The Group management, companies and managers are actively involved in controlling the education and advanced training activities. The process is con-trolled differently in the Group and from company to company. Requirements are identified in the decentralised operating companies. The personnel and organisational development of EWE AG sup-ports employees and managers with advice as well as strategic organisational and personnel develop-ment measures. EWE provides knowledge manage-ment and life-long learning programmes tailored specifically to certain target groups.


■■ The EWE Akademie has been supporting EWE managers with a new concept since 2017. The concept is centred on collaboration skills, cus-tomer orientation and agility, negotiation man-agement and business development. For certain topics, other employees have been given the opportunity to participate.

■■ In 2017, EWE employed 453 vocational trainees and students in 25 different professions and in-tegrated degree programmes throughout the Group. For the first time, EWE is also training retail sellers in line with its requirements.

NFS


The knowledge management and life-long learning programmes commit employees and managers to regular training courses, includ-ing in compliance, data protection and organ-isational decentralisation. We also provide our personnel with advanced training opportuni-ties tailored to each specific target group. EWE is increasingly reliant on digital learning con-cepts. In 2017, it created a series of e-learning units and made them available through the learning platform. At the same time, all per-sonnel have access to a range of training cours-es through the workshop portal. We train young professionals in a variety of professions in the Group’s internal centre for education and advanced training. The Group-wide services of the EWE Akademie are tailored to managers and talented individuals in particular.

Results

Health management and occupational safety

Concept

The Group’s occupational health and safety depart-ment controls the occupational health and safety processes and programmes and verifies their imple-mentation. The central health management depart-ment is responsible for occupational integration management, workplace health promotion and a health portal. The initiatives are adjusted on the basis of weekly and monthly absence reports. Addition-ally, EWE prepares annual health reports in order to identify new fields of action. The Board of Manage-ment receives regular reports on the health rate.

Within each company, workplace physicians, health and safety specialists and officers and the works council serve to support safety in the workplace. If an accident happens, it is analysed by the com-panies, discussed by an occupational safety com-mittee which convenes regularly and, if necessary, steps are taken to prevent future instances. The Board of Management is notified of the accident rate on a quarterly basis, or immediately in the case of particularly serious accidents.

We gauge our progress by the health 1 and accident rates 2. The health rate is to be kept above the average 3 for the sector and improved further. The Group strives for an accident rate below the average of 2014−2016 of the trade association Berufsgenos-senschaft Energie Textil Elektro Medienerzeugnisse (BG ETEM); in particular, fatal accidents should be prevented.

NFS

1 Defined as the proportion of regular working hours in which our personnel were present in one year2 Based on accidents that must be reported as defined by BG ETEM3 Source: Dachverband BKK e. V.4 With regard to the companies: EWE AG (excluding executive employees), EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE NETZ GmbH,

EWE TEL GmbH, EWE TRADING GmbH, EWE VERTRIEB GmbH, EWE WASSER GmbH, EWE Offshore Service & Solutions GmbH, BTC Business Technology Consulting AG, BTC IT Services GmbH, swb Erzeugung GmbH & Co. KG, swb Entsorgung GmbH & Co. KG, swb CREA GmbH, wesernetz Bremerhaven GmbH, wesernetz Bremen GmbH, swb Vertrieb Bremen GmbH, swb Vertrieb Bremerhaven GmbH & Co. KG, swb Services GmbH & Co. KG, swb AG, swb Abrechnungsservice GmbH

5 excluding executive employees6 Deviations from GRI 403-2: The figures concern employees, i.e. permanent employees and not subcontractors or temporary personnel; no classification by gender;

Accidents: besides occupational accidents, commuting accidents and company-facilitated sporting accidents are taken into consideration; Region: based on the companies indicated. There were no fatal accidents

7 With regard to the companies: BIBER GmbH, EWE ERNEUERBARE ENERGIEN GmbH, EWE AG, EnergieCampus GmbH, EWE GASSPEICHER GmbH, EWE NETZ GmbH, EWE TEL GmbH, EWE TRADING GmbH, EWE VERTRIEB GmbH, EWE WASSER GmbH, Gebäudesicherheit Nord GmbH, EWE Offshore Service & Solutions GmbH, Gastransport Nord GmbH, BTC AG, BTC IT Services GmbH, swb AG, swb Beleuchtung GmbH, swb Entsorgung GmbH & Co. KG, swb Erzeugung AG & Co. KG, swb CREA GmbH, swb Vertrieb Bremen GmbH, swb Vertrieb Bremerhaven GmbH & Co. KG, swb Services AG & Co. KG, swb Abrechnungsservice GmbH in Bremen, wesernetz Bremen GmbH, wesernetz Bremerhaven GmbH, qbig GmbH. Only the values for the 2017 reporting year have been checked


■■ Health measures such as the ‘Time for Me’ initi-ative, raising awareness of exercise, stress and addiction, especially among apprentices, diverse exercise and nutrition programmes, work in an open-plan office and the development of a healthy management concept.

■■ Personnel are regularly briefed about potential dangers in the workplace and how to handle them safely; additionally, short safety talks are provided, especially in technical fields, following recent events.


In 2017, the health rate was 94.6 per cent 4

(industry average for 2016: 95.2 per cent 3). The health rate for EWE AG 5 was 96.0 per cent in 2017.

94.6%health rate 2017 in the EWE Group

In 2017, the accident rate6 declined from 10.7 to 8.1 accidents per 1,000 employees 7. The acci-dent rate in EWE AG was 3.0 accidents per 1,000 employees in 2017. As a result, the current aver-age of 18.2 accidents per 1,000 employees for 2014–2016 of BG ETEM has been surpassed.

8.1accidents per 1,000 employees EWE Group

There were no fatal accidents. 7

3.0accidents per 1,000 employees EWE AG

96%health rate 2017 for EWE AG

Results

Concept

EWE’s approach to innovation is based on corporate entrepreneurship and as such, aims to anchor dy-namism and entrepreneurial spirit firmly within the company. We have therefore established a central innovation department in the Group that will work with other departments. This will make it possible to demonstrate and test innovative approaches and ideas quickly and without delay.

Besides the traditional value chain in the energy sector, EWE aims to create a digital value chain. For example, this involves collecting data, establishing a range of communication technologies, developing an open, centralised data platform (known as an energy transition ecosystem), refining and evaluat-ing data through analyses and data science and developing diverse new data-based business mod-els for commercial and private customers.

The stated strategic objective of EWE is to signifi-cantly increase the share of its net income that is attributable to digital business models over the next few years. A digital world also requires the creation of a network of closely collaborating part-ners that will be expanded on a national and inter-national level over the next few years.


■■ In the ‘enera’ project, EWE aims to create a func-tional energy system based on renewable energy

in a model region. It should be possible to transfer the findings to Germany as a whole (see the box).

■■ The EWE Business Hub, a unit of the Business In-novation department, develops early-stage inno-vations and prepares them for implementation. Additionally, the central Business Hub controls and develops collaboration with start-ups.

■■ It also applies other internal and external ap-proaches to innovation that EWE identifies, sup-ports and subsidises through systematic ideation and acceleration processes to develop new, future- proof business models.

One of the central issues in the German energy sector at the moment is how to respond to digitisation. Which companies will master the transformation process from analogue to digital and what concepts will they pursue? At EWE, it is a question of how rapidly and sustainably can we successfully integrate digital inno-vations into our current business model.

KKnow-how

The smart meter roll-out in the ‘enera’ project did not go according to plan in 2017 due to the lack of availability of certified meters, although it will gain momentum in 2018 and create another key platform for the project.

In the business year ended, the execution and implementation of innovation work as part of diverse ideation and acceleration formats re-sulted in the identification of a number of busi-ness ideas from which some were selected and are now being systematically developed fur-ther. The development phase of these ideas and business models ranges from the rough idea to simple idea status to the spun-off com-pany, including in the fields of e-mobility and battery storage.

Results

More to enera see chapter ➞ Our strategy


Customer satisfaction and service quality

Concept

The customer satisfaction quality index1 which we derive from a customer survey provides us with im-portant indicators regarding customer satisfaction and service quality.

Our benchmarks are the average values of our com-petitors in the energy and telecommunications sup-ply area that we aim to surpass. Additionally, we have our customer service analysed and rated by the independent agency ServiceRating. ServiceRat-ing rates service management, services and service effectiveness.

On this basis, we develop measures designed to re-tain existing customers and attract new customers. The Board of Management is notified of the results regularly. Additionally, the telecommunications company EWE TEL provides profit-sharing based on the degree of progress towards targets.

NFS


■■ EWE is driving the expansion of its fibre optic network.

■■ EWE provides its customers with an app which, for example, enables them to submit digital meter readings.

EWE sees itself as an interface in a world of decentralised energy generation in which more and more energy customers are becoming energy producers. Our business is focused on the satisfaction and trust of our customers and partners. In a digital world, information security and data protection are growing in significance in the eyes of our customers.

SSocial aspects and relationships

1 In terms of energy, the customer satisfaction quality index only covers the EWE brand, whereas in terms of telecommunications it covers EWE, swb and osnatel. Produkt + Markt GmbH und Co. KG carried out the study, including the survey, supplied the customer satisfaction quality index and collects the benchmarks


In 2017, over 4,000 households were connect-ed to the fibre optic network.

Our customer service was rated ‘very good’ by ServiceRating.

The customer satisfaction quality index was 2.23 in 2017. Overall, we are therefore on track to meeting the benchmarks in many areas.

More than

4,000households were connected to the fibre optic network

2.23customer satisfaction quality index in 2017

Results


Concept

Within the Group, we have established information security systems based on DIN ISO 27001 in order to guarantee our customers a reliable supply of energy, telecommunications and water. The Group guidelines on information security set out the frame-work for action and define the responsibilities of managers and employees.

EWE’s information security policy is aimed at pre-venting damage to the Group and its stakeholders. For us, this means ensuring the availability, integrity and confidentiality of information and preventing data leaks. Additionally, we strive to comply with the statutory and internal regulations in order to mini-mise liability risks.

In addition to implementing suitable security solu-tions, we train our employees and raise awareness in order to achieve our targets. EWE gauges its pro-gress by the information security training rate 2, 3.

The Board of Management of EWE AG bears overall responsibility for information security. The Chief Information Security Officer (CISO) of EWE AG rep-resents the information security interests of the Group. Through regular reporting, the CISO makes sure that the managing directors and boards of man-agement of the EWE companies and even the Board of Management of EWE are suitably involved. The decentralised business units are responsible for implementing information security. The managers are responsible for maintaining the security of in-formation and data and adhering to regulations with-in their fields of responsibility. The companies are assisted by their information security officers in their efforts to fulfil the necessary duties. The IT units also contain IT security officers who are responsible for the suitable implementation of business require-ments into the relevant IT systems.


■■ The information security e-learning module devel-oped in 2016 has been introduced by EWE AG and other companies 4.

NFS

■■ Technical measures have been implemented to identify and defend against attacks on the IT infrastructure.

Data protection

EWE undertakes to treat information and data of customers and business partners with care and as confidential, and to adhere to the data protection regulations. Therefore, the data protection regula-tions in the code of conduct apply during the term of the employment and business relationship and remain in effect afterwards. We have appointed data protection officers for EWE AG and the individual companies.

A data protection e-learning module was intro-duced in multiple Group companies in 2017. In 2017, the rate of participation in the data protection e-learning module was 44.5 per cent in the relevant Group companies 5.

Supply chain

EWE assumes responsibility for its business activities outside of its own sphere of influence, which is why it introduced a supplier code of conduct in 2015. It sets out principles relating to human rights and work-ing conditions, occupational health and safety, en-vironmental protection and the integrity of business.

In 2017, we spent around 1 billion euros on materi-als and services. Of this amount, around 50 per cent was attributable to regional suppliers 6.

2 With regard to approx. 4,700 personnel in EWE AG, EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE NETZ GmbH, EWE Offshore Service und Solutions GmbH, EWE TEL GmbH, EWE TRADING GmbH, EWE VERTRIEB GmbH and EWE WASSER GmbH

3 The figure is defined as the number of personnel who have been trained in information security through an e-learning unit during the year4 EWE AG, EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE NETZ GmbH, EWE Offshore Service und Solutions GmbH, EWE TRADING

GmbH, EWE WASSER GmbH, EWE VERTRIEB GmbH; EWE TEL GmbH, BTC Business Technology Consulting AG und BTC IT Services GmbH are still using the previous e-learning module that they already had due to certification requirements

5 EWE AG, EWE NETZ GmbH, EWE VERTRIEB GmbH, EWE TEL GmbH, EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE TRADING GmbH, BTC Business Technology Consulting AG, BTC IT Services GmbH

6 The expenses of the EWE companies in Turkey and GTG GmbH have not been taken into account


In 2017, we achieved a Group-wide informa-tion security training rate of around 79 per cent 4. Likewise, the training rate at EWE AG is around 79 per cent.

79%training rate information security

Results

F The energy industry is in a state of upheaval. The focus will shift to decentralised, renewable energy, investments in grid infrastructure and new digital customer solutions. Our vision is to build the leading energy company in northern Germany by 2026. We aim to fulfil our economic responsibility towards all of our stakeholders through prospective investments and long-term profitability.

Economic responsibility

Concept

We will use our financial strength and financial management to finance and control our operation-al business and our growth. Our 2026 strategy forms the framework of our business activities. We monitor and control their economic success and therefore the financial capacity of the Group by systematically monitoring risks through financial indicators and processes (see ‘Internal Management System’ in the combined management report). Con-tinuous controlling and reporting enables us to im-plement suitable corrective measures in the event of deviations. Additionally, we follow our investment and project guidelines in order to ensure that our investments generate value.

By focusing on economic success and value growth, we are fulfilling our economic responsibility and making our contribution to society, e.g. through taxes, wages and salaries, without strategically con-trolling the distribution of the created value.

NFS


InvestmentsAs part of our growth strategy, we have increased our investments in our telecommunications net-works by 55.6 per cent over the previous year to 49.8 million euros. Overall, at 196.9 million euros, our investments in our infrastructure of electricity, gas and telecommunications networks are on a sim-ilar level to 2016. Driven by large-scale projects such as broadband expansion in north-western Ger-many, we will continue to increase our investments over the next three years.

Through the results we have achieved (see ‘Segment Performance’ in the management report) and in-vestments we have made, we have strengthened the basis for future value creation in our other segments too.

Finance

For more information see ➞ ‘Internal management system’ in the combined management report

For more information see ➞ ‘Segment performance’ in the combined manage-ment report


Value creation EWE Group


Directly generated economic value in 2017

Revenue (excluding electricity and energy taxes) 8,250.5 7,566.3

Breakdown of economic value

Material expenses −6,333.6 −5,761.7

Personnel expenses −711.9 −722.5

Interest expenses −158.7 −219.5

Income taxes −128.6 −119.5

Donations 2.8

Value creation EWE AG


Directly generated economic value in 2017

Revenue (excluding electricity and energy taxes) 155.6 148.2

Breakdown of economic value

Material expenses −79.6 −68.6



Dividends −88.0 −225.5


Donations 1 0.1

1 Of this amount, 36,341 euros is attributable to monetary donations, 36,070 euros to donations in kind and 72,000 euros to membership fees that were only recognised as donations for tax reasons

NFS

NFS


With a directly generated economic value in ex-cess of 8 billion euros in 2017, EWE bears a great responsibility towards numerous regional stake-holders. For example, we are a key employer in the Weser-Ems region. The personnel expenses reflect the employment of 9,134 personnel. Additionally, over 75 per cent of the generated value is used to procure materials and services. We are able to pay our shareholders an annual dividend (88.0 million euros in 2017) which amounted to 225.5 million euros in the previous year due to a special distribution.

Results

Business conditions and general framework

32 The EWE Group35 General economic conditions36 Political and regulatory environment

Current situation of the EWE Group

39 Overall assessment of business performance

39 Forecast deviations39 Results of operations40 Significant changes to the consolidated

income statement41 Segment performance43 Net assets45 Non-financial performance indicators

32 39

Combined management report

Report on expected developments and their key opportunities and risks

47 Forecast report48 Future political and regulatory conditions50 Expected performance of the EWE Group51 Report on risks and opportunities55 Key characteristics of the

EWE Group’s accounting-related internal control system

Current situation of EWE AG

56 Results of operations57 Net assets58 Financial position58 Investments59 Forward-looking statements

47 56

32 C O M B I N E D M A N AG E M E N T R E P O R T Business conditions and general framework

Business conditions and general framework

The EWE Group

Organisation and Reporting principles

We are an energy company which operates primarily in the fields of energy, telecommunications and information tech-nology (IT) in Germany, Turkey and Poland. Besides operating state-of-the-art, reliable energy grids, we are a pioneer in the field of renewable energy and, as the first company in Germany to do so, tap the joint potential of energy, telecommunications and IT. The EWE Group comprises EWE Aktiengesellschaft (also referred to as EWE AG), an ‘Aktiengesellschaft’ (public limited company) incorporated under German law, as well as its sub-sidiaries. Our company’s headquarters are located in Olden-burg, Germany. In the 2017 business year, the Group had an average of 9,134 employees (previous year: 9,048 employees).

Description of business activities

Renewables, Grids and Gas Storage segmentIn the Renewables segment, we plan, build and operate renew-able power generation plants, including within the scope of investment and partner models. We market our expertise in the construction and operation of offshore wind farms inter-nationally. In the current business year we have improved our power generation capacity (including proportional capacities of holdings consolidated using the equity method), from 296,8 megawatt to 332,0 megawatt.

In the Grids business area, we operate state-of-the-art, effi-cient power grids and natural gas networks in the We ser-Ems region of Germany, as well as natural gas networks in Branden-burg / Rügen and Nordvorpommern totalling 139.2 thousand km in length (previous year 138.5 thousand km). Thanks to low outage times, our distribution grids are some of the safest in Europe. We also operate a wide telecommunications net-work approximately 40.1 thousand km in length (previous year: around 38.8 thousand km). The company is continuously push-ing forward with the expansion of broadband in the rural areas of north-western Germany. We also operate several drinking water networks and, as an energy company with regional roots, are active in the waste water business. We purified 18.4 million cubic metres of water in the reporting year (previous year: 17.6 million cubic metres).

In the field of Gas Storage we construct, acquire and operate systems to store as well as inject and withdraw gaseous and liquid energy carriers such as high-pressure natural gas, hydro-gen, liquefied petroleum gas and compressed air, and render

all related services. In this business area we operate a total of 38 underground reservoirs in locations throughout northern Germany, as well as in Rüdersdorf near Berlin, and sell storage capacity to internal and external customers. With a total stor-age capacity of 2.1 billion cubic metres, we are one of the largest operators of gas storage reservoirs in the German-European natural gas market.

Sales, Services and Trading segmentThe Energy and Telecommunications business area combines the sale of energy products with telecommunications. In the domestic market, the sale of energy products takes up the leading position in the competitive environment. The focus of its telecommunications sales lies primarily in north-western Germany, parts of Brandenburg, on the island of Rügen and in the Ostwestfalen-Lippe region. We support commercial cus-tomers nationwide. Through the establishment of additional business activities such as light contracting, power storage and energy audits, we are currently transitioning into a service provider for which – in addition to the classic power, gas and heat products and telecommunications – customer-specific services and solutions will open up new business opportunities.

The IT area contains our holistic range of IT products and ser-vices designed especially for the energy and telecommunica-tions sectors, the public sector, industrial companies and service providers. Our key areas of expertise lie in consulting, system integration and applications and system management. We place a focus on energy-related software products.

The Trading business area encompasses services relating to the procurement and marketing of electricity and gas. Additional-ly, the Trading business area facilitates the optimisation of the entire energy portfolio of the EWE Group, allowing it to pro-vide its customers and partners with a wide range of services, for instance portfolio and balancing group management. By directly marketing renewable energy, the Trading business area helps operators of wind and solar parks throughout Germany market their electricity. Trading services to provide market ac-cess to our Group’s sales and generation activities.

International segmentIn Turkey and Poland, the distribution and sale of natural gas are key components of our business operations. Our business in Turkey holds long-term gas trade and liquefied natural gas licences as well as a power trading licence. We supply natural gas to industrial customers, industrial zones, gas power plants and utility companies throughout the country. Business cus-tomers are also supplied with electricity in both countries.

Business conditions and general framework C O M B I N E D M A N AG E M E N T R E P O R T 33

Through Millenicom, we have also been active in telecommu-nications in Turkey since 2016.

swb segmentThis segment encompasses our business activities in the cities of Bremen and Bremerhaven. swb and its subsidiaries are active in the fields of electricity, natural gas, heating, drinking water and telecommunications. Likewise, this segment includes the Conventional Generation and Disposal business unit of swb.

Group Central DivisionEWE AG manages the EWE Group as its holding company. Its duties lie in the strategic and cross-market development of the business areas as well as strategic planning and assuring the Group’s financing. In addition, EWE AG performs centralised corporate services for the Group’s companies.

Internal management system

The EWE Group uses a multilevel management system which makes it possible to decentralise corporate responsibility and at the same time create a high level of transparency. The in-ternal management system differentiates between the Group and the segment level. The operative segments Renewables, Grids and Gas Storage; Sales, Services and Trading; Inter-national and swb form the basis of the internal reporting struc-tures and external reporting (segment reporting). Internal and external reporting is based on the same management informa-tion system. This technological platform enables the use of a uniform database for a variety of reporting needs and ensures that the content of information is the same between reporting levels and within one reporting level.

As the parent company, EWE AG has defined targets for mea-suring and controlling company performance which will ensure the long-term success of the company. Integral components of this overarching objective include long-term value creation, assuring adequate financing and stabilising the company’s external rating.

Earnings before interest and taxes are of key importance, rep-resented by the leading key performance indicator operating EBIT. Operating EBIT represents earnings before interest and taxes, adjusted for special items. This includes valuation ef-fects from financial instruments, impairment, reversals of write-downs and special items resulting from changes to the basis of consolidation, as well as those resulting from restruc-turing measures and donations.

At the level of operative segments, the main key performance indicator operating EBIT is complemented by specific figures. Furthermore, investments and their distribution across the

individual segments represent a further focus of Group-wide reporting.

Internal and external Group reporting is continuously ad justed to meet the operative requirements of managing the EWE Group as well as current legal stipulations.

Research and development

In the 2017 business year, the company optimised its innovation- related activities and kept them in line with the requirements of the market. All business units and Group companies worked together to launch the holistic innovation process. An inte-grated organisational model was therefore developed to pool activities, allowing for greater professionalism through the specialisation of expertise and clear responsibility rules. Its objective is to systematically and efficiently create business model opportunities across company departments in a digital market and innovation landscape.

The enera project ‘Digital Agenda for the Energy Transition’ takes a systematic approach to demonstrate the thorough digitisation and increased technical flexibility of the energy system. The four-year project ends on 31 December 2020. In 2017, the first year of the project, the conceptual work from the pre-project phase was completed and transferred to the roll-out phase which will last until around the end of 2018. This phase will focus on the installation of technology. This includes the installation of smart measurement systems and modern grid technology (e.g. controllable mains transform-ers). Additionally, the construction of three battery storage systems in the model region was prepared. The enera market approach was developed and enera Smart Data and Service Platform were implemented and tested in collaboration with the European power spot trading stock exchange EPEX SPOT SE. Similarly, the first data-based business models were tested in a specially developed proprietary format and some put into further development.

The project ‘Regional Virtual Power Plant Field Test on the Basis of Micro-CHP Technology’ is a building block in the de-veloping field of virtual power plants which is being realised in collaboration with the university of technology TU Dresden. It is currently in the final year of its funding phase. The com-pletion of this year’s field test produced the following results in particular: Modern heating systems in private households with combined heat and power systems (micro-CHP systems) and electrical heating elements were successfully integrated into a virtual power plant and operated as regionally available flexibility. This could be done by fitting the micro-CHP sys-tems with smart metering and control technology and by building on the virtual power plants of EWE AG. The com-munications gateway developed especially for the project was


fitted with an interface based on a standardised energy effi-ciency protocol. The gateway is based on a low-cost micro- controller in order to ensure that it will be possible to use the gateway competitively and in line with the energy transition. A variety of utilisation and operation strategies were developed and then tested and evaluated from technical and econom-ic perspectives. The findings from the project will pave the way to integrating even small plants into modern energy grids.

In the green mega-battery project ‘brine4power’, the Friedrich Schiller University in Jena has determined in an initial research phase that stable electricity storage situations can be created even in brine saturated with salt. Therefore, the next investi-gations into the feasibility of electricity storage in underground storage facilities have been launched.

The ‘Green Access’ research project is examining how smart power grids must be to absorb as much green electricity as possible at low cost. The project is working with partners from industry and the world of science to determine how smart distribution grid automation can prevent restrictive bottle-necks. Power grid components and control concepts are being developed and linked in order to communicate and operate with one another. The medium and low-voltage network au-tomation solutions will be applied in a field test in order to derive practical approaches. The focus was on adherence to requirements in connection with network and system tech-nology as well as information and communication technology. Additionally, the self-learning automated distribution grid should be able to adapt to new situations. The project assesses the efficiency of the measures on the basis of reliability con-siderations and a performance measurement system.

Wholesale electricity (in EUR) Natural gas (in EUR) Coal (in USD) Crude oil (in USD) CO2 certificate (in EUR) Source: EEX, Intercontinental / 31.12.2017

Electricity, gas, CO2, coal and crude oil

50

40

30

20

10

0

— 100

— 80

— 60

— 40

20Q4 / 2014

Q1 / 2015

Q2 / 2015

Q3 / 2015

Q4 / 2015

Q1 / 2016

Q2 / 2016

Q3 / 2016

Q4 / 2016

Q1 / 2017

Q2 / 2017

Q3 / 2017

Q4 / 2017

in EUR in USD

Energy market and prices


General economic conditions

Development of the market

The business of EWE is more greatly affected by developments in the energy and telecommunications sectors than by global economic developments, which is why the information pro-vided below focuses on the energy and telecommunications markets.

Energy market and pricesInternational commodity prices, particularly of oil, gas and coal, as well as the prices of CO2 certificates, are the predom-inant factors that affect price trends on the power and gas markets. The petroleum market can be considered a leading indicator. The price of the front-month contract on the crude oil type Brent started at 55.47 US dollars per barrel in 2017 and essentially hovered around 55.00 US dollars per barrel in the first quarter. The price hit its lowest level in the year at 44.82 US dollars per barrel in June 2017. Afterwards, the con-tract started to experience upwards movement which con-tinued until the end of the year, closing at 66.87 US dollars per barrel. The front-month contract on electricity (base load) in Germany and Austria (Base Cal 18) started at 30.08 euros per MWh on the European Energy Exchange (EEX). It remained stable until the end of April. Additionally, the same contract was traded exclusively for Germany from 25 April 2017. It was introduced to the EEX as part of the preparations for a market area separation. The first settlement price on this day was 29.07 euros per MWh. The electricity market also started ex-periencing an upwards trend in the middle of the year, leading to a closing price of 37.67 euros per MWh. The German-Austrian contract closed the year at 37.72 euros per MWh. The same trends could be observed on the coal and emissions markets. Only the gas market experienced seasonal influences (high prices in winter months and low prices in summer).

In contrast, the spot prices in the electricity market were no-ticeable. These were influenced by low temperatures combined with a low renewable energy feed-in rate, especially at the start of the year. Additionally, the poor availability of its nuclear power stations caused France, normally an exporter of electricity, to become an importer of electricity. For exam-ple, the average price in January 2017 was 52.37 euros per MWh, the highest January price since 2009.

According to preliminary calculations by the Working Group on Energy Balances (Arbeitsgemeinschaft Energiebilanzen – AGEB), in 2017 energy consumption in Germany increased by 0.8 per cent compared to the previous year. Primary energy consumption in the reporting year totalled 461.5 million Tonnes of Coal Equivalent (TCE), compared to 457.9 million

TCE in the previous year. This growth is due primarily to the positive development of the economy. The AGEB expects CO2 emissions to have stagnated.

Natural gas consumption increased by 5.2 per cent to 109.2 million TCE. This is largely due to the increased use of natural gas in combined heat and power stations. However, the relatively colder weather led to increased use of natural gas for heating purposes. Comprising 23.7 per cent of total primary energy consumption, natural gas slightly increased its share compared to the previous year (22.7 per cent).

Renewable energy increased its contribution by 6.1 per cent to 60.5 million TCE. The feed-in of electricity generated by wind turbines increased significantly by 34.0 per cent year-over-year. Solar power (+5.0 per cent) and geothermal energy (+7.0 per cent) also experienced growth over the previous year. As a result, the proportion of renew ables in the overall energy mix increased slightly to 13.1 per cent (previous year: 12.5 per cent).

The increased feed-in of electricity from renewable sources and the increased generation of the natural gas CHP plants had a negative effect on coal consumption (which decreased by 10.4 per cent).

Due to plant overhauls, the contribution of nuclear power to the total energy consumption in 2017 fell by 10.3 per cent.

Telecommunications marketThe total revenue in the telecommunications services market in Germany was around 58.8 billion euros in 2017. It was there-fore 1.3 per cent lower than in the previous year (60.5 billion euros). Of this figure, around 26.2 billion euros were attribut-able to mobile communication services (previous year: 26.4 bil-lion euros) and around 32.6 billion euros were attributable to landlines including the cable network (previous year: 34.1 bil-lion euros). Therefore, the decrease is essentially attributable to landlines. The reasons remain the falling average revenue per user brought about by competitive pressure.

Unlike in previous years, Telekom Deutschland GmbH, Bonn (TDG), and the cable network operators were unable to in-crease their landline revenue further. It stabilised at around 19.1 billion euros (previous year: 19.1 billion euros) while alternative providers generated around 0.4 billion euros less in revenue. Adjusting the figure by the turnover of the cable network operators reveals that this is the first year since 2015 in which the revenue of TDG decreased slightly. The situation is different in the field of mobile communications: revenue has remained stable at 8.0 billion euros whereas competitors were forced to report decreases of around 0.5 billion euros.


Transition from low-calorific gas to high-calorific gasDue to the declining reserves of low-calorific gas in Germany and the Netherlands, a transition to high-calorific gas is essen-tial. This will also ensure supply security in the market regions that up until now have been supplied with low-calorific gas, of which the EWE service area is one. In light of recurring earth-quakes in the Groningen region, the Dutch government is currently drawing up a new statutory subsidy framework by autumn 2018. In this regard, we are monitoring the effects of the political situation on the market region transition and the security of supply in the EWE service area, and are holding constructive dialogues with political representatives and authorities in Germany and the Netherlands. The market region transition started successfully in the Bremen supply area this year, whereas the transition will not start until 2018 in EWE’s other network areas.

The German Grid Tariff Modernisation Act (NEMoG)The NEMoG came into effect in July 2017. The NEMoG affects the entire energy sector, especially the operators of taxable, decentralised power plants. If new plants are built after 2023, these will no longer have any avoided grid fees. They will con-tinue to be paid for existing power plants, although on a re-duced calculation basis. Compared to the previous regulations, this will lead to fewer avoided grid tariffs which directly affect the conventional generation of swb AG, Bremen (swb AG), in the EWE Group. Additionally, the Act provides for the gradual national unification of transmission grid fees from 2019 on-wards. This is expected to have a generally positive effect on the grid fees charged to consumers in north-western Germany and therefore in the domestic market of EWE.

The German Gas Network Access Ordinance (GasNZV)The amended GasNZV came into force in August 2017. In the EWE Group, the grid and marketing companies as well as EWE GASSPEICHER GmbH, Oldenburg, are most affected. The amended Ordinance provides for the combination of both German gas market areas on 1 April 2022. Additionally, it abol-ishes the first-come-first-served principle (a method for award-ing transport capacity) for gas storage units by 1 April 2018. Additionally, the amended GasNZV rules that long- distance network operators must offer all transport customers under-ground capacity, even at non-interconnection points; these regulations will come into effect on 1 January 2018. Other amendments affect the auctioning procedure for awarding ca-pacity, the determination of long-term capacity requirements and the margin of discretion of the Federal Network Agency.

A comparison of the origins of the revenue makes it clear for the entire market that the price competition between market players has led to increased pressure in the business customer segment. Over the long term, revenue has fallen by around 3.4 billion euros since 2012 to 21.4 billion euros in 2017. In contrast, revenue in the private customer segment is increas-ing, largely due to the growing demand for high bandwidths. In this segment, the market has grown by around 2.0 billion euros from 35.4 billion in 2012 to 37.4 billion euros in 2017.

Due to the fact that fewer and fewer companies are investing in expanding their telecommunications infrastructure, the level of investments in 2017 was around 0.1 billion euros below the level of TDG. Likewise, the total volume of the investments decreased by around 0.3 billion euros to 7.9 billion euros.

Political and regulatory environment

New framework for combined heat and powerThe new German Combined Heat and Power Act (KWKG) came into effect at the start of 2017. The amendments to the cur-rent law focus on the introduction of tendering for plants with installed capacities of between 1 and 50 MW as well as par-ticularly innovative CHP plants. For the EWE Group, the in-troduction of tendering will make the field of business for plants of this scale a more challenging environment. Additionally, the amendments increased the subsidy criteria for heating net-works in which a higher proportion of CHP heat or heat from renewable sources is required.

New regulations for renewable energy and self-supplyThe reformed German Renewable Energy Sources Act (EEG) came into force on 1 January 2017. It stipulates that the scale of subsidies for renewables will be determined by a competi-tive tendering process. The regulations concerning onshore wind energy are particularly relevant to EWE as we aim to ex-pand this method of generation even further. The 2017 version of the EEG defines a network expansion area in northern Germany in which only the expansion of cost-effective, easily controlled wind turbines on land is to be restricted. EWE is critical of the expansion limit for onshore wind energy.

Additionally, the Act Amending the Combined Heat and Pow-er Act and the Renewable Energy Sources Act (KWKG-EEG-Änderungsgesetz) will change the general framework for re-newable energy in such a way that own consumption will only remain unaffected by the EEG reallocation charge under cer-tain circumstances and for certain plants. This could render certain projects unattractive to EWE customers.


German Federal Network Agency lowers X GenerellIn order to determine the revenue ceiling for the third regula-tory period, the German Federal Network Agency has set the general industrial productivity factor X Generell for gas network operators at 0.49 per cent in a preliminary announcement. The factor was 1.50 per cent previously. EWE NETZ is still of the opinion shared by the sector that an X Generell of above 0 per cent for the third regulatory period cannot be derived or justi-fied to any great extent and will therefore voice this opinion in the ongoing consultation process. With regard to the third reg-ulatory period for electricity which starts on 1 January 2019, it is possible that the Federal Network Agency will set different general productivity specifications for electricity and gas.

Installation of intelligent meters and communication infrastructureThe objective of the statutory regulations in the EU Third Internal Energy Package and amended Energy Industry Act (EnWG) (2011) is to fit and control distribution networks with intelligent meters and communication infrastructure in the future. EWE NETZ is still going to great lengths to implement these specifications without jeopardising the security of sup-ply of the service area. Intelligent networks will help overcome these challenges. The use of information and communication technology creates integrated data and electricity networks with novel features. For example, intelligent control systems can balance out the fluctuations in electricity generation from renewable sources as well as electricity consumption. Smart grids guarantee secure, efficient and reliable system and net-work operation and help lower the need to expand networks. Intelligent measurement systems – smart meters – are one component of the intelligent networks. They help increase energy efficiency whilst saving electricity. Additionally, they support the novel features of the network.

In accordance with the German Metering Point Operation Act (MsbG), EWE NETZ registered its status as a fundamentally responsible metering point operator in its service area on 30 June 2017. In its role as a fundamentally responsible meter-ing point operator, the network company has to replace all conventional electricity meters with modern measurement systems and smart meters by 2032.

The German Electricity Network Access Ordinance (StromNZV)In December 2017, the Bundesrat approved the amendments to the StromNZV proposed by the German government. It can now come into effect. The amendment defines the national duties of transmission grid operators to preserve the unified German electricity bidding zone. They are legally obliged to facilitate trades in Germany without awarding capacity in such a way that the territory of the Federal Republic of Germany represents a unified electricity bidding zone. It is prohibited to unilaterally introduce capacity allocation that would lead to a unilateral division of the unified German electricity bid-ding zone. Such a division of the electricity bidding zone would likely lead to region-specific price increases or decreases and would probably have considerable effects on society in general. This would directly affect the companies of the EWE Group.

Equity interest rates for the third regulatory periodIn October 2016, the German Federal Network Agency pub-lished the equity interest rates for electricity and gas network operators for the third regulatory period. Despite in-depth discussion, the Federal Network Agency did not deviate from its massive planned decrease in equity interest rates following the consultation phase. EWE NETZ GmbH, Oldenburg (EWE NETZ), has joined other grid operators and filed an appeal against this decision with the Higher Regional Court (OLG) of Düsseldorf.


Expansion of VDSL vectoring in short-range networksEWE has received permission from the Federal Network Agency to expand around 300,000 connections and will augment them with vectoring technology by early 2019. Users will then have access to broadband speeds of up to 100 Mbit / s. The appeal against the decision of the Federal Network Agency has not been continued after the decision was not corrected in expedited proceedings.

Implementation of the German Digital Network Act (DigiNetz-Gesetz)The first official implementation measures and dispute reso-lution proceedings took place in 2017 in connection with the Digital Network Act that came into effect in late 2016. EWE is fulfilling the expanded duties to map its own infrastructure. In a controversial decision, the Federal Network Agency forced one company to allow shared use of its underground works with no significant compensation. Companies that are invest-ing in fibre optic expansion are therefore pressing for a change to the statutory regulations in this context.

New state government in Lower SaxonyFollowing the state parliamentary elections in Lower Saxony on 15 October 2017, the SPD and CDU quickly formed a grand coalition. The coalition agreement signed in mid November contains certain plans of relevance to EWE: the state remains committed to renewable energy and will work on a national level to raise the offshore expansion target from 15 to 20 GW by 2030. The state government also wishes to provide politi-cal support for the project ‘enera’. With regard to telecommu-nications, Lower Saxony has set itself the ambitious target of comprehensive 1 Gbit connection availability by 2025 and, as part of a ‘digitisation master plan’, wants to provide 1 billion euros for broadband expansion with fibre optic technology by 2022. In terms of transport, Lower Saxony hopes to become a pioneer in e-mobility amongst the German states. The new state government wants to continue working on the Climate Protection Act in Lower Saxony with an integrated energy and climate programme for Lower Saxony which started under the SPD and Greens in 2017.

The German Tenant Electricity Act (Mieterstromgesetz)The German act on the subsidisation of tenant electricity came into force on 25 July 2017 and subsidies were approved by the European Commission on 20 November 2017. Under the Ten-ant Electricity Act, landlords receive a subsidy if they pass electricity generated by solar panels mounted on the roof or adjacent building Sections directly to their tenants. One re-quirement is that at least 40 per cent of the area in the build-ing be used for residential purposes. The subsidies are capped at 500 MW per year. For EWE, this can open up new options for shared business models with the housing sector.

The German Sewage Sludge Ordinance (Klärschlammverordnung)The amended Sewage Sludge Ordinance and therefore strict-er requirements concerning the ground-based utilisation of sewage sludge came into force on 3 October 2017. One key element of the amended ordinance is that, after the expiry of certain transition periods for larger wastewater treatment plants, phosphorous must be recovered from the sewage sludge or from sewage sludge incineration ash. This will be followed by the duty to prepare a report on sewage sludge disposal and phosphorous recovery in 2023 and mandatory phosphorous recovery with thermal treatment for waste water treatment plants with a population equivalent of over 100,000 in 2029, which will extend to wastewater treatment plants with a population equivalent of over 50,000 in 2032. There-fore, EWE is increasingly interested in thermal sewage sludge utilisation with mono-incineration systems as an alternative to agricultural disposal.

The German Fertiliser Regulation (DüMV) and Fertiliser Act (DüG)The amended DüG and the new DüMV further limit fertilizer use, including with new blocking periods and limits on pollut-ant inputs. This also concerns the use of sewage sludge in agriculture. From 2019 onwards, only polymers that are recoverable and meet certain composition requirements can be used. At the moment, the disposal of sewage sludge for EWE is still contractually secured, although in the long term, the new statutory fertilizer regulations are making mono- incineration systems an alternative to the agricultural disposal of sewage sludge.

Current situation of the EWE Group C O M B I N E D M A N AG E M E N T R E P O R T 39

Current situation of the EWE Group

Overall assessment of business performance

Overall, the Board of Management of EWE AG can look back on a positive 2017 business year, even if at 256,1 million euros, the net income for the period was lower than in the previous year. The main reason for this decrease was the successful dis-posal of the shares in VNG – Verbundnetz Gas Aktienge-sellschaft, Leipzig (VNG), in the previous year. The decrease was offset to a certain extent by the lower impairment and higher net interest which does not include a prepayment pen-alty this year. Operating EBIT is 503,4 million euros and is 31,2 million euros lower than in the previous year. This decrease is due primarily to income from the reversal of pension provi-sions in connection with the reorganisation of swb’s company pension scheme in the previous year.

At 503,4 million euros, the operating EBIT of the EWE Group for the 2017 business year was slightly above expectations. The Renewables, Grids and Gas Storage and International seg-ments in particular experienced positive deviations from their forecasts. The Sales, Services and Trading and swb segments remained consistent with their forecasts.

The developments in the Renewables, Grids and Gas Storage segment are due primarily to higher earnings contributions from the electricity and gas networks as well as less of a need for planned expenses. An allocation to the rehabilitation pro-visions for gas storage in particular had the opposite effect.

The International segment performed above expectations, due largely to the significant improvements in the earnings of Bursagaz which more than balanced out the negative effects of our trading activities resulting from expected but unreal-ised increases in gas prices.

T001

Forecast deviationsOperating EBIT in millions of euros 2016 2017 target 2017 Achievement

Renewables, Grids and Gas Storage segment 333.7 +0% to +10% 388.8 16.5%

Sales, Services and Trading segment 61.2 +10% to +35% 70.6 15.4%

International segment 25.6 −30% to −15% 24.8 −3.1%

swb segment 165.2 −60% to −45% 89.3 −45.9%

Group Central Division −51.1 −70.1 −37.2%

EWE Group 534.6 −20% to −10% 503.4 −5.8%

Results of operations

The ability of the EWE Group’s normal business operations to generate earnings over the long term is of particular impor-tance to both internal governance as well as the external com-munication of the current and future development of the Group’s earnings. Operating EBIT is an adjusted earnings figure which is used to illustrate and manage operative earnings per-formance. To calculate operating EBIT, EBIT is adjusted for special items such as financial instruments, impairment, rever-sals of write-downs and special items resulting from changes to the basis of consolidation, as well as those resulting from restructuring measures and donations.

The following chart illustrates the reconciliation to the con-solidated result for the period:

T002


Operating EBIT 503.4 534.6

Derivatives 25.2 87.7

Fair value measurement of other financial instruments 41.2

Reversals of write-downs 60.3

Impairments −132.9 −174.9

Investments 1.7 243.0

Restructuring 4.9 −21.2

Donations −20.0

EBIT 503.8 649.2

Net interest income / expense −142.5 −206.5


Consolidated result for the period 256.1 332.9

40 C O M B I N E D M A N AG E M E N T R E P O R T Current situation of the EWE Group

plant and equipment by EWE energia (51.0 million euros) and the reversal of write-downs of intangible assets by Kayserigaz (9.3 million euros).

Overall, due to lower impairments, depreciation, amortisa-tion and write-downs decreased from 605.8 million euros to 558.9 million euros.

The income from investments fell significantly by 210.9 mil-lion euros. This is because the value in the previous year con-tained the proceeds from the disposal of the shares in VNG totalling 240.3 million euros.

The net interest of −142.5 million euros resulted primarily from interest on bearer bonds (public-sector bonds), bonds (private placement), interest on floating bank debts and the com-pounding of non-current liabilities. The net interest is 64.0 mil-lion euros higher than in the previous year. This is due to the prepayment penalties of around 50 million euros incurred in the previous year in connection with the premature buy-back of bonds.

In the 2017 business year, our Group generated turnover (ex-cluding electricity and energy taxes) of 8,250.5 million euros (previous year: 7,566.3 million euros). This represents an in-crease of 684.2 million euros over the same period in the pre-vious year (9.0 per cent). Due to the almost fully proportion-al increase in material expenses (9.9 per cent), the material usage rate of 76.8 per cent was at the same level as in the pre-vious year (76.1 per cent). In the reporting year, approximately 92 per cent of the turnover was generated inland and approxi-mately 8 per cent was generated abroad.

Personnel expenses were at the same level as in the previous year.

The balance of other operating income and other operating expenses (including inventory changes and internally produced and capitalised assets) totalled −169.8 million euros (previous year: −81.6 million euros). The change compared to the same period in the previous year is largely due to the lower income from the reversal of provisions and from the lower positive measurement effects for derivative financial instruments and recognised underlying transactions with regard to energy. This was balanced out by the reversals of write-downs of property,

T003

Significant changes to the consolidated income statementin millions of euros 2017 2016 Change in %

Revenue (excluding electricity and energy taxes) 8,250.5 7,566.3 9.0

Material expenses −6,333.7 −5,761.7 −9.9

Personnel expenses −711.8 −722.5 1.5

Other income and expenses −169.8 −81.6 <−100

Impairment losses / income pursuant to IFRS 9.5.5 −16.1

Depreciation, amortisation and write-downs −558.9 −605.8 7.7

Income from investments 43.6 254.5 −82.9

EBIT 503.8 649.2 −22.4

Net interest income / expense −142.5 −206.5 31.0

Earnings before income taxes 361.3 442.7 −18.4

Income taxes −105.2 −109.8 4.2

Earnings in the period 256.1 332.9 −23.1

Thereof attributable to:

Shareholders of the parent company 254.9 331.9 −23.2

Minority shares 1.2 1.0 20.0

256.1 332.9 −23.1


Segment performance

The following chart illustrates the operating EBIT and exter-nal sales:

In our Renewables, Grids and Gas Storage segment, external revenue in the reporting period grew by 5.2 per cent year-over-year to 2,118.5 million euros (previous year: 2,012.9 million euros). The increase in turnover resulted primarily from high-er electricity and gas grid tariffs and from the increased elec-tricity generation capacity of the RIFFGAT offshore wind farm following its disconnection from the grid in the previous year. This segment contributed approximately 25.7 per cent to the Group’s total revenue in the reporting period (previous year: 26.6 per cent). Operating EBIT amounted to 388.8 million eu-ros (previous year: 333.7 million euros). This was due in par-ticular to positive effects on earnings by the Grids business area. The Renewables business area is profiting from the in-crease in the earnings of the RIFFGAT offshore wind farm. This is due primarily to a better wind year and a permanently

T004

External sales Operating EBIT

in millions of euros 2017 2016 Change in % 2017 2016 Change in %

Renewables, Grids and Gas Storage segment 2,118.5 2,012.9 5.2 388.8 333.7 16.5

Sales, Services and Trading segment 4,421.1 3,763.9 17.5 70.6 61.2 15.4

International segment 623.8 727.9 −14.3 24.8 25.6 −3.1

swb segment 1,085.1 1,058.7 2.5 89.3 165.2 −45.9

Group Central Division 2.0 2.9 −31.0 −70.1 −51.1 −37.2

Total 8,250.5 7,566.3 9.0 503.4 534.6 −5.8

T005

Renewables, Grids and Gas Storage segmentin millions of euros 2017 2016


Derivatives −0.2 0.2



Investments 1.1 −0.1

Restructuring −1.2 −14.0

Donations −7.0

EBIT 314.3 163.6

smaller depreciation, amortisation and write-down scale due to the valuation allowances that were carried out. The decrease in changes in the value of gas inventories as at the reporting date and an allocation to the gas storage facility rehabilitation provisions had a compensatory effect.

Due to the aforementioned operating EBIT effects and lower impairments, the EBIT of 314.3 million euros increased over the previous year (150.7 million euros). The impairments in 2017 are essentially attributable to the RIFFGAT offshore wind farm.

Compared to the same period in the previous year, the exter-nal turnover of our Sales, Services and Trading segment has increased by 17.5 per cent to around 4,421.1 million euros. This is largely due to increased sales quantities in conjunction with higher commodity prices. This segment contributed approxi-mately 53.6 per cent to the Group’s total revenue in the

T006

Sales, Services and Trading segmentin millions of euros 2017 2016



Fair value measurement of other financial instruments −0.3



Donations −13.0

EBIT 85.7 103.4


At 1,085.1 million euros in the reporting period (previous year: 1,058.7 million euros), the external turnover of our swb seg-ment has increased by 2.5 per cent over the previous year. This segment contributed approximately 13.2 per cent to the Group’s total revenue in the reporting period (previous year: 14.0 per cent). Operating EBIT amounted to 89.3 million euros (previous year: 165.2 million euros). The decrease compared to the previous year is due primarily to the positive one-off special item of 90,6 million euros resulting from the reorganisation of the company pension scheme in the previous year.

The impairments of non-operative items mainly comprise write-downs of the conventional generation capacity of swb Erzeugung. The fair value measurement effect essentially re-flects the change in the value resulting from the recognition of the interest in Osterholzer Stadtwerke GmbH & Co. KG, Osterholz-Scharmbeck. Additionally, the provisions for re-structuring (‘Human Resources 2017’ programme) have been reversed in the amount of 5.4 million euros.

T008

swb segmentin millions of euros 2017 2016



Fair value measurement of other financial instruments −17.0


Investments 0.7 3.3

Restructuring 5.4 0.7

EBIT 61.2 177.7

T009

Group Central Divisionin millions of euros 2017 2016

Operating EBIT −70.1 −51.1

Derivatives 5.4


Impairments −13.0

Investments −0.1 239.8


EBIT −7.3 170.8

reporting period (previous year: 49.7 per cent). Operating EBIT has increased to 70.6 million euros (previous year: 61.2 million euros). In energy sales, operating EBIT was positively influ-enced by the lack of special items such as the formation of provisions for impending losses in connection with the oper-ation of the natural gas fuel station network and the promise of a subsidy to the DLR Institute of Networked Energy Systems (formerly NEXT ENERGY). In the previous year, the telecom-munications business area contained income from a settle-ment with TDG.

Essentially, EBIT was adjusted for the gains from derivative financial instruments and impairments of individual invest-ments. Additionally, the amount in the previous year included the one-off donation to the EWE STIFTUNG.

Our International segment experienced a decline in external turnover of 14.3 per cent to 623.8 million euros (previous year: 727.9 million euros). This decrease is primarily associated with the business in Turkey where earnings declined predominant-ly due to currency conversion. The segment contributed ap-proximately 7.6 per cent to the Group’s total revenue in the reporting period (previous year: 9.6 per cent). Operating EBIT amounted to 24.8 million euros (previous year: 25.6 million euros) and has therefore remained almost stable compared to the previous year.

The non-operative items are primarily reversals of write-downs in Poland and Kayserigaz due to positive business develop-ments, offset by impairments on the part of Millenicom and Bursagaz.

T007

International segmentin millions of euros 2017 2016


Derivatives −6.6 8.1


Impairments −28.6

EBIT 49.9 33.7


Our Group Central Division segment only generates a low lev-el of revenue. Operating EBIT amounted to −70.1 million euros (previous year: −51.1 million euros). These earnings resulted from the holding function of EWE AG and the other invest-ments attributed to it. The negative effect on earnings com-pared to the previous year is due primarily to lower rental in-come and higher IT expenses.

The fair value measurements of other financial instruments in the Group Central Division segment include the change in the value of the interest in E3 / DC GmbH, Oldenburg. Com-pared to the previous year, impairments were attributable to buildings and software. Additionally, the previous year com-prises proceeds from the disposal of the shares in VNG with regard to investments, whereas provisions were formed for the cash settlement of in-kind benefits in connection with re-structuring.

As a result of its business activities, our Group has a high in-tensity of investments with the associated capital commit-ment. Due to the increase in total assets as at 31 December 2017, the proportion of non-current assets in the total assets has decreased to 73.1 per cent. The non-current assets are due largely to the increase in other financial assets. This in turn was due to the measurement effects of equity and debt instru-ments. The increase in current assets is primarily due to an in-crease in trade receivables (277.8 million euros) and a significant increase in liquid assets (257.0 million euros). The non-current assets are financed with equity and non-current debt.

T010

Net assetsin millions of euros 31.12.2017 in % 31.12.2016 in %

Assets

Non-current assets 6,652.4 73.1 6,494.8 77.0

Current assets 2,444.7 26.9 1,940.4 23.0

Total assets 9,097.1 100.0 8,435.2 100.0

Equity and Liabilities

Equity 2,084.7 22.9 1,941.9 23.0

Non-current liabilities 5,104.4 56.1 4,745.5 56.3

Current liabilities 1,908.0 21.0 1,747.8 20.7

Total equity and liabilities 9,097.1 100.0 8,435.2 100.0

At 22.9 per cent, the equity ratio has remained almost entirely stable since the previous year. The absolute increase in equity is due primarily to the net income for the period (+256.1 mil-lion euros) and the transition effect of IFRS 9 recognised directly in equity (+4.7 million euros), less the payment of a dividend (−88.0 million euros) and the changes in hedging relationships (−24.2 million euros).

Non-current liabilities primarily encompass contributions to building costs, pension reserves, bonds and liabilities to finan-cial institutions. The latter in particular (+214.7 million euros) are the reason behind the increase over 31 December 2016. Additionally, the interest-induced increase in rehabilitation provisions of 121.6 million euros had a positive effect.

The increase in current debt (+160.2 million euros) is largely the result of the increase in trade payables (+304.5 million euros). The repayment of loans (−149.1 million euros) had the opposite effect.


utilisation of the first extension option and therefore ends in November 2022. As at 31 December 2017, EWE had drawn on a total of 0.0 million euros of this credit line (previous year: 0.0 million euros). The bilateral credit lines available as at the reporting date totalled 556.7 million euros (previous year: 409.4 million euros). Of this amount, 186.5 million euros (pre-vious year: 120.4 million euros) has been drawn on in some form, including as guarantees.

Issuing bonds, bonded loans and registered bonds represents another key component of EWE’s financing. As at 31 December 2017, unsecured bonds quoted in euros with a total nominal value of 1,351.6 million euros (previous year: 1,401.6 million euros) have been issued. Additionally, bonded loans and regis-tered bonds still exist in the amount of 150.0 million euros (previous year: 0.0 million euros). The aforementioned finan-cial instruments have terms ending between 2019 and 2032. They have fixed interest rates between 1.26 per cent and 5.25 per cent.

The cash flow from operating activities represents a key ele-ment of our financing. In the 2017 business year, EWE generat-ed a cash flow from operating activities of 655.8 million euros.

The cash flow from investing activities of −446.2 million euros comprises investments in the infrastructure of the Group in particular (especially grids, renewables and broadband network expansion). The deviation from the previous year is due largely to the received payment of the purchase price for the disposal of the shares in VNG in 2016.

In particular, the cash flow from financing activities comprises higher loans (378.8 million euros) than loan repayments (−225.2 million euros), as well as the payment of a dividend (88.0 million euros) for the 2016 business year. The amount in the previous year is characterised by the buy-back of bonds (448.4 million euros), the repayment of loans (366.8 million euros) and the dividend of 225.5 million euros for the 2015 business year.

The financial flexibility of our Group is secured with bilateral credit lines as well as a syndicated, revolving credit facility of 750.0 million euros. The original five-year term of the syndi-cated credit facility was extended by one year following the

T011

Financial position in millions of euros 2017 2016 Change in %

Cash flow from operating activities 655.8 471.7 39.0

Cash flow from investing activities −446.2 570.8 < −100

Cash flow from financing activities 56.7 −1,033.2 > 100

Changes to cash and cash equivalents 266.3 9.3 > 100

Currency translation and changes to the basis of consolidation −9.0 −9.4 4.3

Cash and cash equivalents at the beginning of the period 352.2 352.3

Cash and cash equivalents at the end of the period 609.5 352.2 73.1

Non-financial performance indicators C O M B I N E D M A N AG E M E N T R E P O R T 45

energy transition. Additionally, skills and abilities in connection with MINT are developed strategically and digital expertise is promoted. The reading-to-learn methods are continuously op-timised and are currently being converted to digital processes and learning methods in many areas. Additionally, decentral-ised training as a plant mechanic in Brandenburg is a new ad-dition. In the 2017 business year, the EWE Group employed an average of 408 vocational trainees (previous year: 395).

University students also have the option of completing their final project at EWE. After earning their degree, graduates can choose from a variety of models (including trainee pro-grammes and entry-level positions) to launch their career at one of the EWE Group’s companies.

Advanced training

EWE brings together three sectors – energy, telecommunica-tions and information technology – that are shaped by rapid technological developments and stiff competition. In order to overcome these challenges, the company offers its employees a wide range of internal and external advanced training op-portunities. We improve and refine these programmes and factor in current trends, such as digitisation or working with lean project management methods. The managers of the Group are the key drivers and designers of the reorientation of EWE. This target group faces significant challenges as part of this role, both with regard to everyday management and to dealing with the specific challenges of our sector. Managerial development in 2017 centred on the opening of the EWE Aka-demie. There, managers are being assisted in implementing the strategy in their fields of responsibility with collaboration skills, customer orientation and agility, negotiation manage-ment and business development courses. The opening of the participant group to all managers and the opening of certain aspects for all employees are attesting to the cultural change in no uncertain terms.

A large number of distinct change processes were carried out in the Group, catering to and moulding the corporate culture, and the teams were involved continuously by means of suit-able formats and instruments.

Comprehensive change and training expertise was the driver of the success of the project NETZ PRO, AK GO and in EWE TRADING. Extensive change architectures focused on skill acquisition, employee qualification and improving the capa-bility of the teams in the organisations – enabling them to pursue the targets of the company – had been developed and some had even been implemented by late 2017.

Non-financial performance indicators

Installed output of renewable energy

In the 2017 business year, the installed output of renewables increased by 374.1 megawatt year-over-year to 425.3 mega-watt in total. The increase is due primarily to the acquisition of the Walsrode, Adorf / Diemelsee, Lichtenau and Garnholt wind farms. Of the total electrical power generation capacity of the EWE Group, renewables account for 29.2 per cent (pre-vious year: 23.7 per cent).

Changes to the number of employees

During the 2017 business year, our Group had an average of 9,134 employees (previous year: 9,048 ). One of the reasons for the increase is the acquisition of the TURBOWIND Group. This figure includes all full-time and part-time employees as well as trainees and temporary staff.

Vocational training

As a predominantly local corporate Group, EWE has a long-term commitment to providing professional training to young people from the region. Through internships and regional and national vocational training fairs and events, secondary school and university students are given the opportunity to acquire an in-depth look at EWE and its business and make their first professional connections. 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 with a comprehensive range of educational, mentor-ing and recreational activities, from communication training and in-depth economic knowledge to athletics and culture. The trainers are particularly focused on providing support in the development of professional decision-making and respon-sibility, primarily with regard to the requirements of the

T012

Number of employees by segment

2017 2016

Renewables, Grids and Gas Storage 2,119 2,079

Sales, Services and Trading 3,247 3,213

International 1,011 965

swb 2,150 2,178

Group Central Division 607 613

Total 9,134 9,048

46 C O M B I N E D M A N AG E M E N T R E P O R T Non-financial Group declaration

The aim of the EWE Group to increase the proportion of wom-en in managerial positions is reflected in its ambitious targets to be met by 30 June 2022. Whereas on the level of the Board of Management, the company only temporarily failed to ad-here to its target for the proportion of women in 2017, there are not enough suitable young female managers to meet the target on the level of middle management.

Therefore, a variety of support measures designed to increase the proportion of women in managerial positions are focused on young female managers. They are made ready to assume a managerial position through networking initiatives, mentor-ing programmes, dedicated seminars and personalised support measures. The in-house daycare facility supports a work-life balance with a wide range of services.

T014

Target percentages for the top two levels of management of EWE AG

Board or level of management

Percentage of women (as at

31.12.2017)

Target percentage by

30.06.2022 (by 30.06.2017)

Definedby:

Supervisory Board 5.3% 12.5% (12.5%) Board of

Managementof EWE AG

Board of Management 20.0% 24.4% (24.4%)

An extensive offering in the fields of health management and work-life balance rounds out EWE’s advanced training and staff retention activities.

Gender quota

The EWE Group has a great interest in further increasing the percentage of women in managerial positions in the fu-ture. EWE wants to offer women and men the same opportu-nities when filling management positions. In this context, the company relies on both tried-and-tested and new measures to further strengthen the work-life balance and promote diversity in professional and career development. The aim here is to ensure that key positions are filled by the most suitable candidate, regardless of gender.

In light of this, target quotas have been specified pursuant to the German law for the equal participation of women and men in managerial positions in both the private and public sectors. The proportion of women in the Supervisory Board, Board of Management and executive positions, as well as the top two levels of management in the companies to which the law applies, have been defined as follows:

T013

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

Board or level of management

Percentage of women (as at

31.12.2017)

Target percentage by

30.06.2022 (by 30.06.2017)

Definedby:

Supervisory Board 15.0% 15% (5.0%) Supervisory

Boardof EWE AG

Board of Management 0.0% 20.0% (20%)

Non-financial Group declaration

The non-financial Group declaration for the 2017 business year is available in a separate non-financial Group report on the website https://www.ewe.com/en/investor-relations/publications/annual-reports for ten years after publication

(the statutory period). The separate non-financial Group report is compiled with the separate non-financial report of EWE AG.

http://www.ewe.com/en/investor-relations/publications/annual-reports


Report on expected developments and their key opportunities and risks C O M B I N E D M A N AG E M E N T R E P O R T 47

merge in future, especially electricity, heating, telecommuni-cations, IT and mobility. Even now many customers possess their own power supply systems and infrastructure. This means that in the energy industry, it is a question of recognising cus-tomers as partners who not only purchase electricity, but also generate it. The increasing granularity of the energy system is not a mandatory prerequisite to a successful energy transi-tion. Following the Europeanisation of the energy transition and the related scale effects, a scenario with increased inter- regional load smoothing instead of regional optimisation is not unlikely.

Furthermore, markets and politics will demand even greater efficiency in all business segments. The transition to tender-ing for onshore wind, offshore wind and solar power has lead to significantly more transparency, competition and price re-ductions throughout Europe. The production costs for offshore wind have fallen below 100 euros per MWh and solar power and onshore wind are already far below this threshold. Returns are being limited further in regulated markets, merit orders and market mechanisms are resulting in low electricity prices and the high level of stock exchange liquidity is bringing about transparency and dynamism. New technologies are lowering transaction costs and new sales channels no longer target small markets with a 100 per cent market share, rather are generating dynamic, adaptable structures and systems. All of these factors are increasing the efficiency requirements faced by all market participants.

Digitisation is both an unavoidable consequence of underlying technological and societal developments and a necessary pre-requisite for a sustainable, cost-effective energy supply. It will cause fundamental changes in customer habits, the culture and organisation of companies, the rendering of services and in value-creating structures and business models. Half of all electricity and gas provider switches already take place on-line – and many customers only see offers when they are avail-able online or can be purchased using a smartphone. Digitisa-tion will lower the transaction costs of product creation and customer interfaces and facilitate the development of new business models.

Report on expected developments and their key opportunities and risks

Forecast report

Business environment forecast

The Paris Agreement and the 2050 climate targets agreed therein require the rapid decarbonisation of not only the elec-tricity and heat markets, but also of the mobility and indus-trial sectors.

Therefore, the generation of electricity from renewable sourc-es will continue to grow in significance. In light of technolog-ical advances and the markets, costs can be expected to fall. For example, the costs of generating electricity from renew-able sources have decreased significantly in recent years. The price of solar power in sunny regions is now lower than power generated using oil, coal and even natural gas. The same goes for onshore wind energy which even now can demonstrate exceptionally competitive generation costs in good locations. The increasing volatility of energy generation is causing de-mand for flexibility and network stability to rise and leading to market growth in these segments. Initially, considerable growth in the electricity storage market is necessitating an adjustment to the general regulatory conditions. Necessary back-up capacity in the form of natural gas will be made avail-able in Germany and on an international level in the event of an accelerated withdrawal from coal by 2030.

The decarbonisation of the heat market is facing considerable obstacles. The current rates of rehabilitation as well as the heating technology and building shells in place will likely lead to the heat market being dominated by natural gas. However, heat pumps will likely become more established in new builds. The current gas infrastructure remains essential to buildings.

The ongoing liquidity of the European gas market is preventing the gas storage market from recovering. The decrease in Dutch and German low-calorific gas production might give rise to temporary market opportunities for gas storage in low- calorific gas market areas until the end of the market region transition from low-calorific to high-calorific gas.

From a current perspective, the energy landscape will become further decentralised and access to customers will be a crucial factor. We believe that various markets and products will

48 C O M B I N E D M A N AG E M E N T R E P O R T Report on expected developments and their key opportunities and risks

grid operators. For one, in future energy consumers will be entitled to demand a dynamic energy tariff from their energy provider, i.e. a variable energy tariff which differentiates be-tween the intervals of the wholesale market, enter into agree-ments with aggregators without the consent of other market participants and change supplier free of charge. Additionally, consumers will be entitled to produce, consume, store or trade their own renewable energy in all segments of the market. This proposal is comprehensive and will affect almost all of the electricity-related business areas of the EWE Group.

Renewable Energy DirectiveThe proposed revision of the current Renewable Energy Direc-tive aims to set out the framework for ensuring that the binding target of at least 27 per cent renewables in the final energy con-sumption in the EU by 2030 is met. The proposal sets out re-quirements for financial subsidies for renewables, for opening subsidy schemes for other Member States, for the independent generation and consumption of green electricity, for authorisa-tion processes, for using renewable energy for refrigeration, heating and transportation, for partnerships between Member States and with third countries and for guarantees of origin and sustainability criteria for biofuels. This European framework will have a significant impact on the investment conditions and our business activities in the field of renewable energy.

Energy Efficiency Directive and Energy Performance of Buildings DirectiveThe proposal for a new Energy Efficiency Directive sets out a common framework for measures designed to promote ener-gy efficiency within the EU in order to ensure that energy ef-ficiency increases by 20 per cent by 2020 and by 30 per cent by 2030. It also contains rules on removing barriers in the energy market and correcting market shortfalls that impair the efficiency of the supply and consumption of energy. It also paves the way for setting national energy efficiency targets for 2020 and 2030. The proposal for a new Energy Performance of Buildings Directive aims to introduce a partially mandatory roll-out of the infrastructure necessary for e-mobility.

The rules will largely determine the general conditions of our business activities in connection with energy efficiency, for example e-mobility charging infrastructure, smart home solu-tions, energy consultation, energy audits and contracting.

Future political and regulatory conditions

As part of its implementation of a general strategy for a Euro-pean energy union and the decisions of the Council of Europe regarding the 2030 climate and energy framework of the EU, the European Commission has published a number of legisla-tive proposals, most recently in the package ‘Clean Energy for All Europeans’ in November 2016. The following dossiers will potentially have the greatest direct influence on our business activities and are currently in the legislative pipeline.

A reformed EU emissions trading scheme (ETS)In order to realise a 40 per cent cut in greenhouse gas emis-sions in the EU by 2030 (compared to 1990 levels), the Euro-pean Commission proposed a structural reform of the EU ETS for the period between 2021 and 2030. For one, the annual reduction factor of the current certificates is to be increased. However, the protective measures required to protect industri-al competitiveness in Europe must also be upheld. The political talks are largely complete. The new regulations are expected to come into effect on 1 January 2019. The structure of the EU ETS could have a considerable effect on the costs of conventional generation, energy-intensive industries and the conditions for investing in low-CO2 technologies. The EWE Group is therefore committed to an effective, stable system which protects in-dustries competing on an international level at the same time.

Regulation on the internal market for electricityThe proposal for a new regulation on the internal market for electricity published in November 2016 aims to redefine the regulations and key principles of the European internal market for electricity. The new regulation is expected to set out regu-lations for the feed-in of renewable energy and for cross- border participation in order to ensure the security of supply (includ-ing regulations on capacity mechanisms). It will also set out principles for a market-based, cross-border electricity market. The proposed regulations would therefore affect the trading activities of the Group, its power distribution grids and its busi-ness with renewable energy in particular. The legislative pro-ceedings for this and the following dossiers will end in the first six months of 2018 at the latest and then come into effect.

Internal electricity market directiveThe proposal for a new directive seeks to introduce common rules for the internal electricity market and set out the legal framework for the roles and rights of consumers, for independ-ent energy generation and aggregators and explains the duties and obligations of transmission grid operators and distribution


Governmental broadband strategy2018 will be a crucial year for telecommunications regulation. The new German government will define a new broadband strategy for Germany. We can expect a clear gigabit target, probably by 2025. This will also affect the conditions of sub-sidies. Additionally, experts are discussing whether and to what extent the regulation of fibre-optic connections is necessary and advisable. The previous German government believed that the full deregulation of Telekom would be a suitable way to move the leading company to change its strategy from copper- based technology to fibre optic expansion. Initially as part of its market analysis, the Federal Network Agency will examine whether changes in market conditions will give cause for changes to the current regulatory regime. The first draft of a decision from the Federal Network Agency can be expected over the course of the second quarter of 2018.

Fibre optic expansion project of EWEIn December 2016, EWE decided to invest 1.2 billion euros over the next few years in order to provide households with direct fibre optic connections. This investment could open up around 30 per cent of the total potential customer base in the EWE service area. EWE is also in talks with other companies about co-investment solutions so as to provide the entire region with future-proof, high-performance telecommunications infra-structure. One of the first key milestones has already been reached: in December 2017, EWE and Deutsche Telekom an-nounced their plans to establish a joint venture through which they could jointly spur on fibre optic expansion in the north-west. This joint venture – in which each partner is to hold a 50 per cent stake – is expected to connect around one million households to the fibre optic network directly. The project is due to start in mid 2018, yet is still subject to the approval of the cartel authorities.

New EU legal framework in sightThe trilogue negotiations started in October 2017 after the parliamentary vote on the draft directive for a revised legal framework for telecommunications. These negotiations are necessary because the Council in which the governments of the Member States are represented did not agree with the amendments proposed by the Parliament. Now, compromises are to be drawn up over the next few months under the su-pervision of the European Commission. EWE’s priority is to largely limit symmetrical regulation that is not dependent on a strong market position so as not to impede investments in

The German Market Master Data Register Ordinance (MaStRV)Pursuant to the MaStRV which came into effect on 1 July 2017, a market master data register should have been introduced in summer 2017. This is now likely due to take place in summer 2018. The MaStRV aims to build a comprehensive official reg-ister of the electricity and gas markets that can be used by the authorities and market players in the energy sector. The reg-ister has been designed to unify, simplify or completely do away with various official duties of notification through the central register.

Exception for tenders for windWith regard to the invitations to tender for onshore wind in 2017, the majority of contracts were awarded to energy coop-eratives. During invitations to tender, energy cooperatives enjoy privileges; for example, they are not required to obtain per-mission under the German Federal Immission Control Act (BImSchG) to apply. In response to the results, the German Bundestag imposed a moratorium on privileges for energy co-operatives. It applies to the first two of the three auction rounds in the coming year. Afterwards, the results are due to be eval-uated again. EWE advocates the full abolition of privileges for energy cooperatives as they are anti-competitive and it is not clear that the projects will even be realised at all.

Constitution of a national governmentThe election of the 19th Bundestag was held on 24 September 2017 and the opening session took place on 24 October. The former government has remained in power since then as no new government has yet been formed. It remains to be seen when this will happen and who will form the new government. Union and SPD opened coalition talks in late January 2018. These talks are based on a joint white paper from 12 January 2018 in which the parties embrace the climate targets and announce their intent to implement a series of measures fol-lowed by a law in 2019 in order to achieve them. In this regard, they are focused on the climate targets for 2030. The white paper contains positive points such as the announcement of special invitations to tender for renewables, although some important aspects remain unmentioned and often vague.

The acting government possesses the same authority as a reg-ular government. However, given standard governmental prac-tice, the acting government is not expected to make any far-reaching decisions that would bind a subsequent government.


Expected performance in the Renewables, Grids and Gas Storage segmentIn the 2018 business year, we expect the operating EBIT of the Renewables, Grids and Gas Storage segment to be lower than in 2017, due largely to regulatory effects in connection with networks.

The investments due to be made in the Renewables, Grids and Gas Storage segment in 2018 total approximately 444 million euros. The investments are mostly in the infrastructure of the electricity, gas and telecommunications networks (approx. 294 million euros) and in onshore wind farms (approx. 127 mil-lion euros).

Expected performance in the Sales, Services and Trading segmentIn the 2018 business year, we expect the Sales, Services and Trading segment to generate a lower operating EBIT than in 2017.

Energy sales are facing strong competition. Slight increases in sales quantities and shrinking electricity and gas margins are expected, as is a stable base of private customers. Margins are also expected to shrink with regard to business customers (in-cluding due to the increasing level of competition). In contrast, positive contributions to earnings are expected from energy trading due to energy storage, gas portfolio optimisation and expanded direct marketing activities. Initial losses are expected from the expansion of e-mobility activities.

EWE plans to make investments totalling approximately 99 million euros in the Sales, Services and Trading segment in 2018. Of the key investments, around 62 million euros have been invested in broadband and fibre optic expansion, back-bone network expansion and other areas of technology. With regard to energy sales, heating plants in particular experi-enced growth. Other investments are planned, especially in order to expand e-mobility and in the field of large-scale battery storage.

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Renewables, Grids and Gas Storage segment −10% to +0% 388.8

Sales, Services and Trading segment −30% to −15% 70.6

International segment −60% to −45% 24.8

swb segment −80% to −60% 89.3

Group Central Division – −70.1

Operating EBIT, EWE Group −30% to −15% 503.4

fibre optic expansion. Additionally, EWE is in favour of coop-erative regulations that are focused on competition and ap-propriate for the market. Once the directive has been passed and come into effect, the changes will have to be implement-ed into the national German Telecommunications Act (TKG). The entire process is therefore not expected to come to a close before 2020.

Start of operations of EWE NETZ RVN GmbH from 1 January 2018From 1 January 2018, EWE NETZ is obliged to use a standard-ised price sheet for gas distribution grid charges in order to meet the criteria of the Federal Network Agency. EWE NETZ has filed an appeal against the decision of the Federal Network Agency with the OLG of Düsseldorf. Furthermore, as a pre-cautionary measure, EWE NETZ established EWE NETZ RVN GmbH, Oldenburg, a 100 per cent subsidiary of EWE NETZ, which will supply the customers of the regional distribution network from 1 January 2018 in order to comply with the Fed-eral Network Agency’s principle of ‘one company / one price sheet’ without discrimination whilst preventing unreasonably high price increases for customers connected to the regional distribution network.

Expected performance of the EWE Group

We use the aforementioned expectations and assumptions as to sector-specific developments and the general political and regulatory landscapes to make forecasts concerning the EWE Group and its segments for the 2018 business year.

The forecast does not include the effects of legal develop-ments. Our forecasts concern our key performance indicator operating EBIT, adjusted for unforeseeable special items.


EWE plans to make investments totalling approximately 167 million euros in the swb segment in 2018. The focus here is on investments of around 117 million euros in grid infrastruc-ture as well as investments of around 20 million euros in re-newable energy.

Report on risks and opportunities

Principles of risk and opportunity management

The fields of business of the EWE Group continue to be char-acterised by a high level of dynamism and ongoing change. Our business activities are therefore linked with substantial risks and opportunities. The early identification and active management of these risks and opportunities is an integral element in the planning and implementation of our business strategies. This way we can support the sustainable growth and secure the long-term competitiveness of the EWE Group.

The Board of Management and risk committee set out the un-derlying risk management system for the business operations of the EWE Group. Additionally, regular reports to the decision- making and supervisory committees ensure transparency in connection with the current risk profile of the EWE Group and the continuous monitoring of the parameters of the risk man-agement system.

Process of risk and opportunity management

Within the EWE Group, the internal control system and the risk management system are implemented through an inte-grated risk management approach using standardised methods and processes. The risk management system is based on a standardised planning and controlling process tailored specif-ically to the Group. During its audits, the internal auditing de-partment regularly verifies the management’s assessment of the key risks and the effectiveness of the key controls in the processes it is auditing. The risk management system was last audited in the fourth quarter of 2017.

Risks are identified early on, evaluated and reported to the EWE Group’s Group-wide risk management at the level of the individual companies responsible for the risks in a structured, ongoing process with consideration for the Group-wide guide-lines. Risk management involves measures designed to avoid, minimise and overcome risks.

The EWE Group’s energy-trading activities are also subject to separate risk guidelines which define risk assessment and man-agement instruments tailored specifically to the energy trade.

Expected performance in the International segmentIn the International segment, EWE expects a decrease in oper-ating EBIT in the 2018 business year compared to 2017.

With regard to gas trading in Turkey, the gas trading volumes for 2018 are forecast on the basis of current contracts. The general conditions of the energy business remain difficult, which puts pressure on the slightly positive contribution to earnings forecast. The development of earnings for the regions of Bursa and Kayseri will be heavily influenced by regulatory plans. Overall, this will lead to a decrease in the operating EBIT of Bursagaz due to lower grid fees. We expect the operating EBIT of Kayserigaz to be higher due to moderate network ex-pansions and improved tariffs compared to 2017. We continue to expect the number of customers and gas sales of Bursagaz and Kayserigaz to grow. Furthermore, the business activities of the Turkish telecommunications company Millenicom will have a negative impact on earnings.

In Poland, positive contributions to earnings are expected from electricity and external gas sales in particular, although these will be offset somewhat by higher personnel and operating ex-penses as well as initially negative effects of business develop-ments.

The investments planned for 2018 in the International seg-ment total approximately 35 million euros and primarily apply to developing business areas in Turkey (33 million euros). Es-sentially, investments in grids and expansion in the Bursa and Kayseri regions are planned.

Expected performance in the swb segmentIn the swb segment, we expect operating EBIT in the 2018 business year to be significantly lower than in 2017. For one, this is due to the passing of the German Grid Tariff Moderni-sation Act (NEMoG) in 2017 and its implementation in 2018. This Act brings with it a significant (and permanent) reduction in revenue from avoided grid tariffs. The operating EBIT of the grid operators has also been affected as their revenue will de-crease significantly due to regulatory requirements.

The Sales business area must face strong competition with only limited pricing options when it comes to the sale of pow-er and natural gas. Overall, the operating EBIT from sales will increase due to the decreasing grid fees and the integration of elements of swb Abrechnungsservice GmbH, Bremen.


The company is working to open up new business models. These are not yet established in the market and investments in them are therefore highly risky. In order to manage these challenges, the Group has established an innovation process and assumes a limited amount of risk in terms of venture capital.

Its future growth will mainly be realised through partnerships instead. This will increase the ability of the company to adapt to changes in the general conditions. Likewise, divestitures are being examined and steps are being taken towards inorganic business expansions that would make it possible to rapidly open up each line of business. The company has therefore optimised its mergers and acquisitions processes.

Besides the German energy market, in recent years the EWE Group has established itself and its activities in the Polish and Turkish energy markets. This has resulted in additional growth opportunities that are, to a large extent, unaffected by the developments in the German market, yet utilise the EWE Group’s existing areas of expertise. The country-specific risks inherent to the International segment are monitored sys-tematically in this regard.

The political risk faced by the Turkish companies of the EWE Group has increased significantly ever since the unsuc-cessful coup by elements of the Turkish military in July 2016 and the measures them implemented by the Turkish govern-ment. There are currently no specific indications of short-term adverse effects on the business activities of Turkish EWE com-panies (such as non-fulfilment of contracts, termination of contracts without notice or official sequestration of Turkish EWE companies). No potential medium or long-term adverse effects are currently foreseeable. The emergence of political risks can negatively affect the stability of the value of foreign investments in the EWE Group, both directly and indirectly.

The significant risks that can be categorised as strategic risks and opportunities are rated moderate and low in financial terms.

Risks are assessed by probability of occurrence and amount of damage. They are assigned to one of three risk categories: low, moderate and high, which represent the potential loss that the EWE Group would suffer.

The following Section describes risks and the most significant negative effects they might have on our business, assets, fi-nancial position, results of operations and reputation. Oppor-tunities often stand directly opposite the corresponding risks and are assigned to the same categories and reported in them.

Risks and opportunities

Strategic risks and opportunitiesChanges to the international macroeconomic market environ-ment as well as adjustments to underlying legal and social conditions increase the potential risk to the company’s long-term business development as it pertains to key financial target figures in the EWE Group’s individual segments.

This applies to the field of conventional power generation, which is affected by the significant increase in the capacity from renewable energy sources available on the power market. Additionally, the NEMoG has had an impact on energy gener-ation. In terms of gas storage, the changes in the competitive situation and market are taking hold. This has made it neces-sary to open up new revenue generation potential which comes with technical and market-related risks. With regard to reve-nue, the sales department is facing a continuous decline in consumption due to changes to customers’ consumption pat-terns, improving energy efficiency and increasingly decentral-ised energy solutions from individual customers (prosumers).

The underlying conditions governing the energy sector con-tinue to be heavily influenced by the ‘German energy turn-around’ enacted by the German government.

Society’s increasing digitisation is creating opportunities for energy service providers such as EWE. At the same time, it is leading to a reduction in barriers to market entry for compet-itors from other industries.

In particular, the interaction between energy, telecommuni-cations and information technology makes new product of-ferings with increased customer benefit as well as competitive differentiation possible. In addition, the combination of energy, telecommunications and information technology creates the conditions necessary to continue the stable and efficient op-eration of grids and networks, despite ever-increasing demands.


Risks and opportunities from business operationsOperative risks to the EWE Group result both from the opera-tion of technologically complex systems at all stages of the val-ue creation chain as well as due to unscheduled interruptions to scheduled process work flows. EWE utilises state-of-the-art information and communications technology to efficiently support all of the individual units’ business processes. Further-more, extra quality assurance and coordinated redundancy concepts have been implemented to guarantee the reliability of processes, which are continuously enhanced in line with the requirements.

Given the increasing proliferation of digitisation in the busi-ness processes of the EWE Group, they have become depend-ent on secure, reliable and robust information processing. Therefore, risks to information security are becoming more significant both in the eyes of the company and from a legal perspective. The key objective of the information security department is therefore the appropriate handling of informa-tion and data in line with their confidentiality levels in order to ensure the effective, comprehensive control of information security risks.

Our operative activities are subjected to regular external au-dits. This is reflected by a range of ISO certifications in par-ticular. Additionally, employees are involved in a system of continuous training designed to maintain and improve the high level of quality, minimise potential risks and identify new op-portunities. We are also an active member of and have repre-sentatives on a number of expert committees and boards. This guarantees a structured approach to current and future chal-lenges, measures relating to safety and statutory regulations.

The significant risks that can be categorised as risks and oppor-tunities from business operations are rated low in financial terms.

Financial risksFinancial risks result from the operative business activities of the Group’s various business areas in the form of liquidity, credit and valuation risks.

The EWE Group utilises a structured liquidity management process to confront general liquidity risks, which is used to manage and plan the changes to liquidity over the short, me-dium and long terms. In addition, the EWE Group maintains a sufficient level of liquidity reserves in the form of liquid funds and credit lines to ensure the Group can meet its financial ob-ligations at any time.

Market price risks and opportunities as well as quantity risks and opportunitiesDue to increasing competitive pressure in the national and inter-national energy procurement and sales markets, the EWE Group is faced with constantly high market price, quantity and margin risks, primarily in the areas of generation and sales.

The competition in energy sales is being exacerbated by dis-ruptive business models based on technological innovations, online price comparison platforms and the emergence of new market actors that previously operated in other sectors.

Additionally, energy sales to end customers are exposed to the risk that the actual sale deviates from expectations in terms of quantity or structure. Gas consumption in particular is highly dependent on weather conditions. This results in quantity risks to both sales and network operations. On the other hand, the possibility of a weather-related increase in consumption also exists. Unscheduled changes to cost elements outside of EWE’s control could also have a negative effect on margins, both in sales as well as in network operations. We use sophisticated planning and forecasting methods in order to counter the risks and manage the opportunities. Addition-ally, the sales quantities in power and gas sales are secured via long-term procurement strategies.

In the field of conventional power generation, the attainable margins (‘spreads’) remain under pressure. Over the course of the German energy turnaround, supply has increased as a result of additional capacities from renewable energy sources that are not or only slightly affected by the market prices due to subsidy mechanisms.

In the Turkish market, which is going through the process of deregulation, imbalances still exist in the formation of prices. Unlike gas purchasing, the prices of gas sales are set by the national gas supplier BOTAS A.S, Ankara, Turkey. The afore-mentioned effects of weather conditions apply in similar fash-ion to the Group’s gas business in Turkey, and result in the same opportunities and risks.

The significant risks that can be categorised as market price risks and opportunities as well as quantity risks and opportu-nities are rated low in financial terms.


The significant risks that can be categorised as legal and com-pliance risks are rated moderate and low.

In its meeting on 8 September 2017, the Supervisory Board of EWE AG discussed and agreed a final evaluation of the results of the final reports of the audit firm KPMG which investigated possible misconduct at EWE in spring and summer 2017. The investigation focused on resolving matters, examining exist-ing allegations and evaluating the legal nature of the identified matters. Additionally, recommendations for improving inter-nal procedures with a focus on processes and controls were drawn up.

Finally, the Supervisory Board of EWE AG determined that the investigations which had run for several months had not found any evidence to vindicate the – partially anonymous – allega-tions of corruption against employees of EWE NETZ with a sufficient degree of certainty.

Risks from the use of financial instrumentsWithin the scope of risk management activities carried out by the EWE Group, financial risks are identified, evaluated and addressed. Financial instruments are regularly used when im-plementing hedging strategies.

The EWE Group mainly uses derivative financial instruments to hedge against market price risks resulting from physical gas and electricity trading. Additionally, the Board of Management of EWE AG has granted the Group’s own trading company lim-ited authority to take speculative steps in order to optimise its portfolio. The risk posed by market price risks to earnings is limited by an in-depth risk monitoring and loss limitation con-cept. Additionally, the use of derivative financial instruments is always linked with counterparty risks (see also financial risks).

To hedge against energy trading and finance-related price risks, the EWE Group utilises power futures, gas futures, coal swaps, oil swaps, EUA and CER futures contracts (European Union Allowances and Certified Emissions Reductions) as well as currency and interest rate hedges.

More disclosures regarding financial instruments can be found in the notes.

The significant risks that can be categorised as risks from the use of financial instruments are rated low in financial terms.

EWE conducts an intensive analysis of the creditworthiness of major customers, wholesale partners and banks with the goal of preventing or limiting non-payment risks in Germany and abroad.

In general, the EWE Group is exposed to risks from changes in value that can inherently result from increasing capital mar-ket interest rates, fluctuating exchange rates as well as the business prospects of individual companies becoming perma-nently worse.

Fundamentally, the external rating of EWE AG is at risk of being downgraded. The development of and influences on its rating are monitored continuously and appropriate measures are implemented where possible.

The significant risks that can be categorised as financial risks are rated low in financial terms.

Legal and compliance risksWithin the scope of its business activities in Germany and oth-er countries in which it is active, the EWE Group is faced with numerous legal risks and result from both general legal pro-visions as well as special, industry-specific legal, regulatory and miscellaneous requirements.

All relevant legislative and legal developments are being mon-itored continuously and their potential impacts on business operations are assessed.

Likewise, the EWE Group can be exposed to risks resulting from legal disputes or governmental or official procedures. We can-not rule out the possibility that the outcomes of these legal disputes and procedures might have a negative effect on our business, assets or results of operations.

To cover significant legal risks, we have taken out a liability in-surance policy which the management considers adequate and reasonable. However, our insurance does not protect us against any damage to our reputation. Additionally, through legal dis-putes we can suffer losses beyond the amount covered by our insurance, not covered by our insurance or in excess of any pro-visions we have formed for losses from legal disputes.

In addition to general legal risks, the EWE Group is exposed to an increasing number of compliance risks. These risks result from increased activity on the part of national and EU lawmakers.


The individual companies are responsible for their own book-keeping, which is subject to various local standards, whereby the accounting-related ICS is tailored specifically to the needs of each company on the basis of Group-wide guidelines. In its position as a holding company, EWE AG carries out central accounting duties. This includes consolidating figures and ana-lysing the recoverability of goodwill on the balance sheet.

The accounting guidelines standardised across the Group, which must be consistently applied by all units, form the con-ceptual framework for the preparation of the consolidated fi-nancial statements. EWE continuously analyses and takes into account new laws, accounting standards and other official statements with regard to their relevance and effects on the Group’s consolidated financial statements and combined man-agement report.

The annual financial statements submitted by EWE AG and its subsidiaries, which are based on the accounting entries record-ed by each unit, form the data basis used to prepare the con-solidated financial statements. The Group’s financial state-ments 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 and 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 a responsibility statement. By signing this state-ment, 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 net assets, financial position and results of operations.

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 de-fined minimum requirements governing the key processes used to secure an integrated system of data collection and man-agement. An annual review is used to verify whether the nec-essary monitoring measures were appropriate, actually took place and were carried out correctly. Furthermore, the ICS is reviewed by the Group auditing department during the year as part of its auditing programme.

Summary of the risk situation

The Group risk management system did not identify any threats to the continued existence of the company in the 2017 busi-ness year or beyond, either individually or in their entirety.

In the 2017 business year the effectiveness of the internal con-trol system was tested and confirmed by a self-assessment of all key controls.

Key characteristics of the EWE Group’s accounting-related internal control system (pursuant to Section 289 (5) and Section 315 (2) no. 5 HGB)

The aim of EWE’s financial reporting activities is for our annu-al and interim reports to provide complete and correct infor-mation to all interested parties. Our accounting-related inter-nal control system (ICS) aims to identify potential sources of error and limit the resulting risks. The accounting-related ICS encompasses accounting and financial reporting across the entire EWE Group.

The Supervisory Board’s audit committee regularly reviews the effectiveness of the accounting-related ICS. Once a year, the Board of Management reports to the audit committee re-garding the risks from financial reporting, explains the imple-mented supervisory measures and illustrates how the correct implementation of these measures was verified.

The structure of the accounting-related ICS results from the or-ganisation of EWE’s accounting and financial reporting process.

One of the main functions of this process is the management of the EWE Group and its operative units. In this context, the targets set by the Board of Management of EWE AG form the initial points of reference. Based on these targets and EWE’s expectations with regard to the company’s operative develop-ment, once a year the company creates its medium-term plans. These encompass target figures for the upcoming business year as well as the following years. For current business years, EWE draws up forecasts which are reviewed and adjusted at regular intervals. The Board of Management of EWE AG as well as the boards of management and CEOs of the company’s main sub-sidiaries meet at regular intervals to evaluate quarterly and annual financial statements and update forecasts.

56 C O M B I N E D M A N AG E M E N T R E P O R T Current situation of EWE AG

the increase in income from investments largely resulting from the dividend of swb AG and the write-ups of EWE Polska Sp. z o.o., Poznań, Poland (42.0 million euros), EWE TEL GmbH, Oldenburg (11.6 million euros), and EWE GASSPEICHER GmbH, Oldenburg (3.6 million euros).

The net interest was influenced primarily by interest payable on bonds, loans from financial institutions and the bonded loan as well as interest income from Group companies. In the reporting year, the negative net interest (−84.9 million euros) improved by 57.5 million euros year-over-year. Interest income declined by 0.2 million euros. This was due to the persistent-ly low market interest rate that EWE AG offers the subsi diaries as part of cash pooling and for loans. The decrease in interest expenses (of 57.8 million euros) was mainly due to lower ex-penditure in connection with the issued interest-bearing loans (−60.8 million euros). Unlike in the previous year, no prepay-ment penalties were paid in connection with the premature buy-back of bonds in the 2017 business year. In contrast, in-terest expenses for provisions increased by 5.3 million euros, due essentially to pension provisions.

In 2017, personnel expenses decreased by 9.6 million euros. This was due primarily to higher expenditure from the cash settlement of in-kind benefits of the employees of EWE AG (3.9 million euros) in the previous year. Furthermore, the ba-sic remuneration and one-off payments to employees fell by 4.0 million euros.

Amortisation, depreciation and impairment decreased by 13.5 million euros year-over-year, reaching 19.0 million euros. This was due primarily to 4.3 million euros in write-downs of intangible assets and 6.4 million euros in write-downs of build-ings in the previous year.

The tax expenses increased by 15.5 million euros due to the development of the financial result and the necessary forma-tion of tax provisions.

Due to the aforementioned effects, the income after taxes decreased by 239.2 million euros, resulting in a deficit of 136.9 million euros for the 2017 business year (previous year: profit of 103.9 million euros).

Current situation of EWE AG

The annual financial statements of EWE AG, with headquar-ters in Oldenburg, Germany, were prepared in accordance with the provisions of the German Commercial Code (HGB).

EWE AG manages the EWE Group as its holding company. Its duties lie in the strategic and cross-market development of the business areas as well as strategic planning and assuring the Group’s financing. In addition, EWE AG performs central-ised corporate services for the Group’s companies.

Essentially, the results of operations of EWE AG comprise in-come from the performance of centralised services for Group companies, related material expenses, income from financial assets and net interest.

Compared to the previous year, the income from financial as-sets is 285.9 million euros lower due to lower income from the disposal of interests (−103.3 million euros) and amortisa-tions of financial assets comprising write-downs of swb AG (349.2 million euros) and EWE Turkey Holding A.Ş., Istanbul, Turkey (31.3 million euros), in 2017. This was balanced out somewhat by higher income from the assumption of gains and losses (+66.0 million euros), especially due to higher profits from EWE VERTRIEB GmbH, Oldenburg, and EWE NETZ GmbH,

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Results of operationsin millions of euros 2017 2016

Profit / loss from financial assets 92.2 378.1

Net interest income / expense −84.9 −142.4

Revenue 198.0 199.8

Other operating income 5.8 6.0

Material expenses −115.0 −102.7


Depreciation, amortisation and write-downs −19.0 −32.5

Other operating expenses −71.9 −67.8


Income after taxes −136.9 102.3

Other taxes 1.6

Annual deficit / profit −136.9 103.9

Profit carried forward from previous year 4.1 3.3

Withdrawals from the capital reserves 132.8

Withdrawals from allocations to revenue reserves 88.0

Allocations to reserves −15.0

Net profit 88.0 92.2

Current situation of EWE AG C O M B I N E D M A N AG E M E N T R E P O R T 57

As the total assets remained stable compared to the previous year, the equity ratio fell to 34.7 per cent (previous year: 40.6 per cent). In addition to equity, non-current assets are accom panied by non-current debt with a value of 1.8 billion euros. As such, non-current assets (3.0 billion euros) were completely covered by non-current available capital (3.2 billion euros).

The non-current debt comprises bonds (1.4 billion euros), long-term loans (0.3 billion euros) and pension provisions (0.1 bil-lion euros).

The 289.4 million euro increase in non-current liabilities con-sists of the issuance of a bonded loan of 150.0 million euros, the issuance of bonds totalling 100.0 million euros and the 39.4 million euro increase in non-current liabilities to finan-cial institutions.

The current liabilities of 0.7 billion euros are dominated by liabilities to affiliated companies and are 93.1 million euros lower than in the previous year. In particular, this is due to the repayment of short-term loans (−150.0 million euros), the 11.8 million euro increase in loans and the reduction of other liabilities (14.4 million euros), essentially from taxes. In con-trast, liabilities to affiliated companies increased (93.1 million euros) due to cash pooling and provisions (8.5 million euros).

EWE AG’s balance sheet total at the end of the reporting pe-riod stood at 3.9 billion euros (previous year: 3.9 billion euros) and exhibited a well-balanced asset and capital structure. The balance sheet is structured around EWE AG’s functions as the parent company of the EWE Group, in which the key share-holdings are held. Fixed assets represent the dominant item on the asset side, with a value of 3.0 billion euros, equal to 76.7 per cent of total assets (previous year: 81.6 per cent); the most significant item is the financial assets worth 2.8 billion euros (previous year: 3.0 billion euros). The decrease compared to the previous year was essentially the result of a write-down of the shares in swb AG totalling 0.3 billion euros.

The value of current assets including deferred expenses and accrued income increased to 903.7 million euros (previous year: 712.1 million euros). As in the previous year, the item is dominated by liquid assets, receivables from affiliated com-panies from cash pooling and profit and loss transfer as well as securities, and reflects EWE AG’s financing role. The increase of 191.6 million euros over the previous year was essentially caused by a 237.6 million euro increase in liquid assets and a 50.0 million euro increase in securities. On the other hand, receivables and other assets decreased by 91.4 million euros, due primarily to cash pooling (−63.5 million euros).

On the liabilities side, the annual deficit of 136.9 million euros and the withdrawal of 88.0 million euros from the revenue re-serves to be distributed to the shareholders caused equity to decrease to 1.3 billion euros (previous year: 1.6 billion euros).

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Net assetsin millions of euros 31.12.2017 in % 31.12.2016 in %

Assets

Fixed assets 2,978.1 76.7 3,156.9 81.6

Current assets 891.3 23.0 696.4 18.0

Accrued and deferred items 12.4 0.3 15.7 0.4

Total assets 3,881.8 100.0 3,869.0 100.0

Equity and Liabilities

Equity 1,346.5 34.7 1,571.5 40.6

Provisions 168.1 4.3 159.6 4.1

Liabilities 2,367.1 61.0 2,137.7 55.3

Accrued and deferred items 0.1 0.2

Total equity and liabilities 3,881.8 100.0 3,869.0 100.0

58 C O M B I N E D M A N AG E M E N T R E P O R T Current situation of EWE AG

Investments

In the 2017 business year, investments amounted to 554.6 mil-lion euros:

The investments in financial assets are spread across acquisi-tions of interests, capital increases by affiliated and associat-ed companies and short and long-term loans. The additions to the shares in affiliated companies resulted from the capital increase by EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg (6.0 million euros), Grünspar GmbH, Münster (1.3 million euros), and three new start-ups in Berlin (totalling 6.6 million euros). With regard to investments, EWE AG acquired 1.0 per cent of the shares (3.2 million euros) of European Energy Exchange AG, Leipzig, and 22.9 per cent of Wärmeversorgungsgesellschaft Königs Wusterhausen mbH, Königs Wusterhausen (1.2 million euros), in the reporting period. Additionally, there were limited partner’s capital contributions for GWAdriga GmbH & Co. KG, Berlin (1.6 million euros), and Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg (36.3 million euros). With regard to loans, the majority of the investments are attributable to EWE NETZ, EWE GASSPEICHER GmbH, Oldenburg, EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg, EWE Windpark Köhlen GmbH & Co. KG, Oldenburg, and EWE Windpark Hatten GmbH, Hatten. Loans to companies with which an investment relationship exists were issued to Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg (34.7 million euros). Overall, the additions to loans to affiliated companies and nterests totalled 482.9 million euros in the reporting year. The additions as part of acquisitions of interests, capital increases and capital contributions amounted to 57.5 million euros.

T019

in millions of euros 31.12.2017 31.12.2016

Intangible assets 1 6.1 6.8

Land and buildings 2 3.6 3.1

Power supply systems

Other technical equipment and machinery 0.1 0.1

Furniture and office equipment 4.4 2.6

Financial assets 540.4 76.2

Total 554.6 88.8

1 of which 0.3 million euros (previous year: 2.7 million euros) in assets under construction

2 of which 0.6 million euros (previous year: 0.0 million euros) in assets under construction

The cash flow from operating activities was 8.7 million euros in the business year. At −136.9 million euros, the net income for the year on which the calculation was based was 240.8 mil-lion euros lower than in the previous year. Non-cash depreci-ation, amortisation and write-downs of 349.7 million euros, interest expenses (84.9 million euros), income tax expenses (83.1 million euros) and the changes in provisions and liabili-ties (75.1 million euros) increased the cash flow, whereas in-come from investments (406.3 million euros) and income tax payments (59.4 million euros) decreased it.

The positive cash flow from investing activities was determined by the sale of the shares in VNG in the previous year. In 2017, the net total of the addition and disposal of financial assets was −163.0 million euros. Investments in intangible assets and property, plant and equipment were merely negligible. Incom-ing payments from dividends or profit transfers from financial investments (406.3 million euros) led to a positive cash flow overall. This income was higher than in the previous year.

The cash flow from financing activities largely reflects the as-sumption of loans and the issuance of bonds (365.2 million euros), as well as the retirement of bonds and repayment of loans (214.0 million euros), and the payment of the dividend of 88.0 million euros in the previous year.

Cash and cash equivalents represent liquid assets and in-creased by 237.6 million euros to 509.4 million euros.

The company was always capable of fulfilling its financial obligations.

T018

Financial positionin millions of euros 2017 2016

Cash flow from operating activities 8.7 −64.5

Cash flow from investing activities 237.5 1,246.2

Cash flow from financing activities −8.6 −1,132.2

Changes to cash and cash equivalents 237.6 49.5

Current situation of EWE AG C O M B I N E D M A N AG E M E N T R E P O R T 59

Forward-looking statements

All statements made are based on current knowledge and assumptions. They represent estimates that we have formu-lated on the basis of all information available to us at the pres-ent time. In the event that the underlying assumptions do not occur or additional risks develop, actual results could deviate from expected results. As such, we cannot assume liability for these statements.

Oldenburg, Germany, 19 February 2018

The Board of Management

Stefan Dohler

Michael Heidkamp

Wolfgang Mücher

Forecast deviations

EWE AG unexpectedly generated an annual deficit of 136.9 mil-lion euros for the 2017 business year. This was due to the write-down of the carrying amount of the interest in swb AG of 349.2 million euros.

Expected development of EWE AG

Due to its position as the Group’s parent company, EWE AG’s net income for the year is heavily influenced by income from financial assets. No write-downs of interests – as took place in the previous year – are expected in 2018. Instead, we expect tens of millions of euros in income from the disposal of inter-ests. This will cause the income from investments to increase significantly. Nevertheless, earnings from energy sales, tele-communications and grids remain under constant price pressure and are facing regulation and changes in charges. Non-recurring special items notwithstanding and following an annual deficit in the reporting year, the company expects a net annual profit of hundreds of millions of euros, higher than in 2016, for the following business year.

Report pursuant to Section 312 of the German Stock Corporation Act

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

‘In the transactions specified in the report on EWE AG’s rela-tionship with affiliated companies, our company – based on the circumstances we were aware of at the time the transac-tions were carried out – received fair compensation in each transaction.’

Consolidated financial statements

Consolidated financial statements of EWE Aktiengesellschaft

62 Consolidated income statement of the EWE Group63 Consolidated statement of comprehensive income of the EWE Group64 Statement of financial position of the EWE Group66 Statement of changes in equity of the EWE Group68 Cash flow statement of the EWE Group69 Notes to the consolidated financial statements of EWE AG

62

62 C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Consolidated income statement of the EWE Group

T020

in millions of euros Notes 2017 2016

Revenue 5 8,654.9 7,936.2

Electricity and energy taxes −404.4 −369.9

Revenue (excluding electricity and energy taxes) 8,250.5 7,566.3

Inventory changes 5.7 −1.5

Internally produced and capitalised assets 6 68.2 62.4

Other operating income 7 317.1 435.4

Material expenses 8 −6,333.7 −5,761.7

Personnel expenses 9 −711.8 −722.5

Depreciation, amortisation and write-downs 10 −558.9 −605.8

Other operating expenses 11 −560.8 −577.9

Impairment losses / income pursuant to IFRS 9.5.5 12 −16.1

Profit / loss from financial assets accounted for using the equity method 13 −8.5 −0.7

Other income from investments 14 52.1 255.2

EBIT 1 503.8 649.2

Interest income 15 16.2 13.0

Interest expenses 15 −158.7 −219.5

Earnings before income taxes 361.3 442.7

Income taxes 16 −105.2 −109.8

Earnings in the period 256.1 332.9


Shareholders of the parent company 254.9 331.9

Minority shares 1.2 1.0

256.1 332.9

1 Earnings before interest and taxes

Consolidated income statement of the EWE GroupFrom 1 January to 31 December 2017

Consolidated statement of comprehensive income of the EWE Group C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 63

T021

in millions of euros Notes 2017 2016

Earnings in the period 256.1 332.9

Actuarial gains and losses from defined benefit pension plans and similar obligations 29 0.6 −183.5

Deferred taxes on pensions −0.1 49.2

Fair value measurement of equity instruments 9.5

Deferred taxes on equity instruments −0.1

Sum of other income and expenses recognised directly in equity without future reclassification to profit and loss 9.9 −134.3

Balancing item for foreign currency translation from international subsidiaries −18.8 −22.9

Cash flow hedges 40 −34.7 323.7

Deferred taxes on accruals for cash flow hedges 10.5 −91.8

Fair value of available-for-sale financial assets 37.7

Deferred taxes on accruals for available-for-sale financial assets 0.1

Share of other comprehensive income comprising financial assets accounted for using the equity method 20 3.9 −0.7

Sum of other income and expenses recognised directly in equity with future reclassification to profit and loss −39.1 246.1

Other income after taxes −29.2 111.8

Comprehensive income after taxes 226.9 444.7


Shareholders of the parent company 229.0 446.5

Minority shares −2.1 −1.8

226.9 444.7

Consolidated statement of comprehensive income of the EWE GroupFrom 1 January to 31 December 2017

64 C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Statement of financial position of the EWE Group

T022

Assetsin millions of euros Notes 31.12.2017 31.12.2016

Non-current assets

Intangible assets 17 842.2 868.7

Property, plant and equipment 18 4,929.1 4,926.6

Investment property 19 6.3 5.4

Financial assets accounted for using the equity method 20 145.0 123.0

Other financial assets 21 605.1 526.7

Income tax refund claims 35 1.8 1.9

Other non-financial assets 80.2 10.1

Deferred taxes 35 42.7 32.4

6,652.4 6,494.8

Current assets

Inventories 22 203.2 204.3

Trade receivables 23 1,042.6 764.8

Other financial receivables and assets 24 496.7 470.3

Income tax refund claims 35 11.3 35.9

Other non-financial receivables and assets 25 82.6 113.8

Liquid assets 26 608.3 351.3

2,444.7 1,940.4

Total assets 9,097.1 8,435.2

Statement of financial position of the EWE GroupAs at 31 December 2017

Statement of financial position of the EWE Group C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 65

T023

Equity and liabilitiesin millions of euros Notes 31.12.2017 31.12.2016

Equity 27

Subscribed capital 243.0 243.0

Less treasury shares −24.3 −24.3

Capital reserves 1,486.4 1,619.2

Less treasury shares −489.3 −489.3

Accumulated earnings 1,200.9 788.2

Accumulated other comprehensive income −356.6 −219.8

Equity attributable to the shareholders of the parent company 2,060.1 1,917.0

Minority shares 24.6 24.9

2,084.7 1,941.9

Non-current liabilities

Construction subsidies 28 657.6 675.9

Provisions 29 2,331.4 2,236.7

Bonds 30 1,340.6 1,237.4

Liabilities to financial institutions 31 345.4 130.7

Other financial liabilities 33 301.3 317.0

Income tax liabilities 35 25.0 30.4

Other non-financial liabilities 34 10.5 9.6

Deferred taxes 35 92.6 107.8

5,104.4 4,745.5

Current liabilities

Construction subsidies 28 50.5 50.6

Emission rights 14.2 14.0

Provisions 29 132.9 159.4

Bonds 30 19.1 168.2

Liabilities to financial institutions 31 118.1 76.4

Trade payables 32 902.6 598.1

Other financial liabilities 33 485.1 500.7

Income tax liabilities 35 47.1 63.6

Other non-financial liabilities 34 138.4 116.8

1,908.0 1,747.8

Total equity and liabilities 9,097.1 8,435.2

66 C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Statement of changes in equity of the EWE Group

T024

Subscribedcapital

Capital reservesof the EWE Group

Accumulatedearnings Accumulated other comprehensive income Accumulated other comprehensive income

Equityattributable

to theshareholders of

the parentcompany

Minorityshares Equity

in millions of euros

Reserve for equity

instruments

Remeasurementreserve under

IFRS 3

Reservefor cash flow

hedges

Reserve foravailable-for-sale

financialinstruments

Currencytranslationdifference

Measurementof pension

obligations IFRS 5

Changes tomeasurements

using the equity method not

recognised inprofit and loss

As at 01.01.2016 218.7 1,138.7 684.5 74.5 −120.4 162.9 −86.7 −339.0 16.8 −25.7 1,724.3 24.9 1,749.2

Earnings in the period 331.9 331.9 1.0 332.9

Other earnings 231.9 37.8 −20.1 −134.3 −0.7 114.6 −2.8 111.8

Total earnings 446.5 −1.8 444.7

Capital decrease −8.8 −8.8 −8.8

Dividend payments −225.5 −225.5 −225.5

Other changes −2.7 −16.8 −19.5 1.8 −17.7

As at 31.12.2016 218.7 1,129.9 788.2 74.5 111.5 200.7 −106.8 −473.3 −26.4 1,917.0 24.9 1,941.9

Effects of initial application of IFRS 9 81.9 123.5 −200.7 4.7 4.7

As at 01.01.2017 218.7 1,129.9 870.1 123.5 74.5 111.5 −106.8 −473.3 −26.4 1,921.7 24.9 1,946.6


Other earnings 9.4 −24.2 −15.5 0.5 3.9 −25.9 −3.3 −29.2


Withdrawal from the capital reserves −132.8 132.8


Other changes 31.1 −33.7 −2.6 1.8 −0.8

As at 31.12.2017 218.7 997.1 1,200.9 132.9 74.5 53.6 −122.3 −472.8 −22.5 2,060.1 24.6 2,084.7

Statement of changes in equity of the EWE GroupFrom 1 January to 31 December 2017

Statement of changes in equity of the EWE Group C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 67

T024

Subscribedcapital

Capital reservesof the EWE Group

Accumulatedearnings Accumulated other comprehensive income Accumulated other comprehensive income

Equityattributable

to theshareholders of

the parentcompany

Minorityshares Equity


Reserve for equity

instruments

Remeasurementreserve under

IFRS 3

Reservefor cash flow

hedges

Reserve foravailable-for-sale

financialinstruments

Currencytranslationdifference

Measurementof pension

obligations IFRS 5

Changes tomeasurements

using the equity method not

recognised inprofit and loss

As at 01.01.2016 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


Other earnings 231.9 37.8 −20.1 −134.3 −0.7 114.6 −2.8 111.8


Capital decrease −8.8 −8.8 −8.8


Other changes −2.7 −16.8 −19.5 1.8 −17.7

As at 31.12.2016 218.7 1,129.9 788.2 74.5 111.5 200.7 −106.8 −473.3 −26.4 1,917.0 24.9 1,941.9

Effects of initial application of IFRS 9 81.9 123.5 −200.7 4.7 4.7

As at 01.01.2017 218.7 1,129.9 870.1 123.5 74.5 111.5 −106.8 −473.3 −26.4 1,921.7 24.9 1,946.6


Other earnings 9.4 −24.2 −15.5 0.5 3.9 −25.9 −3.3 −29.2


Withdrawal from the capital reserves −132.8 132.8


Other changes 31.1 −33.7 −2.6 1.8 −0.8

As at 31.12.2017 218.7 997.1 1,200.9 132.9 74.5 53.6 −122.3 −472.8 −22.5 2,060.1 24.6 2,084.7

68 C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Cash flow statement of the EWE Group

T025

in millions of eurosSee notes, Section 44 2017 2016

EBIT 1 503.8 649.2

Depreciation, amortisation and write-downs 566.9 610.2

Reversals of write-downs −60.3 −0.8

Release of construction subsidies −58.6 −59.9

Interest paid −86.0 −150.9

Interest received 16.1 12.8

Income tax payments / refunds −130.8 −125.3

Profit / loss from the divestiture of fixed assets 3.1 −219.6

Non-cash foreign currency gains / losses −0.1

Non-cash changes to the value of accruals 57.3 33.7

Changes to valuations using the equity method recognised in profit and loss 9.2 1.9

Non-cash profit / loss from financial derivatives −19.6 −86.0

Other non-cash expenses and income −27.2 0.9

Changes in inventories −29.9 10.7

Changes in receivables and other assets −278.6 −19.4

Changes in liabilities 190.4 −185.7

Cash flow from operating activities 655.8 471.7

Incoming payments from construction subsidies 50.6 49.9

Incoming payments from the divestiture of intangible assets 0.6

Payments for investments in intangible fixed assets −42.9 −43.5

Incoming payments from the divestiture of fixed assets 10.6 15.0

Payments for investments in fixed assets −344.4 −373.3

Incoming payments from the divestiture of other non-current assets 17.6 975.1

Payments for investments in other non-current assets −122.5 −38.2

Payments for investments in shares in fully consolidated companies −15.8 −14.2

Cash flow from investing activities −446.2 570.8

Disbursements to owners of the parent company (dividends) −88.0 −225.5

Incoming payments from the acquisition of financial liabilities 378.8 7.5

Payments from the repayment of financial liabilities −225.2 −815.2

Other net payments from financing activities −8.9

Cash flow from financing activities 56.7 −1,033.2

Change in cash and cash equivalents 266.3 9.3

Changes in cash and cash equivalents due to exchange rates and the basis of consolidation −9.0 −9.4

Cash and cash equivalents at the beginning of the period 352.2 352.3

Cash and cash equivalents at the end of the period 609.5 352.2

1 Earnings before interest and taxes

Cash flow statement of the EWE Group1 January to 31 December 2017 Source (+) and application (−) of fund

N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S O F E W E AG 69

Notes to the consolidated financial statements of EWE AG

1. Information about the company

EWE Aktiengesellschaft (hereinafter referred to as ‘the com-pany’ or ‘EWE AG’) and its subsidiaries (hereinafter referred to as the ‘EWE Group’) are active in the fields of energy sup-ply (particularly power and gas), energy generation, sales and trading, water supply, information technology and telecom-munications. From a regional standpoint, the company carries out these activities in the Ems-Weser-Elbe region, in the Ger-man state of Lower Saxony, in the German city of Bremen and, with regard to gas supply operations, also in the German state of Brandenburg, the island of Rügen and in Poland and Turkey.

EWE AG’s headquarters are located at Tirpitzstrasse 39 in Oldenburg, Germany (postcode 26122). The company is regis-tered in the commercial register of the Oldenburg district court under HRB 33.

2. Accounting methods

Principles governing the preparation of the consolidated financial statements

EWE AG’s consolidated financial statements dated 31 Decem-ber 2017 were prepared pursuant to Section 315e (1) HGB in accordance with the binding International Financial Reporting Standards (IFRS) from the International Accounting Standards Board (IASB), London, Great Britain, as well as interpretations by the IFRS Interpretations Committee (IFRS IC), applicable as at 31 December 2017, in so far as they were approved for use in the European Union. Further applicable legal provisions set forth in the German Commercial Code (HGB) have also been adhered to.

In general, the consolidated financial statements were prepared based on the historical cost principle. This does not apply to derivative financial instruments and available-for-sale financial assets, which have been measured at fair value. The carrying amounts of assets and liabilities recognised in the statement of financial position which represent underling transactions with-in the scope of fair value hedges and are otherwise recognised at amortised cost, are matched to the fair value changes attrib-utable to the risks hedged within the scope of effective hedging relationships. The consolidated financial statements were pre-pared in euros. All values are rounded up or down to the near-est million euros unless otherwise indicated.

The recognition of individual items has been changed by mar-ginal amounts. Corresponding previous year’s values have been adjusted accordingly.

Slight deviations might result in the calculation of total values and percentages in the consolidated financial statements as a result of rounding.

The consolidated financial statements for the business year ending on 31 December 2017 were approved by the Board of Management for review by the Supervisory Board on 19 Feb-ruary 2018.

The consolidated financial statements and the Group man-agement report of EWE AG for the 2017 business year will be published in the German Federal Gazette.

Consolidation methods

The consolidated financial statements comprise the annual financial statements of EWE AG and its subsidiaries as at 31 December 2017.

Subsidiaries are fully consolidated from the date of acquisition onward; that is, from the period of time that the Group gains full control over the company. Consolidation ends as soon as the parent company no longer has control of the company. Subsidiaries’ financial statements are prepared using uniform accounting methods for the same reporting periods as the parent company’s financial statements. All intra-Group bal-ances, transactions, unrealised profits and losses from intra- Group transactions and dividends – taking deferred taxes into account – are eliminated in full.

A subsidiary’s comprehensive income is also attributed to mi-nority shares, even if this would lead to a negative balance.

Changes to the level of a stake in a subsidiary which do not cause a loss of control are recognised as an equity transaction.

As a result of another shareholder’s controlling stake in Hanse-wasser Ver- und Entsorgungs-GmbH, Bremen (HVE), EWE AG does not have control of this company. As a result, HVE is recognised as a joint venture in the consolidated financial statements. Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen (GKB), is recognised as a joint venture despite a majority stake in the company, since a qualified majority is required to make major decisions.

70 N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S O F E W E AG

services. Geographically, the company is concentrated in Lower Saxony, North Rhine-Westphalia and Hesse. Wind energy is a field of rapid growth in the eyes of the EWE Group.

Of the purchase price of 18.4 million euros for the shares, 16.4 million euros were paid in cash. The remainder of the pur-chase price (2.0 million euros) has been recognised as a con-tingent financial liability that will mature when certain mile-stones are reached in wind farm projects in the future. The purchase price corresponds to the fair value of the entire con-sideration received.

The fair values of the identifiable assets and liabilities as at the acquisition date are as follows:

Essentially, the goodwill resulted from expected multiplica-tion effects with regard to the expansion of the wind energy business area and from synergies following the optimisation of work processes within the EWE Group. The goodwill is not tax-deductible.

The fair value of the loans (1.7 million euros) and trade receiv-ables (0.4 million euros) as at the acquisition date corresponds to the carrying amount and gross amount. It is likely that the loans and receivables can be collected.

Since its acquisition, the TURBOWIND Group has contributed 11.3 million euros to revenue and −0.2 million euros to the net income for the period. Had the acquisition date been at the start of the period, the contribution to revenue would have been 18.9 million euros and the contribution to the net income for the period would have been −1.9 million euros.

T027

in millions of eurosRecognised upon

acquisition

Non-current assets 53.9

of which intangible assets 15.3

Current assets 11.0

of which loans and receivables 2.1

of which cash and cash equivalents 5.9

Total assets 64.9

Non-current liabilities 45.3

Current liabilities 10.1

Total liabilities 55.4

Net assets 9.5

Historical cost 18.4

Goodwill 8.9

The schedule of the Group’s investments is published in the German Federal Gazette pursuant to Section 313 (2) nos. 1−4 and (3) HGB (see Section 46).

The following changes to the basis of consolidation took place during the 2017 business year:

With regard to fully consolidated companies, the disposals resulted from the sale of EWE Biogas GmbH & Co. KG, Witt-mund, and internal reorganisation measures.

The increase in the number of fully consolidated companies concerns the Renewables, Grids and Gas Storage and Interna-tional segments in particular.

The number of companies accounted for using the equity method increased following the addition of the shares in Limón GmbH, Kassel.

Acquisition 2017On 1 August 2017, 100 per cent of the shares in TURBOWIND ENERGIE GmbH, Hanover, which in turn holds majority inter-ests in other companies (the TURBOWIND Group), were ac-quired. The company covers the full project development value chain (location planning, opening and marketing) for wind farms. Additionally, the TURBOWIND Group operates three onshore wind farms and one substation. The TURBOWIND Group also provides commercial and technical management

T026

Type of consolidation and number

GermanyInter-

national Total

Full consolidation

01.01.2017 46 9 55

Additions 9 3 12

Disposals 4 4

31.12.2017 51 12 63

Companies measured at equity

01.01.2017 11 11

Additions 1 1

31.12.2017 12 12

Total

01.01.2017 57 9 66

Additions 10 3 13

Disposals 4 4

31.12.2017 63 12 75


After the initial recognition, goodwill is measured at historical cost less accumulated impairment losses. For the purpose of impairment testing, the goodwill acquired within the scope of a merger is allocated as of the date of acquisition to the cash- generating unit (CGU) of the Group that is expected to profit from the merger.

If goodwill was allocated to a CGU and one of this unit’s busi-ness areas is sold, the goodwill attributable to the sold business area is taken into consideration as a component of the carry-ing amount of the business area when calculating the profit and loss from the sale. The value of the sold portion of good-will is calculated on the basis of the relative value of the sold business area and the remaining portion of the CGU.

Investments in associates and joint venturesInvestments by the EWE Group in an associate or joint ven-ture are accounted for using the equity method. An associate is an entity over which the EWE Group has significant influ-ence. Joint ventures are companies which stand under joint control with another party.

According to the equity method, the investment in another company is recognised at historical cost plus the changes to the share of company’s net assets held by the EWE Group oc-curring after the acquisition date. The goodwill associated with the contained within the carrying amount of the investment and is neither subject to scheduled depreciation nor a sepa-rate impairment test.

The EWE Group’s share of a company’s net profit / loss for a period is recognised in the EWE Group’s statement of profit and loss. Changes recognised directly in the company’s other comprehensive income are recorded by the Group according to its share and disclosed cumulated in the Group’s statement of changes in equity.

As a matter of principle, subsidiaries’ financial statements are prepared as at the same reporting date as the financial state-ments of the EWE Group. Changes to accounting methods applied in a consistent manner across the Group are carried out insofar as necessary.

At the end of each reporting period, the EWE Group assesses whether objective information is available which indicates that an investment in a company accounted for using the eq-uity method could be impaired. In the event of an impairment, the difference between the recoverable amount of the invest-ment in the company and the carrying amount of the invest-ment in the company is recognised in profit and loss as an im-pairment loss.

The transaction costs totalling 0.3 million euros were recog-nised in other operating expenses in the Consolidated income statement in 2017.

Summary of key accounting methods

The key accounting methods applied in the preparation of these consolidated financial statements for the EWE Group are presented below. The methods described herein were con-sistently applied to the reporting periods presented, except where otherwise indicated.

Mergers and goodwillMergers are accounted for using the acquisition method. The acquisition costs of an acquisition are calculated as the total of the consideration transferred valued at fair value as at the date of acquisition and the shares without a controlling influ-ence in the acquired company. In every merger, the acquiring company values the shares without a controlling influence in the acquired company either at fair value (known as the full goodwill method) or according to the corresponding share of identifiable net assets (known as the purchased goodwill method) of the acquired company. Costs incurred as part of the merger are recognised as expenses.

If the EWE Group acquires a company, it evaluates the suita-ble classification and designation of financial assets and ac-quired financial liabilities in accordance with the contractual terms, economic data and the prevailing conditions at the time of acquisition. This also includes separating embedded deriv-atives from the host contract.

In the case of gradual mergers, the share of equity in the ac-quired company previously held by the buyer is revalued at fair value on the date of acquisition and the resulting profit and loss is recognised in profit and loss.

The agreed upon contingent consideration is recognised at fair value on the date of acquisition. Subsequent changes to the fair value of contingent consideration which represent an asset or a liability are recognised either in profit and loss or equity in accordance with IFRS 9. If the contingent consideration does not fall within the scope of IFRS 9, it is valued in accordance with the corresponding IFRS.

Upon initial recognition, goodwill is measured at historical cost, i.e. the value of the transferred consideration which ex-ceeds the value of the identifiable assets and liabilities acquired by the Group. If this consideration falls below the fair value of the net assets of the acquired subsidiary, the difference is rec-ognised in profit and loss.


Fair value measurementThe EWE Group measures the fair value of financial instru-ments for reporting and / or accounting purposes at the end of each reporting period.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measur-ing fair value, the company assumes that the transaction in which the sale of the asset or transfer of the liability takes place is carried out in either:

■■ The principal market for the asset or liability, or

■■ The most advantageous market for the asset or liability in the absence of a principal market.

In this context, the Group must have access to the principal market or the most advantageous market.

The fair value of an asset or a liability is measured based on the assumptions that market participants would take into ac-count when pricing the asset or liability. In this context, it is further assumed that the market participants would act in their best financial interests.

Measuring the fair value of a non-financial asset is carried out taking into account the ability of the market participant to generate economic benefit from the highest and best use of the asset or through its sale to another market participant who will find the highest and best use for the asset.

The Group utilises measurement methods that are appropri-ate given the circumstances and for which sufficient data are available to measure fair value. The Group maximises the use of relevant observable inputs and minimises the use of unob-servable inputs.

In the event of a loss of significant influence or joint control, the Group values all retained investments in the former com-pany accounted for using the equity method at fair value. Dif-ferences between the carrying amount 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 re-ceived are recognised in profit and loss with consideration for any amounts transferred from other comprehensive income.

Classification as current and non-currentThe EWE Group classifies its assets and liabilities on the State-ment of financial position as current and non-current.

An asset is classified as current when:

■■ Realisation of the asset is expected within the normal busi-ness cycle or the asset is held for sale or use within the time period;

■■ The asset is primarily held for trading purposes;

■■ Realisation of the asset is expected within twelve months of the end of the reporting period;

■■ The asset is cash or a cash equivalent, except in the case that the exchange or use of the asset to fulfil an obligation is restricted for a period of at least twelve months after the end of the reporting period.

All other assets are classified as non-current.

A liability is classified as current when:

■■ The fulfilment of the liability is expected within the normal business cycle;

■■ The liability is primarily held for trading purposes;

■■ Fulfilment of the liability is expected within twelve months of the end of the reporting period;

■■ The company does not have the unrestricted ability to post-pone fulfilment of the liability by at least twelve months after the end of the reporting period.

All other liabilities are classified as non-current.

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


Group companiesThe assets and liabilities of foreign operations are translated within the scope of consolidation at the exchange rate appli-cable at the end of the reporting period. The translation of revenue and expenses is carried out using an average exchange rate. The resulting exchange differences within the scope of consolidation are recognised in other comprehensive income. The amount recognised in other comprehensive income for a foreign operation is reclassified to profit and loss upon the disposal of this foreign operation.

All goodwill resulting in conjunction with the acquisition of a foreign operation and every adjustment of the carrying amount of the assets and liabilities resulting from the acquisition of this foreign operation to their fair value are treated as assets and liabilities of the foreign operation and translated using the exchange rate applicable at the end of the reporting period.

The following exchange rates were used for the foreign cur-rency translation of individual financial statements prepared in a foreign currency:

T028

Rate at end of period

1 euro 31.12.2017 31.12.2016

Polish złoty (PLN) 4.18 4.41

Turkish lira (TRY) 4.55 3.71

T029

Average rate

1 euro 31.12.2017 31.12.2016

Polish złoty (PLN) 4.26 4.36

Turkish lira (TRY) 4.12 3.34

All assets and liabilities for which fair value has either been measured or disclosed in the financial statements are catego-rised into different levels of the fair value hierarchy described below, based on the input parameters of the lowest level that is significant to the entire measurement of fair value:

■■ Level 1: Quoted (non-adjusted) prices for identical assets or liabilities in active markets;

■■ Level 2: Measurement methods in which the lowest-level input parameter material to the overall fair value measure-ment is directly or indirectly observable in the market;

■■ Level 3: Measurement methods in which the lowest-level input parameter material to the overall fair value measure-ment is not observable in the market;

Foreign currency translationThe EWE Group’s consolidated financial statements are pre-pared in euros, the functional currency of the parent company. Each company within the EWE Group determines its own func-tional currency. The items contained in the financial statements of each company are measured using this functional currency.

Foreign currency transactions and balancesForeign currency transactions are initially translated by the Group’s companies into the functional currency at the appli-cable exchange rate on the date of the transaction.

Monetary assets and liabilities in a foreign currency are trans-lated into the functional currency at the end of every report-ing period using the exchange rate applicable on that date.

All exchange differences are recognised in profit and loss.

Non-monetary items that are measured at acquisition cost in a foreign currency are translated using the exchange rate ap-plicable at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are trans-lated using the exchange rate applicable when the fair value was determined.


The proportional dissolution of customers’ construction sub-sidies over the time period of the useful life of house connec-tion lines is reflected in revenue.

InterestFor all financial instruments measured at amortised cost, in-terest income and interest payable is recognised using the ef-fective interest rate. This is the discount rate used to exactly discount future incoming and outgoing payments over the ex-pected term of the financial instrument (or a shorter period, if applicable) to the net carrying amount of the financial asset or financial liability. Interest income is disclosed in profit and loss.

DividendsDividend income is recognised when the right to receive pay-ment is established.

Government grantsGovernment grants are recognised when there is reasonable 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 which are recognised as income over the period necessary to match them with the re-lated costs, for which they are intended to compensate, on a systematic basis. Grants relating to an asset are recognised as deferred income in the statement of financial position and are recognised in profit and loss in equal instalments over the es-timated useful life of the asset.

TaxesActual income taxesThe current income tax refund claims and tax liabilities for the current period are measured at the amount expected to be recovered from or paid to the tax authorities. Tax calculations are based on the tax rates and tax laws applicable as at the end of the reporting period in the countries in which the EWE Group is active and generates taxable income.

Current taxes that relate to items recognised directly in equity are not recognised in profit and loss, but instead in equity. Management regularly evaluates individual tax matters with regard to whether room for interpretation exists in light of applicable tax provisions. Tax provisions are set aside as and when required.

Revenue recognitionRevenue is recognised independent of when payment is re-ceived at the point in time when it is likely that the economic benefit will flow to the Group and the amount of revenue can be measured with reliability. Revenue is measured at the fair value of the consideration received or receivable in due con-sideration of contractually stipulated payment terms, where-by taxes and other fees are not taken into account. Further-more, the following list of criteria must be satisfied before revenue is recognised:

Sale of goodsRevenue is recognised when the significant rewards and risks associated with ownership of the sold goods have been trans-ferred to the buyer. This usually occurs when the goods have been delivered to the buyer.

When it comes to supplying customers with power or gas, transfer of the significant rewards and risks to the buyer oc-curs when the power or gas flows through the meter. Since meter readings at the end of the reporting period cannot be acquired in a timely fashion, portions of revenue are calculat-ed using statistical methods.

The electricity and energy taxes paid by the Group companies are openly deducted from revenue.

Revenue from feed-in tariffs passed on to companies gener-ating power from renewable energy sources is disclosed as a share of total revenue. This revenue is offset by the payments to these companies disclosed under material expenses.

Rendering of servicesRevenue generated from telecommunications and IT services is recognised upon rendering the service. In the case of multi- component 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 in-dividual components. The price of the entire multi-component business deal is divided on the basis of the proportional value of the different components.

In the systems business, revenue is recognised when there are substantial indications of a purchase agreement, the products have been delivered or the services rendered, the sale price or fees have been or will be set, and recoverability is sufficiently guaranteed.

Revenue from contracts for services rendered by time or material expenditure is recognised when the hours worked have been completed and the direct costs at the contractually stipulated hourly rate have been incurred.


The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Unrecognised deferred tax assets are ex-amined on every reporting date and recognised in so far as it is considered probable that there will be future taxable earn-ings which will make it possible to realise the tax asset.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is re-alised or the liability is settled. This is based on the tax rates and laws that are in place as at the end of the reporting period.

Deferred taxes arising from items recognised outside of profit and loss are also recognised outside of profit and loss. As such, these deferred taxes are recognised consistent with the un-derlying transaction either in other comprehensive income or directly in equity.

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.

Deferred tax benefits acquired within the scope of a merger that do not meet the criteria for being recognised separately at the time of acquisition are recognised in following periods provided that this results from new information about the facts and circumstances that existed at the time of acquisi-tion. The adjustment is either treated as a reduction in good-will, provided it arose during the evaluation period (and as long as it does not exceed the value of goodwill) or in profit and loss for the period.

Deferred taxesDeferred taxes are formed using the liability method on tem-porary differences existing at the end of the reporting period between the carrying amount of an asset or liability disclosed in the statement of financial position and their tax bases.

Deferred taxes are recognised for all taxable temporary dif-ferences with the exceptions of:

■■ Deferred tax liabilities from the initial recognition of good-will or an asset or liability from a transaction other than a merger which, at the time of the transaction, does not affect the net income disclosed for the period or taxable profit,

■■ Deferred tax liabilities arising from taxable temporary dif-ferences associated with investments in subsidiaries, asso-ciates and interests in joint arrangements, but only to the extent that the company is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available and against which the deductible temporary differences can be utilised, unless the deferred tax asset arises from:

■■ Deferred tax assets from deductible temporary differences arising from the initial recognition of an asset or liability from a transaction other than a merger which, at the time of the transaction, does not affect the net income disclosed for the period or taxable profit,

■■ Deferred tax assets from deductible temporary differences arising from investments in subsidiaries, associates and in-terests in joint arrangements, but only to the extent that it is probable that the temporary difference will not reverse in the foreseeable future or that insufficient taxable profit will be available and against which the temporary differ-ence can be utilised.


Items of property, plant and equipment are removed from the statement of financial position on disposal.

The residual values, useful lives and depreciation methods of assets are reviewed at the end of each business year and ad-justed prospectively, if necessary.

LeasesDetermining whether an agreement contains a lease is based on the economic impact of the agreement at the time the agreement was concluded.

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

If transfer of ownership to the EWE Group at the end of the lease is not sufficiently certain, however, the leased asset is depreciated over either the expected useful life of the asset or the term of the lease, whichever is shorter.

For operating leases, lease payments are recognised as an expense in profit and loss over the lease term on a straight-line basis.

Borrowing costsBorrowing costs that are directly attributable to the acquisi-tion, construction or production of an asset are capitalised as part of the historical cost of the asset. All other borrowing costs are recognised as an expense in the period in which they were incurred.

T030

Years

Buildings up to 50

Technical equipment and machinery

Power supply systems 8–45

Gas supply systems 10–55

Other technical equipment and machinery 3–50

Gas storage 33–40

Other equipment, operating and office equipment 5–14

Value-added taxRevenue, expenses and assets are recognised after deducting value-added tax. The following cases are an exception:

■■ If the value-added tax incurred upon the purchase of assets or the use of services cannot be claimed from the tax au-thorities by way of refund, the value-added tax is recog-nised as part of the asset’s historical cost or as a portion of the expenses.

■■ Accounts receivable and payable are disclosed together with the amount of value-added tax included.

The amount of value-added tax that either must be refund-ed by or paid to the tax authorities is reported as an asset or liability.

Non-current assets held for sale and discontinued fields of businessNon-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. They are not subject to depre-ciation. Non-current assets or disposal groups are classified as held for sale when the associated carrying amount is pri-marily realised through a sales transaction and not continued use. This is only the case when the sale is highly probable and the asset or disposal group is available for immediate sale in its current condition. Management must be committed to the sale and expect it to qualify as a completed sale within a pe-riod of one year from the date of classification.

Property, plant and equipmentItems of property, plant and equipment are carried at histor-ical cost including existing rehabilitation and removal obliga-tions measured at present value, less accumulated deprecia-tion and / or accumulated impairment losses. In addition to direct costs, the historical costs include directly attributable indirect costs.

Subsequent historical costs – for example, as a result of ex-pansion or replacement investments – are only recorded as a portion of an asset’s historical costs or as a separate asset (if applicable) if it is probable that an economic benefit will flow to the EWE Group in the future and the cost of the asset can be reliably determined. Expenses for repairs and maintenance that do not represent a major replacement investment are recognised as an expense in profit and loss in the business year they were incurred. Assets classified as property, plant and equipment are depreciated using the straight-line method, with the exception of land. Depreciation and amortisation using the straight-line method are based on the following useful periods:


Research and development costsResearch costs are recognised as an expense in the period in which they are incurred. Development costs of an individual project are only capitalised as an intangible asset if the EWE Group can demonstrate technical feasibility, the inten-tion to complete or sell the asset, the economic benefit of the asset, the availability of resources and the ability to reliably determine expenses.

Amortisation begins upon completion of the development stage and from the point of time when the asset can be used. It is carried out over the period of time during which future benefit is expected. During the development stage, an annual impairment test is carried out.

The development costs incurred in the EWE Group do not cur-rently meet the recognition criteria set out in IAS 38 and are therefore not recognised.

Emission rightsEmission rights (CO2 certificates) are recognised as intangible assets under non-current other non-financial receivables and assets. Initial measurement upon acquisition (in the case of purchase) is carried out at historical cost and then subsequent carried at amortised average acquisition cost, whereby a com-parison with the net recoverable amount is carried out. Emis-sion rights held at the end of the reporting period which are intended to be surrendered in the following year pursuant to effective use are recognised as a liability. This liability is mea-sured at the amortised historical cost of the respective right. In the event that actual emissions exceed emission certificates granted and held at the end of the reporting period, provisions are created equal to the market value of the mission rights the company must acquire.

Financial instrumentsThe EWE Group has decided to voluntarily apply IFRS 9 (Finan-cial Instruments) (published in July 2014) early from 1 January 2017 onwards. In accordance with the transitional regulations in IFRS 9.7.2.15, no comparative figures were adjusted. As a re-sult, the previous accounting methods of the Group pursuant to IAS 39 (Financial Instruments: Recognition and Measurement) continue to apply to the comparative information.

I. Financial assetsThe EWE Group’s financial assets encompass cash and current deposits, trade receivables, receivables from loans granted and other receivables, listed and unlisted financial instruments and derivative financial instruments.

Intangible assetsIntangible assets are initially measured at their historical cost. In the following periods, intangible asset are carried at their historical cost less accumulated amortisation and impairment losses. With the exception of the portion eligible for capitali-sation, developments costs are not capitalised and are recog-nised in profit and loss in the period in which they were incurred.

Intangible assets are classified either as intangible assets with finite useful lives or indefinite useful lives.

Intangible assets with finite useful lives are amortised over their useful economic life and assessed for possible impair-ment if information exists which indicates that the intangible asset might be impaired. The period and method of amortisa-tion for intangible assets with a finite useful life are reviewed at least at the end of every reporting period. The necessary changes to the method or period of amortisation due to the changes to the anticipated useful life or to the anticipated use of the future economic benefit of the asset are accounted for as changes in accounting estimates.

Depreciation and amortisation using the straight-line method are based on the following useful periods:

In the case of intangible assets with indefinite useful lives, an impairment test is carried out once annually for the individual asset or at the level of the CGU. These intangible assets will not be amortised. The useful life of an intangible asset with an indefinite useful life is reviewed each reporting period to determine whether events and circumstances continue to sup-port an indefinite useful life assessment for that asset. If they do not, the useful life assessment is changed from indefinite to definite prospectively.

Trademarks and licencesTrademarks and licences have finite useful lives and are car-ried at amortised cost less accumulated amortisation.

T031

Years

Permits, licences and rights 15–60

Computer software and licences 3–5

Customer list 5–17


Debt instrumentsThe subsequent measurement of debt instruments is based on the business model of the Group for controlling the finan-cial asset and the characteristics of the cash flows of the asset. The EWE Group splits its debt instruments (financial assets) into three measurement categories:

■■ Measured at amortised cost: Assets held for the purposes of receiving contractually agreed cash flows and whose cash flows exclusively represent repayments and interest pay-ments are measured at amortised cost. Gains or losses from a debt instrument that is subsequently measured at amor-tised cost and is not part of a hedging relationship are rec-ognised as net income for the period if the asset is derec-ognised or impaired. Interest income from these financial assets is recognised as net interest. The effective interest method is applied in this regard.

■■ Measured at fair value directly in equity (in other compre-hensive income): Financial assets held for the purposes of receiving contractually agreed cash flows and for sale, and whose cash flows exclusively represent repayments and interest payments, are measured at fair value directly in equity (in other comprehensive income). Changes to the carrying amount are recognised directly in equity (in other comprehensive income). This does not apply to the recog-nition of income or expenses from impairment, interest income or gains and losses from currency translation, all of which are recognised in profit and loss. When the finan-cial asset is derecognised, the accumulated gain or loss that had previously been recognised in other comprehensive income is reclassified from equity to the statement of prof-it and loss. Interest income from these financial assets is recognised as net interest. The effective interest method is applied in this regard. As a rule, gains and losses from currency translation are recognised in other operating in-come / expenses and impairment expenses are recognised in other operating expenses.

■■ Measured at fair value in profit and loss: Assets that do not meet the criteria to be measured at amortised cost or at fair value directly in equity (in other comprehensive income) are measured at fair value in profit and loss. Gains or loss-es from a debt instrument that is subsequently measured at fair value in profit and loss and is not part of a hedging relationship are recognised in net income for the period and their net amounts are disclosed in the statement of profit and loss in the period in which they arose.

ClassificationThe Group has been classifying its financial assets in the fol-lowing measurement categories since 1 January 2017:

■■ Subsequent measurement at fair value (either directly to equity in other comprehensive income or at fair value in profit and loss) and

■■ Subsequent measurement at amortised cost.

Classification is based on the business model of the company for controlling its financial assets and the contractual condi-tions of the cash flows.

Gains and losses from financial assets measured at fair value are either recognised as net income for the period or in other comprehensive income. Financial investments in debt instru-ments are subject to the business model through which the financial investment has been made. With regard to financial investments in equity instruments that are not held for trad-ing purposes, whether or not the Group irrevocably opted to recognise the equity instrument at fair value in equity (in oth-er comprehensive income) is the crucial factor.

The EWE Group only reclassifies debt instruments if its busi-ness model for controlling these financial assets changes.

MeasurementWhen recognising a financial asset for the first time, the EWE Group measures it at its fair value plus, in the case of fi-nancial assets not measured at fair value through profit and loss, the transaction costs directly attributable to the acqui-sition of the financial asset. The transaction costs of financial assets measured at fair value through profit and loss are rec-ognised as cash items in the net income for the period.

Financial assets with embedded derivatives are taken into account in their entirety when the company is determining whether or not their associated cash flows exclusively repre-sent repayments and interest payments.


DerecognitionA financial asset (or a share of a financial asset or a share of a group of similar financial assets) is derecognised when the contractual rights to receive the cash flows from a financial asset are lost.

II. Financial liabilitiesInitial recognition and measurementFinancial liabilities are measured at fair value upon initial rec-ognition. Derivatives on the assets and liabilities sides are measured at fair value in profit and loss and then carried at fair value. All other financial liabilities are classified as other liabilities and carried at amortised cost using the effective in-terest method.

DerecognitionA financial liability is derecognised when the liability’s under-lying obligation is either discharged, cancelled or expires.

III. Offsetting financial instrumentsFinancial assets and liabilities are only offset (with the net amount reported) when the company has a legally enforce-able right to offset the amounts at the present time and in-tends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

IV. Fair value of financial instrumentsThe fair value of financial instruments traded on active mar-kets is determined by the listed market price at the end of the reporting period or the publicly listed price (buyer’s offered bid price in the case of long positions and ask price in the case of short positions) without deducting transaction costs.

The fair value of financial instruments not traded on any ac-tive market is determined using suitable valuation methods. The valuation methods include the use of recent arm’s-length market transactions between knowledgeable, willing and in-dependent parties, reference to the current fair value of an-other instrument that is substantially the same, discounted cash flow analysis and other valuation methods.

An analysis of the fair value of financial instruments and fur-ther details regarding how financial instruments are measured can be found in Section 40.

Equity instrumentsThe EWE Group subsequently measures all equity instruments at fair value. In cases where the management of the Group has decided to recognise gains and losses from changes in the fair value of equity instruments in other comprehensive income, those gains and losses will not be reclassified to net income for the period after the related equity instrument has been derec-ognised. Interests that, as expected, will continue to be held for longer, have been measured at fair value in equity (in other comprehensive income) in order to avoid earnings volatility. Dividends from such instruments are recognised in other income from investments if the right of the Group to receive payments has been established.

Changes to the fair value of financial assets measured at fair value in profit and loss are sometimes recognised in the state-ment of profit and loss. Impairment expenses (and income from reversals of write-downs) from equity instruments rec-ognised at fair value directly in equity (in other comprehensive income) are not recognised separately from other changes in fair value.

ImpairmentsIn connection with its debt instruments that are measured at amortised cost and at fair value in equity (in other compre-hensive income), the EWE Group assesses the expected cred-it losses in terms of the future. The method applied to the de-termination of impairment depends on whether or not the credit risk has increased significantly. See Section 42 in the notes for more details of how the EWE Group determines this.

With regard to trade receivables and receivables from leases, the EWE Group applies the simplified approach provided for by IFRS 9 whereby the credit losses expected over the term are recognised from the initial recognition of the receivables onwards.

The EWE Group’s financial assets encompass cash and current deposits, trade receivables, receivables from loans granted and other receivables, listed and unlisted financial instruments and derivative financial instruments.


If futures are used to secure expected transactions, the Group designated the full change in the fair value of the futures con-tract (including forward points) as a hedging instrument. In such cases, the gains or losses from the effective part of the change in the fair value of the entire futures contract is rec-ognised directly in equity in the reserve for cash flow hedges.

Amounts accumulated in equity are reclassified as follows in the periods in which the secured underlying transaction affects profit and loss:

■■ The gains or losses from the effective parts of futures con-tracts are recognised as follows: If the secured underlying transaction then leads to the recognition of a non-financial asset (e.g. inventories), both the deferred gains and losses and the deferred date element of the futures contracts spe-cific to the underlying transaction are included in the his-torical cost of the asset. The deferred amounts are then recognised in the statement of profit and loss if the secured underlying transaction affects profit and loss (e.g. through material expenses).

■■ The gain or loss from the effective part of the interest rate swaps used to hedge interest-bearing financial liabilities is recognised as net interest in the statement of profit and loss.

If a hedging instrument expires or is sold or terminated, or if a hedging relationship no longer meets the criteria to be rec-ognised as a hedging relationship, the deferred gains or losses and deferred costs of hedging accumulated in equity up to that point will remain in equity until the expected transaction oc-curs. If the expected transaction leads to a non-financial as-set, the reclassified parts of the reserve will become part of the historical cost of the non-financial asset. If the expected transaction can no longer be expected to occur, the accumu-lated gains or losses recognised in equity so far will be reclas-sified to the statement of profit and loss immediately.

Ineffectiveness in hedging relationships is recognised as other operating income / expenses and net interest in the statement of profit and loss.

Derivative financial instruments and hedge accountingDerivatives are initially recognised at fair value as at the date of the corresponding contract and then remeasured on each reporting date. The method applied to the recognition of chang-es in fair value in subsequent periods depends on whether or not the derivative has been designated a hedging instrument and, if so, on the nature of the secured underlying transaction and the type of designated hedging relationship.

The EWE Group designates its foreign currency derivatives as hedges of the currency risk from cash flows resulting from highly likely transactions and all interest rate swaps as hedges of the interest risk inherent in the financial liabilities. They are cash flow hedges in both cases. Financial and physical futures are used to hedge against the risks of changes in commodity prices.

The economic relationship between each hedging instrument and its underlying transaction is documented at the start of the hedging relationship. This also includes information on whether or not changes to the cash flows from secured under-lying transactions are expected to be balanced out by the hedg-ing instrument. Additionally, at the start of every hedging re-lationship, the Group documents its risk management objective and its strategy for concluding various hedging transactions.

If their remaining term is longer than twelve months, hedging derivatives are fully classified as non-current assets or non- current liabilities and measured at fair value. They are classi-fied as current assets or current liabilities if their remaining term is less than twelve months.

Cash flow hedges that meet the criteria to be recognised as a hedging relationshipThe effective part of changes to the fair value of derivatives that have been designated as cash flow hedges and meet the criteria to be designated as such is recognised in the reserve for cash flow hedges in equity and is limited to the cumulative changes in the fair value of the secured underlying transaction on the basis of the present value from the start of the hedging rela-tionship. The gains or losses resulting from the ineffective part are recognised directly in other operating income / expenses and net interest in the statement of profit and loss.


At the end of the reporting period, an assessment is carried out for all assets, with the exception of goodwill, as to whether there are any indications that a previously recognised impair-ment loss no longer exists or has decreased. If such an indica-tion exists, the EWE Group estimates the asset’s or the CGU’s recoverable amount. A previously recognised impairment loss is only reversed if the assumptions used to determine the re-coverable amount have changed since the recognition of the last impairment loss. The reversal is limited in such a manner that the carrying amount of an asset cannot exceed its recover-able amount or the carrying amount that would have resulted (taking depreciation into account) had no impairment loss been recognised for the asset in previous years. A reversal is recog-nised in profit and loss.

Cash and cash equivalentsCash and cash equivalents include cash on hand, bank balances and current deposits with a term of less than three months. To calculate the value of cash and cash equivalents for the state-ment of cash flows, cash-pooling receivables are also included.

ProvisionsBasic principlesA provision is recognised when the Group has a present obli-gation (legal or constructive) as a result of a past event, the outflow of resources with economic benefit to fulfil the obli-gation is probable and the amount can be estimated reliably. If the Group expects to be reimbursed for some or all of the expenditure required to settle a provision (such as in the case of an insurance contract), the reimbursement is recognised as a separate asset if it is virtually certain that reimbursement will be received. The expenditure required to settle a provision is recognised in profit and loss less the reimbursement.

Provisions are measured at discounted present value using a pre-tax discount rate that reflects the current market assess-ments of the time value of money and the risks specific to the liability. Increases to the provision resulting purely from the addition of accrued interest are recognised as interest expens-es in profit and loss.

Provisions are classified according to their maturity. Provisions or portions of provisions whose obligations are expected to reach maturity within twelve months after the end of the re-porting period are disclosed as current provisions. Provisions that will reach maturity after twelve months are classified as non-current.

InventoriesInventories are initially measured at historical cost. Historical cost includes all costs associated with purchase, conversion or processing as well as other costs incurred in bringing the in-ventories to their present location and condition. It comprises incidental acquisition costs as well as other costs that can be directly attributed to the procurement of inventories. Directly attributable costs can comprise both direct and indirect costs.

Trade discounts, rebates and deductions are subtracted as re-ductions in acquisition costs.

Inventories are measured at the lower of historical cost and net realisable value. Net realisable value is the estimated sell-ing price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale.

Any reversals of write-downs must be recognised up to the original historical cost in profit and loss.

Impairment of non-financial assetsAt the end of each reporting period, the EWE Group assesses whether there is any indication that a non-financial asset may be impaired. If there is an indication that an asset may be im-paired or if an annual assessment of an asset’s recoverability is required (goodwill, intangible assets with indefinite useful lives or assets in development), the EWE Group estimates the asset’s recoverable amount. The recoverable amount of an asset is the higher of the fair value of an asset or a CGU less costs of disposal and its value in use. The recoverable amount must be determined for each individual asset unless an asset no longer generates cash flows that are predominantly inde-pendent of the cash flows of other assets or other groups of assets. If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is impaired and is written down to its recoverable amount. To calculate value in use, the ex-pected future 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 trans-actions are used, if avail able. If no such transaction can be identified, a suitable valuation method is applied. This is based on valuation multiples, stock exchange prices of listed shares of subsidiaries or other indicators of fair value available.

Impairment losses from ongoing operations including impair-ment of inventories are recognised in profit and loss.


Within the scope of introducing a defined contributions unit-based plan, the association EWE Treuhandverein e. V. was founded in 2009 and swb Treuhandverein e. V. in 2016. In so far as assets are transferred to EWE-Treuhandverein e. V. or swb Treuhandverein e. V. for the purpose of financing company pension plans, these assets represent offsettable plan assets within the terms of IAS 19.8. Several deferred compensation commitments entered into by the company are financed by the Versorgungskasse Energie (energy pension fund), meaning that the actuarial reserves formed there are accounted for as plan assets.

In addition to direct benefits, groups of employees are com-pulsorily insured through VBL (Pension Institution of the Fed-eral Republic and the states). In order to finance these benefits, the company must pay annual allocations and reorganisation fees to VBL. These pension commitments must, in principle, be treated as a multi-employer-defined benefit plan as set forth in IAS 19. As a result of a lack of information as set forth in IAS 19.34 with regard to the defined benefit plan, this pen-sion plan is accounted for as a defined contribution plan. In the event that the plan is underfunded, the participating employers are required to compensate for this underfunding. In this context, the amount of the additional contribution ob-ligation is calculated by VBL and allocated precisely according to cause across all members as a prorated contribution in the form of the currently open-ended reorganisation fee. Upon exiting the VBL system, the company may be obliged to pay compensation in order to balance out a potential future amount of underfunding allocated to its portion of the plan. The por-tion of VBL’s total insurance plan allocated to EWE AG is mar-ginal compared to the obligations of other participating com-panies. The company does not plan to leave the VBL system.

Other long-term employee benefitsOther long-term employee benefits primarily encompass ob-ligations from employment anniversary bonuses. As such, em-ployees receive a one-time bonus payment on the 25th and 40th anniversaries of their hiring that is predominantly based on their salary. Similar long-term obligations include partial retirement agreements with employees. At the EWE Group, these agreements were generally entered into using the ‘block model’. The resulting obligations are calculated using actuarial principles based on the prepaid expense method. In cases in which these obligations (the amount to be paid) are balanced against plan assets, the obligations are offset by the fair value of the applicable plan assets.

Provisions for contingent lossesProvisions for contingent losses are recognised – when the general requirements for the recognition of provisions are ful-filled – for onerous contracts in the amount that the unavoid-able costs associated with the contract exceed the expected economic benefit from the contract.

Provisions for rehabilitation and deconstructionProvisions are recognised for rehabilitation obligations for un-derground gas storage facilities and gas fields in the present value of the obligation. These are capitalised and depreciated and / or the provisions are discounted. The expenditure result-ing from the interest added to the provision for rehabilitation is recognised as interest expenditure in profit and loss. Changes to estimates or adjustments to the discount rate will change an existing carrying amount. The reversal of provisions for re-habilitation beyond the carrying amount of an asset is recog-nised in other comprehensive income.

Provisions for emissions certificatesIf it becomes apparent over the course of the year that an in-sufficient number of emission allowances are held – that is, emissions have already occurred and the level of emissions exceeds the number of emission allowances held – a provision is recognised for the remaining emission allowances that need to be purchased. In contrast, provisions for future emissions are prohibited, even if planning indicates that there is a high probability that emissions will exceed the number of emission allowances held.

Pensions and other employee benefitsPensions and similar obligationsProvisions for pensions and similar obligations are recognised for immediate pension obligations to employees (including former employees) with an entitlement and claim to company pension benefits. Collective labour agreements, labour- management agreements and individual commitments form the legal basis of these obligations within the EWE Group. They are accounted for pursuant to IAS 19 using the projected unit credit method. In this context, the future obligations are mea-sured using actuarial valuation methods, as well as estimates of the relevant influencing variables (including but not limited to interest rate, probability of death and salary and retirement trends). Based on this method, the expenditure required for the additional unit of benefit entitlement is attributed to the period of service in which the additional unit was earned. In this context, the additional unit of benefit entitlement is viewed as the portion of the entire scheduled future benefit that is attributed to the corresponding business year while taking vesting provisions into account.


Accounting changes

Almost no changes to the accounting principles used in com-parison to the previous year occurred during the reporting pe-riod. The following standards, which were first applicable to this reporting period, are an exception, although their application had no or no significant effect on the consolidated financial statements:

■■ Amendments to IAS 7 – Disclosure Initiative

■■ Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses

Additionally, IFRS 9 (Financial Instruments) has been volun-tarily applied since 1 January 2017.

■■ The initial application of the classification and measure-ment regulations has not had a significant effect on the statement of financial position or on equity. The financial assets previously measured at fair value can continue to be measured at fair value. Loans and receivables can still be measured at amortised cost. Shares in partnerships are clas-sified as debt instruments and therefore measured at fair value in profit and loss. The few derivatives entered into for the purposes of proprietary trading have been recognised as current.

■■ The simplified approach to impairment is taken for the ma-jority of financial receivables that have to be recognised at amortised cost. The new impairment model has not had a significant effect on the statement of financial position or on equity.

■■ The recognition of hedges has not had a significant effect.

■■ The introduction of IFRS 9 has a significant effect on the dis-closures in the notes required by IFRS 7 (Financial Instru-ments: Disclosures) in the Sections ‘Consolidated income statement’ and ‘Notes to the Statement of Financial Position’.

■■ The effects of the new regulations on the date of transition and initial application on 1 January 2017 are described in Section 37.

Termination benefitsTermination benefits are paid when an employee is laid off before reaching the usual age of retirement or leaves the em-ployment relationship with the company voluntarily in return for a severance payment. The EWE Group recognises sever-ance payments if the Group has a clearly verifiable obligation to terminate employment contracts with current employees based on a detailed, formal plan that cannot be rescinded, or if the Group has a clearly verifiable obligation to provide a sev-erance package upon voluntary termination of employment by employees.

This particularly includes individual contracts entered into with employees governing early retirement. These employees have been released from their job duties yet continue to re-ceive a reduced salary until they reach the earliest retirement age set forth by the provisions of statutory pension insurance for employees in an ongoing employment relationship. Bene-fits that are due later than twelve months after the end of the reporting date are discounted to their present value.

Construction subsidiesConstruction subsidies include subsidies for investments and construction costs.

The EWE Group receives construction cost subsidies for pow-er, gas and water connections for customers in contracts with standard terms and customers in contracts with special terms. Construction subsidies are recognised as a liability and released over the useful life parallel to the fixed assets for which they were received. This release is carried out in revenue since the receipt of construction cost grants is closely related to the company’s actual power and gas business and therefore ap-plies to the EWE Group’s normal business activities.

Investment grants are recognised as a liability and released over the useful life parallel to the fixed assets for which they were received. The grants are released to profit and loss.


Deferred sales

As at the reporting date, utilisation thresholds had been set for trade receivables that had been incurred but not invoiced. In this context, the measurement of revenue from energy supply agreements is subject to a statistical estimation pro-cedure that factors in seasonal consumption fluctuations and the influences of weather.

Provisions for pensions and similar obligations

The measurement of pension obligations is carried out while taking actuarial assumptions into account which relate to de-mographic (probability of death, fluctuation) and financial variables (interest rate, future salary increases, pension trends). For more information, see Section 29. In this context, the dis-count rate is derived taking into account the specific structure of the payment flows of the obligations earned. This calcula-tion is based on the pension obligations that exist at the end of the reporting period. The calculations are carried out on the basis of the yield curves of German federal bonds, the DJ EuroStoxx 50 and the iBoxx index with regard to the market yield of high-quality corporate bonds as at their current value on 31 December 2017. Pursuant to IAS 19.83, the discount rate used is determined by reference to market yields at the end of the reporting period on high-quality corporate bonds (with an AA rating or better), with currencies and terms of bond yields used consistent with the currency and estimated term of the obligation being discounted. In the event that a suffi-cient market is not available for the terms required, yield is interpolated or extrapolated for these terms based on the available yield structure as set forth in IAS 19.86.

Obligations from rehabilitation and deconstruction

The provisions for the rehabilitation and deconstruction of un-derground gas storage facilities are based on external reports and / or information from the facility manager. With regard to underground gas storage facilities and wind farms, the cost of rehabilitation and deconstruction in the event of abandonment is estimated. On the reporting date, this amount is discounted at the rate specific to the obligation. The value of provisions for rehabilitation must be reassessed at the end of each report-ing period and adjusted to a different, new, best-possible esti-mate, if applicable. Changes with regard to the expected dates and values of payments required to fulfil the obligation as well as changes to the discount rate lead to adjustments to the pro-visions for rehabilitation recognised outside of profit and loss. For more information, see Section 29.

3. Key discretionary judgements, estimates and assumptions

When preparing the EWE Group’s consolidated financial state-ments, management makes discretionary judgements, esti-mates and assumptions that have an effect on the value of the earnings, expenses, assets and liabilities disclosed at the end of the reporting period as well as the disclosure of contingent liabilities. As a result of the uncertainty associated with these assumptions and estimates, however, events can occur that lead to significant adjustments to the carrying amount of the affected assets or liabilities in future periods.

The most important future-related assumptions as well as other main sources of uncertainty surrounding estimates at the end of the reporting period, on the basis of which there is a significant risk that a considerable adjustment will be nec-essary to the carrying amount of assets and liabilities within the next business year, are explained below. The assumptions and estimates by the Group are based on parameters that ap-plied at the time the consolidated financial statements were prepared. These circumstances and assumptions regarding future developments can change, however, due to market fluc-tuations and market conditions that fall outside of the Group’s sphere of influence. Such changes are first reflected in the Group’s assumptions after they occur.

Goodwill

Goodwill is tested for impairment at least once annually or whenever appropriate indicators from internal or external sources of information indicate that goodwill may be impaired. This impairment test is based on assumptions about the fu-ture which require estimates related to future cash flows of CGU that encompass goodwill. These estimates can have an effect on the calculation of these cash flows and lead to extraordinary depreciation of the goodwill. The core assump-tions used to determine the recoverable amount for the CGU are presented in Section 17.

Intangible assets and property, plant and equipment

The calculation of these assets’ expected useful lives and im-pairment is based on management assessments. Technologi-cal progress, a deterioration of the market situation or damage can lead to the extraordinary depreciation of these assets.


changes to line items in the statement of financial position and statement of profit and loss for the current periods result-ing from the initial application of IFRS 15 are explained.

The contract analysis with regard to IFRS 15 has shown that the new standard will likely have a significant effect on the presentation of the net assets, financial position and results of operations of the EWE Group. In particular, the new regu-lations concern the following:

a) Energy servicesRecognition in accordance with IFRS 15 will not have any ma-terial effect on earnings resulting from the transition of con-tracts with customers in which the sale of energy is the only per-formance obligation. The Group believes that the energy is delivered over a period of time as a customer can consume en-ergy at any point during the term of the contract, which means that the energy supplier must have the correct quantity avail-able at all times and keep energy ready to deliver at all times. As a result, the Group will continue to account for revenue from energy services on the basis of time periods and not dates. With regard to sales tariffs for providing private suppliers with ener-gy, the previous accounting methods can be retained in terms of basic and energy prices.

b) Telecommunications servicesWith regard to multi-component contracts with subsidised products delivered in advance (e.g. a service contract featur-ing a mobile phone), a large portion of the total remuneration is attributable to the components (mobile phone) delivered in advance, which means that revenue has to be recognised at an earlier date under the new standard. In the statement of financial position, this results in the recognition of a contract asset, i.e. a receivable under the contract with the customer that has not yet become legally established.

EWE expects to capitalise contract assets worth between 8 and 9 million euros for all existing, incomplete contracts with customers that represent multi-component contracts, and recognise contract liabilities of around 2 million euros as part of the transition on 1 January 2018. The cumulative effect is recognised in equity. No significant ongoing effects on earn-ings resulting from changes to the recognition of turnover from multi-component contracts are expected as the business is predominantly stable and on a large scale.

c) ServicesThe Group renders services (such as maintenance). These ser-vices are either sold individually through contracts with cus-tomers or offered to customers as a package (multi-component contracts) alongside the sale of goods, in which regard the re-muneration is currently split between these two components on the basis of relative fair values. Revenue from services is

Income taxes

The calculation of actual and deferred taxes is associated with assumptions. The use of deferred tax assets is dependent on the ability to achieve sufficient taxable income.

EEG recognition

Revenue from feed-in tariffs passed on to companies gener-ating power from renewable energy sources is disclosed as a share of total revenue. This revenue is offset by the payments to these companies disclosed under material expenses. For more information, see Sections 5 and 8.

4. Issued standards whose application is not yet mandatory and which have not been applied prematurely

With regard to the following issued standards whose applica-tion is not yet mandatory, the EWE Group has determined at its reasonable discretion that future application will have a significant effect on the information disclosed as well as on the Group’s net assets, financial position and results of oper-ations. The EWE Group intends to apply these standards as soon as their application becomes mandatory.

IFRS 15 (Revenue from Contracts with Customers) and Clarifications to IFRS 15 (Revenue from Contracts with Customers) (2016)

The new regulations of IFRS 15 were published on 28 May 2014. Further clarifications to IFRS 15 were published by the IASB in April 2016. Unlike the current regulations, the new standard contains a principle-based five-step model for recognising rev-enue from contracts with customers. Essentially, this model should lead to the recognition of the amount corresponding to the consideration an entity will probably receive in exchange for a service or delivery. The standard replaces the current regulations on the recognition of revenue in IAS 18 and IAS 11, as well as the related interpretations. Due to IFRS 15, new line items in contract assets and contract liabilities are introduced in the statement of financial position. These can result from surpluses or obligations on a contractual level. The disclosure regulations have also been expanded. This standard becomes applicable in business years starting on or after 1 January 2018.

Initial applicationThe Group has opted for the modified retrospective method of initial application. Under this method, uncompleted con-tracts as at 1 January 2018 are recognised as if they had been recognised in line with IFRS 15 from the start. The cumulative effect of the transition is recognised in equity. Comparative values from previous periods are not adjusted; instead, the


When marketing CHP electricity off the general supply net-work, the distribution network operator is not playing any particular energy market role as electricity is not physically being fed into the general supply network. Due to the lack of control over the generated electricity, the criteria to be a prin-cipal under IFRS 15 are not met. The recharging of the CHP sur-charge to the transmission network operator must be netted with the expenses from the disbursement of the CHP surcharge. As a result, revenue and material expenses are expected to decrease by 14 to 16 million euros.

g) Costs of obtaining a contractUnder IFRS 15, the additional and directly attributable costs of obtaining a contract with a customer can be recognised as an asset if the entity expects that the costs will be recovered. Consequently, it will be possible to capitalise sales commission under certain circumstances and no longer recognise it as an expense. As part of the transition by 1 January 2018, sales commission that has already been paid for incomplete con-tracts in the field of energy and telecommunications will be capitalised at its residual carrying amount, likely between 20 and 22 million euros, and written down over its remaining term. The cumulative effect is recognised in equity. In the 2018 busi-ness year, sales commission of between 22 and 24 million euros that can be capitalised and written down over the expected customer retention period (2−4 years) will probably be paid.

recognised based on the degree of completion. Under IFRS 15, the remuneration must be divided on the basis of the relative standalone selling prices. The Group has come to the estima-tion that the services will be rendered over a period of time as the customer will receive the benefit of the service of the Group and utilise it at the same time. On this basis, the Group will continue to account for revenue from these service con-tracts (or from service components of contracts comprising goods and services) on the basis of time periods and not dates.

d) Sale of goodsThe Group does not expect the transitioning of contracts with customers in which the sale of goods is generally expected to represent the sole performance obligation to accounting in line with IFRS 15 to have any impact on profit and loss. Reali-sation takes place when the power of disposal over the asset transfers to the customer. As in the past, this is generally the case when the goods are delivered.

e) Variable remunerationSome contracts with customers provide for reductions and quantity discounts. The Group currently recognises revenue from the sale of goods at the fair value of the consideration received or at the fair value of the accounts receivable less refunds, price reductions and quantity discounts. If revenue cannot be measured reliably, it is deferred until the uncer tainty is cleared up. Under IFRS 15, such contractual provisions mean that consideration is variable and must be estimated upon the conclusion of the contract. IFRS 15 requires variable consid-eration to be limited in order to avoid the realisation of exces-sively high revenue.

f) Role of principal and agentIn accordance with the standard, an entity must evaluate the nature of its commitment to a customer in order to determine whether it is acting as a principal or as an agent in the trans-action. The distribution network operators of the EWE Group sometimes act as agents when directly marketing EEG elec-tricity. Under IFRS 15, the market premium can no longer be allocated to revenue. The recharging of the market premium to the transmission network operator must be netted with the expenses from the disbursement of the market premium. As a result, revenue and material expenses are expected to de-crease by around 900 million euros.


The overall effects on the EWE Group are being examined as part of a Group-wide IFRS 16 implementation project. Due to the varying business models at the moment, the quanti-tative effects cannot currently be estimated with any degree of reliability.

With regard to the following issued standards whose applica-tion is not yet mandatory, the EWE Group has determined at its reasonable discretion that future application will have no or only a negligible effect on the information disclosed as well as on the Group’s net assets, financial position and results of operations:

■■ IFRS 17 – Insurance Contracts

■■ IFRIC 22 – Foreign Currency Transactions and Advance Consideration

■■ IFRIC 23 – Uncertainty over Income Tax Treatments

■■ Amendment to IAS 28 – Long-term Interests in Associates and Joint Ventures

■■ Amendments to IAS 40 transfers of Investment Property

■■ Amendments to IFRS 2– Clarifications of classification and measurement of share based payment transactions

■■ Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

■■ Amendments to IFRS 9 – Prepayment Features with Negative Compensation

■■ Improvements to IFRS (2014–2016)

■■ Improvements to IFRS (2015–2017)

IFRS 16 – Leases:

The new mandatory provisions of IFRS 16 were issued on 13 January 2016 and are applicable to all annual reporting years that begin on or after 1 January 2019. The standard stipu-lates that, in the future, lessees must recognise almost all lease agreements. The linear expenses for operating leases under IAS 17 are being replaced by amortisation expenses for licences and interest expenses from debts arising from the lease. Ac-counting remains almost entirely unchanged for the lessor. The Group has started to evaluate the potential effects on the consolidated financial statements of EWE.

Initial applicationThe Group has opted for the modified retrospective method, i.e. the incomplete contracts as at 1 January 2019 will be rec-ognised as if they had been recognised in line with IFRS 16 from the outset. The cumulative effect of the transition is rec-ognised in equity. Comparative values from previous periods are not adjusted; instead, the changes to line items in the state-ment of financial position and statement of profit and loss for the current periods resulting from the initial application of IFRS 16 are explained.

The new standard is expected to have a significant impact on the presentation of the net assets, financial position and results of operations of the EWE Group. In particular, the new regu-lations concern aspects such as vehicle leasing, the renting of land and buildings and the renting of network infrastructure.

Whereas previously, payment obligations for operating leases were to be disclosed in the notes, the resulting rights and pay-ment obligations will now generally have to be recognised as licences and lease liabilities.

The EWE Group expects its total assets to increase upon initial application due to the licences that will have to be capitalised as well as the increase in the similar amount of corresponding lease liabilities. The increase in lease liabilities will lead to an increase in net financial liabilities.

In the future, depreciation, amortisation and write-downs and interest expenses will be recognised in the statement of profit and loss instead of lease expenses. This will increase operat-ing EBIT.


In the previous year, income from the reversal of provisions contained income from pension provisions due to the new company pension regulations adopted by swb.

8. Material expenses

Material expenditures include expenses from EEG compensa-tion guaranteed by law paid to distributed power grid operators for feeding power into the grid, which is offset by compensation received from distribution grid operators (for more information, see Section 5).

9. Personnel expenses

The average number of employees during the year was as follows:

One of the reasons for the increase in the number of employees is the acquisition of the TURBOWIND Group.

T033


Expenditures for raw materials, consumables and supplies 5,199.9 4,831.2

Expenditure on third-party services 1,133.8 930.5

Total 6,333.7 5,761.7

T034


Wages and salaries 566.5 586.0

Social security costs and expenses related to pension plans and for support 145.3 136.5

Total 711.8 722.5

T035

2017 2016

Full-time employees 7,836 7,829

Part-time employees 1,128 1,080

Trainees and temporary staff 170 139

Total 9,134 9,048

Notes to the income statement

5. Revenue

Net revenue contains the payments received from distribution grid operators as compensation for feeding power into the grid as stipulated by the EEG totalling 1,298.1 million euros (pre-vious year: 1,372.7 million euros). Correspondingly, the origi-nal compensation payments for feeding power into the grid pursuant to the EEG are disclosed in material expenditures.

Revenue is presented by product and service as part of segment reporting (Section 43).

6. Other internally produced and capitalised assets

Internally produced and capitalised assets include construc-tion and expansion measures within supply networks and the expansion of wind power parks.

7. Other operating income

The reversals of write-downs are attributable to the Inter-national segment. Of reversals of write-downs due to improved income expectations, 51.0 million euros were attributable to property, plant and equipment in Poland and 9.3 million euros were attributable to intangible assets in Turkey.

T032


Derivative financial instruments 98.9 138.5

Reversals of write-downs 60.3 0.8

Administrative income 38.3 5.5

Reversal of provisions 35.8 122.6

Operating leases 26.2 26.7

Reimbursement claims 9.5 54.2

Foreign currency profits 5.8 6.5

Divestiture of fixed assets 1.1 4.5

Income from combined heat and power load equalisation / surcharges 0.7 3.8

Reversal of valuation allowances (see Section 12) 6.8

Miscellaneous 40.5 65.5

Total 317.1 435.4


11. Other operating expenses

12. Impairment losses / income pursuant to IFRS 9.5.5

As part of the initial application of IFRS 9, provisions of 0.3 mil-lion euros against the risks of financial guarantees were formed in equity on the transition date.

T036


Licence fees (see Section 45) 125.7 124.9


Promotional measures and sponsoring 45.0 40.1

Fees and consulting 40.9 40.0

Administrative expenses 36.9 23.1

Rent and leases 34.1 32.5

Commission 30.1 16.2

Other personnel-related expenses 28.3 24.2

Allocation to other provisions 23.7 29.0

IT expenses 23.4 21.3

Other taxes 12.3 10.8

Insurance contributions 9.2 9.3

Disposal of intangible assets and property, plant and equipment 5.4 8.4

Foreign currency losses 4.6 3.6

Fair value changes to hedged items 1.4 4.4

Donations 0.8 21.6

Write-downs of receivables (see Section 12) 13.6

Allocation to valuation allowances (see Section 12) 5.3


Total 560.8 577.9

T037

in millions of euros 2017

Reversal of valuation allowances 14.6

Income from written-down receivables 2.6

Allocation to valuation allowances −8.4

Write-downs of receivables −24.9

Total −16.1

10. Amortisation, depreciation and impairment

In the reporting year, impairments of 124,9 million euros were recognised (previous year: 170,5 million euros).

Of these impairments, 75.5 million euros (previous year: 144.9 million euros) were attributable to the Renewables, Grids and Gas Storage segment. Of the impairments, 71.1 mil-lion euros were attributable to the RIFFGAT offshore wind farm (previous year: 71.6 million euros) in connection with the end of the high remuneration phase and assumed market price expectations. Additionally, impairments of 73.3 million euros were necessary in the previous year, attributable primarily to property, plant and equipment in connection with gas storage facilities and natural gas fuelling stations. Impairments were also carried out on tangible and intangible assets due to a lack of recoverability in the International segment (16.7 million euros; previous year: 0.0 million euros), in the swb segment (17.1 million euros; previous year: 6.6 million euros), in the Sales, Services and Trading segment (0.7 million euros; previ-ous year: 6.1 million euros) and in the Group Central Division (12.9 million euros) in the previous year.

Additionally, the goodwill of Millenicom (11.9 million euros) and other CGUs (3.0 million euros) were written down in the current business year. No goodwill was impaired in the previ-ous year.

The classification by segment can be found in segment report-ing (see Section 43).


The income from the fair value measurement of equity instru-ments is attributable to an interest in a corporation which was measured at fair value through profit and loss. The expenses from the fair value measurement of debt instruments are attributable to interests in partnerships which were measured at fair value through profit and loss.

The previous year was characterised by the disposal of the shares in VNG.

The fair values and dividends received from the equity instru-ments measured at fair value directly in equity (in other com-prehensive income) are as follows:

T041


Fair valueas at

31.12.2017

Dividends on

existinginterests

Harzwasserwerke GmbH 32.2 1.1

ENRO Ludwigsfelde Energie GmbH 18.1 0.7

Grünspar GmbH 16.8

BTC (Schweiz) AG 13.6

SOCON Sonar Control Kavernenvermessung GmbH 12.2 0.8

Städtische Betriebswerke Luckenwalde GmbH 12.0 0.5

BTC Embedded Systems AG 11.6

Verkehr und Wasser GmbH 11.0 0.1

Stadtwerke Schwedt GmbH 8.2 0.5

TEWE Energieversorgungsgesellschaft mbH Erkner 7.1 0.2

sovanta AG 7.0 0.1

Stadtwerke Strausberg GmbH 6.9 0.4

Digitalprojekt 1 GmbH 6.6

TELTA Citynetz GmbH 5.5


Stadtwerke Ludwigsfelde GmbH 5.2 0.4

FSO Fernwirk-Sicherheitssysteme Oldenburg GmbH 5.0 0.2

Gasversorgung Angermünde GmbH 4.3 0.1

Wärmeversorgungsgesellschaft Königs Wusterhausen mbH 4.1


European Energy Exchange AG 3.2 0.1

BTC Business Technology Consulting Sp. z o.o. 3.0

Energieversorgung Brand GmbH 2.1 0.2

BTC Bilişim Hizmetleri A.Ş. 2.1

GSN Gebäudesicherheit Nord GmbH 2.1

swb Gasumstellung GmbH 1.5

swb Erzeugung Beteiligungs-GmbH 1.5 0.1

Other companies 4.6 0.7

Total 216.0 6.2

13. Profit / loss from financial assets accounted for using the equity method

The current profit / loss from financial assets measured at equity breaks down as follows:

The impairment of financial assets accounted for using the equity method is entirely attributable to htp GmbH, Hanover (previous year: DOTI Deutsche Offshore Testfeld- und Infra-struktur GmbH & Co. KG, Oldenburg).

14. Other income from investments

T038


Profit / loss from financial assets accounted for using the equity method −1.8 3.5

Income from the disposal of financial assets accounted for using the equity method 1.3

Impairments of financial assets accounted for using the equity method −8.0 −4.2

Total −8.5 −0.7

T039


Hansewasser Ver- und Entsorgungs-GmbH 5.0 5.0

htp GmbH 1.2 1.6

Gemeinschaftskraftwerk Bremen GmbH & Co. KG 0.6 −2.5

Weserkraftwerk Bremen GmbH & Co. KG −0.2 −0.4

DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG −0.6 1.0

GWAdriga GmbH & Co. KG −1.3 −0.5

Trianel Windkraftwerk Borkum II GmbH & Co. KG −6.6 −1.1

Other companies measured at equity 0.1 0.4

Total −1.8 3.5

T040


Income from the measurement of equity instruments at fair value 59.2

Income from investments 12.3 15.3

Gains from the sale of investments 240.3

Income from the transfer of profits 0.2

Impairment of financial assets −0.1

Other expenses from investments −0.3

Expenses from the transfer of losses −1.1 −0.5

Expenses from the measurement of debt instruments at fair value −18.0

Total 52.1 255.2


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

Notes to the statement of financial position

17. Intangible assets

T044


Earnings before income taxes 361.3 442.7

Fictitious tax expense: 108.4 132.8

Deviation as a result of the basis for assessment of a local trade tax −0.8 6.6

Permanent deviations −20.9 −67.9

Use of loss carryforwards 4.5 2.6

Non-deductible expenses 9.5 2.6

Tax-free income −2.3 −1.6

Associates accounted for using the equity method 0.4 −1.1

Non-periodic taxes 4.4 38.2

Effect of introduction of IFRS 9 2.1

Other −0.1 −2.4

Effective tax expense 105.2 109.8

Effective tax rate in % 29.1 24.8

T045


Concessions, industrial property rights, licences and similar rights 419.9 442.4

Prepayments 14.6 8.2

Goodwill 311.8 322.2

Intangible assets with indefinite useful lives 95.9 95.9

Total 842.2 868.7

15. Net interest

16. Income taxes

The EWE Group’s weighted average tax rate for 2017 totalled 30.0 per cent (previous year 30.0 per cent).

T042


Interest and similar income 16.2 13.0

from financial assets measured at amortised cost 16.2

Interest and similar expenses −115.6 −168.9

from financial liabilities −115.6

Interest components of allocations to −42.8 −50.6

Pension provisions −30.8 −39.9

Rehabilitation provisions −11.2 −6.2

Other provisions −0.8 −4.5

Expenses from interest rate derivatives −0.3

Total −142.5 −206.5

T043


Tax expense for the current period 117.4 79.1

Tax expense / (income) from previous periods 11.2 40.4

Actual income taxes 128.6 119.5

Temporary differences −22.2 −9.1

Loss carryforwards −1.2 −0.6

Deferred taxes −23.4 −9.7

Total 105.2 109.8


Intangible assets developed as follows:

T046


Concessions, industrial property rights, licences and

similar rights Prepayments Goodwill

Intangible assets with indefinite

useful lives Total

Historical cost

As at: 01.01.2017 920.4 8.2 727.9 95.9 1,752.4

Changes to the basis of consolidation / acquisitions 10.6 7.6 18.2

Additions 29.0 13.9 42.9

Reclassifications 12.7 −7.5 5.2

Currency adjustments −35.7 −35.5 −71.2

Disposals −14.3 −14.3

As at: 31.12.2017 922.7 14.6 700.0 95.9 1,733.2

Cumulative depreciation, amortisation and write-downs

As at: 01.01.2017 478.0 405.7 883.7

Changes to the basis of consolidation / acquisitions −5.5 −1.4 −6.9

Depreciation and amortisation during the reporting period 54.9 54.9

Impairments in the reporting year 18.3 14.9 33.2




As at: 31.12.2017 502.8 388.2 891.0

Carrying amounts

As at: 31.12.2017 419.9 14.6 311.8 95.9 842.2


No limitations to EWE’s property rights to intangible assets exist; furthermore, no intangible assets were used as collateral for liabilities.

Development costs were not capitalised due to not meeting the requirements for capitalisation. These costs were – similar to research costs – recognised as an expense.

Impairment of intangible assets was recognised in profit and loss as depreciation, amortisation and impairment.

T047


Concessions, industrial property rights, licences and

similar rights Prepayments Goodwill

Intangible assets with indefinite

useful lives Total

Historical cost

As at: 01.01.2016 864.6 49.2 744.5 95.9 1,754.2

Changes to the basis of consolidation / acquisitions 11.1 15.1 26.2

Additions 36.3 7.2 43.5

Reclassifications 53.4 −48.2 5.2



As at: 31.12.2016 920.4 8.2 727.9 95.9 1,752.4


As at: 01.01.2016 447.0 432.7 879.7

Changes to the basis of consolidation / acquisitions 3.8 3.8


Impairments in the reporting year 9.5 9.5

Reclassifications −0.1 −0.1



As at: 31.12.2016 478.0 405.7 883.7

Carrying amounts

As at: 31.12.2016 442.4 8.2 322.2 95.9 868.7


The fundamental assumptions which management used as the basis for calculating fair value less disposal costs of CGUs with a carrying amount attributed to them contain a discounted growth rate into perpetuity of between 0.0 and 0.5 per cent, or 3.86 per cent for the Turkish CGU (previous year: 3.27 per cent). In 2017, the impairment test on the aforementioned CGUs re-vealed a need to write down the goodwill by 14.9 million euros (previous year: 0.0 million euros) – with consideration for cur-rency effects – which was attributable to the Millenicom and Other CGUs. The impairment was recognised under amortisa-tion, depreciation and impairment in profit and loss.

Goodwill and intangible assets with an indefinite useful life

With regard to impairment testing, goodwill and trademarks acquired within the scope of mergers are attributed to the fol-lowing CGUs:

The EWE Group conducts its annual impairment testing on 30 September of each year. An impairment test is also carried out when circumstances exist which indicate that the asset may be impaired. The CGU’s recoverable amount is calculated on the basis of fair value less disposal costs. In this context, infor-mation was used that was not based on observable market data and, as such, is classified in level 3 of the fair value hierarchy.

T048

Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2017:

in millions of euros WACC in % Goodwill Trademark Total

CGU

Waste disposal 4.50 57.8 57.8

wesernetze 2.75 159.9 159.9

swb sales 4.48 28.6 95.9 124.5

EWE Enerji 12.46 13.8 13.8

Millenicom 12.90

Telecommunications 4.84 42.8 42.8


Total 311.8 95.9 407.7

T049

Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2016:

in millions of euros WACC in % Goodwill Trademark Total

CGU

Waste disposal 3.51 57.8 57.8

wesernetze 1.96 159.9 159.9

swb sales 3.47 28.6 95.9 124.5

EWE Enerji 10.38 16.9 16.9

Millenicom 10.90 13.2 13.2

Telecommunications 3.65 42.8 42.8

Miscellaneous 2.63 3.0 3.0

Total 322.2 95.9 418.1


Production quantities, electricity and waste prices (disposal)Management’s estimates are based on past experience, exist-ing contracts and an estimation of the otherwise unused ca-pacity / production quantity. A capacity-oriented production quantity and a commercially conservative assumption regard-ing achievable prices in the future (with consideration for po-tentially new competitive incineration capacity) were assumed as the basis for terminal value. Electricity price assumptions are based on a long-term fundamental forecast generated for the Group which factors in assumptions regarding capacity de-velopment in conventional electricity generation and renew-able energy, commodity prices and emission rights costs for the future and derives electricity price scenarios from them. The assessment was then based on a more conservative scenario.

Grid fee trends (wesernetze)Profit and loss related to grids is heavily affected by regulatory influences, particularly the regulation of grid fees (specifica-tion of an upper limit), as well as the awarding of concession agreements. On the basis of management’s experience, EWE will continue to assume that existing concession agreements will be awarded in the future and that an adequate earnings position is guaranteed from regulated grid fees.

Changes in the size of the customer base (swb sales, telecommunications)Changes in the size of the customer base have a major effect on profit and loss in the swb sales and telecommunications CGUs and, as such, a direct effect on the absolute contribu-tion to cover existing fixed costs. In this context, based on historic fluctuation rates, EWE assumes that the size of the customer base in the swb sales and telecommunications CGUs will remain essentially stable.

Sensitivity analysis of the underlying assumptions

The effects of the major underlying assumptions on the re-coverable amount are explained in the following:

Fair value less disposal costs of the CGUs is calculated based on current planning and assumptions. As a general principle, a planning horizon of three years which then continues into perpetuity was used. For projects with a definite term, the length of this term was used accordingly.

Discount rates reflect current market evaluations of the spe-cific risks of each individual CGU as at 30 September of the year in question and are based on the CGU’s weighted average cost of capital (WACC).

The discount rates were derived from capital market data for industry-specific peer groups. They take expectations with re-gard to the risk-free market interest rate and the specific risks of the CGU in question into account. The individual WACC af-ter taxes calculated in this manner was used for each planning horizon. The discount rates used are listed in the table above.

Underlying assumptions for the calculation of fair value less disposal costs

Estimation uncertainty exists with regard to the following key assumptions used in the calculation of fair value:

■■ Discount rates (all CGUs)

■■ Production quantities, electricity and waste prices (disposal)

■■ Grid fee trends (wesernetze)

■■ Changes in the size of the customer base (swb sales, telecommunications)

Discount rates (all CGUs)The discount rates represent current market estimates with regard to the specific risks attributed to each CGU. Calculation of the discount rate takes the specific circumstances of the EWE Group and its CGUs into account and is based on their weighted average cost of capital (WACC). The weighted aver-age costs of capital include both external financing and equity. Equity costs are derived from investors’ expected rate of re-turn. External financing costs are derived from the market price of industry-specific bonds. The risk specific to a CGU is includ-ed through the application of individual beta factors. The beta factors are determined annually on the basis of publicly acces-sible market data.


Discount ratesWith regard to the aforementioned CGUs, a 0.25 per cent in-crease in the underlying WACC would result in additional impairment of around 95 million euros (previous year: 0.0 mil-lion euros).

18. Property, plant and equipment

Property, plant and equipment developed as follows:

T050


Land and buildings 396.2 412.3

Technical equipment and machinery

Power supply systems 1,647.5 1,665.3

Gas supply systems 1,756.8 1,666.9

Other 1,000.8 1,066.0

Other equipment, operating and office equipment 46.9 49.9

Prepayments and assets under construction 80.9 66.2

Total 4,929.1 4,926.6

T051

in millions of euros Land and buildings

Technical equipment and

machinery

Other equipment, operating and

office equipment

Prepayments and assets under

construction Total

Historical cost

As at: 01.01.2017 878.2 12,019.0 223.1 85.3 13,205.6

Changes in basis of consolidation 0.3 46.3 −0.2 2.5 48.9

Additions 6.0 361.1 13.6 64.8 445.5

Reclassifications 3.3 −59.2 0.6 −50.2 −105.5

Currency adjustments −1.7 −32.3 −1.4 −0.7 −36.1

Disposals −14.4 −69.0 −11.8 −15.7 −110.9

As at: 31.12.2017 871.7 12,265.9 223.9 86.0 13,447.5


As at: 01.01.2017 465.9 7,620.8 173.2 19.1 8,279.0

Changes in basis of consolidation −2.2 −7.6 −0.3 −10.1

Depreciation and amortisation during the reporting period 19.3 344.1 15.7 379.1

Impairments in the reporting year 0.3 91.3 0.1 91.7

Reclassifications −63.9 0.8 −63.1

Currency adjustments −9.7 −0.6 0.1 −10.2

Disposals −7.8 −63.2 −11.0 −15.0 −97.0


As at: 31.12.2017 475.5 7,860.8 177.0 5.1 8,518.4

Carrying amounts

As at: 31.12.2017 396.2 4,405.1 46.9 80.9 4,929.1


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

T052

in millions of euros Land and buildings

Technical equipment and

machinery

Other equipment, operating and

office equipmentg

Prepayments and assets under

construction Total

Historical cost

As at: 01.01.2016 875.0 11,867.3 225.1 102.6 13,070.0

Changes in basis of consolidation 8.8 0.5 9.3

Additions 9.5 363.3 15.5 52.1 440.4

Reclassifications 4.0 49.2 1.4 −65.3 −10.7

Currency adjustments −1.1 −34.3 −1.1 −1.1 −37.6

Disposals −9.2 −235.3 −18.3 −3.0 −265.8

As at: 31.12.2016 878.2 12,019.0 223.1 85.3 13,205.6


As at: 01.01.2016 436.8 7,319.6 174.3 19.2 7,949.9


Depreciation and amortisation during the reporting period 20.5 350.2 15.9 386.6

Impairments in the reporting year 16.6 143.8 0.6 161.0

Reclassifications −3.6 −0.5 −4.1

Currency adjustments −12.6 −0.6 −0.1 −13.3

Disposals −3.7 −183.9 −17.4 −205.0


As at: 31.12.2016 465.9 7,620.8 173.2 19.1 8,279.0

Carrying amounts

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


20. Financial assets accounted for using the equity method

Interests in companies accounted for using the equity method developed as follows:

Of the additions in the current year, 36.3 million euros are at-tributable to Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg, 6.5 million euros are attributable to Gemein-schaftskraftwerk Bremen GmbH & Co. KG, Bremen, 1.6 million euros are attributable to GWAdriga GmbH & Co. KG, Berlin, 1.0 million euros are attributable to Limón GmbH, Kassel, 0.6 million euros are attributable to INGAVER Innovative Gasverwertungs-GmbH, Bremen, and 0.5 million euros are attributable to Windpark Köhlen GmbH, Oldenburg.

Of the disposals in the current year, 8.1 million euros are at-tributable to DOTI Deutsche Offshore-Testfeld- und Infra-struktur-GmbH & Co. KG, Oldenburg, 2.3 million euros are attributable to Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen, 0.5 million euros are attributable to Trianel Wind-kraftwerk Borkum II GmbH & Co. KG, Oldenburg, and 0.3 mil-lion euros are attributable to swb Weserwind GmbH & Co. KG, Bremen.

Of the impairments in the current year, 8.0 million euros are attributable to htp GmbH, Hanover.

As at 31 December 2017, the interests in associates held by the Group had a goodwill totalling 10.8 million euros (previous year: 18.1 million euros). This goodwill is contained within the Sales, Services and Trading segment.

Consolidated financial information about companies account-ed for using the equity method (all of which are not listed on the stock exchange) is presented in the following table. In this context, the figures presented do not represent the share attri-butable to EWE AG, but the full amount.

T055


Opening balance as at 01.01. 123.0 126.0

Group share of profit / loss −1.8 3.5

Dividends collected −7.4 −5.4

Addition 46.5 9.8

Disposal −11.2 −6.0

Changes recognised outside of profit and loss 3.9 −0.7


Closing balance on 31.12. 145.0 123.0

19. Investment property

The changes to investment property were as follows:

Composition of profit / loss in the period from financial invest-ments:

The Group is not limited in any way with regard to its ability to sell investment property, and the Group has not entered into any contractual obligations to sell, construct or develop investment property. Furthermore, the Group has no contrac-tual obligations with regard to the repair, maintenance or improvement of investment property.

Property classified as investment property had a fair value of 12,0 million euros at the end of the reporting period (previous year: 7,9 million euros).

T053


Historical cost

As at: 01.01 15.1 13.4

Additions 1.7

Reclassifications 5.0


As at: 31.12. 15.0 15.1


As at: 01.01 9.7 7.7




Reversals of write-downs −0.1

As at: 31.12. 8.7 9.7

Carrying amounts

As at: 31.12. 6.3 5.4

T054


Rental income from investment property 0.8 0.6

Operating expenses (including repairs and maintenance) with which rental income was generated 1.2 0.3

Profit / loss from financial instruments −0.4 0.3


Associates

T056

Statement of financial position


DOTI Deutsche Offshore-Testfeld- und Infrastruktur-

GmbH & Co. KG htp GmbH

Trianel Windkraft-werk Borkum II

GmbH & Co. KGOther associated

companies

As at 31.12.2017

Non-current assets 155.0 100.0 299.0 69.0

Current assets 17.9 8.8 16.5 9.2

of which cash and cash equivalents 9.3 1.4 10.2 6.4

Non-current liabilities 31.6 21.0 224.6 26.7

Current liabilities 8.9 12.2 11.5 37.0

Total assets 172.9 108.8 315.5 78.2

Equity 132.4 75.6 79.4 14.5

Equity method 45.9 28.8 36.5

As at 31.12.2016


Current assets 19.4 8.5 8.1 12.6

of which cash and cash equivalents 11.9 0.7 8.0 6.4

Non-current liabilities 27.0 18.0 27.5


Total assets 192.4 107.6 22.1 81.8

Equity 157.3 75.9 5.8 12.7


T057

Comprehensive income statement


DOTI Deutsche Offshore-Testfeld- und Infrastruktur-

GmbH & Co. KG htp GmbH

Trianel Windkraft-werk Borkum II

GmbH & Co. KGOther associated

companies

As at 31.12.2017

Revenue 33.9 68.6 14.7

Depreciation, amortisation and write-downs −25.6 −9.5 −1.7 −3.4

Interest expenses −0.3 −0.6 −10.6 −1.4

Tax result 0.7 −1.7

Profit / loss −1.3 2.3 −17.5 14.7

As at 31.12.2016

Revenue 33.4 65.3 65.2

Depreciation, amortisation and write-downs −12.8 −9.2 −3.1

Interest expenses −0.7 −0.5 −1.4

Tax result −0.9 −2.0

Profit / loss 5.2 2.9 −2.8 −0.6


Joint ventures

T058

Statement of financial position


Gemeinschafts- kraftwerk Bremen

GmbH & Co. KG

Hansewasser Ver- und

Entsorgungs- GmbH

INGAVER Innovative

Gasverwertungs- GmbH

As at 31.12.2017

Non-current assets 406.8 60.8 0.1

Current assets 68.0 19.8 4.4

of which cash and cash equivalents 45.4 0.1 3.3

Non-current liabilities 414.6 0.4

Current liabilities 31.2 55.0 3.5

Total assets 474.8 80.6 4.5

Equity 29.0 25.2 1.0


As at 31.12.2016

Non-current assets 422.5 61.6

Current assets 30.9 22.7

of which cash and cash equivalents 21.4 0.1

Non-current liabilities 401.1 4.3

Current liabilities 40.2 56.5

Total assets 453.4 84.3

Equity 12.1 23.5

Equity method 6.2 12.0

T059

Comprehensive income statement


Gemeinschafts- kraftwerk Bremen

GmbH & Co. KG

Hansewasser Ver- und

Entsorgungs- GmbH

INGAVER Innovative

Gasverwertungs- GmbH

As at 31.12.2017

Revenue 132.2 2.0



Tax result −1.5 −5.6 0.1

Profit / loss 1.0 9.7 −0.1

As at 31.12.2016

Revenue 12.8 1.9


Interest income 0.1


Tax result −6.2

Profit / loss −4.7 0.3


22. Inventories

Inventories contain impairment losses of 3,9 million euros (previous year: 1,6 million euros). Reversals of write-downs of 0,4 million euros were recognised (previous year: 7,5 million euros). No limitations on the right of disposal or other encum-brances exist.

T062


Gas inventories 108.9 133.7

Raw materials, consumables and supplies 50.0 45.2

Work in progress, unfinished goods 14.2 7.7

Finished goods and merchandise 7.2 5.4


Pollutant emission rights 0.9 0.2

Total 203.2 204.3

21. Other non-current financial assets

With the exception of shares and derivatives measured at fair value, they are financial instruments measured at amortised cost.

The other non-current financial assets measured at amortised cost developed as follows:

T060


Shares 384.5 306.1

Loans 143.1 108.8



Total 605.1 526.7

T061


Level 112-month ECL

(expectedcredit loss)

Level 2Full-term ECL(not impaired Total

Gross carrying amount

Balance brought forward under IAS 39 116.3 116.3

Balance brought forward under IFRS 9 116.3 116.3

Changes in basis of consolidation −4.9 −4.9

Addition 46.6 5.4 52.0

Disposal −12.1 −12.1

Reclassification −0.1 −0.1

Currency adjustments −0.3 0.0 −0.3

Closing balance: 31.12.2017 145.5 5.4 150.9

Valuation allowance

Balance brought forward under IAS 39

Value adjustments under IFRS 9 0.0 −0.2 −0.2

Balance brought forward under IFRS 9 −0.2 −0.2

Allocation / reversal (net) −0.1 −0.7 −0.8

Reclassification −0.1 −0.1

Currency adjustments 0.0 0.1 0.1

Closing balance: 31.12.2017 −0.2 −0.8 −1.0

Net carrying amount

As at: 31.12.2017 145.3 4.6 149.9


Changes to valuation allowances for trade receivables were as follows in the previous year:

T065


Total valuation allowances as at 01.01. 35.3

Exchange rate differences −0.9

Changes to the basis of consolidation / merger 3.6

Allocations 5.1

Use 0.2

Reversals −6.8

Total valuation allowances as at 31.12. 36.5

23. Trade receivables

Trade receivables are payable within one year:

Changes to valuation allowances for trade receivables and carrying amounts were as follows:

In the previous year, the trade receivables were payable within one year:

T063


Level 2Full-term ECL

(not impaired)


(impaired) Total


Balance brought forward under IAS 39 801.3 801.3

Reclassification pursuant to IFRS 9 39.7 9.1 48.8

Balance brought forward under IFRS 9 841.0 9.1 850.1

Changes in basis of consolidation 0.3 0.3

Addition / disposal (net) 255.3 0.6 255.9

Derecognition / write-offs −19.1 −5.6 −24.7

Transfer to level 3 −5.9 5.9

Currency adjustments −20.8 −20.8

Closing balance: 31.12.2017 1,050.8 10.0 1,060.8

Valuation allowance

Balance brought forward under IAS 39 −28.3 −8.2 −36.5

Value adjustments under IFRS 9 7.1 7.1

Balance brought forward under IFRS 9 −21.2 −8.2 −29.4

Allocation / reversal (net) 10.6 −0.8 9.8

Currency adjustments 1.4 1.4

Closing balance: 31.12.2017 −9.2 −9.0 −18.2

Net carrying amount

Closing balance: 31.12.2017 1,041.6 1.0 1,042.6

T064

in millions of euros 31.12.2016

Carrying amount 764.8

Neither overdue nor impaired 452.3

Overdue and not individually value-adjusted 312.5

Less than 30 days 228.1

Between 30 and 90 days 13.9



More than 360 days 14.2


Other financial receivables and assets are payable within one year. In the previous year, other financial assets contained 65,2 million euros in receivables from companies with which an investment relationship exists.

With the exception of derivatives and securities measured at fair value, they are financial instruments measured at amor-tised cost.

The other financial receivables and assets measured at amor-tised cost developed as follows:

T067


Level 112-month ECL



(not impaired) Total


Balance brought forward under IAS 39 119.5 4.7 124.2

Reclassification pursuant to IFRS 9 −48.8 −48.8

Value adjustments under IFRS 9


Changes in basis of consolidation 2.1 2.1

Net change −3.9 −1.1 −5.0

Reclassification 3.0 1.0 4.0


Closing balance on 31.12 71.8 4.6 76.4


Reclassification pursuant to IFRS 9 −0.1 −0.1


Closing balance on 31.12 −0.1 −0.1

Net carrying amount

Closing balance on 31.12 71.7 4.6 76.3

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

24. Other current financial receivables and assets

T066



Securities 152.7 103.4

Security deposits provided (energy trading) 27.0 5.0

Loans 22.9 21.3

Receivables from contract manufacturing 4.6 4.7

Other financial assets 21.8 93.2

Total 496.7 470.3


25. Other current non-financial receivables and assets

Other non-financial receivables and assets are payable within one year.

26. Liquid assets

The liquid assets amounted to 608,3 million euros as at 31 De-cember 2017. The earmarked funds of around 200 million eu-ros in the previous year were all used to settle liabilities. No amortisation fund had been created as at 31 December 2017.

See Section 44 for more information on the composition of cash and cash equivalents in the statement of cash flows.

Liquid assets developed as follows:

T069


Value-added tax 12.9 33.3



Other non-financial assets 20.8 33.7

Total 82.6 113.8

T070


Level 112-month ECL



(not impaired) Total


Balance brought forward under IAS 39 351.0 0.3 351.3



Addition / disposal (net) 258.9 0.9 259.8


Closing balance: 31.12.2017 607.2 1.7 608.9

Valuation allowance


Value adjustments under IFRS 9 −0.2 −0.2


Allocation / reversal (net) −0.3 −0.1 −0.4

Closing balance: 31.12.2017 −0.5 −0.1 −0.6

Net carrying amount

Closing balance: 31.12.2017 606.7 1.6 608.3

In the previous year, other financial receivables and assets were payable within one year:

T068

in millions of euros 31.12.2016

Carrying amount 470.3

Neither overdue nor impaired 458.8

Overdue and not individually value-adjusted 11.5

Less than 30 days 3.2


Between 91 and 180 days


More than 360 days 1.4


Essentially, the capital reserve comprises freely available pro-visions in the sense of Section 272 (2) no. 4 HGB.

Net income of EWE AG

The Board of Management suggests to the general meeting of shareholders that from the net income of EWE AG, a dividend of 88,000,856.00 euros be paid out to the company’s share-holders. This corresponds to a distribution of 402.40 euros per qualifying share.

The minority shares show the shares held by third parties in Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey, Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey, and EWE NETZ GmbH, Oldenburg.

28. Construction subsidies

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

29. Provisions

T071

31.12.2017 31.12.2016

in millions of eurosNon-

current CurrentNon-

current Current

Construction subsidies 657.6 50.5 675.9 50.6

T072

31.12.2017 31.12.2016


current Current TotalNon-

current Current Total

Provisions for pensions and similar obligations 1,793.6 1,793.6 1,812.0 1,812.0

Personnel-related obligations 78.8 12.3 91.1 86.7 40.5 127.2

Rehabilitation obligations 418.0 418.0 296.4 296.4

Other provisions 41.0 120.6 161.6 41.6 118.9 160.5

Total 2,331.4 132.9 2,464.3 2,236.7 159.4 2,396.1

27. Equity

The subscribed capital of EWE AG totalling 242,988,000 euros (previous year: 242,988,000 euros) is divided into 242,988 registered shares (previous year: 242,988), each with a value of 1,000 euros. In 2016, the company acquired 10.0 per cent of its own shares. EWE AG therefore holds 24,298 treasury shares. The subscribed capital attributable to treasury shares is 24.3 million euros.

Weser-Ems-Energiebeteiligungen GmbH (WEE), Oldenburg, holds 64.0 per cent of the shares of EWE AG and Energiever-band Elbe-Weser Beteiligungsholding GmbH (EEW), Olden-burg, holds 20.0 per cent of the share capital of EWE AG. Ems-Weser-Elbe Versorgungs- und Entsorgungsverband Beteiligungsgesellschaft mbH (EWE-Verband GmbH), Olden-burg, is the owner of WEE. Ems-Weser-Elbe Versorgungs- und Entsorgungsverband (EWE-Verband), Oldenburg, is the 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. EnBW Energie Baden-Württemberg AG, Karlsruhe (EnBW) is expected to hold another 6.0 per cent of the share capital of EWE AG by 2019.


long as plan assets exceed the present value of the guaranteed minimum benefit, there is no disclosure in profit and loss and expenses regularly correspond to the contributions made, which in essence corresponds to the accounting treatment of a defined contribution plan. At the same time, this ensures that the minimum obligation under labour law is always cov-ered by plan assets, which is enough to satisfy the defined benefit element of the plan’s structure.

As a result, this model essentially transfers the funding risk for the retirement benefits to the entitled employees while still taking the guaranteed benefit in the amount of the con-tributions during the vesting period into account. In return, the employees have the opportunity to earn appropriate re-turns on the capital invested.

Current contribution payments in the form of annual service costs are recognised as personnel expenses for the period in question and disclosed in the EBIT. The net interest expense is disclosed in net interest income / expense.

The line items for the defined benefit and defined contribution pension obligations are as follows:

The following values have been recognised in profit and loss:

The past service cost recognised in the previous year is almost entirely due to the new company pension regulations adopted by swb which provide for a transition to a contribution-based system with capital cover.

T073


Present value of financial obligations funded via EWE / swb-Treuhandverein 63.7 44.5

Fair value of plan assets (EWE / swb-Treuhandverein) −61.5 −43.1

Present value of financial obligations not funded via EWE / swb-Treuhandverein 1,793.9 1,813.0

Fair value of plan assets −2.5 −2.4

Carrying amount 1,793.6 1,812.0

T074


Current service cost 38.2 34.9

Net interest expense 30.8 39.9

Past service cost −0.8 −92.1

Total 68.2 −17.3

Provisions for pensions and similar obligations

EWE AG primarily grants pension benefits through age-based schemes and deferred compensation plans. In addition to these plans, in which the majority of EWE employees are enrolled, individual contractual benefit commitments exist. The retire-ment benefits paid out by the EWE Group to its employees correspond to the definition of defined benefit plans for post- employment benefits as set forth in IAS 19.

The obligations encompass both pension benefits currently be-ing paid out as well as entitlements to future benefit payments.

The characteristic feature of obligations under defined benefit plans is that the EWE Group has to fulfil them in the amount granted and therefore bears both the funding risk and the bio-metric risks (i.e. longevity risk).

Plans with previously granted pension entitlements were rolled over to EWE-wide regulations in 2001. In these plans, the pen-sion commitments largely depend on the length of service and the employee’s average compensation over the twelve months of employment prior to termination or retirement. The EWE Group is not obliged to form plan assets for plans with pension entitlements.

In the case of the unit-linked direct benefits model introduced in 2009, the Group companies participating in this model transfer an annual benefit contribution to the EWE-Treuhand-verein e. V. (trust association) association for each entitled employee. The same applies to swb Treuhandverein e. V. which was introduced in 2016. swb Treuhandverein e. V. and EWE-Treuhandverein e. V. have trust by-laws that govern, in particular, the purpose of the association, membership and the bodies of the association and their responsibilities, and are managed by the Board of Management that has been ap-pointed in accordance with the by-laws. The benefit contribu-tions which accumulate over the vesting period plus the re-turns earned on them are annuitised upon the occurrence of an event which results in eligibility to receive benefits or, in the case of swb, paid out as capital by default. In this context, the participating Group company guarantees the value of the nominal contributions. The defined benefit obligation (DBO) of the direct commitment is recognised as the difference be-tween the present value of the guaranteed obligation and plan assets. Similarly, current service cost results from the maxi-mum of the current service cost of guaranteed obligations and contributions to the plan. Finally, if plan assets exceed the present value of guaranteed obligations, the interest income from plan assets is considered equal to the interest expense, yet opposite in sign. This results in the appropriate recognition of the actual extent of the obligation and the expenses. As


The following table shows the change in the present value of the obligation:

All actuarial gains and losses of −0,6 million euros (previous year: 183,5 million euros) have been recognised in other com-prehensive income.

Pension obligations were calculated using the 2005 G Klaus Heubeck actuarial tables and based on the following main actuarial assumptions:

In contrast to the aforementioned assumptions, the pension obligations calculated as at the end of the reporting period for the swb segment are based on an annual rate of pension pro-gression of 0.75 per cent (previous year: 0.75 per cent), a sal-ary trend of 2.0 per cent p.a. (previous year: 2.0 per cent p.a.) and an average labour turnover rate of 1.25 per cent p.a. (pre-vious year: 1.25 per cent p.a.). In EWE segments, obligations with historically higher adjustment rates have been measured using the adjustment rates observed in the past and expected to continue over the long term, including a rate of pension progression of 4.0 per cent p.a., similar to the previous year.

T077


Carrying amount at beginning of period 1,812.0 1,736.1

(Income) / expense recognised in profit and loss 68.2 −17.4

Pension payments from company assets and contributions to EWE / swb-Treuhandverein −86.0 −90.2

Actuarial (gains) / losses −0.6 183.5

Other

Carrying amount at end of period 1,793.6 1,812.0

T078

Calculation assumptions / parametersin per cent 31.12.2017 31.12.2016

Discount rate 1.75 1.75

Interest rate for plan assets 1.75 1.75

Future salary increases 2.50 2.50

Future pension increases 1.75 1.75

Labour turnover rate 1.00 0.00

The following table shows the change in the present value of the obligations:

The following table shows the performance of plan assets:

Since 2010, the trust assets of EWE have been invested in Fi-delity target-date funds with target dates between 2015 and 2040, with the capital invested on the basis of the expected retirement dates of the entitled employees. There is a listed price in an active market as defined in FIRS 13 for all target funds in which the trust assets are invested. The trust assets of EWE consist of the following: shares, 72 per cent (previous year: 73 per cent); fixed-income securities, 23 per cent (pre-vious year: 17 per cent); cash and cash equivalents, 5 per cent (previous year: 9 per cent) and other investments, 0 per cent (previous year: 1 per cent). swb Treuhandverein e. V. has exist-ed since December 2016. As at 31 December 2017, 50 per cent of its trust assets were shares and 50 per cent were fixed- income securities. As at 31 December 2016, the trust assets of 14.1 million euros were in a bank account belonging to swb Treuhandverein e. V.

T075


Present value at beginning of period 1,857.5 1,761.4

Current service cost 38.2 34.9

Interest expense 31.9 40.4

Plan participants' contributions 1.4

Actuarial (gains) / losses not recognised in profit and loss 0.6 184.3

Of which changes in demographic assumptions −1.9 −5.5

Of which changes in financial assumptions 190.5

Past service cost −0.8 −92.1

Pension payments from company assets −71.8 −71.4

Present value at end of period 1,857.0 1,857.5

T076


Present value at beginning of period 45.4 25.2

Interest income 0.8 0.6

Income from plan assets not included in net interest 1.2 0.9

Employer contributions 15.0 17.4

Deferred compensation 1.4 1.3

Other

Present value at end of period 63.8 45.4


The sensitivity analyses shown each take only changes to one assumption into account, with the remaining assumptions re-maining unchanged with respect to the initial calculation.

The average duration of the defined benefit pension obligation weighted on the basis of the present value of obligation (Macaulay duration) is 17.3 years (previous year: 17.6 years).

Defined contribution pension plans in the EWE Group relate to statutory pension insurance. In 2017, the expense related to employer contributions totalled 59.4 million euros (previ-ous year: 62.6 million euros).

T080

Statement of provisions

in millions of eurosAs at

31.12.2016

Effectsof initial

applicationof IFRS 9 Additions

Changesrecognised

in equity ReversalsOther

changesInterest

effect UtilisationAs at

31.12.2017

Provisions for pensions and similar obligations 1,812.0 24.2 −0.6 −1.4 30.8 −70.0 1,793.6

Miscellaneous provisions

Personnel-related obligations 127.2 15.5 −9.8 −0.6 0.5 −41.7 91.1

Rehabilitation obligations 296.4 7.0 100.5 −0.2 3.2 11.2 −0.1 418.0

Other provisions 160.5 0.3 46.5 −24.4 −3.0 0.3 −18.6 161.6

Total 2,396.1 0.3 93.2 99.9 −35.8 −1.8 42.8 −130.4 2,464.3

Pension payments for 2018 are expected to total 70.9 million euros. Contributions to plan assets are expected to total 16.6 million euros.

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

T079

Effect on the present value of obligations not financed via EWE-Treuhandverein


Change in the assumption

regarding the discount rate

Increase by 1.0% −257.9 −265.6

Decrease by 1.0% 336.1 347.4

regarding future salary increases

Increase by 0.5% 22.9 25.0

Decrease by 0.5% −21.3 −23.5

regarding inflation

Increase by 0.5% 61.5 60.5

Decrease by 0.5% −55.8 −55.0

regarding life expectancy

Reduction in mortality rate by 10.0% 67.4 67.9


particularities of some of the underground gas storage facili-ties required additional allocations. Provisions for underground gas storage facilities and wind farms are disclosed under non-current liabilities, as no rehabilitation or deconstruction work is expected in the near future. Provisions for rehabilita-tion are recognised at the amount needed to settle the obli-gation, discounted to the end of the reporting period. In line of the term, an interest rate from an interest curve was allo-cated to the individual obligation in reporting year. The inter-est curve in the reporting year describes a corridor of −0.72 to 1.36 per cent p.a. In the previous year, a standardised interest rate of 2.50 per cent p.a. was recognised.

The remaining other provisions are primarily related to con-tingent obligations arising from pending transactions, risks of litigation, invoicing and storage obligations as well as obliga-tions for environmental restoration measures.

30. Bonds

An overview of all outstanding bonds is presented in the fol-lowing table:

T081

in millions of euros Interest rate Maturity date

Carrying amount as at

31.12.2017Nominal

volumeCarrying amount

as at 31.12.2016Nominal

volume

Bearer bondThree-month

Euribor +0.25% January 2017 50.0 50.0

Bearer bondThree-month

Euribor 0.28% March 2017 50.0 50.0

Bearer bond 0.625% December 2017 49.9 50.0

Eurobond (15 years) 4.875% October 2019 372.3 372.4 372.2 372.4

Eurobond (9 years) 4.125% November 2020 357.0 365.3 354.3 365.3

Eurobond (12 years) 5.250% July 2021 461.6 463.9 461.0 463.9

Bearer bond (12 years) 1.962% November 2029 50.0 50.0

Bearer bond (15 years) 2.200% May 2032 49.8 50.0

Bearer bond (20 years) 4.000% September 2032 49.9 50.0 49.9 50.0

Accrued interest 19.1 18.3

Total 1,359.7 1,351.6 1,405.6 1,401.6

Personnel-related provisions encompass, among other items, obligations stemming from partial retirement plans and ser-vice anniversaries as well as provisions for staff reduction with-in the scope of the ‘Human Resources 2017’ programme. The restructuring provision for the reorganisation of the employee tariff was utilised in the reporting year.

Provisions for rehabilitation are primarily formed to cover the cost of rehabilitation and deconstruction of underground gas storage facilities and wind farms in the event of abandonment, as well as the costs of power plant deconstruction and land rehabilitation, including the disposal of existing waste due to ground contamination from the past operation of a natural gas plant. The provisions for underground gas storage facili-ties are formed as a result of a legal obligation. The amount of provisions to recognise for underground gas storage facili-ties is based on external expert reports. The geological


31. Liabilities to financial institutions

The fixed-interest current and non-current liabilities to finan-cial institutions totalling 462,4 million euros (previous year: 207,1 million euros) generally carry an average interest rate of 2.15 per cent p.a. (previous year: 4.07 per cent p.a.). The aver-age remaining fixed-interest period is 7.27 to 9 years (previous year: 1.59 to 2.83 years).

The variable-interest current liabilities to financial institutions totalling 1,1 million euros (previous year: 0.0 million euros) in the previous year generally carried an average interest rate of 0.19 per cent p.a. The average remaining fixed-interest period was 1 day.

32. Trade payables

Trade payables are payable within one year.

33. Other financial liabilities

The security deposits primarily comprise payments that Bur-sagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey, and Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey, receive from all new customers upon the conclusion of a contract and which are

T082

31.12.2017 31.12.2016


current CurrentNon-

current Current

Liabilities to financial institutions 345.4 118.1 130.7 76.4

T083

31.12.2017 31.12.2016

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

Derivative financial instruments 46.9 181.8 54.5 166.9

Liabilities from contributions by silent partners 225.0 225.0

Security deposits 142.4 127.4

Personnel-related liabilities 0.7 50.8 3.1 58.3

Outstanding invoices and credit notes 35.7 49.8

Liabilities from guaranteed dividends 24.8 2.8 26.6 2.8

Liabilities to companies with which an investment relationship exists 14.1 39.0

Grant agreements with EWE Research Institute 2.0 2.0 2.0

Research and development 0.4 0.6 0.8 0.7

Other financial liabilities 3.5 54.9 5.0 53.8

Total 301.3 485.1 317.0 500.7

repayable upon termination of the contract. These liabilities are classified as current as customers have the ability to ter-minate their contract at any time. These security deposits can-not be realised otherwise.


34. Other non-financial liabilities

35. Deferred taxes

The deferred tax assets and liabilities are spread over the fol-lowing line items:

T084

31.12.2017 31.12.2016

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

Tax liabilities 87.1 83.9

Advance payments for orders 39.0 22.1

Other non-financial liabilities 10.5 12.3 9.6 10.8

Total 10.5 138.4 9.6 116.8

T085

31.12.2017 31.12.2016

in millions of euros Asset Liability Asset Liability

Intangible assets 2.5 125.4 2.4 128.5

Property, plant and equipment 34.2 534.4 26.1 517.9

Other assets 11.8 37.2 3.7 66.1


Inventories 0.6 8.6 1.4 4.5

Receivables 5.3 2.2 2.6 1.8

Other assets 6.0 149.7 9.5 145.7

Current assets 11.9 160.5 13.5 152.0

Building subsidies 187.5 189.1


Pension provisions 254.5 262.5

Other provisions 133.6 0.5 102.7 2.0

Liabilities 19.5 3.5 51.9 4.0

Non-current liabilities 595.1 4.4 606.2 6.7

Building subsidies 11.1 5.6 10.2 6.4


Other provisions 9.7 5.4 14.1 7.9

Liabilities 144.2 7.1 129.2 5.0


Deferred taxes for the balance sheet heading 828.9 880.0 814.5 890.5

Loss carryforwards 1.2 0.6

Deferred taxes before offsetting 830.1 880.0 815.1 890.5

Offsetting −787.4 −787.4 −782.7 −782.7

Deferred taxes after offsetting 42.7 92.6 32.4 107.8


Guarantees

As at the reporting date, there were guarantees of 134,7 million euros (previous year: 148.1 million euros) of which 56,7 million euros (previous year: 56,7 million euros) were issued to credi-tors of an associated company.

Obligations to purchase intangible assets and property, plant and equipment

Contractual obligations of 3,7 million euros have been recog-nised in connection with the acquisition of intangible assets (previous year: 9,8 million euros). Contractual obligations of 98,4 million euros have been recognised in connection with the acquisition of property, plant and equipment (previous year: 53,7 million euros). These primarily concern purchase commitments in connection with the construction of wind farms and other technical plants, as well as the expansion of supply networks.

Other contingent liabilities and obligations

As part of an interest in a power plant company, EWE is obliged to contribute financing for the construction of a new power plant proportionate to the size of the interest. The amount of the contribution is calculated on the basis of the agreed invest-ment plan and totals 0.0 million euros less payments rendered (previous year: 2.5 million euros). EWE also has a contingent obligation to provide additional contributions of no more than 5.0 per cent of its share of equity amounting to 2.2 million euros 2.2 million euros). Of the contingent obligation, 50.0 per cent was already paid in in 2016. Therefore, EWE currently still has a contingent obligation in the amount of 1.1 million euros (previous year: 1.1 million euros). At the moment, a call for the remaining half is not foreseeable.

The company also has standard long-term supply contracts for gas and electricity.

The amount of taxable loss carryforwards for which no de-ferred tax assets have been recognised was 21.5 million euros as at the end of the reporting year (previous year: 10.0 million euros). The taxable loss carryforwards can be used without restriction. No deferred tax assets were formed for the afore-mentioned taxable loss carryforwards as the company does not expect to realise the tax assets in the foreseeable future.

Deferred taxes have been capitalised on loss carryforwards of 6.6 million euros as their realisation is considered sufficiently likely.

As in the previous year, the amount of temporary differences for which no deferred tax assets were recognised in the state-ment of financial position was 0.0 million euros.

The amount of temporary differences in connection with shares in subsidiaries and associated companies for which no deferred tax liabilities were recognised in the reporting year pursuant to IAS 12.39 was 238.2 million euros (previous year: 298.5 million euros).

36. Contingent receivables / contingent liabilities and other obligations

Contingent receivables

As at 31 December 2017, there were contingent receivables of 12,6 million euros (previous year: 11,3 million euros) resulting from guarantees received.

T086


Tax receivable 13.1 37.8

Tax liabilities −72.1 −94.0

Actual income taxes −59.0 −56.2

Deferred tax assets 42.7 32.4

Deferred tax liabilities −92.6 −107.8

Deferred taxes −49.9 −75.4

Total −108.9 −131.6


37. Transition effects

The following table transitions the carrying amounts of the IAS 39 line items to the recognition method applied by IFRS 9 and presents the measurement categories.

T087

IAS 39measure-

mentcategory

Fair valueas at

31.12.2017

Carrying amount

as at 31.12.2017 Adjustment

Change inrecognition Reclassification

in millions of eurosAmortised

cost FVPL

Equity in-struments measured at FVOCI N / A

Assets

Other non-current assets

Loans and receivables LaR 116.4 116.2 −0.2 116.0

Shares AfS 306.1 306.1 115.8 190.3

Financial assets measured at fair value

Derivatives without a hedging relationship FAHfT 28.1 28.1 28.1

Derivatives with a hedging relationship N / A 76.2 76.2 76.2

Trade receivables LaR 764.8 764.8 7.1 48.8 820.7

Other receivables and assets

Securities AfS 99.8 99.8 99.8

Securities FAHfT 3.7 3.7 3.7

Other financial assets LaR 124.2 124.2 −48.8 75.0 0.4

Liquid assets LaR 351.3 351.3 −0.2 351.1




Liabilities

Bonds FLAC 1,643.4 1,405.6 1,405.6

Liabilities to financial institutions FLAC 210.9 207.1 207.1

Trade payables FLAC 598.1 598.1 22.2 620.3

Other liabilities FLAC 599.7 596.3 −22.2 574.1

Financial liabilities measured at fair value

Derivatives without a hedging relationship FLHfT 87.8 87.8 87.8 133.7

Derivatives with a hedging relationship N / A 133.6 133.6

LaR: Loans and Receivables (IAS 39) FLHfT: Financial Liabilities Held for Trading (IAS 39)AfS: Available for sale (IAS 39) FVPL: Fair Value through Profit and Loss (IFRS 9)FAHfT: Financial Assets Held for Trading (IAS 39) FVOCI: Fair Value through Other Comprehensive Income (IFRS 9)FLAC: Financial Liabilities Amortised Cost (IAS 39)


39. Capital management

The Group’s objectives with respect to capital management include securing the company’s continued existence as a going concern, optimising its capital structure and maintaining fi-nancial flexibility.

Long-term capital management at the EWE Group is based on an analysis of the optimal capital structure considering both equity and borrowings. Activities to optimise the capital struc-ture focus on minimising the total cost of capital and imply a target rating in the A range for the EWE Group.

Equity consists of equity attributable to the parent company’s shareholders and minority interests.

Equity and total assets stood at:

40. Derivative financial instruments and hedge accounting

a) Strategy and targets

he EWE AG Board of Management defines the risk manage-ment policy for the EWE Group; the implementation of this policy is the responsibility of the departments across the Group. Financial risks are identified, evaluated and hedged against. 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 extent and value of risk exposure.

Derivative financial instruments are only entered into with contractual partners with a high degree of creditworthiness or on the stock exchange. To hedge against price risks, the EWE Group essentially utilises power futures, gas futures, coal and gas swaps, EUA and CER futures contracts and forward exchange contracts. In the statement of financial position, they are recognised as other financial assets or other financial liabilities.

Some hedging relationships have been recognised – especially in order to minimise anomalies between expected underlying transactions that are not normally recognised and hedging derivatives that are to be recognised at fair value. Derivatives

T089


Total equity 2,084.7 1,941.9

Equity ratio in % 22.9 23.0

Total assets 9,097.1 8,435.2

Changes in value only occurred in the transition from the ap-plication of the impairment model involving expected defaults. In particular, the generally negligible changes in value concern trade receivables recognised in current financial receivables and assets in line with the simplified impairment model. Fur-thermore, impairments on financial guarantees have been rec-ognised in reserves (see Section 29). Changes to deferred tax-es on these changes in value have not been presented. After factoring in all changes in value following the initial applica-tion of IFRS 9, the net effect (after deferred taxes) was 4.7 mil-lion euros.

Following the transition to IFRS 9, receivables from and liabil-ities to associated companies are now classified based on the underlying service relationship.

For more information, please see the accounting methods in Section 2.

38. Leases

Obligations from operating leases

Financial obligations from operating leases are primarily asso-ciated with real estate, vehicles, an underground gas storage facility and other property, plant and equipment. The leases have different terms and conditions. The lease payments for office buildings are adjusted regularly in line with price indices.

The following table shows future accumulated minimum lease payments from non-terminable operating leases:

Minimum lease payments from leases recognised in profit and loss in the 2017 reporting period totalled 27.4 million euros (previous year: 26.7 million euros). The performance-based rent payments totalled 5.0 million euros (previous year: 0.0 million euros).

T088


Up to one year 25.3 25.7

Between one and five years 78.5 53.8

More than five years 74.9 63.7

Total 178.7 143.2


derivatives. It does not reflect the Group’s risk, however, since the derivative transactions at the end of the reporting period are offset or, in the future, will be offset by hedged items with countervailing risks.

b) Presentation of hedging instruments and development of the cash flow hedge reserve for the 2017 business year under IFRS 9

The following tables present the nominal and carrying amounts of the derivatives as at the reporting date by risk category, as well as the value development on which the effectiveness cal-culation was based and in what time frame the underlying nominal values will have an effect in the future. For reference, the average prices of the hedging instruments have also been presented.

T090

Hedging instruments on the assets side (I / II)


Long-term carrying amount

Short-term carrying amount

Fair value change for

determining ineffective-

ness

Nominal volume

(remaining term of up to

1 year)

Nominalvolume

(remaining term of

1−5 years)

Nominalvolume

(remaining term of over

5 years)

Totalnominalvolume

Averagehedging rate

Currency risk hedge Foreign currency euros USD / euros

for the currency USD

not in a hedging relationship 0.6 1.4 41.2 10.0 43.6

in cash flow hedges 1.0 7.3 4.8 4.0

Total 0.6 2.4 7.3 46.0 10.0 47.6 1.2

Interest rate hedge

in cash flow hedges 0.7 −0.7 85.0

Total 0.7 −0.7 85.0

for which hedge accounting is not possible or sensible are in-cluded within the scope of financial hedges. Opportunistic trading positions are limited in terms of their scope and im-pact on earnings.

The effectiveness of a hedging relationship (cash flow hedges) is tested prospectively by means of an effectiveness test in-volving the critical term match method or regression analysis under IFRS 9, compared to retrospectively involving the accu-mulated dollar offset method under IAS 39 until 2016.

For more information on hedging individual risk categories, please see the disclosures in Section 41 on risk management.

The nominal volume of the derivatives shown below is shown without offsetting. The amount of the nominal volume allows conclusions to be drawn as to the extent of the use of


T091

Hedging instruments on the assets side (II / II)


Long-termcarrying amount

Short-termcarrying amount

Fair valuechange for

determiningineffective-

ness

Nominalvolume

(remaining term

of up to 1 year)

Nominalvolume

(remaining term of

1−5 years)

Nominalvolume

(remaining term

of over 5 years)

Totalnominalvolume

Averagehedging

rate

Commodity price change hedge Gwh euros / Mwh

for electricity derivatives


in cash flow hedges 29.9 120.4 −1.7 614.5 155.3 23.9

Total 39.7 129.1 −1.7 705.0 193.4 27.6 32.6

for gas derivatives


in cash flow hedges 15.4 50.1 −0.2 354.5 171.8 31.1

Total 28.1 89.0 −0.2 871.4 414.9 69.9 18.4

million tonnes

euros per tonne

for coal derivatives

not in a hedging relationship 1.2 20.7 −15.8 55.0 4.5 1.1

in cash flow hedges 19.1 −18.1 17.0 0.5

Total 1.2 39.8 −33.9 72.0 4.5 1.6 47.8

for CO2 derivatives

not in a hedging relationship 0.1 3.2 −1.7 12.3 0.5 2.0

in cash flow hedges 0.9 −0.7 6.0 0.8

Total 0.1 4.1 −2.4 18.3 0.5 2.8 6.7

for other commodity derivatives

not in a hedging relationship 0.5 2.2 12.9 2.2

Total 0.5 2.2 12.9 2.2

Hedging against other market risks

Other derivatives

not in a hedging relationship 1.2 1.2

Total 1.2 1.2

Hedging instruments on the assets side

not in a hedging relationship 24.9 76.3 −17.5

in cash flow hedges 46.0 191.5 −14.1

Total 70.9 267.8 −31.6


T092

Hedging instruments on the liabilities side (I / II)






ness

Nominalvolume


1 year)

Nominalvolume

(remaining term of

1−5 years)

Nominalvolume


5 years)

Totalnominalvolume

Averagehedging

rate

Currency risk hedge Foreign currency eurosUSD / eurosPLN / euros

for the currency USD

not in a hedging relationship −0.6 −1.2 −35.2 −10.3 −39.2

in cash flow hedges −1.8 −1.3 −34.4 −31.6

Total −0.6 −3.0 −1.3 −69.6 −10.3 −70.8 1.1

for the currency PLN

not in a hedging relationship −0.1

in cash flow hedges −0.2 −23.2 −2.4 −5.9

Total −0.2 −23.3 −2.4 −5.9 4.4

Interest risk hedge

in cash flow hedges −4.7 −5.1 −325.0

Total −4.7 −5.1 −325.0


the value of the underlying transaction) and the status of the cash flow hedge reserve for existing hedging relationships per risk category.

The following overview presents the change in value of the hedged underlying transaction on the basis of which ineffec-tiveness in the hedge for the period is recognised (change in

T093

Hedging instruments on the assets side (II / II)






ness

Nominalvolume


1 year)

Nominalvolume

(remaining term

of 1−5 years)

Nominalvolume


5 years)

Totalnominalvolume

Averagehedging

rate

Commodity price change hedge Gwh euros / Mwh

for electricity derivatives


in cash flow hedges −21.3 −109.3 −17.3 −451.1 −139.0 −18.6

Total −30.4 −117.2 −17.3 −518.7 −172.0 −21.6 32.0

for gas derivatives


in cash flow hedges −0.1 −4.3 −5.5 −61.8 −9.5 −3.6

Total −9.2 −43.9 −5.5 −797.3 −228.3 −56.8 18.1

million tonneeuros per

tonne

for coal derivatives

not in a hedging relationship −1.4 −11.6 18.8 −32.5 −5.1 −0.7

in cash flow hedges −3.4 0.7 −2.4 −0.1

Total −1.4 −15.0 19.5 −34.9 −5.1 −0.8 50.0

for CO2 derivatives

not in a hedging relationship −0.1 −1.4 3.0 −5.6 −0.5 −0.9


Total −0.1 −1.8 3.0 −8.2 −0.5 −1.2 7.3

for other commodity derivatives

not in a hedging relationship −0.5 −0.8 −22.9 −5.1

Total −0.5 −0.8 −22.9 −5.1

Hedging instruments on the liabilities side

not in a hedging relationship −20.8 −62.5 21.8


Total −46.9 −181.9 −6.7


T094

31.12.2017


Change in valueof underlying

transaction Hedging reserve

Assets

Currency risk hedge

Currency derivatives −7.3 1.2

Interest risk hedge

Interest rate derivatives 0.6 0.8

Commodity price change hedge

Electricity derivatives 1.7 23.0

Gas derivatives 0.1 61.9

Coal derivatives 17.7 21.5

CO2 derivatives 0.7 1.9

Total 13.5 110.3

Liabilities

Currency risk hedge

Currency derivatives 1.3 1.6

Interest risk hedge

Interest rate derivatives 4.9 4.5

Commodity price change hedge

Electricity derivatives 17.3 24.2

Gas derivatives 5.4

Coal derivatives −0.7 3.5

CO2 derivatives 0.4

Total 28.2 34.2


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

The ineffective portion of interest cash flow hedges was recog-nised as net interest in the amount of 0.3 million euros.

The ineffective portion of commodity cash flow hedges was recognised in other operating income / expenses in the amount of 0.6 million euros.

The gains and losses from reclassifications due to the recog-nition of underlying transactions in profit and loss are recog-nised as revenue or material expenses.

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

T095

31.12.2017


Currencyrisk hedge

Interestrisk hedge Commodity price change hedge

Othermarket

price risks

TotalCurrency

derivativesInterest rate

derivativesElectricity

derivativesGas

derivativesCoal

derivativesCO2

derivativesOther

derivatives

Opening balance 13.8 11.3 47.9 30.9 5.9 1.7 111.5

Gains from effective hedging relationships recognised in equity (OCI) −14.9 0.8 13.7 0.9 0.5

Losses from effective hedging relationships recognised in equity (OCI) −3.7 −4.5 18.3 3.4 13.5

Gains from reclassifications due to recognition of the underlying transaction in profit and loss −45.6 −7.6 −53.2

Losses from reclassifications due to recognition of the underlying transaction in profit and loss 8.2 8.2

Reclassifications due to a basis adjustment 5.3 0.3 −7.7 −1.7 −3.8

Deferred taxes 3.4 1.2 7.2 2.5 −3.2 −0.6 10.5

Reclassifications −2.2 −23.8 −6.0 −1.7 −33.7

Closing balance 1.7 −2.5 −5.2 44.0 14.5 1.0 53.5

c) Presentation of hedging instruments and development of the cash flow hedge reserve for the 2016 business year under IAS 39

Derivatives without a hedging relationshipThe following table shows the derivatives which did not qualify for hedge accounting but were still used to hedge an existing risk position.

T096

31.12.2016

in millions of euros Nominal volume Fair Value


Other commodity derivatives 1,730.6 17.8

Other derivatives 0.1 0.1

Total 1,966.7 18.7


Fair value hedgesWith regard to commodities, in the past fair value hedges were recognised at fixed prices in order to hedge gas price risks (the risk of changes in fair value) resulting from distribution trans-actions. Hedges based on the TTF (Title Transfer Facility) gas price index were used as hedging instruments. The market value of the previously hedged item which exists upon disso-lution of the hedging relationship in 2014 remains accounted for until settlement. In 2016, decreases totalling 4.4 million euros resulting from settlements were recognised as other operating expenses. As at 31 December 2016, the market val-ues resulting from distribution transactions were positive at 1.5 million euros.

Cash flow hedgesCash flow hedges were 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.

To hedge cash flow fluctuations stemming from future, highly probable gas purchases, financial price hedges were used (such as TTF swaps), while electricity forward contracts are used to hedge against cash flow fluctuations from highly probable elec-tricity purchases. These contracts are realised in profit and loss within the following five business years.

As at 31 December 2016, the recognised fair values of deriv-atives used as commodity cash flow hedges were made up of positive market values of 225.6 million euros and negative market values of 133.3 million euros. The effective portion of commodity cash flow hedges with a value of 112.1 million euros

was recognised in other comprehensive income. The ineffec-tive portion totalled 0.2 million euros. The basis adjustment totalled 8.3 million euros. Commodity hedging transactions resulted in an effect recognised as an expense in profit and loss totalling 110.7 million euros. The hedged cash flows will be received in the following five years. The entire impact on profit and loss is expected within the same period of time.

As at 31 December 2016, the recognised fair values of deriva-tives used as currency cash flow hedges were made up of pos-itive market values of 14.9 million euros and negative market values of 0.3 million euros. The effective portion of currency cash flow hedges with a value of 6.5 million euros was recog-nised in other comprehensive income. The basis adjustment totalled −6.1 million euros. Currency hedging transactions resulted in an effect recognised as an expense in profit and loss totalling 0.2 million euros. To hedge foreign currency risks, EWE used forward exchange contracts whose settlement and rec-ognition in profit and loss can fall within the next three years.

Derivatives in connection with cash flow hedges:

T097

31.12.2016

in millions of euros Nominal volume Fair Value


Commodity derivatives

Power futures 1,159.5 19.4

Other commodity derivatives 793.7 72.9

Total 2,127.4 106.9


41. Additional disclosures concerning financial instruments

a) Disclosures related to financial instrument categories under IFRS 9 / 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 IFRS 9 / IAS 39, classes under IFRS 7 and fair value levels:

T098

Carrying amounts, bases of recognition and fair values by measurement category (I / II)Carrying amount

as at 31.12.2017 Measurement category pursuant to IFRS 9Fair value

as at 31.12.2017


costFair value

in profit and loss

Fair valuein equity

without recycling

Assets


Shares 384.5 168.5 216.0 384.5

Loans 143.1 143.1 158.7

Derivatives

Derivatives without a hedging relationship 24.8 24.8 24.8

Derivatives with a hedging relationship (N / A) 45.9 45.9

Other non-current financial assets 6.7 6.7 6.7

Trade receivables 1,042.6 1,042.6 1,042.6

Other current assets

Loans 22.9 22.9 22.9

Securities 152.7 152.7 152.7

Receivables from contract manufacturing 4.6 4.6 4.6

Derivatives



Other financial assets 48.8 48.8 48.8

Liquid assets 608.3 608.3 608.3

Total 2,752.6 1,877.0 422.2 216.0 2,768.2

Liabilities

Bonds 1,359.7 1,359.7 1,551.2

Liabilities to financial institutions 463.5 463.5 475.1

Trade payables 902.6 902.6 902.6

Other financial liabilities 558.1 556.1 2.0 561.1

Derivatives



Total 3,512.6 3,281.9 85.3 3,718.7


T099

Carrying amounts, bases of recognition and fair values by measurement category (II / II)IAS 39

measure-ment

category

Carrying amount as at

31.12.2016 Basis of recognition under IAS 39Fair value as

at 31.12.2016


costHistorical

costFair value in equity

Fair value in profit and

loss

Assets


Loans and receivables LaR 116.2 116.2 116.4

Shares AfS 306.1 1.2 304.9 306.1




Trade receivables LaR 764.8 764.8 764.8

Other receivables and assets

Securities AfS 99.8 99.8 99.8

Securities FAHfT 3.7 3.7 3.7

Other financial assets LaR 124.2 124.2 124.2

Liquid assets LaR 351.3 351.3 351.3




Liabilities

Bonds FLAC 1,405.6 1,405.6 1,643.4

Liabilities to financial institutions FLAC 207.1 207.1 210.9

Trade payables FLAC 598.1 598.1 598.1

Other financial liabilities FLAC 596.3 596.3 599.7

Financial liabilities measured at fair value

Derivatives without a hedging relationship FLHfT 87.8 87.8 87.8


Of which aggregated into measurement categories (IAS 39):

Loans and receivables (LaR) 1,356.5 1,356.5 1,356.7

Available-for-sale financial assets (AfS) 405.9 1.2 404.7 405.9

Financial assets held for trading (FAHfT) 110.2 110.2 110.2

Financial liabilities measured at amortised cost (FLAC) 2,807.1 2,807.1 3,052.1

Financial liabilities held for trading (FLHfT) 87.8 87.8 87.8


Interest rate swaps, forward exchange contracts, electricity futures, coal swaps, gas price hedging contracts and CO2 for-wards are measured using the standard market valuation meth-od with maximum consideration given to observable market data such as currency spot and futures rates, yield curves and price forward curves.

Listings on active markets are used as a reference for the mea-surement of commodity derivatives. If there are no listings available (due to insufficient liquidity in the market, for exam-ple), fair values are calculated on the basis of recognised valuation methods. When available, trades that are identical to stock exchange transactions on the over-the-counter mar-ket are measured on the basis of the published closing rates of each stock exchange. The fair values of unlisted products are measured on the basis of publicly available broker quotes or, if not available, on the basis of recognised valuation meth-ods using internal data. The risk of default is measured. Ener-gy deals conducted as part of commodity transactions are generally subject to EFET (European Federation of Energy Trad-ers) agreements. Risks of default are accounted for by taking netting agreements into consideration.

With regard to derivatives, the credit and debit value adjust-ment (CVA / DVA) resulted in income of minor significance, compared to expenditure in the previous year.

The fair value of exchange-traded bonds corresponds to the nominal value of the bonds multiplied by the quoted price at the end of the reporting period. As at 31 December 2017, the fair value of the bonds exceeded their carrying amount.

The fair value of other non-exchange traded, fixed-interest bonds or fixed-interest liabilities to financial institutions is measured as the present value of the payments stemming from these liabilities based on the applicable yield curves. When it comes to floating-rate liabilities to financial institutions, it is assumed that the carrying amount will generally correspond to fair value due to the regular adjustments made to the inter-est rates on the basis of current market parameters.

Trade payables and other liabilities primarily have short ma-turities; the carrying amounts are therefore generally equiva-lent to fair value.

The fair value of financial instruments is measured solely on a recurring basis.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Interests that are not traded on an active market are recog-nised as shares. The fair value of unlisted equity instruments is generally calculated using the discounted cash flow method.

The shares recognised in the reporting year concern interests in corporations which – with the exception of one interest where the Group opted to recognise gains and losses from changes in fair value in profit and loss – have been recognised as equity instruments and measured at fair value in equity (in other comprehensive income). Furthermore, the shares con-cern interests in partnerships which have been recognised as debt instruments and measured at fair value in profit and loss.

In the reporting year, securities were classified as debt instru-ments measured at fair value in profit and loss as they do not meet the criteria to be measured at amortised cost or mea-sured at fair value in equity (in other comprehensive income).

Trade receivables, other receivables and assets as well as cash and cash equivalents have short periods until maturity. For this reason, their carrying amounts at the end of the report-ing period generally correspond to their fair value. The maxi-mum default risk is reflected by the carrying amounts of the assets recognised in the statement of financial position.

The fair value of derivative financial instruments is dependent on trends in the underlying market factors. Each fair value is measured and reviewed at regular intervals.

Derivative financial instruments are governed by convention-al offsetting agreements. Derivative transactions are gener-ally conducted on the basis of standard agreements which enable the netting of all outstanding transactions with busi-ness partners under certain conditions. As these criteria had not been met as at the reporting date, the derivatives were recognised in the statement of financial position without hav-ing been netted.


At the end of each reporting period, a review is conducted to determine if there is a reason to reclassify assets or liabilities into or out of a valuation level. During the reporting period ending on 31 December 2017, EWE did not reclassify any assets or liabilities between levels 1 and 2 of the fair value hierarchy, nor did it reclassify any assets or liabilities into or out of level 3 of the hierarchy.

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

The levels of the fair value hierarchy and their application to assets and liabilities are described below:

■■ Level 1: Listed (non-adjusted) prices for identical assets or liabilities in active markets.

■■ Level 2: Inputs other than listed market prices that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices).

■■ Level 3: Inputs for assets and liabilities that are not based on observable market data.

T100

31.12.2017

in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value

Shares 384.5 384.5



Total 180.1 302.2 393.3 875.6

Financial liabilities at fair value


Other financial instruments 2.0 2.0

Total 22.1 200.8 7.8 230.7

T101

31.12.2016

in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value

Shares 304.9 304.9


Derivative financial instruments 328.4 18.6 347.0

Total 103.4 328.4 323.5 755.3

Financial liabilities at fair value


Total 221.4 221.4


Level 3 derivative financial instruments largely comprised flex-ible procurement and sales contracts as at 31 December 2017. The prices of this flexibility are not listed on a highly liquid market, instead being defined in bilateral agreements on a case-by-case basis. To measure the value of contracts with flexibility, EWE utilises a valuation model which includes Mon-te Carlo simulations that makes it possible to determine a price of the contract options.

b) Offsetting financial instruments

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

Changes to fair values in level 3

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

The fair values of interests classified in level 3 are calculated using the discounted cash flow method based on planning figures from several periods for the cash flows to be discount-ed and assuming sustainable terminal value. This category con-tains unlisted equity instruments. A hypothetical change to the WACC by + / − 1 per cent would result in a theoretical decrease in fair values of 60,9 million euros (previous year: decrease of 65,3 million euros) or an increase of 103,4 million euros (previous year: increase of 136,6 million euros). A hypo-thetical change to EBIT by + / − 10 per cent would result in a theoretical increase in fair values of 32,5 Mio. euros (previous year: increase of 24,2 million euros) or a decrease of 32,5 mil-lion euros (previous year: decrease of 24,2 million euros).

T102

in millions of eurosInterests(assets)

Derivativefinancial

instruments(assets

Derivativefinancial

instruments(assets

Otherfinancial

instruments(liabilities)

As at 01.01.2017 304.9 18.6

Other operating income and other operating expenses recognised in profit and loss −16.7 5.8

Other income from investments in the statement of profit and loss 41.3

Other earnings 9.4 5.7

Purchases 28.8 1.2

Addition of contingent purchase price obligation under IFRS 3 2.0

Sales −0.5


As at 31.12.2017 384.5 8.8 5.8 2.0

As at 01.01.2016 258.1 8.5 9.5

Other operating income and other operating expenses recognised in profit and loss 10.0 −9.5

Other income from investments recognised in profit and loss (fair value of available-for-sale financial instruments) −0.1

Gains and losses recognised in other comprehensive income (market fluctuations of available-for-sale financial instruments) 41.3

Purchases 10.9 0.1

Sales −5.3

As at 31.12.2016 304.9 18.6


c) Net profit / loss by measurement category

The following table provides an overview of net profit and loss by IFRS 9 category:

T103

Offsetting of financial assets and financial liabilities


Recognisedgross

amounts OffsettingRecognised

net amounts

Amountsthat cannot

be offset

Fair valueof financial

collateral pledged / received Net value

As at 31.12.2017

Derivatives (assets) 338.4 338.4 −151.7 −26.0 160.7

Derivatives (liabilities) 228.7 228.7 −151.7 −24.4 52.6

As at 31.12.2016

Derivatives (assets) 347.0 347.0 −155.8 −14.1 177.1

Derivatives (liabilities) 221.4 221.4 −155.8 −10.7 54.9

T104


Net profit / loss from financial assets

measured at FVPL

Equity instruments measured at FVPL 63.4

Debt instruments measured at FVPL −16.2

at amortised cost 3.4

equity instruments measured at FVOCI in other comprehensive income 14.5

Total net profit / loss from financial assets 65.1

Net profit / loss from financial liabilities

at amortised cost −115.5

Total net profit / loss from financial liabilities −115.5

Net profit / loss from financial assets or financial liabilities

measured at FVPL (derivative financial instruments) 0.6

Total net profit / loss from financial assets or financial liabilities 0.6

Total −49.8


The EWE Group manages its liquidity by maintaining a suffi-cient supply of cash, cash equivalents and lines of credit with banks, and by means of the cash inflows from operations. Financial flexibility is secured with bilateral credit lines as well as a syndicated, revolving credit facility of 750.0 million euros. The original five-year term of the syndicated credit facility was extended by one year following the utilisation of the first ex-tension option and therefore ends in November 2022. This cred-it line is used for general equipment finance. As at 31 Decem-ber 2017, EWE had drawn on a total of 0.0 million euros of this credit line (previous year: 0.0 million euros). The bilateral cred-it lines available as at the reporting date totalled 556.7 million euros (previous year: 409.4 million euros). Of this amount, 186.5 million euros (previous year: 120.4 million euros) has been drawn on in some form, including as guarantees.

The EWE Group has not made any financial covenants what-soever in relation to financing agreements.

The liquidity held with banks as well as the current and non-current lines of credit provide EWE AG with sufficient flexibility to cover the Group’s liquidity needs.

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

In the previous year, the net profit and loss resulting from the individual IAS 39 categories (excluding profit / loss sharing and dividends) developed as follows:

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

42. Risk management

Liquidity risks

The liquidity risk of a company is the risk that it is unable to meet its financial obligations. In order to ensure that it remains solvent, the EWE Group obtains the majority of the funds needed to finance working capital and investments from the proceeds of business operations and external financing. The EWE Group monitors the risk of a liquidity shortfall continu-ously by means of liquidity planning. The maturity periods of financial investments and financial assets are taken into con-sideration, as are expected cash flows from operating activities.

As part of operative liquidity management, the EWE Group pools all of its liquid assets on a daily basis. In this context, Group companies with excess liquidity are obliged to pool it centrally and provide companies with liquidity shortfalls with the funds they require.

Furthermore, Group companies are provided with funds for long-term financing purposes. Fund-raising on the banking and capital markets is generally carried out by EWE AG at the level of the parent company.

T105

2016 from interest from subsequent measurement Net profit / loss

in millions of euros at fair valueCurrency

translation

Valuation al-lowance / write-up

Loans and receivables (LaR) 13.0 2.9 −12.0 3.9

Available-for-sale financial assets (AfS) 37.8 −0.1 37.7

Financial instruments held for trading (FAHfT and FLHfT) 92.1 92.1

Financial liabilities measured at amortised cost (FLAC) −168.9 −168.9

Total −155.9 129.9 2.9 −12.1 −35.2


The cash flows apply to electricity derivatives with negative fair values of 147.6 million euros (previous year: 106.7 million euros) as well as positive fair values of 168.9 million euros (previous year: 126.1 million euros). From a business perspec-tive, it is only sensible to consider all cash inflows and outflows from the trading of all electricity derivatives (acquisitions and sales). The own-use line items that are of importance in this context are not presented in the table below as they are not financial instruments as defined by IFRS.

T106

in millions of euros Cash Flows

31.12.2017 < 1 year 1 – 5 years > 5 years

Original financial liabilities

Bonds −61.7 −1,396.9 −187.9

Liabilities to financial institutions −122.7 −55.8 −326.4

Liabilities from guaranteed dividends −2.8 −11.1 −19.5

Trade payables −902.7

Other financial liabilities −302.2 −46.3 −344.7

31.12.2016 < 1 year 1 – 5 years > 5 years

Original financial liabilities

Bonds −209.9 −1,388.6 −72.0

Liabilities to financial institutions −78.3 −123.1 −12.3

Liabilities from guaranteed dividends −2.8 −11.1 −22.1

Trade payables −598.1 −3.0 −0.1

Other financial liabilities −330.8 −47.9 −354.3

T107

Cash flows from electricity derivatives (not own use)31.12.2017 31.12.2016

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

Cash Outflows −686.7 −163.9 −441.7 −167.9

Cash Inflows 510.9 149.3 370.3 179.7

Cash Flows netto −175.8 −14.6 −71.4 11.8

T108

Gas derivative cash flows (not own use)31.12.2017 31.12.2016

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

Cash outflows −792.0 −226.7 −668.0 −179.1

Cash inflows 519.4 153.2 380.5 71.6

Net cash flows −272.6 −73.5 −287.5 −107.5


Additionally, potential credit risks from energy trading are lim-ited through special agreements in framework agreements with trading partners. The framework agreements of the Eu-ropean Federation of Energy Traders (EFET) and the German framework agreement for financial futures (DRV) contribute to a controlled, risk-oriented course of business. The frame-work agreements include stipulations governing collateral to be provided, if necessary, as well as on measures to protect the parties from losses due to insolvency, among other clauses. In credit risk management, security deposits are categorised by the provider and their effectiveness. Reducing the poten-tial loss or probability of occurrence of the credit risk provides greater scope for action. Additionally, with regard to energy trading, netting agreements are signed and clearing activities take place.

Credit checks of contractual and trading partners are defined methodically and procedurally. In addition to the initial mea-surement, regular credit checks are carried out. The credit score is represented by an internal rating and factors in inter-nal and external information. Where available, ratings from Standard & Poor’s, Moody’s and Fitch are given priority. Addi-tionally, other ratings agencies and credit agencies are con-sulted and current annual financial statements are evaluated. A transaction only takes place within an approved framework and the company monitors its adherence to said framework.

Within the scope of normal business operations, trade recei-vables are continuously monitored through claims manage-ment. In this regard, the available customer-specific informa-tion such as overdue payments is evaluated in order to carry out necessary write-downs of trade receivables. Default is as-sumed if no payment is received shortly after the second dun-ning letter. Receivables are written off if the connection has been blocked and, following the standard dunning procedure, the receivables are assigned to a collection agency to be pro-cessed or if legal action is taken, e.g. a court order. At this point, the company does not realistically expect the receiv-ables to be paid. If payments are received towards receivables that have been written off, they will be recognised in profit and loss. The company will continue to attempt to collect re-ceivables that have been written off.

Financial assets are impaired using the expected credit loss method. This method factors in the receivables at risk, the probability of default and the loss given default. Non-current financial assets are recognised and discounted over a number of years, until the end of their terms.

The cash flows apply to gas derivatives with negative fair val-ues of 53.1 million euros (previous year: 63.9 million euros) as well as positive fair values of 117.0 million euros (previous year: 144.7 million euros). From a business perspective, it is only sensible to consider all cash inflows and outflows from the trading of all gas derivatives (acquisitions and sales). The own-use line items that are of importance in this context are not presented in the table below as they are not financial instru-ments as defined by IFRS. The gas derivatives are part of the other commodity derivatives (not own use).

Credit risks

The credit risk describes the threat of a financial loss if a busi-ness or trading partner is not able to meet its contractual obligations in full or at all. The risk can either be in liquidity or capacity for performance.

In credit risk management, potential credit risks are controlled in such a way that cluster risks are taken into account along-side individual risks. The key credit risks to which the EWE Group is exposed are in its business with contracts with special terms and private customers, in the investment of liq-uid assets and in energy and foreign exchange trading. In order to limit credit risks arising from financial difficulties or insol-vency in the business with customers in contracts with special terms, offers are only presented to customers with excellent credit ratings. The financial asset diversifies credit risks when creating call money and time deposits with banks with strict creditworthiness requirements. With regard to energy trading, both the liquidity and the ability of contractual and trading partners to deliver are taken into consideration.

Credit risks in energy trading are largely the result of the fol-lowing:

■■ Loss of receivables for physical goods and financial trans-actions;

■■ Repurchase risk arising from purchase contracts and price increases;

■■ Replacement risk arising from sales contracts, if prices have since declined.


The credit risks are evaluated over the contractual terms of the financial assets. In terms of the portfolios, only historical data are factored into the calculation.

As energy, water and telecommunications are basic require-ments of private consumers and basic goods in industry, ex-pectations regarding defaults do not noticeably vary based on macro-economic indicators. Therefore, no adjustments have been taken into consideration; instead, the future perspective contained in credit information is factored in for individually assessed credit risks.

The EWE Group structures risk categories on the basis of car-rying amounts as follows:

As the introductory regulations of IFRS 9 do not require an adjustment to the comparative figures, the following break-down will first become available in 2017.

T110

GeneralApproach

SimplifiedApproach

in millions of euros Level 1

Category 1(no increased probability of default) 802.6 889.3

Category 2(increased probability of default) 22.9 226.1

Category 3(claim handling) 3.9

Total 825.5 1,119.3

The probability of occurrence is assessed in the same way as in credit management and the same information is used. An assessment is carried out upon addition and on every sub-sequent reporting date. In line with the general approach, the credit risk is allocated to a different level if it increases signif-icantly. In order to determine whether the credit risk has in-creased, the risk as at the reporting date is compared with the credit risk as at the transition date or upon the later addition. Upon addition, in line with the general approach, the probabil-ity of occurrence is scaled to a 12-month period and adjusted in terms of its reference period. Additionally, with regard to non-current financial assets, empirical information on rating migration from Standard & Poor’s and Moody’s is used.

In line with the expected loss approach to impairment, the credit risk has increased significantly if the creditworthiness of a contractual partner is downgraded and is no longer con-sidered investment-grade. The probability of occurrence is al-located to the ratings levels on the basis of the ratings of Standard & Poor’s and Moody’s. If a significant increase in the credit risk is determined, the provision for risk in impairment will be increased.

Using the simplified approach, the financial assets are struc-tured by their amounts. Below the credit limit threshold, no individual information is retained and the assets are compiled into portfolios and then impaired as a group. Company- specific portfolios are used to subject the small and private customer segments to appropriate impairment. The portfolios take his-torical defaults into consideration. The allocation of the com-panies in the consolidated financial statements to the port-folios is examined annually.

T109

Category Category description

Basis for measuring the expected loss

from credit risks

Category 1Investment grade

Customers have a low probability of default

and a large capacity for maintaining contractual

cash flows12-month expected

credit loss or shorter

Category 2Non-investment grade

Customers with an increased credit risk Contractual term

Category 3Claim handling

There is a high risk of the partial loss

of the assetThe asset is (partially)

written down


Market price risks

Market price risks are the risks of fluctuations in the fair value or future cash flows of a financial instrument due to market risks. Within the EWE Group, this primarily applies to price risks related to commodities, currency exchange and interest.

Commodity price risks in the energy business of EWE gener-ally arise from asynchronous developments in prices from energy and commodity purchase and sale contracts or expect-ed contracts, as well as changes in market prices. In line with its risk strategies, EWE uses derivatives to hedge against these deviating price and value changes. It regularly uses simple for-wards and futures, sometimes uses swaps and rarely (and to a lesser extent) uses options or items classified as level 3.

Depending on their type, the energy or commodity prices hedged using derivatives often represent the risk exposure from the underlying transactions. Derivatives linked to elec-tricity prices are used to hedge against electricity price risks and derivatives linked to title transfer facilities, Gaspool and NCG are used to hedge against gas price risks resulting from underlying transactions linked to title transfer facilities, Gaspool or NCG. Likewise, with regard to coal price hedging for the expected generation quantities, standardised prices based on API2 are hedged and therefore correspond to the standard market conditions and price risks. Volatile energy generation, e.g. from renewable sources, is only marketed on a short-term basis and is not used in hedge accounting.

Generally speaking, the hedging period does not exceed the liquid market period.

The degree of hedging relative to energy production or expect-ed sales (production and energy sales) and relative to a future time frame increases over time. However, in designated hedg-ing relationships, it often remains below the realistically ex-pected quantities in order that the inclusion of the underlying transaction in the hedging relationship can often be assumed to be highly likely. For the hedge, some specific provisions or – e.g. for business with private and small commercial cus-tomers – short to medium-term provisions are made in order to secure prices.

With regard to conventional electricity generation, electricity sales hedges and the necessary commodity purchases are co-ordinated based on time and quantity.

Generally speaking, the price risk and its related derivative are subject to the same specific variable or index. Therefore, be-sides credit risks, no significant ineffectiveness is to be expect-ed. With regard to coal, the price might be subject to quality

The portfolio percentages are based on a term of one year, which means that shorter-term receivables with a lower default rate are included in the calculation. The EWE Group applies a stand-ardised default rate (loss given default) of 75 per cent.

The higher volume of financial assets compared to the previ-ous year – due primarily to energy price developments and normal fluctuations – does not significantly influence the extent of valuation allowances.

The carrying amounts of the financial assets and the provi-sions for financial guarantees reflect the maximum default risk of the Group.

The Group possesses security deposits from energy trading and sales. The security deposits from energy trading originate from standard trading contracts and are from highly credit-worthy institutions, whereas the security deposits from energy sales are from business and private customers.

Financial instruments are impaired regardless of whether or not a security deposit has been provided.

T111

31.12.2017

in millions of eurosProbability

of default p.a.

Grossamount of

receivablesValuation allowance

Portfolio

1.00% N.A. 300.3 −2.6

2.50% N.A. 114.3 −0.4

4.50% N.A. 66.6 −0.3

IFRS 9 rating

AAA 0.01% 7.2

AA 0.05% 122.1

A 0.02% 388.4

BBB 0.44% 635.5 −0.6

BB 1.57% 221.6 −0.4

B 5.42% 84.9 −0.4

C 20.00% 3.5 −0.1

D 35.00% 2.8 −0.1

Subtotal 1,947.2 −4.9

Impaired receivable / indi-vidual valuation allowance 19.7 −17.2

Total 1,966.9 −22.1


disclosure requirements of IFRS 7. The economic sensitivity is regarded as low.

With the exception of CO2 transactions, no cash flow effects result from the specified market value fluctuations. In CO2 trading, market value fluctuations are compensated for finan-cially through a margin deposit specified within the terms of margin agreements.

Sensitivity analyses assume a change in the underlying mar-ket price or exchange rate of + / − 10 per cent and / or interest of + / − 100 basis points (bp) across all recognised supply years or periods.

Power

To measure, manage and limit the market price risks which affect the entire power portfolio, a number of different strat-egies are applied in conjunction with dynamic price and vol-ume 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:

Gas

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

T112

Change inprice trends Impact on profit and loss

Impact onother comprehensive income

in millions of euros 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Power futures requiring physical fulfilment

using hedge accounting +10% 17.7 7.9

using hedge accounting −10% −17.7 −7.9

Electricity futures requiring financial fulfilment

not using hedge accounting +10% 1.8

not using hedge accounting −10% −1.8

Total +10% 1.8 17.7 7.9

Total −10% −1.8 −17.7 −7.9

adjustments and might therefore deviate slightly. These qual-ity differences compared to the contractually agreed basis can only be determined upon delivery and are then reflected di-rectly in the statement of profit and loss.

Where possible and proper, derivatives in hedging relation-ships are designated as such. Previously, partial risks have not been secured in commodity price hedging. When commodities are purchased in a foreign currency, foreign currency hedges are increased if necessary.

The sensitivities used in measuring power, natural gas, coal and emissions rights derivatives as well as for currencies and inter-est rates are shown below. In this context, only derivatives ac-counted for as financial instruments whose market value fluc-tuations affect equity and / or profit and loss were included.

In contrast, derivatives used for the physical fulfilment of non-financial items in accordance with the company’s expect-ed purchase, sale or usage requirements (‘own use’) are not included. These items are not accounted for within the scope of IAS 39. As such, the following sensitivities do not reflect the actual economic risks and merely serve to fulfil the


Overview of market price risk – gas:

Coal

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

Overview of market price risk – coal:

T113




Gas futures requiring physical fulfilment



not using hedge accounting +10% 0.4 −4.6

not using hedge accounting −10% 1.1 5.9

Gas futures requiring financial fulfilment



not using hedge accounting +10% 17.1 27.8 −0.9

not using hedge accounting −10% −17.1 −27.8 0.9

Total +10% 17.5 23.2 64.2 77.4

Total −10% −16.0 −21.9 −64.2 −77.4

T114

Change inprice trends Impact on profit and loss Impact on other comprehensive income


Coal swaps



not using hedge accounting +10% 2.2 2.4

not using hedge accounting −10% −2.2 −2.4

Total +10% 2.2 2.4 3.0 6.8

Total −10% −2.2 −2.4 −3.0 −6.8


CO2-certificates

Overview of market price risk – CO2-certificates:

Currencies

The Group is mainly exposed to foreign exchange risks which result from trading commodities, primarily gas and coal, in foreign currencies. This risk is due to the variability of future cash flows resulting from volatile exchange rates, especially

T115




CO2 futures





Total +10% 0.6 0.7 0.8 1.0

Total −10% −0.6 −0.7 −0.8 −1.0

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 relation-ship consisting of the hedged items (e.g. planned coal purchas-es) and the foreign currency futures contracts is highly efficient.

Overview of foreign exchange risk:

T116

Changes in exchange rate

between euros and foreign currency Impact on profit and loss



Coal swaps





Forward exchange contracts

using hedge accounting +10% −2.0 −15.4

using hedge accounting −10% 2.5 18.8

not using hedge accounting +10% −0.4 −0.9

not using hedge accounting −10% 0.5 1.1

Miscellaneous

using hedge accounting +10% 0.1

using hedge accounting −10% −0.1

Total +10% 0.4 −0.7 −0.3 −14.6

Total −10% −0.3 0.9 1.1 18.2


43. Segment reporting

The segments in the EWE Group are determined in accordance with internal reporting approaches (a management-based approach).

The resulting segments are as follows:

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

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

Energy and telecommunications sales as well as energy trad-ing and the information technology business are consolidated in the Sales, Services and Trading segment.

The International segment encompasses EWE’s business ac-tivities in Turkey and Poland.

The swb segment consists of the swb sub-group. This segment encompasses the provision of energy and water services, es-pecially supplying energy and water to the municipalities of Bremen and Bremerhaven and their surrounding areas.

Interest

The purpose of EWE’s interest rate risk management is to man-age and monitor the interest-bearing and interest-rate-sensi-tive assets and liabilities in the statement of financial position. The objective is to mitigate the impact of interest rate fluctu-ations and risks on the Group’s cash flows and net assets.

Interest rate swaps (forward starting swaps) that balance out the variability of the EURIBOR for a portion of the highly likely future finance and correspond to the interest rate risk to EWE resulting from changes to the EURIBOR are therefore used as part of recognised hedging relationships. As expected, the EURIBOR variability hedge encompasses the majority of the potential interest rate variability but not the variability of the credit risk.

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

■■ Changes in the market interest rates for fixed-interest pri-mary 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 risks.

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

Overview of interest rate risks:

T117

Change in interest rates Impact on profit and loss



Interest rate derivatives

using hedge accounting +100 bp 51.4

using hedge accounting −100 bp −51.4

Miscellaneous

not using hedge accounting +100 bp −1.0

Total +100 bp −1.0 51.4

Total −100 bp −51.4


In addition to EWE AG as a holding company for the Group’s property portfolio, the Group Central Division segment en-compasses the investments managed directly by EWE AG as well as the companies consolidated at the Group-wide level.

The following table shows external sales by product and service:

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

Of the total sales generated outside of Germany, 581,6 million euros is attributable to Turkey (previous year: 679,2 million euros). The segment assets for Turkey total 388,0 million euros (previous year: 437,5 million euros).

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

T118

in millions of eurosRenewables, Grids

and Gas StorageSales, Services

and Trading International swbGroup

Central Division Group

2017

Power 1,792.4 2,285.1 41.0 625.8 4,744.3

Gas 245.0 1,548.5 542.5 222.1 2,558.1

ICT 482.8 40.1 522.9

Other 81.1 104.7 0.2 237.2 2.0 425.2

External sales 2,118.5 4,421.1 623.8 1,085.1 2.0 8,250.5

2016

Power 1,723.0 1,923.7 45.8 587.4 4,279.9

Gas 216.4 1,254.6 652.6 232.0 2,355.6

ICT 490.9 29.3 520.2

Other 73.5 94.7 0.2 239.3 2.9 410.6

External sales 2,012.9 3,763.9 727.9 1,058.7 2.9 7,566.3

T119

Germany International Group

in millions of euros 2017 2016 2017 2016 2017 2016

External sales 7,626.7 6,838.4 623.8 727.9 8,250.5 7,566.3

Segment assets 7,624.8 7,310.4 517.2 505.5 8,142.0 7,815.9

Payments for investments 498.9 418.2 26.7 51.0 525.6 469.2


T120

Segment reporting as at 31 December 2017 (I / II)Renewables,

Grids and Gas Storage Sales, Services and Trading International


Revenue (excluding electricity and energy taxes)

External sales 2,118.5 2,012.9 4,421.1 3,763.9 623.8 727.9

Sales between the segments 933.1 862.7 649.8 532.8 1.8 0.2

Total revenue (excluding electricity and energy taxes) 3,051.6 2,875.6 5,070.9 4,296.7 625.6 728.1

Profit / loss

Segment profit / loss (operating EBIT) 388.8 333.7 70.6 61.2 24.8 25.6

Other information

Segment assets 3,741.7 3,615.0 1,814.5 1,550.2 517.2 505.5

Financial assets and securities

Investments in associates accounted for using the equity method 85.1 65.9 29.8 37.0

Income tax refund claims and deferred tax assets

Consolidated assets

Segment liabilities 2,555.9 2,405.0 1,551.7 1,219.5 306.0 319.5

Financial liabilities (bonds, liabilities to financial institutions)

Deferred taxes, tax provisions and income tax liabilities

Consolidated liabilities


Other operating income 1 20.9 78.1 170.9 202.0 72.6 22.2

Material expenses −2,030.6 −1,970.9 −4,540.2 −3,799.7 −536.7 −635.1

Personnel expenses −189.7 −192.3 −241.0 −234.8 −23.9 −25.7

Depreciation and amortisation −234.7 −226.0 −55.3 −62.7 −16.1 −17.1

Impairments −75.5 −144.9 −0.7 −6.1 −28.6

Other operating expenses −249.6 −276.5 −329.8 −313.7 −42.9 −38.7

Impairment losses / income pursuant to IFRS 9.5.5 −0.7 −8.0 −2.2

Income from investments 3.0 2.2 5.6 5.4

Income from interests in associates −7.0 −4.6 −6.8 1.6

Significant non-cash items −11.5 −13.9 19.1 52.1 46.2 1.9

Employees (average) 2,119 2,079 3,247 3,213 1,011 965

1 Of which in the International segment: income of 51.0 million euros in Poland and 9.3 million euros in Turkey from reversals of write-downs due to improved income expectations


T121

Segment reporting as at 31 december 2017 (II / II)swb Group Central Division Group


Revenue (excluding electricity and energy taxes)

External sales 1,085.1 1,058.7 2.0 2.9 8,250.5 7,566.3

Sales between the segments 430.8 272.1 −2,015.5 −1,667.8

Total revenue (excluding electricity and energy taxes) 1,515.9 1,330.8 −2,013.5 −1,664.9 8,250.5 7,566.3

Profit / loss

Segment profit / loss (operating EBIT) 89.3 165.2 −70.1 −51.1 503.4 534.6

Other information

Segment assets 2,376.5 2,465.8 −307.9 −320.6 8,142.0 7,815.9

Financial assets and securities 754.3 426.1

Investments in associates accounted for using the equity method 30.1 20.1 145.0 123.0

Income tax refund claims and deferred tax assets 55.8 70.2

Consolidated assets 9,097.1 8,435.2

Segment liabilities 1,693.9 1,680.2 −1,082.9 −945.4 5,024.6 4,678.8

Financial liabilities (bonds, liabilities to financial institutions) 1,823.1 1,612.7

Deferred taxes, tax provisions and income tax liabilities 164.7 201.8

Consolidated liabilities 7,012.4 6,493.3


Other operating income 92.3 189.8 −39.6 −56.7 317.1 435.4

Material expenses −1,087.5 −889.0 1,861.3 1,533.0 −6,333.7 −5,761.7

Personnel expenses −195.6 −200.0 −61.6 −69.7 −711.8 −722.5

Depreciation and amortisation −108.5 −108.3 −19.4 −21.2 −434.0 −435.3

Impairments −20.1 −6.6 −12.9 −124.9 −170.5

Other operating expenses −134.0 −156.5 195.5 207.5 −560.8 −577.9

Impairment losses / income pursuant to IFRS 9.5.5 −4.9 −0.3 −16.1

Income from investments −13.5 7.1 57.0 240.5 52.1 255.2

Income from interests in associates 5.3 2.3 −8.5 −0.7

Significant non-cash items −1.8 64.7 47.1 5.4 99.1 110.2

Employees (average) 2,150 2,178 607 613 9,134 9,048


Operating EBIT can be reconciled as follows to earnings before taxes (EBT):

44. Cash flow Statement

Liquid assets comprise the item cash and cash equivalents on the statement of financial position, which consist of 608,3 mil-lion euros (previous year: 351,3 million euros) as well as cash pooling receivables of 1,2 million euros (previous year: 0,9 mil-lion euros). Liquid assets encompass cash in hand and bank balances.

To calculate cash flow from operating activities, the additions to and reversals of provisions are presented as non-cash changes in provisions and the use of provisions is shown in changes in liabilities and other components of equity and

T122







Investments 1.7 243.0


Donations −20.0

EBIT 503.8 649.2

Interest income 16.2 13.0


EBT 361.3 442.7

liabilities. The cash flow from operating activities includes divi-dends received totalling 19,7 million euros (previous year: 17,5 million euros).

Besides a non-cash portion of 10.0 per cent of treasury shares, the consideration received for the sale of the shares in VNG (74.2 per cent) in the previous year includes a cash settlement recognised under incoming payments from the divestiture of other non-current assets.

Payments for investments in shares in fully consolidated com-panies essentially comprise the acquisition of the shares in the TURBOWIND Group less the liquid funds acquired. In the pre-vious year, they essentially comprised the acquisition of the shares in Millenicom less the 3.4 million euros in liquid funds acquired.

The cash flow from financing activities includes profit distri-butions or dividends totalling 88.0 million euros (previous year: 88.0 million euros) to EWE shareholders. This corre-sponds to 402.40 euros (previous year: 402.40 euros) per quali fying share. Additionally, a special dividend of 137.5 mil-lion euros was distributed to EWE shareholders in the previous year. This corresponds to 673.65 euros per qualifying share. As in the previous year, no dividends were distributed to minor-ity shareholders in the reporting year.

Non-cash investments of 101,1 million euros (previous year: 67,1 million euros) primarily relate to the capitalisation of reha-bilitation provisions. Additionally, 2.0 million euros of the pur-chase price for the acquisition of the shares in the TURBOWIND Group were recognised as a non-cash addition.


As at 31 December 2017, cash and cash equivalents were not subject to any restrictions on use.

The following reconciliation illustrates the change in debt re-sulting from financing activities:

45. Information on easements

A number of easements – that is, agreements governing the use of public property for electricity and natural gas, and con-cession agreements in the water sector – exist between com-panies in the EWE Group and the local authorities in EWE’s network areas.

In its easement agreements, the companies in the EWE Group are given the right to use public spaces within the contractu-al territory for the construction, operation and maintenance of power lines and pipelines as well as the associated equipment which serves to directly supply end customers with power and natural gas. The water concession agreements oblige the local

T123

in millions of euros Bonds

Liabilitiesto financialinstitutions Other liabilities Total

Non-current liabilities

Opening balance: 01.01.2017 1,237.4 130.7 251.9 1,620.0

Cash 99.8 258.7 −9.0 349.5

Non-cash



Reclassifications / other changes 3.4 −85.4 −1.8 −83.8

Closing balance: 31.12.2017 1,340.6 345.4 250.6 1,936.6

Current liabilities

Opening balance: 01.01.2017 168.2 76.4 26.4 271.0

Cash −150.0 −42.9 −11.9 −204.8

Non-cash



Reclassifications / other changes 0.9 87.2 1.4 89.5

Closing balance: 31.12.2017 19.1 118.1 23.2 160.4

authorities in the contract territory to agree to grant EWE the exclusive use of public spaces for the installation and operation of pipelines to directly supply the public with water. Within the scope of these agreements, a licence fee must be paid to the municipality for the use of public land.

These agreements are generally entered into for a period of 20 years. If the easements are not renewed, EWE is legally obliged to transfer the local distribution facilities to the new energy supplier in return for reasonable consideration.


46. Selection of significant shareholdings pursuant to Section 313 (2) HGB as at 31.12.2017

T124

Name of company and location of headquartersin thousands of euros

Interest in % Equity

Net income for the year

Associates

Consolidated:

be storaged GmbH, Oldenburg 100.00 25 2

BREKOM GmbH, Bremen 100.001 10,866 1,150

BTC Business Technology Consulting AG, Oldenburg 100.00 12,902 2

BTC IT Services GmbH, Oldenburg 100.001 1,463 3,3182

Bürgerwindpark Bakum West GmbH & Co. KG, Oldenburg 100.001 3,591 −59

Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Türkei 80.001 79,092 27,186

Energieversorgung Weser-Ems GmbH, Oldenburg 100.00 170,171 2

Enervis Enerji Servis Sanayi ve Ticaret A.Ş., Istanbul, Türkei 100.001 10,635 3,619

EWE energia Sp. z o.o., Międzyrzecz, Polen 100.001 97,228 4,413

EWE Enerji A.Ş., Istanbul, Türkei 100.001 3,864 −4,592

EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg 100.00 11,206 2

EWE GASSPEICHER GmbH, Oldenburg 100.00 160,090 2

EWE NETZ GmbH, Oldenburg 96.925 222,799 2

EWE NETZ RVN GmbH, Oldenburg 100.001 25 2, 6

EWE Offshore Service & Solutions GmbH, Oldenburg 100.00 25 2

EWE Polska Sp. z o.o., Poznań, Polen 100.00 103,415 3,736

EWE TEL GmbH, Oldenburg 100.00 95,908 2

EWE TELEKOMÜNIKASYON HIZMETLERI A.Ş., Istanbul, Türkei 100.001 38 −3

EWE TRADING GmbH, Bremen 100.00 30,026 2

EWE Turkey Holding A.Ş., Istanbul, Türkei 100.00 219,036 −3,609

EWE VERTRIEB GmbH, Oldenburg 100.00 152,156 2

EWE WASSER GmbH, Cuxhaven 100.001 14,216 2

EWE Windpark Hatten GmbH, Hatten 100.001 9,270 1,564

EWE Windpark Köhlen GmbH & Co. KG, Oldenburg 100.001 14,499 2,304

EWE-Windpark Walsrode GmbH & Co. KG, Oldenburg 100.001 1,259 −208

EWE-WINDSERVICE GmbH, Krummhörn 100.001 461 436

Gastransport Nord GmbH, Oldenburg 100.00 20,790 2

KAY 1 Günes Enerjisi Sanayi ve Ticaret A.Ş., Kayseri, Türkei 100.001 −151 −81

KAY 2 Günes Enerjisi Sanayi ve Ticaret A,Ş,. Kayseri. Türkei 100.001 −125 −55

KAY 3 Günes Enerjisi Sanayi ve Ticaret A.Ş., Kayseri, Türkei 100.001 −120 −53

Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Türkei 80.001 24,967 5,616

Millenicom Telekomünikasyon Hizmetleri A.Ş., Istanbul, Türkei 100.001 −3,129 −7,703

nordcom Niedersachsen GmbH, Oldenburg 100.001 525

Offshore-Windpark RIFFGAT GmbH & Co. KG, Oldenburg 99.581 273 −13,085

PRO CONSULT Management- und Systemberatung GmbH, Mainz 100.001 395 295

qbig GmbH, Oldenburg 100.001 25 2 6

swb Abrechnungsservice GmbH, Bremen 100.001 5,112 2

swb AG, Bremen 100.00 265,012 11,136

swb Beleuchtung GmbH, Bremen 99.001 250 2

1 Direct investment 5 A 96.92% interest is held indirectly2 Control (including partial control) and / or profit and loss transfer 6 This company was founded in 2017

agreements exist with this company 7 This company has entered into a profit / loss transfer agreement with another company3 Equity and net income for the year are from 2016 4 Preliminary net income for the year from 2017





Associates

Consolidated:

swb Bremerhaven GmbH, Bremerhaven 100.001 1,980 7,1213

swb CREA GmbH, Bremerhaven 100.001 77 3

swb Entsorgung GmbH & Co. KG, Bremen 100.001 140,693 17,9543

swb Erzeugung AG & Co. KG, Bremen 100.001 −34,743 −14,0133

swb Erzeugung und Entsorgung AG & Co. KG, Bremen 100.001 189,463 12,3293

swb Services AG & Co. KG, Bremen 100.001 10,345 4,4606

swb Vertrieb Bremen GmbH, Bremen 100.001 7,249 32,7396

swb Vertrieb Bremerhaven GmbH & Co. KG, Bremerhaven 100.001 554 3,3646

swb Windpark Am Zolltor GmbH & Co. KG, Bremerhaven 100.001 2,347 3473

swb Windpark Essel GmbH & Co. KG, Bremerhaven 100.001 4,696 −2563

swb Windpark Weserufer GmbH & Co. KG, Bremerhaven 100.001 3,920 5113

TURBOWIND ENERGIE GmbH, Hanover 100.001 −1,082 −1,9203

UTC Windparkbetriebsgesellschaft Lichtenau mbH, Lichtenau 100.001 25 3

wesernetz Bremen GmbH, Bremen 99.001 211,003 43,1123

wesernetz Bremerhaven GmbH, Bremerhaven 99.001 34,468 2

wesernetz Stuhr GmbH & Co. KG, Bremen 100.001 6,879 1,061

wesernetz Weyhe GmbH & Co. KG, Bremen 100.001 4,298 1,030

Windfarm Elsdorf II GmbH, Oldenburg 100.001 −990 −156

Windfarm Märkisch-Linden GmbH & Co. KG, Kränzlin 85.201 6,189 −391

Windparkbetriebsgesellschaft Adorf / Diemelsee mbH, Diemelsee 100.001 13 2

Windpark Industriehäfen GmbH & Co. KG, Bremerhaven 74.901 1,705 105

Windpark Tuchen GmbH & Co. KG, Oldenburg 100.001 86 −213

Windpark Walsrode GmbH & Co. KG, Oldenburg −1,259 −208

Zweite EWE Offshore Beteiligungs GmbH, Oldenburg 100.00 327,210 2

Not included in the basis of consolidation and recognised pursuant to IFRS 9:

BIBER GmbH – Bildung Betreuung Erziehung, Oldenburg 100.00 73 2

BTC (Schweiz) AG, Glattbrugg, Switzerland 90.001 2,250 1,0393

BTC Bilişim Hizmetleri A.Ş., Istanbul, Turkey 100.001 272 3613

BTC Business Technology Consulting Sp. z o.o., Poznań, Poland 100.001 519 4313

BTC Embedded Systems AG, Oldenburg 93.601 3,040 7643

Digitalprojekt 1 GmbH, Berlin 100.00 50 6



Energieversorgung Brand GmbH, Krausnick-Groß Wasserburg 50.001 2,828 6753

ENRO Ludwigsfelde Energie GmbH, Ludwigsfelde 100.001 8,970 1,0893

EWE Direkt GmbH, Oldenburg 100.001 23 2

EWE Urbanisation Dienstleistungs GmbH (UDG), Bremen 100.00 2,374 2

FSO Fernwirk-Sicherheitssysteme Oldenburg GmbH, Oldenburg 74.00 481 3193

Gewi Betriebsführungs GmbH & Co. KG, Husum 100.001 540 823







Associates

Not included in the basis of consolidation and recognised pursuant to IFRS 9:

Gewi Planung und Vertrieb GmbH & Co. KG, Husum 100.001 3,243 −4783

Grünspar GmbH, Münster 90.00 −2,105 −1,4683

GSN Gebäudesicherheit Nord GmbH, Oldenburg 51.00 558 3003

PBB GmbH, Oldenburg 100.001 496 2

proNaturWatt GmbH, Oldenburg 100.00 25 2

SOCON Sonar Control Kavernenvermessung GmbH, Giesen 62.001 6,130 1,5373

swb Erzeugung Beteiligungs-GmbH, Bremen 100.001 1,562 623

swb Gasumstellung GmbH, Bremen 100.001 1,509 2 3

TELTA Citynetz GmbH, Eberswalde 100.001 1,955 3913

TEWE Energieversorgungsgesellschaft mbH Erkner, Erkner 100.001 4,705 2403

Companies measured at equity

Associates:

DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG, Oldenburg 47.501 159,696 3,8063

GWAdriga GmbH & Co. KG, Berlin 48.00 1,223 −1,2773

htp GmbH, Hanover 50.00 31,546 3,4123

INGAVER Innovative Gasverwertungs-GmbH, Bremen 50.001 974 −198

Limón GmbH, Kassel 33.00 771 −2403

swb Weserwind GmbH & Co. KG, Bremen 50.001 1,096 4534

Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg 37.50 5,776 −2,8353

Weserkraftwerk Bremen GmbH & Co. KG, Bremen 50.001 5,992 −5854

Windpark Köhlen GmbH, Oldenburg 50.001 1,499 454

Windpark Spolsen GmbH & Co. KG, Zetel 40.001 2,006 1943

Joint ventures:

Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen 51.761 69,954 2,6044

Hansewasser Ver- und Entsorgungs-GmbH, Bremen 51.001 59,336 10,5344

Other interests recognised pursuant to IFRS 9:

European Energy Exchange AG, Leipzig 1.00 129,282 66,1323

GasLINE Telekommunikationsnetzgesellschaft deutscher Gasversorgungsunternehmen mbH & Co. Kommanditgesellschaft, Straelen 5.671 36,213 36,2133

Gasversorgung Angermünde GmbH, Angermünde 49.001 2,142 1533

Governikus GmbH & Co. KG, Bremen 14.901 4,841 6603

Harzwasserwerke GmbH, Hildesheim 17.391 90,041 6,6073

sovanta AG, Heidelberg 10.00 6,860 3,9503

Städtische Betriebswerke Luckenwalde GmbH, Luckenwalde 20.001 14,947 3,0393

Stadtwerke Ludwigsfelde GmbH, Ludwigsfelde 20.001 12,907 2,1273

Stadtwerke Schwedt GmbH, Schwedt / Oder 10.201 22,933 6,3643. 7

Stadtwerke Soltau GmbH & Co. KG, Soltau 49.501 12,813 1,3533

Stadtwerke Strausberg GmbH, Strausberg 38.381 11,748 1,2303. 7

Verkehr und Wasser GmbH, Oldenburg 26.001 8,000 −2,1763

Wärmeversorgungsgesellschaft Königs Wusterhausen mbH, Königs Wusterhausen 22.90 6,240 1,0183




47. Related party disclosures

Transactions with companies included in the consolidated financial statements were eliminated in the course of con-solidation. The following are deemed related companies of the EWE Group:

■■ The controlling shareholder (EWE-Verband GmbH) or the shareholder with the largest controlling interest (EWE- Verband) in EWE AG;

■■ Companies that exert significant influence over EWE AG (the investor EnBW until April 2016);

■■ Parties under the influence of shareholders or the investor;

■■ Non-consolidated affiliated companies;

■■ Associates accounted for using the equity method; and

■■ Interests measured pursuant to IFRS 5 (VNG until April 2016).

For the EWE Group, related persons in key positions include the members of the Board of Management and the Super visory Board of EWE AG.

Relationships with the group of shareholders are primarily of a financial nature as well as for the exchange of commercial services.

The majority of the relationships with the group of companies accounted for using the equity method and the assets meas-ured pursuant to IFRS 5 are supply and service relationships for natural gas as well as financial relationships. All transactions are concluded on standard market terms.

The following table shows the transactions with related parties:

T125

Shareholders / investors of EWE AGin millions of euros 2017 2016

Sale of goods 0.3

Purchase of energy 44.3 43.8

Sale of energy 39.7 38.5

Services purchased 19.4 25.0

Services rendered 16.6 13.0

Receivables 6.7 1.8

Liabilities 4.3 9.3

The local authorities and municipalities in our supply area be-tween the Ems, Weser and Elbe rivers make up the Ems-Weser- Elbe Versorgungs- und Entsorgungsverband (supply and dis-posal 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 tele-communications services to third parties takes place at rates and with terms and conditions comparable with those agreed upon with third parties.

T126

Associates and joint ventures accounted for using the equity method and assets measured pursuant to IFRS 5


Purchase of goods 24.4

Sale of goods 0.7

Purchase of energy including grid usage fees 1 42.0 26.5

Sale of energy including grid usage fees 2 90.1 21.0

Services purchased 3 11.1 2.3

Services rendered 26.4 19.8

Financing (loans receivable) 57.8 15.7

Consideration received for financial agreements (loans) −0.2 −0.1

Receivables 28.2 18.1

Liabilities 7.5 8.1

1 Of which 0.0 million euros to companies accounted for pursuant to IFRS 5 (previous year: 11.0 million euros)



T127

Non-consolidated affiliated companiesin millions of euros 31.12.2017 31.12.2016

Loans 8.8 9.0

Trade receivables 1.2 9.0

Cash pool receivables 0.5 0.9

Other receivables 0.2

Trade payables 2.2 1.3

Cash pool liabilities 13.0 15.9

Other liabilities 1.5 0.5


Aloys Kiepever.di trade secretary for the Weser-Ems district, Emden, Germany

Heike KlattenhoffManaging director of ver.di trade union for the Weser-Ems district, Delmenhorst, Germany

Jürgen KrogmannMayor of the city of Oldenburg, Oldenburg, Germany

Beatrix KuhlMayor of the town of Leer, Leer, Germany

Jürgen Löcke (since 16 May 2017)Deputy managing director of Sparkassenverband Niedersachsen, Barsinghausen

Peter MarrekChairperson of the Group works council of swb AG, Wilhelmshaven, Germany

Dr. Frank Mastiaux (until 16 May 2017)Second deputy chairperson (until 16 May 2017) CEO of EnBW AG, Karlsruhe, Germany

Peter Meiwald (until 16 May 2017)Member of German Bundestag, Westerstede, Germany

Immo Schleppver.di regional department director, Lower Saxony-Bremen, Oldenburg, Germany

Ulrike SchlieperSPD part chairperson on the Friesland district council, Sande, Germany

Richard VenningEmployee of Field Service EWE TEL GmbH, Spenge, Germany

Thomas WindgassenChief representative of EWE AG, Cuxhaven

Board of management

Matthias Brückmann (until 22 February 2017)Chairperson of the Board of Management of EWE AG, Oldenburg (until 22 February 2017)

Stefan Dohler (since 12 January 2018)Chairperson of the Board of Management of EWE AG, Oldenburg (since 12 January 2018)

Information on the boards of EWE AG

Supervisory board

Bernhard Bramlage (since 31 May 2017)Chairperson of the Supervisory Board Former district administrator of the district of Leer, Leer, Germany

Carsten HahnFirst deputy chairperson Chairperson of the joint works council of EWE AG, Osterholz-Scharmbeck, Germany

Heiner Schönecke (since 31 May 2017)second deputy chairperson Member of the state parliament of Lower Saxony, Neu-Wulmstorf, Germany

Johann Wimberg (since 31 May 2017) Third deputy chairperson District administrator of the Cloppenburg administrative district, Cloppenburg, Germany

Henning R. Deters (since 16 May 2017)Fourth deputy chairperson (since 31 May 2017) CEO of Gelsenwasser AG, Essen

Wolfgang Behnke (until 31 December 2017)Group IT employee at EWE AG, Osterholz-Scharmbeck

Peter BohlmannDistrict administrator of the district of Verden, Langwedel, Germany

Claus ChristDistrict administrator of EWE NETZ GmbH, Remels

Eckhard DibkeMember of the works council of wesernetz Bremen GmbH / wesernetz Bremerhaven GmbH / swb Beleuchtung GmbH, Geestland

Bernd-Carsten Hiebing (since 16 May 2017)Member of the state parliament of Lower Saxony, Haren / Ems

Dr. Stephan-Andreas Kaulvers (until 16 May 2017)Chairperson of the Supervisory Board (until 16 May 2017) Former Chairperson of the Board of Management of Bremer Landesbank, Hatten, Germany


49. Use of Section 264 (3) HGB

The following subsidiaries made use of the exemption under Section 264 (3) HGB during the 2017 business year:

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

50. Group relationships

EWE AG’s consolidated financial statements are incorporated into the consolidated financial statements of EWE-Verband GmbH.

51. Events after the end of the reporting period

With the exception of the proposed appropriation of net profit (see Section 27), no significant events after the end of the repor-ting period are known.

Oldenburg, 19 February 2018


Stefan Dohler

Michael Heidkamp

Wolfgang Mücher

Michael HeidkampMember of the Board of Management of EWE AG, markets, Bad Zwischenahn, Germany

Wolfgang MücherMember of the Board of Management of EWE AG, finance, Oldenburg, Germany

Total compensation paid to the members of the Board of Man-agement for their work on the Board of Management and in committees of subsidiaries totalled 2.1 million euros in the business year (previous year: 4.0 million euros). The members of the Supervisory board received compensation totalling 1.3 million euros (previous year: 1.1 million euros). This total includes 0.7 million euros (previous year: 0.6 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 0.5 million euros (previous year: 1.7 million euros).

The provision for pension obligations to former members of the Board of Management and their surviving dependants totalled 43.2 million euros (previous year: 41.4 million euros); payments totalled 1.7 million euros (previous year: 1.5 million euros).

48. Auditor’s fees and services rendered

The companies consolidated within the EWE Group made use of the following services from the auditors of the consolidated financial statements, Ernst & Young GmbH Wirtschaftsprü-fungsgesellschaft (EY), as well as from companies in the inter-national EY network.

Of the fees paid for auditing services, a total of 0,2 million euros is attributable to companies in the international EY net-work, as in the previous year.

T128


Auditing the annual financial statements 1.8 1.8

Other auditing services 0.2 0.1

Tax consulting services 0.1

Other services 0.6 0.7

Total 2.7 2.6

More information

150 151Independent auditor’s reports

151 Responsibility statement152 Independent auditor’s report158 Independent auditor’s limited

assurance report

About this report

Indizes / Lists

160 GRI content index164 List of abbreviations166 List of tables

Service

Financial calendarImprintDisclaimer

160 168

150 M O R E I N F O R M AT I O N

About this report

This integrated report by EWE AG combines our financial and sustainability reports and in doing so, shows how financial and non-financial value drivers contribute to the success of our company.

EWE AG’s consolidated financial statements were prepared in accordance with the mandatory International Financial Reporting Standards (IFRS) and interpretations of the IFRS Interpretations Committee (IFRS IC) as at 31 December 2017, in so far as they have been adopted by the European Union. Further applicable legal provisions set forth in the German Commercial Code (HGB) have also been adhered to.

As before, our reporting on sustainability is based on the spec-ifications of the Global Reporting Initiative. In the 2017 business year, it was based on the specifications of the GRI Standard for the first time. GRI 102-48

As our reporting is already integrated, we have included the non-financial statement under CSR-RUG in the non-financial Section of our report.

The non-financial statements of the Group and EWE AG, the parent company, are submitted together. The report will indi-cate if certain non-financial aspects are treated differently between the Group and the individual company. GRI 102-45

An index for the non-financial statement pursuant to CSR-RUG shows at a glance where the legally required disclosures can be found in the integrated report. The index also specifies the corresponding key aspects of EWE with regard to the aspects set out by law.

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft was engaged to audit the consolidated financial statements, com-bined management report and the content of the non- financial statement and provide an opinion.

The non-financial statement for the 2017 business year was subjected to a limited assurance audit. The non-financial state-ment, the full consolidated financial statements and the combined management report for the 2017 business year are available at https://www.ewe.com/en/investor-relations/ publications/annual-reports.

T129

CSR-RUG aspect Key aspect (EWE) Section of report

Business ModelCombined Management Report, Business

Conditions and General Framework

Environmental Concerns Environmental Protection Our Resources, Environment

Employee Concerns

Working Conditions

Health Management and Occupational Safety

Education and Advanced Training Our Resources, Employees

Social Aspects

Security of Supply and Network Stability

Customer Satisfaction and Service Quality

Information Security

Economic Responsibility

Our Resources, Plants and Networks

Our Resources, Social Aspects and Relationships

Our Resources, Social Aspects and Relationships

Our Resources, Finance

Observation of Human Rights

The aspect of observing human rights was taken into account in the materiality analysis

and not identified as a key reporting aspect in the sense of the German Corporate

Social Responsibility Directive Implementation Act (CSR-RUG). Responsible Management

Bribery and Corruption Corruption Prevention Responsible Management



M O R E I N F O R M AT I O N 151

Responsibility statement

To the best of our knowledge, and in accordance with the ap-plicable reporting principles, the consolidated financial state-ments give a true and fair view of the EWE Group’s net assets, financial position and results of operations, and the EWE Group’s management report includes a fair review of the trends and per-formance 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, 19 February 2018


Stefan Dohler

Michael Heidkamp

Wolfgang Mücher


Independent auditor’s report

Certificate of the audit of the consolidated financial statements and Group management report

to EWE Aktiengesellschaft

OpinionWe have audited the consolidated financial statements of EWE Aktiengesellschaft, Oldenburg, and its subsidiaries (the Group), consisting of the consolidated statement of financial position as at 31 December 2017, the consolidated statement of com-prehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the busi-ness year from 1 January to 31 December 2017, as well as the notes to the consolidated financial statements, including a summary of significant accounting methods. We also audited the Group management report prepared by EWE Aktienge-sellschaft for the business year from 1 January to 31 Decem-ber 2017 and merged with the management report of the com-pany. In accordance with the statutory regulations in Germany, we did not audit the non-financial Group declaration or cor-porate governance declaration in the sub-Section of the Group management report entitled ‘Proportion of Women’.

In our opinion, on the basis of the knowledge obtained in the audit,

■■ the accompanying consolidated financial statements are consistent with the IFRS as adopted by the EU and the sup-plementary statutory German regulations that are applic-able pursuant to Section 315e (1) HGB in all relevant aspects, and, with consideration for these regulations, provide an accurate representation of the net assets and financial position of the Group as at 31 December 2017 and of its results of operations for the business year from 1 January to 31 December 2017, and

■■ the accompanying Group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this Group management report is consist-ent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion of the Group management report does not encom-pass the content of the aforementioned corporate govern-ance declaration or the non-financial statement of the Group.

■■ Pursuant to Section 322 (2) line 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the Group management report.

Basis for the opinionsWe carried out our audit of the consolidated financial state-ments and Group management report in accordance with Sec-tion 317 HGB and Regulation (EU) No 537 / 2014 of the Euro-pean Parliament and of the Council, with consideration for the German Generally Accepted Standards on Auditing as pro-mulgated by the Institute of Public Auditors in Germany (IDW). Our responsibility under these regulations and standards is described in more detail in the Section of our audit opinion entitled ‘Responsibilities of the auditor for the audit of the consolidated financial statements and Group management report’. We are independent of the Group entities in accord-ance with the requirements of European law and German com-mercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. Furthermore, pursuant to Article 10 (2) (f) of Regulation (EU) No 537 / 2014, we declare that we have not provided any non-audit services prohibited by Article 5 (1) of Regulation (EU) No 537 / 2014. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the Group management report.

Key audit matters in the audit of the consolidated financial statementsKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the business year from 1 January to 31 December 2017. These matters were addressed in the context of our audit of the consolidated financial state-ments as a whole, and in forming our opinion thereon; we do not provide a separate opinion on these matters.


Audit procedureDuring our audit, we analysed the process and accounting and measurement methods implemented by the Management of EWE Aktiengesellschaft to determine the fair value of cash- generating units and gained an understanding of the process stages and internal controls that were implemented.

We verified the consistency of the measurement methods im-plemented by the internal measurement guidelines with the relevant IFRS regulations as well as their implementation by EWE Aktiengesellschaft.

We analysed selected plans by comparing them with the ac-tual results generated in the past and with consideration for current developments. We understood the key assumptions regarding growth and the course of business by discussing them with the Management of EWE Aktiengesellschaft and verified the plausibility of the underlying long-term commod-ity and energy price forecasts. We evaluated their suitability on this basis. Furthermore, we audited the sensitivity analyses carried out by the company in order to estimate impairment risks in the event of a potential change in a key assumption on which the measurement was based.

The suitability of the other key measurement assumptions such as the discount rate and growth rate were audited with the support of internal measurement specialists and on the basis of a market indicator analysis. Furthermore, we verified the mathematical correctness of the measurement models.

Our audit has not led to any reservations with regard to the determination of fair value.

Reference to related disclosuresThe disclosures of the company regarding goodwill can be found in the notes to the consolidated financial statements in the Section ‘Notes to the Statement of Financial Position’ in Section 17 ‘Intangible Assets’. Further disclosures regarding energy-generating assets can be found in the notes to the con-solidated financial statements in the Section ‘Notes to the Statement of Financial Position’ in Section 18 ‘Property, Plant and Equipment’ and in Section 10 ‘Depreciation, Amortisation and Write-downs’ in the Section ‘Notes to the Statement of Profit and Loss’.

We describe what we consider to be key audit matters below:

1. Impairment of cash-generating units with goodwill and certain energy-generating assetsReasons for specification as a key audit matterIn the consolidated financial statements of EWE Aktiengesell-schaft, key goodwill is recognised in the line item ‘Intangible assets’ and key energy-generating assets are recognised in the line item ‘Property, plant and equipment’. In order to deter-mine any need for impairment, goodwill undergoes an annual or event-based impairment test and property, plant and equip-ment undergoes an event-based impairment test on the level of the cash-generating units to which the goodwill and / or property, plant and equipment in question has been allocated. In particular, cash-generating units with certain energy- generating assets include offshore wind farms and conven-tional generation.

For the purposes of the impairment test, the fair value less costs of disposal is determined on the basis of the present val-ue of the future cash flows resulting from the budgets for the next three years (medium-term planning) or a longer period determined by the company that have been prepared by the Management and approved or recognised by the Supervisory Board. In this context, expectations regarding future market developments, including changes in certain energy prices and country-specific assumptions regarding changes in macro-economic parameters, are taken into consideration. Present values are determined using discounted cash flow methods. Discounting is carried out on the basis of the weighted average cost of capital of each cash-generating unit. The result of these measurements is largely dependent on the estimation of future cash flows and the discount rates used by the Management.

In light of the material significance, the complexity of the measurement models and the discretionary assumptions of the Management, we consider the determination of fair value as part of the impairment test a key audit matter.


Audit procedureDuring our audit, we also audited the suitability and effective-ness of the internal control system for estimating and contin-uously accounting for revenue. With regard to the estimated proceeds, our audit entailed various analytical examinations and data analyses using actual data in order to test the plau-sibility of the turnover estimates of EWE Aktiengesellchaft. Furthermore, we audited the consistency and continuity of the applied estimate procedures for determining consumption demarcation and examined the suitability of the estimates of the previous year by comparing them against actual state-ments from the year.

We also analysed the estimated sales quantities used by the Group, including the underlying estimation parameters such as degree day statistics, and in doing so carried out a compari-son of the recognised accrued / deferred quantities against the actual quantities. Plausibility checks using actual values as at the reporting date were carried out for key commercial cus-tomers using random samples.

Our audit has not led to any reservations with regard to the accrual / deferral of receivables from customers and the related revenue.

Reference to related disclosuresThe disclosures concerning proceeds from energy deliveries can be found in the notes to the consolidated financial statements in the Section ‘Notes to the Statement of Profit and Loss’ in Section 5 ‘Revenue’ and in the Section ‘Notes to the Statement of Financial Position’ in Section 43 ‘Segment Reporting’.

3. Provisions for obligations from rehabilitation and decon-struction (especially of underground gas storage facilities and wind farms)Reasons for specification as a key audit matterThe consolidated financial statements of EWE Aktien-gesellschaft contain significant provisions for obligations from rehabilitation and deconstruction in order to meet the obliga-tions of the company, as an operator of underground gas stor-age facilities, wind farms and power plants, to abandon and demolish them upon the termination of its operations and im-plement necessary rehabilitation measures. In some cases, the exact scope has not yet been specified under public or private law. The obligation is measured using the discounted settle-ment amount as at the reporting date. In order to determine the settlement amount, the expected disbursements at prices as at the reporting date are first inflated in order to factor in future cost increases and then discounted at a rate specific to

2. Accrual accounting of proceeds from electricity and gas sales (demarcation of consumption)Reasons for specification as a key audit matterIn the consolidated financial statements of EWE Aktienge-sellschaft, some revenue is estimated for energy deliveries (elec-tricity marketing and distribution, gas marketing and distribu-tion and the billing of electricity received from renewables).

In the EWE Group, the total sales are determined through measurement, reading and estimation. In this regard, the pro-cedures differ due to state standards, technical measurement methods and time-based processes. The EWE Group applies accrual accounting for customers in Germany whose consump-tion cannot be read and billed as at the reporting date. The accrual accounting method is applied monthly on a rolling ba-sis. The turnover estimates concern the energy deliveries per customer between the date of the last meter reading and the end of the year, as well as an allocation of the actual measured delivered quantity to the period since the previous measure-ment. The total volumes supplied represent the output vari-able. Network losses and metered quantities for which readings have been taken at the supply points – and have been billed as part of the monthly billing process – are deducted from these volumes. The remaining quantity serves as the basis for the statistical quantity of customers from whom readings are taken as part of the annual billing process. These quantities are allocated and evaluated in line with assumptions regard-ing customer habits and historical consumption data / profiles of the customer. Statistics regarding customer requirements and revenue from customers who are billed annually are checked and, if necessary, updated during the next meter read-ing and billing processes in the following year. For off-grid cus-tomers, the EWE Group forms expectations regarding their consumption. Customers pay instalments periodically towards the expected consumption. For each current month, the total quantity and customers who are billed monthly are on the basis of some forecasts for the sake of urgent calculation. Any necessary adjustments are made in the following month. In light of the material significance of the recognised revenue and deferred receivables, the complexity of the estimation models and the discretionary assumptions of the Management used as part of the estimation procedure, we consider the de-termination of the deferred receivables including the related revenue a key audit matter.


Other informationThe Supervisory Board is responsible for the ‘Report of the Supervisory Board of EWE Aktiengesellschaft’. Otherwise, Management is responsible for the other information. The oth-er information comprises the non-financial Group declaration in Section 3 of the Group management report, the corporate governance declaration in the sub-Section of the Group man-agement report entitled ‘Proportion of Women’ and other com-ponents intended for the annual report of which we received copies prior to the provision of this audit opinion, especially the responsibility statement. Furthermore, the other informa-tion comprises the other components of the annual report that are likely to be provided to us after we award the audit opinion, especially the report of the Supervisory Board pursuant to Sec-tion 171 (2) AktG.

Our opinions on the consolidated financial statements and on the Group management report do not cover the other infor-mation, and consequently we do not express an opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, consider whether the other information

■■ is materially inconsistent with the consolidated financial statements, with the Group management report or our knowledge obtained in the audit, or

■■ otherwise appears to be materially misstated.

Responsibilities of Management and the Supervisory Board for the consolidated financial statements and the Group management reportManagement is responsible for the preparation of the consoli-dated financial statements that comply, in all material re-spects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec-tion 315e (1) HGB and that the consolidated financial state-ments, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and results of operations of the Group. In addition, management is re-sponsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, manage-ment is responsible for assessing the Group’s ability to con-tinue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on

the liability and its term. Especially in order to evaluate geo-logical particularities with regard to underground gas storage facilities, the determination of the settlement amount is also based on external appraisals and information from the facility managers. The assumptions of the Management – as to the scope of the public or private obligations, the geological par-ticularities, the rehabilitation methods, the estimated remain-ing time until rehabilitation or demolition and the future cost increases and discount rate – used to calculate the provisions for obligations from rehabilitation and deconstruction are based on discretionary judgement.

In light of the material significance, the complexity of the mea-surement models and the discretionary assumptions of the Management, we consider the calculation of the provisions for obligations from rehabilitation and deconstruction a key audit matter.

Audit procedureDuring our audit, we analysed the process and accounting and measurement methods implemented by the Management of EWE Aktiengesellschaft to determine the provisions for obli-gations from rehabilitation and deconstruction and gained an understanding of the process stages and internal controls that were implemented.

We verified the consistency of the measurement methods im-plemented by the internal measurement guidelines with the relevant IFRS as well as their implementation by the Manage-ment of EWE Aktiengesellschaft.

The suitability of the other significant measurement assump-tions such as expected costs and rehabilitation methods have also been examined with the support of external experts of the company. Furthermore, we verified the mathematical cor-rectness of the measurement models.

Our audit has not led to any reservations with regard to the determination of fair value.

Reference to related disclosuresThe disclosures of the company regarding the provisions for obligations from rehabilitation and deconstruction can be found in the notes to the consolidated financial statements in the Section ‘Notes to the statement of financial position’ in Section 29 ‘Provisions’.


We exercise professional judgement and maintain professional scepticism throughout the audit. We also:

■■ Identify and assess the risks of material misstatement of the consolidated financial statements and of the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

■■ Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of ar-rangements and measures (systems) relevant to the audit of the combined management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effec-tiveness of these systems.

■■ Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures.

■■ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signif-icant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial state-ments and in the combined management report or, if such disclosures are inadequate, to modify our respective opin-ions. Our conclusions are based on the audit evidence ob-tained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.

■■ Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclo-sures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group in compliance with IFRSs as adopt-ed by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB.

the going concern basis of accounting unless there is an inten-tion to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, management is responsible for the preparation of the combined management report that, as a whole, pro-vides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have consid-ered necessary to enable the preparation of a combined man-agement report that is in accordance with the applicable Ger-man legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined man-agement report.

The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the Group manage-ment report.

Responsibilities of the auditor for the audit of the consolidated financial statements and Group management reportOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or er-ror, and whether the combined management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropri-ately presents the opportunities and risks of future develop-ment, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstate-ments can arise from fraud or error and are considered mate-rial if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this combined management report.


Other legal and regulatory requirementsFurther information pursuant to Article 10 of Regulation (EU) No 537/2014We were elected as Group auditor by the annual general meet-ing on 16 May 2017. We were engaged by the Supervisory Board on 26 June 2017 / 19 December 2017. We have been the Group auditor of EWE Aktiengesellschaft without interruption since the 2012 business year.

We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit commit-tee pursuant to Article 11 of Regulation (EU) No 537/2014 (long-form audit report).

Public auditor responsible for the engagementThe public auditor responsible for the audit is Mr Olaf Boelsems.

Hamburg, 19 February 2018

Ernst & Young GmbHWirtschaftsprüfungsgesellschaft

Boelsems EickhoffAuditor Auditor

■■ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely re-sponsible for our opinions;

■■ Evaluate the consistency of the combined management re-port with the consolidated financial statements, its conform-ity with German law, and the view of the Group’s position it provides;

■■ Perform audit procedures on the prospective information presented by management in the combined management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by management as a basis for the prospective information, and evaluate the proper derivation of the prospective in-formation from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoid-able risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regard-ing, among other matters, the planned scope and timing of the audit and significant audit findings, including any signifi-cant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a state-ment that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with gov-ernance, we determine those matters that were of most sig-nificance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.


Independent auditor’s limited assurance report

The assurance engagement performed by Ernst & Young (EY) relates exclusively to the German version of the combined nonfinancial statement 2017 of EWE AG. The following text is a translation of the original German Independent Assurance Report.

To EWE AG, OldenburgWe have performed a limited assurance engagement on the group nonfinancial statement of EWE AG according to Sec-tion 315b of the German Commercial Code (HGB), which is combined with the nonfinancial statement of the parent com-pany according to Section 289b HGB, the disclosures are marked with the symbol NFS in the sustainability reporting as well as the Sections ‘Business Conditions and General Frame-work / The EWE Group’ and ‘Report on Risks and Opportuni-ties / Legal and Compliance Risks’ of the Group management report (here after: combined nonfinancial statement), for the reporting period from 1 January 2017 to 31 December 2017. Our engagement did not include any disclosures for prior years.

Management’s responsibilityThe legal representatives of the Company are responsible for the preparation of the combined nonfinancial statement in accordance with Sections 315c in conjunction with 289c to 289e HGB.

This responsibility includes the selection and application of appropriate methods to prepare the combined nonfinancial statement as well as making assumptions and estimates related to individual disclosures, which are reasonable in the circumstances. Furthermore, the legal representatives are responsible for such internal controls that they have consid-ered necessary to enable the preparation of a combined non-financial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s declaration relating to independence and quality controlWe are independent from the entity in accordance with the provisions under German commercial law and professional requirements, and we have fulfilled our other professional responsibilities in accordance with these requirements.

Our audit firm applies the national statutory regulations and professional pronouncements for quality control, in particular the by-laws regulating the rights and duties of Wirtschafts-prüfer and vereidigte Buchprüfer in the exercise of their pro-fession [Berufssatzung für Wirtschaftsprüfer und vereidigte

Buchprüfer] as well as the IDW Standard on Quality Control 1: Requirements for Quality Control in audit firms [IDW Quali-tätssicherungsstandard 1: Anforderungen an die Qualitäts-sicherung in der Wirtschaftsprüferpraxis (IDW QS 1)].

Auditor’s responsibilityOur responsibility is to express a limited assurance conclusion on the combined nonfinancial statement based on the assur-ance engagement we have performed.

We conducted our assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised): Assurance Engagements other than Audits or Reviews of Historical Financial Information, issued by the International Auditing and Assurance Standards Board (IAASB). This Standard requires that we plan and perform the assur-ance engagement to obtain limited assurance about whether the combined nonfinancial statement of the Company has been prepared, in all material respects, in accordance with Sections 315c in conjunction with 289c to 289e HGB. In a lim-ited assurance engagement the assurance procedures are less in extent than for a reasonable assurance engagement and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the auditor's professional judgment.

Within the scope of our assurance engagement, which has been conducted primarily between January and February 2018, we performed amongst others the following assurance and other procedures:

■■ Inquiries of employees regarding the selection of topics for the combined nonfinancial statement, the risk assessment and the concepts of EWE AG for the topics that have been identified as material,

■■ Inquiries of employees responsible for data capture and consolidation as well as the preparation of the combined nonfinancial statement, to evaluate the reporting pro-cesses, the data capture and compilation methods as well as internal controls to the extent relevant for the assurance of the combined nonfinancial statement,

■■ Inspection of relevant documentation of the systems and processes for compiling, analyzing and aggregating data in the relevant areas, e.g. environment and employees in the reporting period and testing such documentation on a sam-ple basis,


parties in the context of this engagement (see attachment). In addition, please refer to the liability provisions contained there in no. 9 and to the exclusion of liability towards third parties. We assume no responsibility, liability or other obliga-tions towards third parties unless we have concluded a written agreement to the contrary with the respective third party or liability cannot effectively be precluded.

We make express reference to the fact that we do not update the assurance report to reflect events or circumstances arising after it was issued unless required to do so by law. It is the sole responsibility of anyone taking note of the result of our assur-ance engagement summarized in this assurance report to decide whether and in what way this result is useful or suitable for their purposes and to supplement, verify or update it by means of their own review procedures.

Munich, 26 February 2018

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Nicole Richter Jan Kaiser (German Public Auditor) (German Public Auditor)

■■ Inquiries and inspection of documents on a sample basis relating to the collection and reporting of selected data,

■■ Analytical procedures at group level regarding the quality of the reported data,

■■ Evaluation of the presentation of disclosures in the combined nonfinancial statement.

Assurance conclusionBased on our assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes us to believe that the combined nonfinancial statement of EWE AG for the period from 1 January 2017 to 31 December 2017 has not been prepared, in all material respects, in accord-ance with Sections 315c in conjunction with 289c to 289e HGB.

Intended use of the assurance reportWe issue this report on the basis of the engagement agreed with EWE AG. The assurance engagement has been performed for the purposes of the Company and the report is solely in-tended to inform the Company as to the results of the assur-ance engagement and must not be used for purposes other than those intended. The report is not intended to provide third parties with support in making (financial) decisions.

Engagement terms and liabilityThe “General Engagement Terms for Wirtschaftsprüfer and Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms]” dated 1 January 2017 are applicable to this engagement and also govern our relations with third


GRI content index

The report was submitted for the GRI Materiality Disclosures Service. The GRI has confirmed the correctness of the position of the GRI disclosures GRI 102-40 to GRI 102-49. Page refer-ences refer to the full version of the integrated report 2017 which can be downloaded as PDF from www.ewe.com/en/ investor-relations/publications/annual-reports

T130

GRI 101: Foundation 2016

GRI 102: General Disclosures 2016

Organisational profile

102-1 Name of the organisation EWE AG

102-2 Activities, brands, products and services U2: Cover 1 and 2

102-3 Location of headquarters Oldenburg

102-4 Location of operations U2: Cover 1

102-5 Ownership and legal form U2: Cover 2

102-6 Markets served U2: Cover 1 and 2

102-7 Scale of the organisation U2, U2: Cover 1 and 2, 64–65

102-8 Information on employees and other workers

Data for the entire Group has not yet been processed and thus cannot be presented for this reporting year. We are striving to make

this information available in full again for next year.

102-9 Supply chain27, see AR 2016: 28

https://report.ewe.com/pdfs/EWE-IR16-Full-Version.pdf

102-10 Significant changes to the organisation and its supply chain 6–7: There were no significant changes in the 2017 reporting year.

102-11 Precautionary principle or approach 14–15, 51–52

102-12 External initiativessee AR 2016: 33


102-13 Membership of associationssee AR 2016: 33


Strategy

102-14 Statement from the senior decision-maker 2–5

Ethics and integrity

102-16 Values, principles, standards and norms of behaviour 15

Governance

102-18 Governance structure 6–7, 12

Stakeholder engagement

102-40 List of stakeholder groups 12

102-41 Collective bargaining agreements

639 employees, or 93.4 per cent of the employees of EWE AG, are currently involved in collective bargaining. The data for the Group

as a whole are not currently being compiled. We aim to return to comprehensive reporting for this indicator next year.

102-42 Identifying and selecting stakeholderssee AR 2016: 32


102-43 Approach to stakeholder engagementsee AR 2016: 33


102-44 Key topics and concerns raised 13




Reporting practice

102-45 Entities included in the consolidated financial statements 11, 159

102-46 Defining report content and topic boundaries 12–13

102-47 List of material topics 13

102-48 Restatements of information 159: There has been no restatement

102-49 Changes in reporting 11

102-50 Reporting period 11, 159

102-51 Date of most recent report 26.04.18

102-52 Reporting cycle Annual

102-53 Contact points for questions regarding the report Legal notice

102-54 Claims of reporting in accordance with the GRI StandardsThis report has been prepared in accordance with

the GRI Standards: Core option

102-55 GRI content index 160–163

102-56 External assurance 151, 157, 159

Key issues

GRI 200: Economic 2016

Economic performance

GRI 103: Management approach 2016 103-1 / 2 / 3Material topics, management approach

and evaluation of the management approach 28

GRI 201: Direct economic value 2016 201-1 Direct economic value generated and distributed 29

Procurement practices



GRI 204: Proportion of spending 2016 204-1 Proportion of spending on local suppliers 27

Anti-corruption


and evaluation of the management approach 15–16

GRI 2015: Anti-corruption policies 2016 205-2Communication and training about

anti-corruption policies and procedures 16


GRI 300: Environment 2016

Energy



GRI 302: Energy 2016 302-4 Reduction of energy consumption 19

Emissions



GRI 305: Emissions 2016 305-4 GHG emissions intensity 18

GRI 305: Emissions 2016 305-5 Reduction of GHG emissions 18

Biodiversity



GRI 304: Biodiversity 2016 304-2Significant impacts of activities,

products, and services on biodiversity 19

Supplier environmental assessment


and evaluation of the management approach 15, 27

GRI 308: Supplier environmental assessment 2016 308-1

New suppliers that were screened using environmental criteria

27: Data for the entire Group has not yet been collected

and thus cannot be presented for this reporting year.


GRI 400: Social standards 2016

Employment



GRI 401: Employment 2016 401-1 New employee hires and employee turnover

22: Data for the entire Group has only been processed in part and thus cannot be

presented in full for this reporting year. We are striving to make this information

available in full again for next year.

Occupational health and safety



GRI 403: Occupational health and safety 2016 403-2

Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities

24: Data for the entire Group has only been processed in part and thus cannot be

presented in full for this reporting year. We are striving to make this information


Training and education


and evaluation of the management approach 23, 45–46

GRI 404: Training and education 2016 404-2Programmes for upgrading employee skills and

transition assistance programmes 23

Diversity and equal opportunities



GRI 405: Diversity and equal opportunities 2016 405-1 Diversity of governance bodies and employees

Data for the entire Group has not yet been processed and thus cannot be

presented for this reporting year. We are striving to make this information


Supplier social assessment



GRI 414: Supplier social assessment 2016 414-1 New suppliers that were screened using social criteria

27: Data for the entire Group has not yet been collected and thus cannot be presented for this reporting year.

Socioeconomic compliance


and evaluation of the management approach 15 f., 27

GRI 419: Socioeconomic compliance 2016 419-1

Non-compliance with laws and regulations in the social and economic area




Customer privacy



GRI 418: Customer privacy 2016 418-1

Substantiated complaints regarding concerning breaches of customer privacy

and losses of customer data





List of abbreviations

AfS Available-for-SaleAGEB Working Group for Energy Balances

(Arbeitsgemeinschaft Energiebilanzen e. V.)AktG German Stock Corporation Act

(Aktiengesetz)BDEW German Association of Energy and Water Industries

(Bundesverband der Energie- und Wasserwirtschaft)BMWi Bundeswirtschaftsministeriumbp Base points (Basispunkte)BSA Broadband Service AnalyzerCER future contracts Certified Emission ReductionCO2 Carbon dioxideCVA Credit Value AdjustmentDBO Defined Benefit ObligationDRV “German framework agreement for financial futures

(Deutscher Rahmenvertrag für Finanz-termingeschäfte)”

DVA Debit Value AdjustmentEBIT Earnings Before Interest and TaxesEBT Earnings Before TaxesEEG Renewable Energy Act

(Erneuerbare-Energien-Gesetz)EEW Energieverband Elbe-Weser Beteiligungsholding

GmbHEFET European Federation of Energy TradersEnBW AG EnBW Energie Baden-Württemberg AGEU European UnionEUA European Union AllowanceEWE TEL Group-owned Telecommunications CompanyEY Ernst & Young GmbH Wirtschaftsprüfungs-

gesellschaftFAHfT Financial Assets Held for TradingFLAC Financial Liabilities Measured at Amortised CostFLHfT Financial Liabilities Held for Trading

GKB Gemeinschaftskraftwerk Bremen GmbH & Co. KG

HGB German Commercial Code (Handelsgesetzbuch)

HVE Hansewasser Ver- und Entsorgungs-GmbHIAS International Accounting StandardsIASB International Accounting Standards BoardIDW German Institute of Public Auditors

(Institut der Wirtschaftsprüfer)IFRS International Financial Reporting StandardsIFRS IC IFRS Interpretations CommitteeIT Information TechnologykWh Kilowatt-hours (Kilowattstunden)KWKG Combined heat and power act

(Kraft-Wärme-Kopplungsgesetz)LaR Loans and ReceivablesMW Megawatts (Megawatt)MWh Megawatt-hour (Megawattstunde)NCG Net Connect GermanyPLN Polish złotyTDG Telekom Deutschland GmbHTRY Turkish liraTTF Title Transfer Facility (TTF Cal 16)USD US dollarVBL State insurance agency

(Versicherungsanstalt des Bundes und der Länder)

VNG AG Verbundnetz Gas AktiengesellschaftWACC Weighted Average Cost of CapitalWEE Weser-Ems-Energiebeteiligungen GmbH

Index

AAccounting methods 69

Annual General Meeting 16

BBonds 65, 109, 113, 122, 123, 129, 141

Borrowing costs 76

CCapital management 114, 167

Cash and cash equivalents 44, 58, 68, 81

Cash flow U2, 44, 58, 60, 63, 68, 80, 121, 140, U5

Cash flow hedges 63, 80, 121

Cash flow statement 60, 68

CO2 certificate 34, 135

Compliance 25, 30, 158


DDeferred taxes 63, 64, 65, 75, 91, 111, 112, 120, 138, 139

Derivative financial instruments 80, 88, 89, 110, 114, 124, 125

Derivatives 39, 41, 42, 79, 80, 101, 103, 113, 114, 120, 121, 122, 123, 127, 132, 140

Discount rates 95, 96

Dividend 67, 74

EEBIT U2, 12, 33, 39, 40, 41, 42, 43, 50, 51, 62, 68, 87, 106, 126,

138, 139, 140, U5

EBITDA U2, U5

EBT 140

Employees U2, U3, U4, 8, 21, 22, 31, 138, 139, 150, U5

Equity U2, 37, 43, 57, 65, 67, 79, 95, 99, 100, 105, 113, 114, 127, 142, 143, 144, U5

Equity method 99, 100

Equity ratio U2, 114, U5

FFair value 39, 41, 42, 63, 72, 79, 89, 90, 95, 106, 113, 115, 116,

117, 118, 121, 122, 123, 124, 127, 140

Fair value hedges 121

Financial instruments 54, 77, 128, 132

Financial investments 78

Financial liabilities 79, 113, 123, 125, 128, 138, 139

Financial position 31, 44, 58

Financial risks 53, 114

Financing 145

Forecast 30, 31, 39, 47, 59

GGoodwill 70, 84, 91, 92, 93, 94

Guarantees 112

HHedges 121

IImpairment losses 40, 62, 81, 89, 138, 139

Intangible assets 58, 64, 77, 84, 91, 92, 93, 111, 153

Interest rate swaps 124, 136

Inventories 64, 81, 101, 111

LLeases 76, 87, 114

Legal and compliance risks 25, 30, 54

Liquidity risk 128

MMarket price risks 53, 132

NNon-financial liabilities 65

Non-financial receivables 64

OOperating leases 88

Other income 40, 62, 63, 90, 126

PPension provision 39, 56, 91, 111

Personnel expenses 38, 40, 56, 62, 88, 138, 139

RRating 33, 54

Renewable energy 35

Renewable energy sources act (EEG) 36

Research and development 33, 77, 110

Risks and opportunities 16, 21, 31, 51, 52, 53, 78

SSales 4, 11, 13, 32, 33, 39, 41, 45, 50, 51, 89, 98, 126, 136,

137, 138, 139

Segment reporting 136, 138, 139

Sensitivity analysis 95

Strategy 30, 114, 160

Subscribed capital 65

Subsidiaries 69

Supervisory Board 8, 15, 16, 21, 25, 46, 54, 55, 69, 145, 146, 153, 155, 156, 157

TTransaction costs 47, 71, 78, 79

Transparency 33, 47, 51

VValue in use 81

WWACC 94, 95, 96, 126

Write-downs 33, 39, 40, 42, 56, 58, 59, 62, 68, 73, 79, 81, 87–89, 92, 93, 96–101, 130, 138, 140, 154


T035 Average number of employees 88

T036 Other operating expenses 89

T037 Impairment losses / income pursuant to IFRS 9.5.5 89

T038 Profit / loss from financial assets accounted for using the equity method 90

T039 Current profit / loss from financial assets measured at equity breaks 90

T040 Other income from investments 90

T041 Fair values and dividends received from the equity instruments 90

T042 Net interest 91

T043 Income taxes 91

T044 Earnings before income taxes 91

T045 Intangible assets 91

T046 Intangible assets developed – 2017 92

T047 Intangible assets developed – 2016 93

T048 Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2017 94

T049 Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2016 94

T050 Property, plant and equipment 96

T051 Property, plant and equipment – development 2017 96

T052 Property, plant and equipment – development 2016 97

T053 Investment property 98

T054 Composition of profit / loss in the period from financial investments 98

T055 Financial assets accounted for using the equity method 98

T056 Associates: Statement of financial position 99

T057 Associates: Comprehensive income statement 99

T058 Joint ventures: Statement of financial position 100

T059 Joint ventures: Comprehensive income statement 100

T060 Other non-current financial assets 101

T061 Development of other non-current financial assets 101

T062 Inventories 101

T063 Trade receivables – 2017 102

T064 Trade receivables 2016 102

T065 Changes to valuation allowances for trade receivables 102

T066 Other current financial receivables and assets 103

T001 Forecast deviations 39

T002 Results of operations 39

T003 Significant changes to the consolidated income statement 40

T004 Segment performance 41

T005 Renewables, Grids and Gas Storage segment 41

T006 Sales, Services and Trading segment 41

T007 International segment 42

T008 swb segment 42

T009 Group Central Division 42

T010 Net assets 43

T011 Financial position 44

T012 Number of employees by segment 45

T013 Target percentages for the Supervisory Board and Board of Management of EWE AG 46

T014 Target percentages for the top two levels of management of EWE AG 46

T015 Expected performance of the EWE Group 50

T016 Results of operations 56

T017 Net assets 57

T018 Financial position 58

T019 Investments 58

T020 Consolidated income statement of the EWE Group 62

T021 Consolidated statement of comprehensive income of the EWE Group 63

T022 Statement of financial position of the EWE Group – Assets 64

T023 Statement of financial position of the EWE Group – Equity and liabilities 64

T024 Statement of changes in equity of the EWE Group 65

T025 Cash flow statement of the EWE Group 68

T026 Type of consolidation and number 70

T027 Acquisition 2017 70

T028 Exchange rates – Rate at end of period 73

T029 Exchange rates – Average rate 73

T030 Property, plant and equipment 76

T031 Useful periods of intangible assets 77

T032 Other operating income 88

T033 Material expenses 88

T034 Personnel expenses 88

List of tables


T067 Other financial receivables and assets measured at amortised cost 103

T068 Other financial receivables and assets – 2016 104

T069 Other current non-financial receivables and assets 104

T070 Liquid assets 104

T071 Construction subsidies 105

T072 Provisions 105

T073 Defined benefit and defined contribution pension obligations I / II 106

T074 Defined benefit and defined contribution pension obligations II / II 106

T075 Change in the present value of the obligations 107

T076 Performance of plan assets 107

T077 Present value of the obligation 107

T078 Calculation assumptions / parameters 107

T079 Effect on the present value of obligations not financed via EWE-Treuhandverein 108

T080 Statement of provisions 108

T081 Bonds 109

T082 Liabilities to financial institutions 110

T083 Other financial liabilities 110

T084 Other non-financial liabilities 111

T085 Deferred taxesI I / II 111

T086 Deferred taxesI II / II 112

T087 Transition effects 113

T088 Leases 114

T089 Capital management 114

T090 Hedging instruments on the assets side (I / II) 115

T091 Hedging instruments on the assets side (II / II) 116

T092 Hedging instruments on the liabilities side (I / II) 117

T093 Hedging instruments on the assets side (II / II) 118

T094 Change in value of underlying transaction 119

T095 Development of the cash flow hedge reserve 120

T096 Derivatives without a hedging relationship 120

T097 Derivatives in connection with cash flow hedges 121

T098 Carrying amounts, bases of recognition and fair values by measurement category (I / II) 122

T099 Carrying amounts, bases of recognition and fair values by measurement category (II / II) 123

T100 Financial instruments measured at fair value 2017 125

T101 Financial instruments measured at fair value 2016 125

T102 Changes to fair values in level 3 126

T103 Offsetting of financial assets and financial liabilities 127

T104 Net profit / loss by measurement category 127

T105 Net profit and loss resulting from the individual IAS 39 categories 128

T106 Maturity of financial liabilities 129

T107 Cash flows from electricity derivatives (not own use) 129

T108 Gas derivative cash flows (not own use) 129

T109 Credit risks I / III 131

T110 Credit risks II / III 131

T111 Credit risks III / III 132

T112 Overview of market price risk – power 133

T113 Overview of market price risk – gas 134

T114 Overview of market price risk – coal 134

T115 Overview of market price risk – CO2 certificates 135

T116 Overview of foreign exchange risk 135

T117 Overview of interest rate risks 136

T118 External sales by product and service 137

T119 External sales, assets and capital expenditure by region 137

T120 Segment reporting as at 31 December 2017 (I / II) 138

T121 Segment reporting as at 31 December 2017 (II / II) 139

T122 Operating EBIT 140

T123 Cashflow Statement 141

T124 Selection of significant shareholdings pursuant to Section 313 (2) HGB as at 31.12.2017 142

T125 Shareholders / investors of EWE AG 145

T126 Associates and joint ventures accounted for using the equity method and assets measured pursuant to IFRS 5 145

T127 Non-consolidated affiliated companies 145

T128 Auditor’s fees and services rendered 147

T129 CSR-RUG aspect 150

T130 GRI content index 160


Financial calendar 2018

26.04.2018 Integrated report 2017 – Press conference of financial statements

28.08.2018 Interim report 2018

Disclaimer

This integrated report contains forward-looking statements based on assumptions and estimates by the management of EWE AG. Although company management believes that these assumptions and estimates are accurate, actual future devel-opments and results may differ considerably from these as-sumptions and estimates due to a wide variety of factors. These factors may include changes in the general economic situation, in the statutory and regulatory framework for Germany and the EU, and in the sector. EWE AG is neither liable for, nor guarantees that future developments and the actual results achieved in future will coincide with the assumptions and es-timates made in this Integrated Report. EWE AG neither in-tends nor assumes any obligation to update forward- looking statements to reflect events or developments after the date of this report. This document contains supplementary finan-cial performance indicators not described exactly in IFRS that are or can be non-GAAP measures. Isolated, these should not be used to assess the net assets, financial position and results of operations of the EWE Group, or as an alternative to the financial indicators calculated in line with IFRS and presented in the consolidated financial statements.

Other companies that present or report on financial perfor-mance indicators with a similar designation might calculate them differently.

Due to rounding, it is possible that certain figures in this and other documents do not add up to the exact reported total and that percentages do not exactly reflect the absolute val-ues to which they relate.

This integrated report also exists in German; in the event of any divergences, the German version of the Integrated Report takes precedence over the English version.

Both language versions are available to download from www.ewe.com

Imprint

Published byEWE AktiengesellschaftTirpitzstrasse 3926122 Oldenburg

Team editorial and textEWE AktiengesellschaftCorporate CommunicationPhone +49 (441) 4805-1830E-mail [email protected]

Wolfgang Witte, Aurich, Germany

Concept and DesignIR-ONE, Hamburg, Germany www.ir-one.de

PhotographyEWE archiveCarsten HeidmannMatthias IbelerStephan Meyer-Bergfeld

Printed byZertani Die Druck GmbH, Bremen, Germany

EWE on the Internetwww.ewe.com

EWE Group five-year overview

Key financial figures

in millions of euros 2017 2016 2015 2014 2013

Turnover 8,250.5 7,566.3 7,819.3 8,134.2 8,862.6

Operating EBITDA 937.4 969.9 864.0 847.1 983.2

Operating EBIT 503.4 534.6 428.1 425.4 497.9

EBIT 503.8 649.2 212.0 357.7 410.9

Earnings in the period 256.1 332.9 −9.4 146.3 57.2

Payments for investments (total) 525.6 472.2 666.9 721.3 573.5

Cash flow from operating activities 655.8 471.7 708.2 770.3 406.4

Total assets 9,097.1 8,435.2 9,744.3 9,800.9 10,370.4

Equity ratio in % 22.9 23.0 18.0 23.3 23.1

Net financial position 3,311.3 3,399.7 4,237.1 4,120.7 3,832.7

Employees (average) 9,134 9,048 8,855 9,154 9,163

Employees (full-time equivalent, FTE) 8,651 8,607 8,465 8,538 8,813

EWE Aktiengesellschaft

Tirpitzstrasse 39

26122 Oldenburg

www.ewe.de

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