Annual Report 2011 - EWE AG

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Annual Report 2011 - EWE AG

Annual Report 2011

Impulse for new energies


EWE EWE Group Group key figures and business areas

EWE GROuP

CORPORATE CENTRE / EWE ENERGy SWB

NEW MARkETS

CONSOLIDATION

AND ICT

EWE AG

VNG AG 1

EWE ENERGIE AG

EWE IMMoBILIEN GmbH

2

EWE NETZ GmbH

EWE WASSER GmbH

DoTI GmbH & Co. KG 1

Riffgat Beteiligungs

GmbH & Co. KG

MVR Müllverwertung

Rugenberger Damm

GmbH & Co. KG 1

EWE Polska Sp. z o.o. 2

EWE ENERjI A. Ş. 2

EWE TEL GmbH 2

BTC Business Technology

Consulting AG 2

htp GmbH 1

2010

EUR million 2011 adjusted Change in %

Electricity sales in million kWh 18,828.4 17,809.5 5.7 %

Natural gas sales in million kWh 60,373.8 61,660.4 -2.1 %

Sales

2, 3 swb AG

swb Vertrieb

Bremen GmbH

swb Netze GmbH & Co. KG

swb Vertrieb Bremer haven

GmbH & Co. KG

swb Netze Bremerhaven

GmbH & Co. KG

swb Erzeugung

GmbH & Co. KG

swb Entsorgung

GmbH & Co. KG

1 7,455.4 6,969.6 7.0 %

Return on sales in % -3.8 -3.5 6.9 %

EBITDA 470.7 698.4 -32.6 %

EBITDA margin in % 6.3 10.0 -37.0 %

EBIT -124.3 -30.9 302.3 %

EBIT margin in % -1.7 -0.4 276.1 %

Result for the period -281.9 -246.6 14.3 %

Capital expenditure (total) 626.8 631.6 -0.8 %

Cash flow from operating activities 356.1 398.9 -10.7 %

Share capital

Shareholders’ equity

Equity ratio in %

Return on equity in %

243.0 243.0

2,556.7 3,005.3

26.1 29.7

0.0 %

-14.9 %

-12.3 %

3 -10.1 -7.8 29.6 %

Balance sheet total 9,808.5 10,113.7 -3.0 %

Borrowings2 Employees avg.

2,823.3

8,828

2,732.5

8,464

3.3 %

4.3 %

Apprentices and trainees (31.12.) 492 493 -0.2 %

1 Without electricity and natural gas taxes

2 Bonds and liabilities to banks

3 The return on equity is calculated by dividing the net profit for the period by the

average amount of shareholders’ equity in the current year and previous year.

Consolidated sales

(EuR mill.)

8,000 8000 The Corporate Centre business

area comprises the Group 7,455.4

functional 6,969.6 divisions of EWE

AG as well as the sharehold-

6,000 6000

ings managed by it and Grouplevel

consolidation. The EWE

AG holding company pools

4,000 4000

the strategic, cross-market

development and planning

of the business areas, and

2,000 2000

guarantees financing within

the EWE Group.

0

0

2010 2011

1 Associated company 2 Subgroup or holding company

The EWE Energy business area

is responsible for the energy

business in northwest Germany

(not including Bremen),

Brandenburg, northern West

Pomerania and on the island

of Rugia. This primarily entails

the sale of energy and energy

services, the production of

heat and power, mostly from

72

renewable sources, and the

operation of the network infrastructure.

Sales distribution

(in per cent)

The swb business area consists

of the activities of the

12

swb subgroup in the city

state of Bremen. Its product

range covers electricity, gas,

district heating, drinking water 16

and waste disposal, as well

as technical 2011services.

The segment

further includes the

EWE Group’s conventional

power generation and increasingly

also activities in the

field of renewable energies.

3 Selection of major subsidiaries

The accounting methods applied may result

in rounding differences of +/- one unit

(euro, per cent, etc.).

The New Markets and ICT

business area combines EWE’s

activities outside its original

sectors and regions. They include

the information technology

and telecommunications

subsidiaries, and the

shareholdings in the Polish

and Turkish energy markets.

EWE Energy

swb

New Markets

and ICT

k

Group information


“The energy turnaround can only work if

the growth in the use of renewable energies

is accompanied by useful measures that

address the complexity of functioning,

local energy supply systems. ”

Dr. Werner Brinker, Chief Executive Officer


EWE regions

Oldenburg

Bremen

Hanover

GERMANy

Berlin

Germany: EWE head office

Poland, Turkey: sites of EWE subsidiaries

and / or Group Międzyrzecz holdings

Poznań (Posen) Warszawa (Warschau)

LUBUSKIE

DOLNOŚLĄSKIE

OPOLSKIE

Wieluń

ŚWIĘTOKRZYSKIE

Hamburg

Oldenburg

Bremen

LUBELSKIE

Hannover

Berlin

Międzyrzecz

Poznań

LUBUSKIE

DOLNOŚLĄSKIE

OPOLSKIE

Bursa

POLAND

Istanbul

Wieluń

Warszawa (Warsaw)

ŚWIĘTOKRZYSKIE

Ankara

TuRkEy

LUBELSKIE

Kayseri

Title picture

Wind energy is expected to provide more than half of Germany’s electricity by

2050 – supplied by wind farms both on land and at sea. EWE began investing in

wind power as early as the 1980s and is considered the pacesetter in this field.

The photo was taken from the tower of an EWE wind turbine in Cuxhaven – the

largest wind turbine in the world when it was first commissioned.

B


Istanbul

ursa

Ankara

EWE Group and business areas

CORPORATE CENTRE /

CONSOLIDATION

Kayseri

EWE AG

VNG AG 1

EWE IMMoBILIEN GmbH

The Corporate Centre business

area comprises the Group

functional divisions of EWE

AG as well as the shareholdings

managed by it and Grouplevel

consolidation. The EWE

AG holding company pools

the strategic, cross-market

development and planning

of the business areas, and

guarantees financing within

the EWE Group.

1 Associated company 2 Subgroup or holding company

The EWE Energy business area

is responsible for the energy

business in northwest Germany

(not including Bremen),

Brandenburg, northern West

Pomerania and on the island

of Rugia. This primarily entails

the sale of energy and energy

services, the production of

heat and power, mostly from

renewable sources, and the

operation of the network infrastructure.

EWE GROuP

EWE ENERGy SWB

EWE ENERGIE AG 2

EWE NETZ GmbH

EWE WASSER GmbH

DoTI GmbH & Co. KG 1

Riffgat Beteiligungs

GmbH & Co. KG

MVR Müllverwertung

Rugenberger Damm

GmbH & Co. KG 1

The swb business area consists

of the activities of the

swb subgroup in the city

state of Bremen. Its product

range covers electricity, gas,

district heating, drinking water

and waste disposal, as well

as technical services. The segment

further includes the

EWE Group’s conventional

power generation and increasingly

also activities in the

field of renewable energies.

3 Selection of major subsidiaries

2, 3 swb AG

swb Vertrieb

Bremen GmbH

swb Netze GmbH & Co. KG

swb Vertrieb Bremer haven

GmbH & Co. KG

swb Netze Bremerhaven

GmbH & Co. KG

swb Erzeugung

GmbH & Co. KG

swb Entsorgung

GmbH & Co. KG

NEW MARkETS

AND ICT

EWE Polska Sp. z o.o. 2

EWE ENERjI A. Ş. 2

EWE TEL GmbH 2

BTC Business Technology

Consulting AG 2

htp GmbH 1

The New Markets and ICT

business area combines EWE’s

activities outside its original

sectors and regions. They include

the information technology

and telecommunications

subsidiaries, and the

shareholdings in the Polish

and Turkish energy markets.

k

Group information


2 EWE annual rEport 2011

Themes pages “Impulse for new energies”

More on pages 4–19

Content Financial report 2011

20 Management

20 Group Review 2011

22 Letter from the Board of Management

26 Supervisory Board report

30 Investor Relations

32 Corporate social responsibility

34 Group management report

35 Course of business and economic environment

54 Earnings, assets and financial position

62 Supplementary report

63 Risk report

67 Outlook


69 Consolidated financial statements

70 Income statement for the EWE Group

71 Statement of comprehensive income for the

EWE Group

72 Balance sheet for the EWE Group

74 Statement of changes in shareholders’ equity

for the EWE Group

76 Cash flow statement for the EWE Group

77 Notes to the consolidated financial statements

of EWE AG

161 Confirmation by the legal representatives

162 Auditor’s report

163 Financial statements of the EWE AG

164 Balance sheet for EWE AG

165 Income statement for EWE AG

166 Service

166 Glossary

169 Index and list of abbreviations

170 Financial calendar

170 Imprint

Five-year financial summary EWE Group

Impulse for new energIes

3


4 EWE annual rEport 2011

Travelling green

with wind energy

A flexible partner for

wind and solar energy

Integrating biogas into our

energy supply and the market

page 8 page 10 page 12


Heating to your desired

temperature – intelligently

Advancement through

sustainability

Impulse for new energIes

Trade expertise is what

provides impetus

page 14 page 16 page 18

5


6 EWE annual rEport 2011

EWE recognised early on that there is a need for energy supply to change

from the ground up and has consistently ensured that it is ready for this

change. For us, the drive towards new energies means that we provide a sustainable

supply of energy and help our customers to achieve more with it.

The turnaround in the energy market is significantly

changing how energy is generated, transported and

used. Instead of a few, powerful nuclear power plants

and fossil-fuel-driven power plant blocks, we are seeing

more and more smaller, decentralised plants generating

electricity and heat from renewable sources.

Wind and solar energy cannot always be used, so new

solutions are needed to ensure that enough energy is

always in supply. Generation and transport capacities

must be more intelligent and more flexible than they

have been to date, because the networks are not designed

to support major fluctuations in electricity supply.

And because we can no longer afford to be so careless

in our energy consumption without the trad itional base

load power plants, incentives need to be provided for

customers to reduce their consumption and only use

electricity when it is in abundant supply.

These issues present energy suppliers with major challenges,

and EWE is ideally equipped to handle them. It

was clear to us early on that the way to a sustainable

energy market is the way into the future. We have been

investing in renewable energies since the 1980s and

have been expanding our telecommunications and IT

business since the 1990s – these are key fields of expertise

for intelligent energy supply systems. This doesn't

just provide us with the means to test out new technologies

in our own research and development department.

It also allows us to offer solutions today to help

us drive towards new energies of tomorrow.

Our wish to be the prime mover behind the

reform of energy supply systems is what drives

us forward

If you want to drive forward, you need a powerful motor.

The energy supply of the future should as far as

possible come from renewable sources. And yet, supply

also needs to be as secure as it is today. To ensure that

this can be achieved, energy will in future need to be

transferred more intelligently and used more strategically

than is often the case today.

It starts with the generation of energy. A key factor is

expanding the capacity of renewable energies. Another

factor is moving away from subsidisation and making

it marketable. In short, renewable energies need to be

profitable, too. This is why we are actively involved in

directly marketing electricity from renew able sources.

Deutsche Bahn, for example, is under con tract to use

the electricity generated by two whole wind farms to

power trains (see page 8 / 9). There is also intelligent

control technology that allows biogas plant operators

to generate electricity precisely when it is most needed

by the network operators, allowing them to achieve

good rates of income (see page 12 / 13).

The installed capacity provided by generators does not

automatically guarantee that anything will get moving

reliably. Energy must be available precisely when it is

needed. In order to turn capacity into drive, networks


need to be formed from many individual plants, with

one plant covering for another that may be producing

less energy – immediately and independent of the

weather. Take our gas and steam turbine power plants,

for example, which stabilise electricity grids when

there is little wind (see page 10 / 11).

Expertise for movement

The path to electricity being supplied from 100 percent

re -new able sources can also be shortened by saving

energy sensibly. After all, every kilowatt hour that isn't

consumed also doesn't need to be generated. For this

reason, we support our customers by providing products

that show their energy consumption and enable them

to achieve their goals using less energy. Examples of

these include intelligent devices for radiators that show

consumption and achieve the desired temperature

with maximum efficiency – at the push of a button on

a mobile phone (see page 14 / 15). We don't always have

to rely on new technologies to make the most of energy.

With a broad spectrum of analyses and consulting

services, we help businesses to continuously optimise

their ongoing process so they reduce their emissions

and consumption (see page 16 / 17).

A drive that is long-lasting and reliable depends on the

wheels being oiled and maintained correctly. Modern

energy systems are based on complex and state-of-theart

technology, from thin-film photovoltaics systems

to intelligent electricity meters right up to internet-connected

thermostats. We develop and market these

systems, and as their supplier, we ensure that they run

smoothly. To this end, we maintain numerous local,

professional workshops and service points and set high

standards in our training programmes. Not only that,

but we also train local tradespeople in how to use technologies

that have just appeared on the market or are

just about ready for sale (see page 18 / 19).

Drive turns into momentum when many components

work precisely and reliably together like cogs in a

machine. The whole thing needs detailed knowledge

and understanding. EWE combines more than 80

years of experience as an energy supplier and network

operator with proven expertise in information and

communications technology. We aim to use this to

fulfil our task in the future – to create a drive for new

energies by keeping a perspective on the big picture.

Since 2009, EWE has been conducting field trials with eTelligence in Cuxhaven to examine the intelligent networking

of generation and consumption – including a dedicated marketplace. This enables cold stores, for example, to reduce

their temperature when there is a cheap surplus of wind power, thereby consuming less energy when the wind drops.

Impulse for new energIes

7


8 EWE annual rEport 2011

Pediram-me que escrevesse um "Blindtext". Em português seria algo como o texto para cegos ou texto cego.

MäRkISCh-LINDEN WIND FARM

The Märkisch-Linden wind farm

In the Brandenburg community of Märkisch-Linden, 20

wind turbines with 1.5 megawatts of output each generate

around 59 million kilowatt hours of eco-power per year,

and this power is fed entirely into Deutsche Bahn's own balancing

group. Compared to the current German energy

mix, this relieves the environment of emissions amounting

to 29,000 tonnes of CO 2 each year. swb holds 85.2 per

cent of the wind farm, with the remaining stock being sold

by the company in 2011 to the municipal partner en.regio

Wind, a cooperative of East German municipal utilities.


DEuTSChE BAhN TRAINS

Travelling green with wind energy

The transport of passengers and goods causes around

20 per cent of CO 2 emissions – environmentally friendly

mobility is a core topic in the struggle against climate

change. Rail travel today is by far the cleanest mode

of transport in Germany. 90 per cent of rail transport is

powered by electricity, with the proportion of renewable

energies in railway electricity already standing at

20 per cent. By 2030 this figure is expected to rise to

at least 35 per cent. For this reason, an increasing number

of trains are powered by wind and hydroelectric

Impulse for new energIes

energy. Most wind energy is purchased by DB Energie,

Deutsche Bahn's energy services provider, from the

EWE Group, with 30 gigawatt hours coming from the

EWE ENERGIE Elsdorf II wind farm in Lower Saxony,

and 59 coming from the swb Märkisch-Linden wind

farm in Brandenburg. At present, DB Energie is drawing

104 gigawatt hours from three wind farms. Compared

with conventional electricity sources, Deutsche Bahn's

use of wind power has enabled it to save up to 51,000

tonnes of CO 2 each year.

9


10 EWE annual rEport 2011

GAS AND STEAM TuRBINE POWER PLANT IN BREMEN

The gas and steam turbine power

plant in Bremen

Gas and steam turbine power plants generate steam from

the exhaust fumes coming out the gas turbine. This steam is

used to heat water, thereby additionally powering a steam

turbine. They are capable of converting almost 59 per cent of

the energy stored in natural gas into electricity. By comparison,

an average coal-fired power plant converts around 40 per

cent. Gas and steam turbine power plants can be started up

and shut down in just a few minutes and can be regulated

with the utmost precision. From 2013 onwards, the Bremen

power plant will be producing around 1.8 billion kilowatt

hours each year. swb is the majority owner and is spearheading

its construction and operation.


BREMEN hOuSEhOLDS AND INDuSTRy

A flexible partner for wind and solar energy

Output from wind and solar energy can vary greatly –

and sometimes unpredictably – depending on the weather

conditions. And yet, households and businesses

depend on being provided with a secure and afford able

supply of electricity around the clock. This is where

conventional electricity generation serves as the perfect

partner for renewable energies, providing cover

when it is dark or when the wind drops in order to supply

just the right amount of energy and prevent shortfalls

Impulse for new energIes

from occurring. Power plants need to be able to stop

and start very quickly in order to react dynamically

to fluctuations. At the same time, maximum possible

efficiency is required to keep the costs for such a reserve

low. Together with partners, swb is building a gas

and steam turbine power plant in Bremen to specifically

address the challenge of providing security of supply

while keeping flexibility to a maximum and fuel

consumption to a minimum.

11


12 EWE annual rEport 2011

EWE INTELLIGENT LOAD MANAGER FOR ELECTRICITy

The intelligent EWE load manager

for biogas plants

EWE’s intelligent load manager for electricity is the result of

the eTelligence smart grid field test. A communication module

is used to establish a connection between biogas plants

and EWE, allowing the plants to be remotely controlled. IT

systems are used by EWE to network a large number of plants

into a single, virtual power plant that generates electricity

as it is needed in the short term. This means higher revenue

for the operators. Industrial customers are already making

use of the load manager for cold stores to provide additional

cooling when the market price of electricity is cheaper. It is

currently being tested for use with biogas plants.


MARkETING BIOGAS

When aiming to integrate renewable energy sources

into our energy supply network for the long term, there

are three questions we are confronted with. how can

smaller, decentralised plants be combined to enable

them to replace conventional power plants? how can

they be controlled so that they supply energy when it is

needed? And how can we move away from subsidisation

to a more profitable venture? The solution lies in

virtual power plants, with smaller plants being coordinated

over the internet and working together as if they

Impulse for new energIes

Integrating biogas into our energy supply and the market

were one, big power plant. They are controlled remotely

to generate just the right amount of electricity, there -

by keeping the network stable. It is also economically of

interest, because electricity is delivered when prices are

trending upwards. Capacity can also be sold as before to

help rapidly cover unexpected shortfalls in electricity.

The provision of this “replacement reserve” makes additional

revenue possible. With the intelligent load

manager for biogas plants, EWE is providing operators

with a chance to participate in these market opportunities.

13


14 EWE annual rEport 2011

EWE hEATING SAvINGS PACkAGE

The EWE Heating Savings Package

The heating Savings Package, which is already on the market

in Brandenburg and on Rügen, combines energy, telecommunications

and IT, with window contact sensors and remotely

controlled thermostats communicating wirelessly with an

internet-connected control unit. The customer can set the

temperature for each room and time. The system reacts flexibly

and will, for example, switch off radiators while the

window is open. The customer can interact with the control

system when out and about by using the EWE website or

an app, for example by switching to an energy-saving temperature

level in his absence.


MOBILE hEATING MANAGEMENT SySTEM

Heating to your desired temperature – intelligently

An intelligent energy supply system doesn't stop at the

doorstep – the optimum use of energy is just important

as growth in renewable energies and increases in energy

efficiency. Around 59 per cent of energy costs and 56

per cent of direct CO 2 emissions in private households

are attributable to heating. There is considerable potential

here, even with existing heating technology, because

not every room has to be heated to the same

temperature at all times of the day. The EWE heating

Savings Package provides customers with a solution

Impulse for new energIes

that combines reduced consumption with increased

comfort and convenience. Communications technology

enables the desired temperature for each room at

any time of the day to be controlled with precision and

optimum efficiency. The heating automatically reacts

to changes in outside temperature or opened windows

– and can also be controlled when out and about using

a mobile phone. This helps to save up to 20 per cent in

heating energy without compromising on comfort.

15


16 EWE annual rEport 2011

EWE'S ENERGy AND CO 2 MANAGEMENT

EWE services create transparency

EWE does not just provide electricity and gas. Particularly

with business clients, services are in demand that reveal the

levels of consumption and emissions, thus showing where

there is potential to reduce them. With its energy and CO 2

management services, EWE determines the energy footprint

of a company and assists it in implementing statutory requirements

for emissions trading. More and more businesses

are also making use of this expertise for the introduction of

government-sponsored energy management systems.


JANSSEN hOLzBAu

Advancement through sustainability

For businesses, sustainability is a question of responsibility

– and of competitiveness. This is something that

holds particularly true for the construction industry.

When issuing invitations to tender for major contracts,

the impact upon the climate of the materials used is a

criterion that is increasingly gaining weight against

cost and service life. Being able to provide the same

performance with more environmentally friendly products

provides a competitive advantage. Janssen holzbau

Gmbh, from Werlte, works together with EWE to

Impulse for new energIes

document the ecological benefits of wood as a environmentally

friendly material and to further reduce the

carbon footprint of a given product. Comprehensive data

collection and a wide range of measurements clearly

show how much CO 2 is generated during the entire

production process and where energy can be conserved

– measures that can, for example, be implemented in

the plant control system. The objectively tested and

proven ecological benefits provided by the products ensure

that holzbau Janssen has a competitive edge even

over larger providers.

17


18 EWE annual rEport 2011

ZentrumZukunft

zENTRuMzukuNFT

In 2008, EWE opened the zentrumzukunft in Emstek, Lower

Saxony. Since then, more than 15,000 specialists have received

training in energy and telecommunications tech nolo gies. They

learn how to make use of state-of-the-art technology – from

thin-film photovoltaics systems to electricity-gen er ating fuel

cell heating systems right up to networked, smart building

technology that can be voice controlled. The zentrumzukunft

was the brainchild of architecture students who developed it

as part of a competition at the Oldenburg / East Frisia /

Wilhelmshaven university of Applied Sciences.


TRAINING SPECIALISTS

Trade expertise is what provides impetus

Any technology needs people who master it. With new

technology often comes the worry of it not running

smoothly and whether faults can be fixed quickly. And

the more complex a system is, the more important it

is to install and maintain it correctly. Regardless of what

is used to help save energy, be it a photovoltaics system,

fuel-cell-based mini heating plant or measurement

and control technology – the long-term success of

new energies is dependent on the availability of highly

qualified local tradespeople. For this reason, EWE has

Impulse for new energIes

built a demonstration and training centre that enables

the energy and communications technologies of tomorrow

to be experienced today – the zentrumzukunft.

EWE also works together with more than 1,400 tradespeople

as part of the Synergy Community in order

to be accessible even in sparsely populated regions and

provide training in the latest developments. This is

how local tradespeople become important ambassadors

for forward-looking energy technologies.

19


20 EWE ANNuAL REPORT 2011

Group Review 2011

February

EWE makes energy consumption

transparent with its new EWE trio

smartbox. The intelligent use of IT

and telecommunications technology

makes it possible to reliably analyse

private electricity and gas consumption.

Energy savings of up to 10 per

cent are possible.

June

The subsidiaries EWE TEL and BTC reshuffle

their management. Norbert

Westfal heads up commercial operations,

while Dirk Brameier takes over

technical operations at EWE TEL.

konrad Meier takes over the chair on

the Board of Directors. ulf heggenberger

remains Director of Marketing

and Sales. At BTC, Dirk Thole assumes

responsibility on the Board for

finances and human resources.

March

EWE looks to engage with its customers

and creates customer committees.

Feedback from customers

is to be more strongly reflected in

solutions to company issues in the

future. Customer committees meet

several times a year in different

regions. EWE TEL sells its cable network business

in hamburg. This is part of the

new strategic direction whereby the

telecommunications subsidiary concentrates

more on areas where combined

offers with energy services

are possible.

In Bremen, swb and partners construct

a gas and steam turbine power

plant with output of around 445

megawatts. Following a planned

construction period of 30 months,

the power plant is scheduled to enter

operation in 2013.

August

TRAC-X, the nationwide online trading

platform for natural gas developed

by BTC, started up on schedule.

TRAC-X offers twelve German gas

transmission network operators, including

EWE NETz, a common booking

platform that they are legally

obliged to adhere to.


April

EWE presents its customers with a

considerable offer on the reimbursement

of gas payments. This was done

in light of a ruling issued by the German

Federal Supreme Court in 2010,

in which EWE's price adjustment

clauses were declared to be invalid.

Around 400,000 customers had

accepted the offer by the end of

the year.

October

EWE successfully issues a euro bond

with a volume of €500 million and a

nine-year maturity. The bond’s primary

purpose is to refinance existing

liabilities and is being used to buy

back part of the EWE bond maturing

in 2014.

EWE TEL expands its range of products

and offers an online Tv package

with new, regional content. The mobile,

complementary Tv service for

home gets off to a successful start

– just seven weeks after its launch,

EWE TEL welcomes the new service's

100,000 th customer.

November

May

The largest tide-dependent, run-

of-the-river hydroelectric plant in

Europe, the Bremen Weserkraftwerk,

begins its trial operation period.

It will provide an output of up

to ten megawatts and supply 17,000

Bremen households. swb owns 50

per cent.

EWE TEL realigns itself with a new

brand strategy. The telecommunications

services previously offered under

the "EWE TEL" brand are now

available under the "EWE" brand like

the energy products. The same principle

is applied in Bremen, marketing

telecommunications products under

the "swb" brand.

The German Energy Agency presents

the "Energiesparbuch" (energy savings

account) project, developed by

EWE for household customers, with

the "Energy Efficiency Good Practice"

award.

MANAGEMENT

GROuP REvIEW 2011 LETTER FROM ThE BOARD OF MANAGEMENT SuPERvISORy BOARD REPORT INvESTOR RELATIONS CORPORATE SOCIAL RESPONSIBILITy

EWE TEL strengthens its position in

the broadband internet market by

providing vDSL speeds and announces

that other regions will have their

infrastructure improved. This means

that the company provides 150,000

households in the region with the

means to obtain high-speed internet.

EWE TEL has advocated the provision

of access in "blank spots" in rural

areas.

21


22 EWE annual rEport 2011

Letter from the Board of

Management

A year ago we took the opportunity here to present to you EWE’s new Group structure,

which was to be a starting point and foundation for the further successful development of

the company in the midst of changes that the market and competitive environment had

undergone. Since that time, events that would not have been foreseeable a year ago have

affected our business. The reactor catastrophe in Fukushima sent shock waves throughout

the world and marked the start of the energy turnaround in Germany. The planned sale of

our shares in the gas transmission company vNG could not be completed after shareholders

in December voted against the sale of the shares to strategic partner EnBW. In the midst

of the dispute surrounding the reimbursement of gas payments, we were confronted with

the fact that our efforts in the past had still not brought about a satisfactory resolution

to the situation and that a further payment to our customers was therefore necessary.

This had a knock-on effect, with sales increasing 7 per cent year-on-year to €7.5 billion in

the 2011 financial year. EBIT, on the other hand, experienced a considerable drop, coming in

at €-124.3 million. The Group result was once again negative at €-281.9 million. however,

we acted quickly and decisively, launching the 15plus project to increase the competitiveness

and profitability of EWE. In 2011 alone, we were able to save more than €200 million

by increasing cost efficiency, reducing capital expenditure and selling off some smaller

assets. In recent months, we have also identified a variety of measures that are expected

to strengthen our current energy business and secure profitable growth in the medium

term. In the longer term, we plan to redefine the Group’s strategy for the year 2015 and

beyond using suitable business models. We will be focusing more on our strengths and

core expertise, and will be examining opportunities to enhance how our business areas

work together.

This is why we look to 2012 and the future thereafter with confidence, because the foundations

for a change of course have been laid. For this year, we expect sales to rise moderately

and EBIT to be highly positive.


Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

New challenges require new approaches

management

With the energy turnaround, the energy industry once again faces major challenges. Following

the moratorium on nuclear power in March 2011, which led to the decommissioning

of Germany’s oldest nuclear power plants, the upper house of the German Federal Parliament

passed a series of laws aimed at phasing out nuclear power by 2022 and accelerating the

growth of renewable energies. We, too, are indirectly affected by the decommissioning

decision through swb AG’s shareholding in Stadtwerke Bielefeld Gmbh.

For the most part, however, we do see business opportunities arising from the energy turnaround.

There is hardly an energy supplier in Germany so dedicated to the successful integration

of renewable energies into our energy supply system as EWE. We invested in the

first wind turbines back in the 1980s, and began developing our telecommunications and

information technology business soon after. Both of these businesses represent key areas

of expertise in developing the intelligent energy supply systems of the future.

key to successfully transforming energy supply, however, are the supply networks. Every

second kilowatt hour passing through EWE’s electricity grids today already comes from renewable

sources, and the entire capacity connected to the distribution network exceeds

the annual peak load by 70 per cent. While an expansion of the networks is inevitable, it is

costly and is met with resistance by people in many areas. New storage technologies and

an intelligent load management system can help to resolve this situation somewhat. This

is why EWE is actively working to further these futuristic concepts. We also support our

customers in saving energy. After all, every kilowatt hour that isn’t consumed also doesn’t

need to be generated.

In short, the energy turnaround can only work if the growth in the use of renewable energies

is accompanied by useful measures that address the complexity of functioning, local

energy supply systems. As a regional energy services provider, EWE will be among the

vanguard in this process of transformation, hence the 2011 annual report motto: “Impulse

for new energies”.

23


24 EWE annual rEport 2011

Since July 2011, the seats on the Boards of Management of swb AG and EWE ENERGIE AG

have been interchanged in order to further strengthen the partnership between the two

energy companies. The decision to have identical management boards in Oldenburg and

Bremen demonstrates how we aim to move forward more efficiently and make better use

of collective opportunities in our markets by bundling responsibilities. We are convinced

that, by laying these foundations, we are on the right path to addressing changes in a volatile

environment.

We have a great deal planned for the growth market that is Turkey. We aim to offset the

impairments that we had to apply as a result of impending regulatory reforms against

more successes in our operating business. The excellent economic environment in Turkey,

with growth rates in double digits and the already outstanding position of both gas companies

in Bursa and kayseri, provides an ideal basis for this.

Motivation stems from the desire to make a difference

Ladies and gentlemen, we have a difficult year behind us and we have established the opportunities

that we need to take EWE into a successful future. We would like to sincerely

thank our employees for their hard work and commitment. We would also like to thank

our shareholders for their support and the trust that they have placed in us. Together, we

can make a big difference. And together, we will also convince our customers by performing

in the way that they rightfully expect of EWE.

March 2012

Board of Management

Dr. Werner Brinker Michael Wagener

Dr. heiko Sanders

Dr. Willem Schoeber


Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

Dr. Heiko Sanders

Member of the Board of

Management

Wiesmoor, born in 1969, PhD

in Business Admin istration,

Member of the Board of

Management since July 2011.

Responsible for the company’s

financial matters and for the

Controlling, Accounting,

Finance and Investor Relation

departments.

Dr. Willem Schoeber

Member of the Board of

Management

Bremen, born in 1948, PhD in

Technical Sciences, Eindhoven

Technical university,

Member of the Board of

Management since 2010.

Responsible for cooperation with

swb, particularly in the field of

conventional power generation,

as well as for the Group’s activities

in Poland and Turkey.

Dr. Werner Brinker

Chief Executive Officer

Rastede, born in 1952,

Dr.-Ing., Brunswick

Technical university,

Member of the Board of

Management since 1996.

Responsible for the strategic

orientation of the EWE Group

and for developing the Energy

and Telecommunications business

areas.

management

Michael Wagener

Deputy Chief Executive Officer

Rastede, born in 1957, Banker,

Member of the Board of

Management since 2005.

25

Responsible for the human Resources,

IT, Legal and Procurement

departments and for the

development of a central Energy

Trading division within the Group.

Michael Wagener is the human

Resources Director of EWE.


26 EWE annual rEport 2011

Supervisory Board report

During the course of the financial year 2011 the Supervisory Board monitored the management

of the company continuously and received regular, comprehensive reports from the

Board of Management on the company’s position, all significant events and company performance,

both verbally and in writing.

The Supervisory Board discussed all matters requiring its approval either under law or the

Company articles in detail and took the necessary decisions. In a total of seven meetings in

2011 the Supervisory Board dealt in particular with capital expenditure and its financing,

the income statement as well as individual transactions of particular importance. Three of

the Supervisory Board’s decisions over the year are of particular note: the compensation

offer to around 680,000 natural gas customers, the investment in a new gas and steam

turbine power plant and the retrofitting of power plant block 6 in Bremen.

Following the ruling of the German Federal Supreme Court on 14 July 2010, that the price

adjustment clause used in gas supply contracts for EWE specialrate customers as of April

2007 was invalid, EWE strived to find a constructive solution in conjunction with customers.

The solution provided by mediator Dr. henning Scherf and passed by the Supervisory

Board and shareholders involving gross payments of around €100 million to EWE customers

did not, however, bring about an end to the public discussion as was hoped. Subsequently,

the Supervisory Board and shareholders agreed that the some 680,000 customers

would be presented with an extensive offer of compensation. This offer had been accepted

by around half of the customers by the end of 2011. This measure improved customer trust

and the number of contract cancellations fell to a level more usual within the industry. The

media also saw the compensation offer favourably, with subsequent reporting taking a

much better tone.

Two major investments in generation facilities in Bremen were presented to the Supervisory

Board to be decided upon in 2011, namely the construction of the gas and steam turbine

power plant in Mittelsbüren and the retrofitting of block 6 in the Bremen-hafen power plant.

The realisation of the gas and steam power plant has helped the Group and its customer,

DB Energie, to become even closer in their positive partnership. The power plant, with its


management

Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

high level of flexibility, the reduction of CO 2 emissions and the increased efficiency, is also

a perfect fit for the generation strategy of the Group. The decision to retrofit power plant

block 6 in Bremen is also consistent with the generation strategy of the Group and helps not

only to extend the useful life of the plant until 2025, but more importantly also improves

its efficiency and flexibility.

The single most important topic for the energy industry in 2011 was the decision by the

German government to speed up the phase-out of nuclear energy, triggered by the reactor

incident in Fukushima and thereby bringing about the energy turnaround in Germany. This

in directly affected EWE due to its shareholding in Stadtwerke Bielefeld and their shareholding

in the Grohnde nuclear power plant. Furthermore, EWE is facing the same challenges

as every other energy supplier regarding the imminent conversion of the energy generation

and distribution system. The continuing growth in competition on the electricity and gas

markets and the constantly changing political environment presents EWE with major entrepreneurial

challenges. The Supervisory Board and Board of Management reacted to this by

resolving to initiate the “15plus” project. The goal of the project is to secure the EWE Group’s

competitive advantage and earnings power and to establish the company’s strategic direction

until 2015 and beyond.

The transfer of EWE’s shares in vNG to EnBW AG, which was planned for the end of the

year, was ultimately not possible. At the Annual General Meeting of 15 December 2011,

the majority of the vNG shareholders rejected the transfer. The Board of Management and

Supervisory Board are currently reviewing all possible options on how to proceed.

There were also personnel changes in 2011, both at the Board of Management and the Supervisory

Board of EWE. Dr. heiko Sanders was appointed as a further member of the EWE AG

Board of Management with effect from 1 July 2011. he will be responsible for both Group

Controlling and Accounting and Group Finances and Investor Relations.

27


28 EWE annual rEport 2011

uwe Borck has served on the Supervisory Board since 1 January 2011, as an employee representative.

he succeeds Immo Schlepper, who resigned his Supervisory Board seat with

effect from 31 December 2010.

Together with the Board of Management, the Supervisory Board committees prepared the

meetings and the resolutions of the Supervisory Board. In total the Steering Committee

met eight times, and the Finance and Audit Committee and Operating Committee each

met twice.

The individual financial statements of EWE prepared by the Board of Management in accordance

with the German Commercial Code (hGB), the IFRS consolidated financial statements,

and the condensed management report for EWE and the Group for the financial

year 2011 have been audited by PricewaterhouseCoopers AG, Wirtschaftsprüfungsgesellschaft,

Oldenburg, elected as auditors at the Annual General Meeting on 21 March 2011,

and appointed by the Supervisory Board. The auditors expressed no reservations. The auditors’

reports were distributed to the members of the Supervisory Board. They were included

in the discussion and examination of the financial statements and the consolidated financial

statements and were approved. The auditors were present at the Supervisory Board

meeting dealing with the financial statements, where they reported on the major findings

of their audit and were available to answer questions. having conclusively examined

the individual financial statements and consolidated financial statements prepared by the

Board of Management, the management report for EWE and the Group management

report as well as the proposal for the appropriation of distributable profit, the Supervisory

Board has no objections to make. The Supervisory Board today adopted the individual

financial statements, approved the consolidated financial statements and concurred with

the Board of Management’s proposal for the appropriation of profit.


management

Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

The Board of Management also prepared a report as required under Section 312 of the

German Stock Corporation Act (AktG) on transactions with related parties as per Section

313 of the German Stock Corporation Act. The auditors have audited this report and,

having no objections to make, gave the following statement:

“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 and any disadvantages have been compensated for,

3. there is no reason that any other assessment of the measures listed in the report

should vary substantially from that of the Board of Management.”

After examining the report ourselves, the Supervisory Board concurs with the results of

the audit and declares that it has no objections to the statement of the Board of Management

at the end of the report on transactions with related parties.

The Supervisory Board expresses its thanks and appreciation to the Board of Management,

all employees and the Works Council members for their work in 2011.

Oldenburg, Germany, 2 April 2012

Supervisory Board

Günther Boekhoff

Chairman

Members of the Supervisory Board see page 158 / 159

k

29


30 EWE annual rEport 2011

400

350

300

250

200

150

100

50

0

Investor Relations

EWE bonds and the capital market

EWE currently has four euro bonds outstanding on the

capital market. Two of these euro bonds were first issued

by the company in October 2004 with maturities

of 10 and 15 years respectively and an aggregate volume

of €1.5 billion. In July 2009 and October 2011,

EWE issued further bonds for €500 million with maturities

of twelve and nine years respectively. The 2011

bond issue was part of a liability management transaction.

The majority of the proceeds from the issue have

been used to buy back the 2004 bond that is due to

mature in 2014; the total outstanding bond volume is

therefore currently €2.14 billion.

As was the case in 2010, developments on the fixed-

interest markets in 2011 were dominated by severe secondary

market volatility and increasing risk premiums.

The reason for this was the European debt crisis, the

e ffects of which most noticeably came to bear on the

financial markets in the second half of the year.

Performance of the EWE bonds in 2011

Spread vs. mid-swaps (bp)

400

300

200

100

0

Jan. Feb. Mar. April May June July Aug. Sep. Oct. Nov. Dec.

The average risk premium also experienced significant

rises in the utilities sector. The iBoxx-€-utility index

closed on 31 December 2011 at around 124 base points

higher than at the beginning of the year. The average

risk premium rose accordingly by around 122 per cent.

This rise is explained by the southern European utilities

contained in the index, as these were hit disproportionately

by the debt crisis. The consequences of the Fukushima

catastrophe in Japan also had a generally negative

effect on bonds in the utilities sector.

EWE’s bonds were not able to escape this negative trend

entirely and at least for a while were trading above the

risk premiums from the start of the year. however, these

risk premiums did experience less severe increases than

other utility bonds in general, which is testament to the

general stability of the bonds.

The differences apparent in the development of each of

the EWE bonds is explained by the generally steeper

credit curves and the various different levels at which

the securities were trading on the market.

EWE 10-year

EWE 12-year

EWE 15-year

EWE 9-year

utility Index

iBoxx Corporates


Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

Financing activities in 2011

In July 2011, EWE concluded the refinancing of its existing

syndicated credit line totalling €850 million. The

credit line has a maturity of five years as well as two

options to extend for a total maximum of seven years,

replacing the facility which would have expired in May

2013. The credit line will provide general operating

working capital.

With a capital market transaction that was both successful

and innovative, EWE was able to secure borrowed

capital in October 2011 at attractive conditions in a

volatile market environment. EWE issued a nine-year

bond with a volume of €500 million while also offering

to buy back part of an existing EWE bond (known as

an “intermediated exchange offer”). This involved the

management

buying back of around €357 million of the bond that

will mature in 2014, thereby reducing the original bond

volume of €1 billion to around €643 million. This transaction

has improved EWE’s maturity profile. Investors

showed great interest in the bond, a fact reflected by

an order book of more than €4 billion and solid developments

on the secondary market.

Rating

In spite of Moody’s downgrade of EWE’s rating, the

Group still has a good credit rating. In January 2012, the

rating agency lowered EWE’s rating from A2, negative

outlook to A3, negative outlook, and justified this with

the current strains placed on the company in the midst

of a difficult market environment and the failure to sell

the vNG shares.

EWE 10-year bond EWE 15-year bond EWE 12-year bond EWE 9-year bond

ISIN DE000A0DLU51 DE000A0DLU69 DE000A0Z2A12 XS0699330097

Security code no. A0DLU5 A0DLU6 A0Z2A1 A1K0ZZ

Issue date 14.10.2004 14.10.2004 16.07.2009 04.11.2011

Maturity 14.10.2014 14.10.2019 16.07.2021 04.11.2020

Currency EUR EUR EUR EUR

Volume 0.64 billion 0.5 billion 0.5 billion 0.5 billion

Nominal amount 1,000.00 1,000.00 1,000.00 1,000.00

Coupon type fixed coupon fixed coupon fixed coupon fixed coupon

Nominal interest 4.375 % 4.875 % 5.250 % 4.125 %

Interest paid annually annually annually annually

Interest payment date 14.10. 14.10. 16.07. 04.11.

Issue spread 2004 + 40 bp + 52 bp – –

Issue spread 2009 – – + 160 bp –

Issue spread 2011 – – – + 165 bp

Spread as per 31.12.2011 + 40 bp +136 bp + 141 bp + 125 bp

31


32 EWE annual rEport 2011

Corporate social responsibility –

thinking in a broader context

As a predominantly municipal supplier and service provider,

EWE is firmly rooted in the regions that it serves.

So for the Group, the need to take responsibility for local

affairs beyond its business activities is a given. Group

companies initiate and support projects in four areas:

education and science, social issues, climate protection

as well as culture and sport. EWE is also committed to

good working conditions and achieving a sound worklife

balance. A number of examples are presented below.

Research and education – knowledge for

tomorrow

Energy, telecommunications and information technology

– the sectors in which the Group operates require

considerable amounts of research and knowledge and

need highly qualified employees. For this reason EWE

promotes education and research at all levels, from primary

schools to academies.

EWE’s involvement begins with the very young: on the

initiative of BTC, primary school children in their third

year have written a “first book” that helps pupils in their

first year learning to read and write. This project is now

in its tenth run. At kindergartens and schools in Bremen

swb sponsors more than 550 education initiatives that

support learning projects using innovative methods to

teach school subjects and social skills. young researchers

demonstrate their ability in the “young Researchers /

School Students Experiment” competition. EWE organises

the state competition in Lower Saxony for school

students up to 14 years of age and the regional competition

in east Brandenburg for young people up to the

age of 21. In local customer centres, EWE offers school

students and teachers numerous information and training

events. Around 8,000 people took part in these in

the last academic year.

The step from school into the world of work (or the

world of science) is a vital transition for which EWE

offers young people its support. The MINToring programme

supports school children, in Oldenburg and

other university towns and cities, who are interested

in the natural sciences in their transition from school

to university. At the Putbus IT College on Rügen, young

people complete vocational and professional training

courses in the field of IT systems. Graduates with a

bachelor’s degree in a technical subject can also work

on sustainable energy supply systems at Bremen university

thanks to a chair funded by EWE and swb.

Work and life – keeping it balanced

Giving the employees of tomorrow the qualifications

that they need is indispensable for a company that has

its eye on the future. At the same time it is just as important

to inspire and maintain the creativity of today’s

employees. In addition to specialised professional

training this includes maintaining a sound work-life

balance as well as staying healthy.

Throughout the Group, wherever it is technically possible,

all employees work flexitime and have the opportunity

to work from home. Almost all of the companies

provide day-care for children, either in the company’s

own day-care centres or in external ones. Sports clubs,

social welfare officers and company health insurance

at the EWE companies support employees’ emotional

and physical well-being. The retirement benefits provided

by the Group ensure that employee commitment

is still rewarded after retirement.

Individual companies also set their own priorities. EWE

TEL, for example, offers employees on parental leave

schemes to ease their reintegration into company life,

and this programme was given the Corporate health

Award for “outstanding employee health management

by a company”. BTC won Bremen’s “Colourful key”

prize for its exemplary diversity management.

Commitment to society – for a strong

community

EWE provides infrastructure, utilities and services that

focus on the needs of society and are dependent on

its stability. Promoting social cohesion is therefore an

important element of the company’s involvement.


Group review 2011 Letter from the Board of manaGement SuperviSory Board report inveStor reLationS Corporate SoCiaL reSponSiBiLity

EWE encourages voluntary work to help others. On

National volunteer Day, the majority of the Group companies

give employees the day off to engage in charitable

activities. The majority of employees also donate

the cent amounts of their salaries. These amounts

are matched by EWE and donated to charities working

with children and young people.

Each company also has specific areas of activity. EWE

ENERGy, for example, supports the work of youth divisions

of the fire brigade in Brandenburg, while swb has

launched the “Bremen tidies up” initiative, one of the

largest voluntary rubbish-collection projects in Germany,

together with the municipal council and local partners.

Climate protection – with energy

for tomorrow

Sustainability and climate protection are key challenges

for the energy industry. This is why EWE not only

implements its e³ strategy of energy efficiency, lower

consumption and renewable energies in its own operations,

but also carries out a wide range of activities to

raise awareness of climate protection.

Energy conservation and the shift towards low-emission

and emission-free energy sources are key factors in

this. EWE ENERGy therefore provides measurements

of CO 2 emissions for the community of Langeoog and

its local businesses and advises on how these emissions

can be reduced. Authorities and businesses on the islands

of Rügen and Juist as well as in various other

mainland communities are also supported by EWE in

reducing emissions. The Group organises events with

businesses and local councils to share successful efficiency

policies and awards prizes for outstanding solutions

– by serving as a partner for the “klima kommunal”

environmental competition, for example.

EWE ENERGy and swb support households, not only by

providing comprehensive energy saving consulting services,

but also in acquiring energy-saving household appliances

and low-emission vehicles powered by natural

gas. swb also provides grants for the acquisition of electric

cars when customers sign an eco-power contract.

Culture and sport – making the region

more attractive

management

The EWE Group is majority-owned by local councils

and builds on the potential of its regions. Making them

more attractive as places to live and do business is

therefore a focus of corporate responsibility activities.

This includes sponsorship of art, culture and sport.

The companies organise their own sports events such

as the EWE Cup for young footballers and the swb

marathon. They also support sports clubs from the RSC

Oldenburg wheelchair basketball club to the Fischtown

Pinguins ice hockey team and EWE Baskets Oldenburg

basketball club. In art and culture, the EWE Group supports

initiatives that serve to enrich the regional culture,

such as “Lower Saxony Day” or the East Westphalia

Choir Association. It also helps to bring spectacular international

events to the region – in partnership with

the Brandenburg State Orchestra of Frankfurt and the

Emden Art Gallery, for example, or at the Breminale

culture festival.

The EWE Foundation – independent

involvement

EWE established the EWE Foundation charity in 2001,

which finances its projects solely from income from

the endowment capital, which remains permanently in

place. This way, support for regional projects in the

core areas of education, science and culture are not restricted

by time. The focus is on supporting voluntary

initiatives and excellence in sharing knowledge. For example,

the foundation awards the klaus von klitzing

prize for teachers dedicated to the natural sciences and

who inspire students to conduct research. The “Oldenburger

Schlossgespräche” gives interested citizens

the chance to attend an annual science debate of a high

calibre. Furthermore, with the support of the professional

training initiative MuSEALOG, (art) historians in

the Weser / Ems region are familiarised with the latest

developments in collection and quality management

for museums and informed about occupational perspectives.

33


34 EWE annual rEport 2011

Group management report

together with the EWE AG management report

35 Course of business and economic environment

35 Overview of the course of business

35 General economic conditions

36 Energy market

38 Telecommunications market

39 Legal environment

43 Group structure and business operations

43 Corporate Centre / Consolidation

43 EWE Energy business area

46 swb business area

47 New Markets and ICT business area

48 Company management and strategy

48 Internal management system

49 Group strategy

50 Research and Development

50 Focus of R & D activities

51 R & D spending

51 R & D staff

52 Significant events

53 Employees

54 Earnings, assets and financial position

54 Earnings position

55 Assets and financial position

57 Performance of business areas

57 Corporate Centre / Consolidation business area

57 EWE Energy business area

58 swb business area

59 New Markets and ICT business area

60 Notes to the annual financial statements of EWE AG

in accordance with German commercial law

60 Earnings position

61 Capital expenditure

61 Financial position

61 Assets position

62 Important events since the end of the financial

year

62 Dependency report in accordance with Section 312

of the German Stock Corporation Act (AktG)

62 Supplementary report

63 Risk report

63 Structure and core elements of the opportunity and

risk management system

63 Early recognition process for risks

65 Opportunities

66 Summary assessment of the risk situation

66 Report on the internal control and risk management

system

67 Outlook

67 Forecast macroeconomic developments

68 Forecast development of EWE Group


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Course of business and economic environment

Overview of the course of business

General economic conditions

The development of the global economy in the first

half of 2011 was adversely affected by various events.

These included a significant rise in the price of oil resulting

from political turmoil in the Arab countries, the

major earthquake in Japan and the escalation of the

debt crisis in the eurozone. While the former events

had by and large been dealt with by the middle of the

year, the debt problem continues to dominate the

overall economic situation.

Considerable uncertainty has once again prevailed on

the financial markets since mid-2011. This clearly shows

how delicate the global economy is in spite of a recovery

in the meantime. Many industrialised nations are facing

the task of addressing the need to consolidate. This is

made all the more difficult by factors such as high unemployment,

weak asset price growth and the drawing

out of private debt, which is curbing consumption.

The united States were severely affected by the unresolved

debt crisis. For a time, the uS was on the verge of

insolvency because a domestic political dispute lasting

several weeks showed no signs of being resolved. The uS

debt-to-GDP ratio rose by almost 40 percentage points.

As a result, the rating agencies downgraded its credit

rating and, for the first time in its post-war history, the

united States lost its top AAA rating.

The earthquake and tsunami disaster in Japan in March

2011 sent shock waves through the Japanese economy

and caused the already poor economic development

from the start of the year to deteriorate even further.

The destruction of production facilities, the interruption

of supply chains and a lack of certainty in energy

supply caused production in the second quarter to sink

dramatically. The recovery of the following months is

expected to compensate for only two thirds of the negative

impact of the earthquake on GDP for 2011.

unlike the industrialised nations, many of the emerging

markets were faced with the threat of economic overheating

in the first half of the year as a result of high

inflows of capital and considerable growth in lending.

The imposing of restrictions allowed the economy to

cool down in the middle of the year as was intended.

Group manaGement report

The overall outlook for the emerging markets remains

positive, with Asian markets in particular continuing to

provide signals of stability for the global economy. China

and India, with expected growth of 9.2 and 8.4 per cent

respectively, exhibited the largest growth rates among

the Asian economies in 2011.

In several eurozone countries, sovereign debt rose considerably,

with Greece even reaching levels beyond longterm

sustainability. As a result, the credit rating of a

number of the eurozone’s peripheral nations was downgraded

by the rating agencies. The lack of a long-term

political solution to the sovereign debt crisis in the eurozone

may be related to the rising cost of financing for the

countries affected. A negative impact on the exchange

of goods and services cannot be ruled out.

In light of the financial and economic crisis, which has

been ongoing for four years now, economic developments

within Germany have largely been defined by

the economic conditions abroad. however, Germany

did manage to set itself apart from other industrialised

nations during the entire crisis due to the better position

that it began in. Economic measures taken by the

government during the crisis also helped to prevent a

rise in unemployment following the economic breakdown

between 2008 and 2009. The economic upturn

in Germany continued in 2011. Over the course of the

year the country’s GDP returned to its level from before

the crisis. In the context of the increasingly bleak

state of the global economy, however, economic development

began to lose steam towards the end of 2011.

The German Council of Economic Experts has calculated

that GDP growth was most likely 3.0 per cent.

According to data from Germany Trade and Invest, Poland’s

economy grew by between 3.5 and 4.0 per cent in 2011.

This was driven by public projects co-financed by the European

union, both in the building of infrastructure and

in the energy and waste management sectors. however,

falling business climate indices show that the country

has been affected by the eurozone crisis.

35


36 EWE annual rEport 2011

200

150

100

50

0

-50

* **

Primary energy consumption in Germany

(in million TCE)

200

150

100

50

0

160.0

155.2

104.9

94.2

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

* Source: Working Group for Energy Balances (AGEB)

** This image does not show the electricity trading balance

57.9

Turkey’s growth in 2010 and 2011 was especially pronounced.

Following GDP growth of 9.0 per cent in 2010,

a rise of 6.0 to 8.0 per cent is expected for 2011. The first

half of the year, with a plus of 10.2 per cent, was extraordinarily

positive. The economy weakened somewhat

towards the end of the year, caused in part by developments

in the European union, Turkey’s most important

trading partner.

The state of business in Lower Saxony’s economy has

been extremely stable and remained at almost the same,

very high level of the early summer during the third

quarter. The rate of unemployment in November was

6.2 per cent. This represents the lowest level of unemployment

in Lower Saxony in 19 years.

The economy in Bremen in autumn did not reach the

same high levels as it did in summer, but the overall

picture remained solid. In a survey conducted by the

Bremen Chamber of Commerce, the decline in business

forecasts was reflected in more restrained investment

planning and a slower increase in employment within

the manufacturing, trading and service sectors.

The estimates for the Brandenburg economy in 2011

paint an outstanding economic picture. This is shown

in a survey conducted by the Berlin and Brandenburg

Chamber of Commerce and Industry. Accordingly, businesses

have come out of the economic crisis stronger.

Morale among businesses is good, but a mild downturn

is expected in the coming months.

57.5

51.6 53.5 52.3 47.5

40.3

Energy market

Mineral oil

Natural gas

hard coal

Lignite

49.4

Mild weather and high energy prices drove energy consumption

down in Germany in 2011. According to preliminary

calculations by the Working Group for Energy

Balances (AGEB), consumption is expected to have fallen

year on year by around 5 per cent to 457.6 million tonnes

of coal equivalent (MTCE).

Consumption of oil was 155.2 MTCE, thereby falling to

its lowest level since 1990. The demand for fuel oil experienced

particularly severe stagnation. In addition to

the mild weather, the substantial price rises over the year

caused consumers to be more cautious about spending.

Natural gas consumption in 2010 remained more than

10 per cent behind the previous year’s value at 92.4 MTCE.

Although the economy had a positive effect on gas

sales, the consistently higher temperatures in comparison

with the previous year caused sales in the heating

market to decline.

There was a mild drop in the consumption of hard coal

in 2011. A total of 57.5 MTCE was consumed. Lignite

rose by just under 4 per cent to 53.5 MTCE. This rise reflects

the usage patterns of the power plants, to which

around 90 per cent of the domestically obtained lignite

is delivered.

The contribution of nuclear energy to the energy balance

fell by around 23 per cent (40.3 MTCE) as a result of

the government decision to phase out nuclear power.

8.5

Nuclear energy

Renewable

energies

Other

8.1


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

65

60

55

50

45

Development of base load electricity

trading prices in Germany (EEX)

(Base load for electricity supplies in 2012 shown in Euro / MWh)

65

60

55

50

45

Jan.

2011

Mar. May July Sep. Nov.

Renewable energies increased by a total of 4 per cent

to 49.4 MTCE in 2011. The contributions provided by

wind energy (+22 per cent) and photovoltaic plants

(+67 per cent) experienced particularly strong growth.

Changes in the energy mix

The government resolutions concerning energy policy

which were passed in 2010 and 2011 to promote renewable

energies and phase out nuclear power are reflected

in the primary energy balance of 2011 in the form of

mild changes in proportions. The proportion of nuclear

energy has fallen year on year from 10.9 to 8.8 per cent.

Competition on the energy market

Competition on the energy market continued to increase

in 2011. According to calculations made by the German

Association of Energy and Water Industries (BDEW) in

autumn 2011, 25.8 per cent of German households have

switched their electricity provider since liberalisation

began. Since October 2006, gas customers of all types

have also been able to change their supplier. To date

14.1 per cent of the households that have direct contracts

have switched to a different gas supplier.

Price developments on the energy market

Price developments on the energy markets in 2011 were

primarily determined by the earthquake and tsunami

disaster in Japan, the subsequent events at the Fukushima

nuclear power plant and the German phase-out of

nuclear power. These events led to a price jump of around

10 per cent within two days on the electricity futures

market for 2012. In the middle of the year, the European

140 140

105 105

70

35

0

Hard coal price development

(For deliveries in 2012 in Euro / t and in uS$ / t)

70

35

0

Jan.

2011

uSD / t

Euro / t

Mar. May July Sep. Nov.

debt crisis came to the fore and caused massive price

drops in all relevant markets. The crude oil market was

influenced by the euro / dollar exchange rate and by developments

in North Africa and the Middle East. From

the middle of the year onwards, the fear of a shortage

of supply caused by the threat of a boycott of Iranian

crude oil pushed the oil price upwards.

At the beginning of the year, the base load price of

electricity supplies in 2012 (CAL 2012 Base) was in the

range of 51 to 54 euros per megawatt hour (Euro / MWh).

After the announcement of the moratorium on nuclear

power, this price rose by 9.5 per cent within two trading

days to around Euro 59 / MWh. Particularly remarkable

was that the price jump only occurred on the futures

market, not on the spot market. The high for the year was

Euro 60.55 / MWh. At the end of June, the price fell below

the Euro 58 / MWh mark for the first time since the

events in Japan. Market events were also mainly governed

by the European debt crisis. under the pressure of economic

forecasts predicting decline and falling CO 2 prices,

the front-year price in November returned to the level

from the beginning of the year of Euro 52 / MWh.

Coal futures quotes were extremely volatile in early 2011

at around uS$ 120 per tonne (uS$ / t). The announcement

of the moratorium on nuclear power caused a

price rise of around 7.5 per cent on the hard coal market

in mid-March. At the same time, the value of the

euro rose to a comparable degree against the uS dollar,

such that overall, the price of hard coal futures for European

importers was not significantly more expensive.

37


38 EWE annual rEport 2011

140 140

105

70

35

0

Development of crude oil price (Brent)

(in uSD / bbl)

105

70

35

0

Jan.

2011

Mar. May July Sep. Nov.

As of August, the effects of the debt crisis in Europe also

began to play out on the coal market. On top of this,

demand from China and India was unexpectedly low.

This meant that the price of coal was unable to maintain

this level of more than uS$125/t, temporarily plunging

to uS$ 113 / t. At the end of the year, the futures were

quoted at uS$ 114 –115 / t. With the euro quotes, the

price drop was less noticeable due to the dip in value of

the common currency.

In addition to the factors named above, the turmoil in

the Arab countries also affected the crude oil market in

early 2011. The unrest in Libya and its spread to other

countries in the Middle East caused prices for European

crude oil (Brent) to at times jump as high as uS$ 126 a

barrel (uS$ / bbl). Although the price edged downwards

again as of May, it never fell below the uS$ 100 / bbl

mark. In the fourth quarter, the threat of sanctions from

Western countries against Iran’s nuclear programme

and Israel’s threat of war against Iran caused price rises.

European Brent futures were up considerably in 2011 over

the American WTI futures, which peaked at uS$ 114 / bbl

and almost consistently remained below uS$ 100 / bbl

in the second half of the year.

CO 2 prices were experiencing a slight upward trend at

the beginning of the year. This market was also affected

by the moratorium on nuclear power of 14 March 2011,

and futures traded thereafter at between Euro 17 and

Euro 18.50 per certificate (Euro / AAu). Further down the

line, the European debt crisis had the greatest effects

on this market. The value of the futures continued to

fall, reaching a low in December of Euro 6.90 / AAu. The

reason for this was the disappointing outcome of the

2020

15 15

10 10

Development of prices for CO 2 certificates

(in Euro / EuA)

5 5

0 0

Jan.

2011

Mar. May July Sep. Nov.

uN Climate Change Conference in Durban, which failed

to achieve any significant breakthrough despite being

extended by two days. Canada’s subsequent departure

from the kyoto Protocol caused further discouragement.

Telecommunications market

The telecommunications market in Germany was subject

to considerable pressure again in 2011. Competition intensified

between established providers of landline and

mobile services and cable network operators who have

forced their way into the market. Pressure on prices remains

high, although the overall decline in sales in the market

has slowed compared to previous years. Fourteen years

after the liberalisation of the telecommunications market,

Deutsche Telekom AG (DTAG) holds almost half of the

landline market.

According to preliminary investigations by the German

Federal Association for Information Technology, Telecommunications

and New Media (BITkOM), sales in information

technology in Germany rose by 3.2 per cent

in 2011. A lack of qualified personnel is proving to increasingly

be a hindrance to growth. The proportion of ITC

companies suffering from a lack of experts is currently

47 per cent.


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Legal environment

Energy policy, energy industry legislation and regulations

were dominated by the energy turnaround in 2011. The

focus was on the phase-out of nuclear power, the use of

renewable energies, energy efficiency and the expansion

and conversion work required for the energy infrastructure

in this regard. At a European level, the drafting of

a new energy efficiency directive and wide-reaching

requirements for energy trading have brought about important

changes to the supply of energy in the future.

Revision of the German Renewable Energy Act (EEG)

As part of the package of laws associated with the energy

turnaround, the new German Renewable Energy Act

(EEG) came into force on 1 January 2012. At the core of

the revision is the integration of renewable energies

into the market, network and system. Facility operators

receive a fixed payment for 20 years for the electricity

fed in. An optional market bonus has recently been introduced

for the direct sale of electricity from renewable

sources. Also new is a flexibility bonus for feeding in

electricity as is needed. To relieve the burden on the networks,

photovoltaic power plants will be integrated

into the supply management in future. The opportunities

for exemption from the EEG levy have been changed.

Starting from 2012, smaller businesses that use large

amounts of electricity can be partly exempted from

the EEG levy. In the future, this privilege will only apply

under certain conditions for internal generating systems

and for electricity providers with an EEG electricity

share of more than 50 per cent. In addition, the feed-

in tariffs for individual technologies are to be adjusted.

This gives rise, for example, to cuts for solar power, to

the introduction of a shorter-term funding model for

offshore wind energy and to new categories for biomass.

Revision of the German Energy Economy Law (EnWG)

On 4 August 2011, the new German Energy Economy Law

(EnWG) came into force. The law forms the central basis

for the reform of energy supply. The focal issues of the

new law are more stringent unbundling requirements for

transport network operators, new unbundling requirements

for operators of distribution networks and natural

gas storage facilities and new regulations to strengthen

consumer rights. References are made in several places

to statutory instruments, including the German Incentive

System Ordinance, Electricity Network Tariffs Ordinance

and Gas Network Tariffs Ordinance. These ordinances

are expected to be revised in 2012.

Group manaGement report

Special unbundling requirements for transmission

system operators

More stringent unbundling requirements apply to both

pipeline network operators and transmission network

operators. Network operators can select from three

options: sell their networks (ownership unbundling,

Ou), or hive off an independent system operator (ISO)

or independent transmission operator (ITO). As a transmission

system operator, EWE NETz has selected the

ITO option. All German transmission system operators

are required to prepare a comprehensive network development

plan. Once approved by the German Federal

Network Agency (BNetzA), the network development

plan for natural gas will be published for the first time

on 1 April 2012, for the period 2013 – 2022. It will take

into consideration measures to switch from low-grade

gas to high-grade gas across Germany.

Separation of brand and communications policy

Distribution system operators will be required in future

to keep their communications and brand policy separate

from their sales activities. It is not yet known how the

German Federal Network Agency will implement the

unbundling regulations. The authorities are expected to

publish appropriate guidelines.

Legal framework for smart grids and metering systems

The revised German Energy Economy Law (EnWG) created

the first inkling of a legal framework for what are

known as smart grids. Consumers, for example, are to

be given an incentive to make their potential for shifting

power loads available to network operators. In this

case the network operators charge a lower network fee.

The law also provides for integrating smart meters into

a communications system and making them the basis

for additional network services. These new metering

systems reflect actual power consumption and actual

time of use. From January 2013, they are to be fitted in

new buildings, as part of major renovation work and for

end consumers with annual electricity consumption of

more than 6,000 kWh as well as with operators of new

facilities with an installed capacity of more than seven

kilowatts.

New option for easements

The German Energy Economy Law (EnWG) establishes

an option for new network operators. As previously, it

provides the right for the ownership of the distribution

networks to be granted. however, the new network operator

may also demand that the network be transferred

from the current network operator against payment of

reasonable compensation.

39


40 EWE annual rEport 2011

Legal unbundling of natural gas storage facilities

As part of the revision of the German Energy Economy

Law (EnWG), the rules on information, accounting, legal

and operational unbundling that have applied to network

operators since 2005 were applied to natural gas storage

facilities. Faced with the choice between negotiated and

regulated storage access, the government has decided

on negotiated access. however, the new demands made

of distribution system operators in terms of their communications

activities and brand policy do not apply to

operators of gas storage facilities.

New Electricity Network Tariffs Ordinance to relieve

the burden on industry

As part of the energy turnaround, the Electricity Network

Tariffs Ordinance was also revised. Major industrial

companies with an annual consumption of 10 gigawatt

hours or more and network use of at least 7,000 hours

are exempted from the network fees. This concerns

around 500 companies in Germany. The resulting shortfall

in network fees is to be reallocated to the remaining

network users by means of a grading system.

Requirements regarding simplification of changing

provider

Customers are expected in future to be able to change

their electricity and natural gas suppliers more quickly.

The German Energy Economy Law requires this change

to be concluded within three weeks. The new requirements

must be in place by 1 April 2012, and require considerable

changes to current procedures. The Energy Economy

Law also lays down detailed requirements regarding the

contents of energy bills. A mediation centre has been

set up to handle customer complaints relating to network

connections, energy supply, metering and billing.

Electricity incentive system

As part of the German Incentive System Ordinance

(ARegv), measures of quality have been introduced for

electricity with effect from 1 January 2012, with the

goal of ensuring that energy supply networks perform

well and are reliable in the long term. Due to the high

quality of the cabling and the resulting security of supply

and reliability of the electricity network, EWE NETz

has received the highest addition possible to its revenue

ceiling. The German Federal Network Agency assigned

a penalty for Bremen and a small bonus for Bremerhaven

for the swb network companies. however, it must be

taken into consideration here that the individual reference

values used to calculate the measures of quality

vary greatly and the network fees for swb Netze are

some of the lowest among Germany’s municipal network

operators.

Natural gas incentive system

The data for the second natural gas regulation period

starting on 1 January 2013, has been submitted for cost

review to the German Federal Network Agency. Data was

also submitted to determine the efficiency value for the

coming regulation period. The regulatory authority introduced

consultation proceedings in this connection to

determine the allowed rates of return on equity. These

rates establish the input quantities for determining the

permissible revenue ceiling of a network operator. On

2 November 2011, the German Federal Network Agency

published the allowed rates of return on equity for the

second regulation period. The allowed rates before tax

have been reduced from 9.29 per cent to 9.05 per cent

for new plants and from 7.56 per cent to 7.14 per cent

for old plants. The new, allowed rates apply both to the

second natural gas regulation period and to the second

electricity regulation period beginning on 1 January 2014.

German Federal Supreme Court rulings regarding the

specification of the revenue ceiling

On 28 June 2011, the German Federal Supreme Court ruled

in favour of the network operators in two proceedings

on the specification of the revenue ceilings. As a result

of the complaint of the affected parties, the decision of

the German Federal Network Agency will now gradually

be reversed and the authority is required to restate its

position in consideration of the legal findings of the

Senate. One of the aspects seen by the German Federal

Supreme Court to be in violation of applicable law was

the use of a general productivity factor as part of the

specification of the revenue ceiling. A corresponding

procedure is pending at EWE NETz for electricity, and

another at swb Netze for electricity and natural gas. In

a letter, the German Federal Network Agency requested

that the network operators concerned conclude a contract

under public law to reach a comparable agreement.

EWE NETz has signed a contract that provides for repayment

over a three-year period subject to the approval

of the committees. The swb network companies have

also accepted the offers for electricity and natural gas.


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Complaint proceedings against the German Federal

Network Agency

Differing interpretations of applicable regulations frequently

result in complaint proceedings being initiated

against the German Federal Network Agency. In court

proceedings initiated by EWE NETz to examine the legality

of the deduction of an “amount to prevent double

counting” within the context of approved investment

budgets, the higher Regional Court of Düsseldorf has

already confirmed the legal interpretation of EWE NETz

in a ruling dated 8 December 2010. The same applies

with regard to the reduction of the allowed rates of return

on equity by the corporation tax share. To date,

however, the ruling has not yet become legally binding

due to the complaint submitted by the German Federal

Network Agency. EWE NETz’s position in this matter

has not changed. Discussions are currently underway

regarding a comparable agreement for the implementation

of the legal position benefiting EWE NETz.

EWE NETz has also submitted a complaint against the

specification of the allowed rates of return on equity.

The German Federal Network Agency has reserved a

right of revocation in the specification of the allowed

rates of return on equity, in particular for cases where

the return on equity of the electricity or gas network

operator is influenced by other instruments, such as the

introduction of risk premiums, for example. Should these

risk premiums, which have already been discussed at a

European level, be considered by the network operator

to have a positive effect, the German Federal Network

Agency intends to retroactively reduce the allowed rates

of return on equity. The swb network companies have

submitted a complaint against the right of revocation

retained as part of the specification process. Furthermore,

the swb network companies have submitted a

complaint against the findings of the German Federal

Network Agency regarding the specification of market

values in the natural gas sector.

swb Netze has submitted a complaint against the rejection

of an investment budget application to connect

a gas and steam turbine power plant to be constructed

by Gemeinschaftskraftwerk Bremen. The matter in dispute

concerns the applicability of the approval regulation

which, therefore, also affects the core of a change

in regulation regarding swb Netze, planned for the beginning

of 2012. While swb Netze’s complaints relating

to both electricity and natural gas in Bremen that have

been ongoing since 2010 have been suspended, the

complaint regarding the natural gas revenue ceiling in

Group manaGement report

Bremerhaven is currently being addressed at first instance

by the Bremen higher Regional Court. In these proceedings,

the court has obtained a written expert opinion to

determine for the first time whether the model applied

by the German Federal Network Agency for the efficiency

comparison meets scientific standards.

In other proceedings, both swb Netze and EWE NETz

have submitted complaints about the German Federal

Network Agency’s calculations regarding “pooling”.

These calculations practically exclude the possibility of

pooling several exit points when calculating network fees.

In addition to an enormous amount of work required for

accounting, the abandonment of this practice, which has

been well established in the energy industry for years,

causes increasing upstream network costs, thereby also

causing an increase in network fees. The new regulation

comes into effect on 1 January 2012, with a transitional

period until the end of the first electricity regulation

period in 2013.

Draft Energy Efficiency Directive

In June, the European Commission published a draft of

an Energy Efficiency Directive. The purpose of this directive

is to combine the previous ChP and Energy Services

Directives. The draft emphasises a primary energy conservation

target of 20 per cent by 2020. The European

Commission, European Parliament and European Council

are currently negotiating the measures to be applied to

achieve the desired conservation targets.

Increased transparency on the energy trading markets

The revision of the German Energy Economy Law has

already brought about the introduction of a range of

instruments designed to increase transparency on the

energy trading markets. They include monitoring by the

German Federal Cartel Office, the creation of a market

transparency body and the introduction of extensive

data storage and reporting obligations for energy suppliers.

On a European level, the European Commission

has passed the Regulation of the Energy Market Integrity

and Transparency (REMIT) ordinance. It came into force

in December 2011. The core points that it addresses are

the creation of a Europe-wide register for trading and

special regulations to prevent market abuse. This is designed

to prevent insider trading in energy trading products

and hinder market manipulation. In future, energy

traders must submit data on transactions on the energy

trading market to a new transaction register. The European

Agency for the Cooperation of Energy Regulators,

41


42 EWE annual rEport 2011

ACER, will collect data from market participants on

the capacity of plants to generate, store, consume and

transport electricity and gas.

The purpose of the European Market Infrastructure

Regulation (EMIR) presented by the Commission is to

regulate the OTC derivatives market in future. These

transactions are conducted between participants on

the financial markets and are not concluded via the

stock exchange. The aim of this regulation is to establish

clearing offices to encourage transparency in these transactions

and prevent any risks. A transaction register is

also designed to allow for more transparency in trading

OTC derivatives.

The aim of the revision of the Markets in Financial Instruments

Directive (MiFID) is to make the financial

markets more efficient, more resilient and more transparent,

thereby better protecting investors. The new

legal framework expands the supervisory powers of the

regulatory authorities and lays out specific procedural

rules for all trading activities. The extent to which this will

ultimately affect the energy industry remains to be seen.

German government policy on electric mobility

In 2011, the German government presented its policy

on electric mobility based on the recommendations of

the National Electric Mobility Platform. The target expressed

in 2010 is being stuck to, namely to get one

million electric vehicles onto German roads by 2020. The

electricity this will require is to come from renewable

energies. Smart grids and load-based price rates are to

be subsidised in order to exploit the electrical storage

potential of the vehicle batteries. The government is

adopting a more restrained position with regard to the

expansion of the charging infrastructure – the need for

publicly-operated charging stations is considered to be

low, and their construction and financing are to be left

to the private sector. While local authorities are expected

to support local construction by means of by-laws

and concession agreements, no statutory obligation is

anticipated.

Water management issues

The new Drinking Water Ordinance has been in force

since May 2011. Part of the revision involved the formulation

of clearer regulations for the monitoring of

the quality of drinking water and duties of disclosure

between the health authorities and water supply companies.

This also concerns the definition of terms, uranium

threshold values and a regulation regarding the

monitoring of Legionella bacteria in the drinking water

system. Further revisions are also pending as a result of

the Wastewater Ordinance. In this connection, the introduction

of a fourth cleaning stage in the interests of

water conservation is being discussed. The additional

energy required to achieve this, however, contradicts

the many efforts to conserve energy when operating

wastewater purification plants.

Waste management issues

The waste management industry was affected by a

number of different legislative procedures in 2011. Of

particular interest is the implementation of the revised

Eu Waste Framework Directive in the form of the new

German Closed Substance Cycle and Waste Management

Act. It remains highly controversial as to where

the boundary between the disposal and recycling of

waste lies, and the permissibility criteria for recycling.

The German Greenhouse Gas Emissions Trading Law

stipulates that the burning of waste is not to be included

in emissions trading. In the German Energy Tax Act and

in the Energy Tax Ordinance it has been deemed that

waste with a thermal value of less than 18 megajoules

is not subject to energy tax. This exception is still subject

to European Commission approval on the basis of

government aid law.


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Group structure and business

operations

The EWE Group has its head offices in Oldenburg and

provides comprehensive energy, telecommunications

and IT services in regionally contiguous market areas.

Corporate Centre / Consolidation

The Corporate Centre business area mainly comprises

the Group’s functional divisions of EWE AG, the shareholdings

of EWE AG and Group-level consolidation. It is

therefore distinctly separate from the operating business

areas EWE Energy, swb, and New Markets and ICT. The

EWE AG Corporate Centre pools the strategic, crossmarket

development and planning of the business areas,

and guarantees financing within the EWE Group. Both

EWE IMMOBILIEN Gmbh, which has been fully consolidated,

and vNG-verbundnetz Gas AG are allocated to

the Corporate Centre business area as a shareholding

together with EWE AG.

EWE IMMOBILIEN

EWE IMMOBILIEN Gmbh (EWE IMMOBILIEN) was

founded on 1 July 2010. Its primary task is to manage

the Group’s properties. This includes office buildings

and technical facilities such as data centres and telecommunications

nodes, several residential buildings

and establishments like the zentrumzukunft and the

CORPORATE CENTRE /

CONSOLIDATION

EWE AG

VNG AG 1

EWE IMMoBILIEN GmbH

EWE ENERGy

EWE ENERGIE AG 2

EWE NETZ GmbH

EWE WASSER GmbH

DoTI GmbH & Co. KG 1

Riffgat Beteiligungs

GmbH & Co. KG

MVR Müllverwertung

Rugenberger Damm

GmbH & Co. KG 1

1 Associated company 2 Subgroup respectively lead company

EWE GROuP

3 Selection of major subsidiaries

Laboratory for Environmental Analysis. The company also

provides property management services and building

services engineering. EWE IMMOBILIEN’s experience

in managing business premises over a total area of

250,000 m² is also applied to the planning and development

of new properties.

VNG

vNG – verbundnetz Gas AG (vNG), based in Leipzig, is

allocated to the Corporate Centre business area and is

managed as a shareholding. At present, EWE does not

expect the 47.9 per cent shareholding to be transferred

in the short term to vNG and has therefore re-recognised

them under application of the equity method and in

accordance with the relevant IFRS standards. It is a panregional

energy wholesale trading company which supplies

regional providers, municipal utilities and industrial

companies with natural gas, mainly in Eastern Germany.

EWE Energy business area

The EWE Energy business area is responsible for the

Group’s energy business in the Ems / Weser / Elbe region,

Brandenburg, northern West Pomerania and on

the island of Rügen. EWE ENERGIE AG (EWE ENERGIE)

is the management company responsible for the sale of

energy and trading of greenhouse gas emissions certificates,

as well as production, procurement and natural

gas storage. The other significant companies allocated

SWB

2, 3

swb AG

swb Vertrieb

Bremen GmbH

swb Netze GmbH & Co. KG

swb Vertrieb Bremer haven

GmbH & Co. KG

swb Netze Bremerhaven

GmbH & Co. KG

swb Erzeugung

GmbH & Co. KG

swb Entsorgung

GmbH & Co. KG

NEW MARkETS

AND ICT

EWE Polska Sp. z o.o. 2

EWE ENERjI A. Ş. 2

EWE TEL GmbH 2

BTC Business Technology

Consulting AG 2

htp GmbH 1

43


44 EWE annual rEport 2011

to this business area are EWE NETz Gmbh (EWE NETz),

EWE WASSER Gmbh (EWE WASSER), Riffgat Beteiligungs

Gmbh & Co. kG (RIFFGAT) and the associated

companies DOTI Deutsche Offshore-Testfeld und Infrastruktur-Gmbh

& Co. kG (DOTI), which constructed

and operates the alpha ventus offshore wind farm, and

MvR Müllverwertung Rugenberger Damm Gmbh &

Co. kG (MvR).

Sales of energy and related energy services

EWE ENERGIE AG sells electricity, natural gas and energy

services to private and business customers, industrial

clients and municipal utilities, thereby covering all customer

segments. The sales focus is on the Ems / Weser /

Elbe region, Brandenburg, northern West Pomerania and

the island of Rügen. EWE ENERGIE maintains a presence

in its home regions with more than 40 service points.

The Group’s ability to combine electricity, natural gas

and telecommunications into a single package gives it

an advantage over the competition. Since July 2011, the

energy and telecommunications services have been jointly

marketed under the EWE brand.

Industrial customers and municipal utilities are offered

not only traditional full-service supply, but also innovative

products such as purchasing in tranches and fully

flexible portfolio management as well as consulting on

matters concerning CO 2 emissions certificates and certificate

trading.

In the Ems / Weser / Elbe region and parts of Brandenburg,

EWE ENERGIE operates its own network of with

more than 80 natural gas stations.

EWE Energy: Generation capacity for renewable energies

(in MW)

110.0 110,0

82.5 82,5

55.0 55,0

27.5 27,5

0,0 0

97.5

98.4

2.0

2.8

7.1

In order to set itself apart in the midst of increasing

competition, the company offers services in the fields

of energy efficiency and conservation. The government

decision to phase out nuclear energy has led to a considerable

rise in interest in decentralised energy generation

in this industry segment. Furthermore, statutory

requirements regarding improving energy efficiency

have been made more stringent. This has given rise to a

need for additional consulting. A key pillar is the heating

services business. In contracting, EWE ENERGIE is

developing a new contract model in conjunction with

swb in order to be able to optimally serve the crucial

field of decentralised power generation.

Competition in the electricity and natural gas markets

intensified once again in 2011. EWE ENERGIE AG’s churn

rates were still below the national average despite increased

pressure from competition. Aggregate churn

for electricity customers amounted to 15.6 per cent in

autumn of the previous year (German national average:

25.8 per cent). 13.6 per cent of gas customers decided to

switch to a new provider by this time (German national

average: 14.1 per cent).

Wastewater and waste disposal

This business area includes not only the energy business

but also services pertaining to wastewater removal.

EWE WASSER manages the operation of municipal and

private wastewater purification plants and drainage

networks in the Ems / Weser / Elbe region. In 2011 the

company treated a total of 10.5 million cubic metres

(m³) of wastewater in 34 wastewater purification plants.

2010 2011 2010 2011 2010

2011 2010 2011 2010 2011

6.1

0.7

0.0

Total

107.3 107.3

Wind

Solar

Biomass

Water

Total


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

EWE holds a 20 per cent stake in the Rugenberger Damm

waste processing plant (MvR) in hamburg. At the MvR

waste undergoes thermal treatment to produce energy

and other saleable products such as gypsum and slag.

Production

EWE ENERGIE AG is also involved in the production of

electricity and natural gas to a limited extent. In 2011

the company produced 148.1 million m³ of its own natural

gas (previous year: 180.0 million m³). In the area

of power generation EWE ENERGIE AG has production

capacities in the field of renewable energies (wind, biomass,

solar, hydroelectric), with total output of 107.3

megawatts. In addition to this is the share in the offshore

wind farm, alpha ventus, allocable to EWE (28.5

MW). The total value of 135.8 MW largely corresponds

to that of the previous year.

EWE ENERGIE has a 47.5 per cent shareholding in Germany’s

first offshore wind farm, alpha ventus. EWE’s

share of the installed capacity comes to 28.5 MW. The

offshore wind farm RIFFGAT will not be completed by

the end of 2012 as originally planned. Discussions are

still underway between Germany and the Netherlands,

triggered by a formally unresolved border issue.

In 2011, construction on the final sections of the photovoltaics

system at the Weser Stadium in Bremen were

completed and commissioned. The system’s total output

is 1.2 megawatt-peak (MWp).

EWE Energy: Natural gas procurement

(in million kWh)

21,148.2

77.6

2010

6,800.5

13,188.8

20,838.9

Procurement

EWE ENERGIE procures electricity from upstream suppliers

and via trading markets. Electricity trading activities

for EWE’s own electricity distribution activities

accounted for a total volume of 14.1 billion kilowatt

hours (kWh) in 2011.

EWE ENERGIE procures natural gas from several suppliers

on the basis of contractual agreements, with some of

their terms running as far as 2025. The majority of its

long-term supply contracts are tied to the price of oil.

The diagram below shows the origin of total purchases

of 38.5 billion kWh in 2011.

Storage

EWE ENERGIE AG operates 28 caverns with a total storage

capacity (working gas volume) of 1.6 billion m³ at the

natural gas storage facilities in huntorf, Nüttermoor

and Rüdersdorf. More than half of the storage volume

is leased to third parties. In Jemgum, in Lower Saxony,

EWE is constructing another gas storage facility with a

planned working gas volume of approx. 254 million m³.

Network

EWE NETz Gmbh is a wholly owned subsidiary of EWE

ENERGIE AG, which combines its energy business in

the Ems / Weser / Elbe region and in Brandenburg. The

networks that EWE NETz operates are efficient, state

of the art and among the safest in Europe. This includes

an extensive electricity and natural gas network in the

Ems/Weser/Elbe region and natural gas networks with

blanket coverage throughout Brandenburg, Rügen and

54.8

2011

6,061.9

11,508.5

Germany

Netherlands

Russia

Other

45


46 EWE annual rEport 2011

EWE Energy: Network length

(in tkm)

100

100

80

60

40

20

0

80.5

Electricity

81.1

2010 2011 2010 2011 2010 2011 2010 2011 2010 2011

northern West Pomerania. Its responsibilities include

the operational management, maintenance, repair and

expansion of the network infrastructure as well as network

sales. EWE NETz also operates drinking water

1200

networks and a highly complex communications network.

EWE TEL Gmbh commissioned EWE NETz to lay 960

around 1,300 km of fibre optic cable in 2011 and 2012

to improve broadband coverage.

720

swb business area

Natural gas

55.1

55.4

32.2

480

240

34.1

In the swb business area the activities of swb AG and its

subsidiaries comprise the provision of energy and water 0

services to Bremen, Bremerhaven and the surrounding

areas. The swb companies strengthen the EWE Group’s

presence in northern Germany.

Electricity

In the Electricity business area swb covers the entire

value chain, from generation through to network operation

and distribution to private, commercial and industrial

customers. swb supplies electricity to some

400,000 customers in the state of Bremen. Its market

share is around 85 per cent. In 2011, the swb Group

managed to keep the total number of private customer

contracts at a practically unchanged level in a year-onyear

comparison.

The company operates conventional power plants with

a total installed capacity of more than 1,000 megawatts.

In 2011, the construction of a new, highly efficient and

flexible gas and steam turbine power plant was agreed.

Fuelled by environmentally friendly natural gas, the plant

is intended to provide net output of around 445 MW

and should to be bought into commission in 2013. The

project is being carried out in cooperation with partners

under the name “Gemeinschaftskraftwerk Bremen”.

Telecommunication

14.9

14.9

17.3

19.1

swb: Generation capacities from

conventional power plants

(in MW)

1,200

960

720

480

240

0

1,031.0

2010

1,030.0

2011

Total

Copper

Optical fibre

Recognising that fossil energy resources are finite and

global climate protection targets are becoming ever

more stringent, swb has developed a growth business

area: energy from waste. The two largest incineration

plants of the waste incineration power plant operated

by swb Entsorgung Gmbh are currently undergoing

modernisation to improve the plant’s efficiency and

profitability. Once the work is completed – expected at

the end of 2012 – the plant will achieve a considerably

higher level of electricity and heat output from an

identical amount of input waste.

swb is committed to increasing the use of renewable

energies. In 2011, the company developed various projects

in the field of wind energy. Another biogas plant

was also brought into operation. The associated biogas

processing plant will enter production in the first half

of 2012. As part of a partnership with local authorities

in Brandenburg, part of the Märkisch-Linden wind farm


15

10

5

0

50

40

30

20

10

0

Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

swb: Generation capacity for renewable energies

(in MW)

50

40

30

20

10

0

39.6

2010

29.6

2011

swb: Networking length

(in tkm)

15

10

5

0

10.6 10.6

2010 2011

was sold. A hydroelectric power plant with an output

of 10 MW was developed jointly with a partner and

brought into operation in 2011.

Natural gas, drinking water and heat

swb supplies customers in the state of Bremen with

natural gas (market share: 89 per cent) and drinking

water. The company has natural gas storage capacities

and extracts around 15 million m³ of ground water

from its own wells at various sites. Around one billion

kilowatt hours of heat produced in swb power plants

and in smaller heating plants are also sold every year.

Technical services

Technical services are another of swb’s business areas.

The company uses its expertise as a power plant and

network operator to develop services such as contracting,

operating industrial networks and networks for

wide-area supply and street lighting.

0.2

2010

4.6

0.2

2011

4.6

39.8

2010

29.8

2011

Electricity

Natural gas

heat

0.4 0.4

2010 2011 2010 2011

New Markets and ICT business area

Wind

Solar

Total

The New Markets and ICT business area comprises the

energy business of the EWE Group in Poland and Turkey

as well as the Telecommunications and Information

Technology business units. The subgroups EWE ENERJI

A.Ş. (EWE ENERJI), EWE Polska Sp. z o.o. (EWE Polska),

BTC AG (BTC) and EWE TEL Gmbh (EWE TEL) are all

allocated to this business area. The telephone company

htp Gmbh (htp) is held as an associated company.

Poland

EWE Polska has its headquarters in Poznań, Poland. The

company was established in 1998. It acts as the management

company for EWE’s energy operations in Poland

and serves as a platform for future growth in this market.

EWE Polska holds the Group’s shares in the sales

company EWE Energia Sp. z o.o. (EWE Energia) and EWE

zielona Energia Sp. z o.o. (EWE zielona Energia), the

latter of which operates in the field of renewable energies.

A focal point of EWE’s activities in Poland is the

construction and leasing of high-pressure gas lines in

regions of the country not previously connected to a

natural gas distribution network. In 2011, work began on

expanding the network in the city of Wieluń in southern

Poland, which has a population of around 40,000. EWE

Energia currently supplies natural gas to more than

10,000 customers in 40 municipalities. In the reporting

year, EWE zielona Energia continued work on three wind

farm projects and one biogas project.

Turkey

EWE established EWE ENERJI in Istanbul in early 2007

to expand its operations in Turkey. EWE ENERJI is the

management company responsible for the trading, sale

47


48 EWE annual rEport 2011

and transport of natural gas in Turkey. It holds the shares

in the two regional natural gas suppliers Bursagaz A.Ş.

and kayserigaz A.Ş., as well as in the gas trading company

EWE Doğalgaz A.Ş. The Turkish gas market is a

growth market. Both gas supply companies have been

able to continuously increase the number of customers

they serve to 675,000 today. The gas trading company

opens up new opportunities for the procurement and

sale of natural gas, which makes it a good complement

to EWE’s end-consumer business. In spite of shortfalls

in supply and a reduction in LNG quantities available

on the market, it was able to increase its annual gas

trading sales in 2011 to almost 840 million m³.

Telecommunications

The subsidiary EWE TEL is a full-service provider of telecommunications

services (internet, telephone, mobile

and, in some places, television) for both commercial

and private customers. EWE TEL is one of the largest

regional telephone companies in Germany, serving some

590,000 customers at the end of 2011. The year-on-year

loss of 54,000 customers is attributable to the sale of

its hamburg activities (Martens Antennen- und kabelanlagenbau

Gmbh).

One of EWE TEL’s goals is to expand its broadband

technology in accordance with demand. In the Ems /

Weser / Elbe region, East Westphalia and Brandenburg

EWE TEL is also building a modern fibre optic network

to enable high-speed data transfer and form the basis

for the competitive 3Play product that delivers internet,

telephone and Tv to customers via a single line.

In partnership with EWE NETz, more than 1,300 additional

service area interfaces were set up in 2011, partly

funded by government contributions from the second

economic stimulus package.

EWE TEL continued the process of change begun in 2009

and engaged in a reorganisation of the company in 2011.

The goal is to strengthen the company’s position in the

midst of current competition and to consistently base

the company’s organisation on the needs of the market

and customers.

Telecommunications service provider htp is based in

hanover and offers landline and internet products as well

as DSL connections with varying bandwidths, serving

more than 80,000 customers.

Information technology

The subsidiary BTC has its head offices in Oldenburg and

offers IT consulting, system integration and management,

geo-information systems and network control

services throughout Germany. Its customers include

companies in the energy, industrial and service sectors,

telecommunications providers, the public sector, and

automotive manufacturers and suppliers. The company

distinguishes itself in the energy market with a range

of innovative products such as BTC Wind Farm Center,

BTC Advanced Meter Management and BTC virtual

Power Plant. BTC also covers the field of multimedia

services via subsidiaries.

Company management and strategy

Internal management system

EWE AG’s 2011 consolidated financial statements are

based on International Financial Reporting Standards

(IFRS). The transition to IFRS for external reporting leads

to a convergence between internal and external reporting

systems. This convergence of the reporting lines is

reflected in uniform reporting structures as well as a

common basis of data and indicators derived from them.

The Group structure as presented under IFRS, with the

operating business areas EWE Energy, swb and New

Markets and ICT are aligned with the internal reporting

structure. In addition, the Corporate Centre / Consolidation

business area is responsible for the head office

functions of the Group. This organisational structure is

the starting point for a multi-tier management system,

which enables entrepreneurial responsibility to be devolved

and creates a high degree of transparency at the same

time. EWE’s internal management system distinguishes

between Group and business area levels. The operating

management systems in the decentralised reporting

units have a greater granularity than Group reporting.


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Both internal and external reporting are based on the

same management information systems. This technological

platform enables a uniform basis of data to be

used for different reporting purposes and guarantees

that the information used is congruent across reporting

levels and within each reporting level. This is the

basis for EWE’s system of indicators. At Group level,

attention is focused on financial indicators and certain

industry-specific indicators. The business areas and the

organisational units below them monitor additional

specific indicators for the decentralised management

of their operating business.

Across all reporting levels, the system of indicators

concentrates on the principal variables for managing

the Group. At its core is the focus on operating earnings

before interest and taxes (EBIT) when looking at

margins and returns. This aggregate approach is supplemented

by specific analyses of margins and yields

for the operating activities. Another focus of Group

reporting is capital expenditure to ensure the Group’s

future viability. It also considers financial indicators

intended to secure financing on favourable terms and

to enable EWE’s good rating to be maintained. Finally,

the return on capital and on sales is calculated to assess

profitability.

Internal and external Group reporting is continually adjusted

to meet the operating requirements for managing

the Group and current legal requirements.

Group strategy

EWE is the first fully integrated group to bring together

the expertise needed for the energy supply of the future

in the key fields of energy, telecommunications and information

technology. By expanding its core business

area energy to include information and communications

technology, the Group is able to develop and operate

modern energy supply systems fully in-house. Because

each Group company provides market leading products

in their particular field, the Group as a whole can use

these synergies in every field.

Group manaGement report

EWE also remains committed to further developing renewable

energies for energy generation, complemented

by conventional power plants that are efficient and

flexible. These conventional power plants provide the

control energy required to compensate for fluctuations

in the supply of wind and solar power. EWE’s strong

position in the area of natural gas rounds out the company’s

portfolio. Natural gas is an efficient source of

energy for electricity, heat and mobility and remains an

integral component of our energy supply. The Group’s

reliable, modern networks and information and communications

technology expertise guarantee that an

ever increasing proportion of our energy will be derived

from renewable resources reliably and efficiently.

Decentralised energy supply systems will play an increasingly

important role in making this happen. When

an energy production system is supported by a large

number of small power generation facilities, coordinating

it efficiently involves knowing the different levels of

supply and demand on the ground, and then finding the

shortest route possible to connect the two. Thanks to

their history as regional providers, the companies in the

EWE Group are well acquainted with their respective

regions, understand their developments and know what

they need. This allows the Group to develop home-grown

solutions suitable for the region and react appropriately

to regional developments. That’s why EWE has focused

its growth strategy on particular attractive regions.

The path to the sustainable, environmentally friendly

energy supply of the future involves intensive research,

particularly in the areas of storage technology and in the

construction and management of intelligent electricity

networks. EWE has built up a highly capable research

network, comprising numerous research partnerships,

its own Research and Development department and NEXT

ENERGy, the EWE Research Centre for Energy Technology.

The network’s objective is to make the most of scientific

knowledge by turning it into forward-looking products,

services and processes.

49


50 EWE annual rEport 2011

15plus strategic project

In light of current market and company developments,

EWE began the 15plus strategic project in 2011. Its goal

is to secure the competitiveness and profitability of the

EWE Group and to realign the company for the year 2015

and beyond.

15plus rests on three crucial factors:

1. In 2011, EWE reacted promptly to market developments

and successfully implemented measures

amounting to around €200 million. Capital expenditure

was most notably cut back in this regard, but

cost reduction measures were also taken.

2. The optimisation of current energy business is intended

to enable a long-term improvement in earnings.

Optimisation measures have been implemented

throughout the entire value chain.

3. On the basis of the 15plus future business model,

the Group will be focusing on the most promising

business models. Changes in Group structure are

also expected to help in this regard by contributing

to closer cooperation and integration of the Group

divisions.

Research and Development

Focus of R & D activities

EWE carries out research and development as a central

element for the strategic development of the Group and

as the basis for developing new products. These activities

are focused on tapping new energy services and efficient

supply paths for the energy business. All of the Group’s

research and development activities are based on the

so-called Bullensee Assumptions, which EWE produced

together with members of the academic community and

published in February 2006. These Assumptions are available

on the internet at www.ewe.de/bullenseethesen.

eTelligence research project

Producers and consumers of electricity are networked

in the eTelligence research project, whose aim is to

optimise the integration of electricity from renewable

sources such as wind and solar energy. Following the

launch of the marketplace in 2010, eTelligence reached

its next important milestone in 2011 with the integration

of households. To this end, 650 trial households

in Cuxhaven were fitted with electronic meters. These

meters transmit their readings via a DSL connection to

the energy supplier, who then processes the data for

the personalised energy portal on the internet. Information

on current energy usage, a personalised cost

overview and comparison values in energy consumption

can also be displayed on a smartphone.

The integration of virtual power plants was also a focal

point. During a three-month field test it was demonstrated

how the interplay between cold stores and renewable

energy plants could optimise the consumption and

generation of energy.

Research focus on network management

In future, many smaller, decentralised storage facilities

will be required in addition to larger, seasonal storage

facilities such as pumped-storage power plants, in order

to rapidly act to prevent network shortfalls and to store

energy for local usage. Because EWE’s network region

uses a particularly high proportion of renewable energies,

the capacity of the networks here has in places been

exhausted already. For this reason, EWE is researching

new business models and services for joint usage of

storage capacity by various participants in the energy

market with a focus on making it economically attractive.

The development of smart grids requires IT-based solutions

for planning, monitoring and operation. One of

the main challenges is the establishment of standardised

data models and communications structures. To

this end, EWE has developed a central platform that is

able to bring the data together into a single network and

transmit it in a format which conforms to standards.

The platform may be used, for example, in transformer

overload forecasting to predict when and how critical

feed-in situations may occur.

Research focus on domestic energy management

In 2012, the first serially produced, compact domestic

storage systems will be available on the market. Domestic

storage enables the end customer to avoid feeding

excess energy from their photovoltaics system into the

network, but rather allows them to store it. The energy

stored can be used at a later time when energy would

otherwise have been drawn from the grid.


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

As the revised Renewable Energy Act (EEG) requires

feed-in remuneration from photovoltaics systems to

be gradually reduced and at the same time provides for

incentives for the consumption of self-generated energy,

the automated shift in the source of energy can help to

optimise cost on the basis that it increases consumers’

consumption of energy from their own photovoltaics

systems. Questions relating not only to cycle life and

battery ageing but also to integration into domestic

energy management and its economic efficiency need

to be clarified.

Research focus on power generation management

The central challenges faced by the energy generation

of tomorrow are flexibility, networking and efficiency.

As yields of wind and solar energy vary greatly, plants

not dependent on weather conditions must be able to

cover for shortfalls quickly and accurately. Many smaller,

decentralised generation plants must be networked

and intelligently coordinated so as to ensure the same

security of supply that comes from large power plants.

In order to keep costs and the consumption of resources

during generation to a minimum, a maximum of efficiency

is required.

On the basis of experience from the eTelligence research

project, EWE developed the “intelligent load manager”,

which coordinates energy generation plants and energy

consumers so that electricity is generated when it is

needed and is only consumed, if possible, when it is in

abundance. This technology has already been tested

with various industrial customers in cold stores in 2011.

Flexibly shifting short-term electricity demand to times

when there is a high level of supply and therefore when

prices are low enables the burden on electricity networks

to be reduced and the customer’s energy costs to be

cut considerably. Starting in 2012, the intelligent load

manager will be tested for its ability to coordinate renewable

power generation plants. Biogas plants, for

example, can be controlled so that they can participate

in the control energy market, only producing energy

when it is needed. This optimises the sales revenue from

electricity and helps to keep the networks in check.

The most efficient form of energy generation is ChP

generation in fuel cells. EWE is involved in Germany’s

largest field test for decentralised fuel cells in private

homes, Callux. The company has been authorised to

monitor the more than 200 plants currently operating

and to analyse their operation. using the online “Callux-

Box” communications interface, the data is collected in

Group manaGement report

the Callux Cockpit, which was developed by Group subsidiary

BTC. This virtual control centre not only enables

ongoing analysis but also provides the opportunity to centrally

coordinate fuel cells, use them flexibly and generate

the precise amount of energy required for the market.

Research focus on mobility management

In 2011, EWE managed and coordinated the GridSurfer

and EWE Electric Mobility Fleet Test projects, which were

supported by grants. GridSurfer examines how electric

mobility is used in the predominantly rural region between

the Ems, Weser and Elbe rivers. An ICT-based storage

management system, charging stations, metering and

control systems, billing and sales processes, rate models

and business models, together with all of their associated

interfaces, have been designed and checked. The Electric

Mobility Fleet Test held in the Bremen / Oldenburg model

region is being funded by the German Federal Ministry

of Transport, Building and urban Development. The aim

is to develop sustainable and integrated mobility strategies

and to network activities in electric mobility. Data

recorded in the course of the fleet test will be used for the

further planning of the charging station infrastructure.

EWE’s development of its own E3 test vehicle is ongoing

for the purpose of testing bidirectional charging and the

rapid replacement of batteries.

R & D spending

In 2011, EWE AG spent €13.3 million on research and

development (previous year: €16.3 million).

R & D staff

Since 2008 EWE has had a separate department for

research and development, which pools all the Group’s

activities. The department currently employs 20 fulltime

staff and regularly employs graduands and interns.

The department cooperates closely with other departments

within the Group, helping them to develop and

introduce product and process innovations as well as

tap new business areas.

51


52 EWE annual rEport 2011

Significant events

Repayments to natural gas customers with

standardised special-rate contracts

In the dispute surrounding the reimbursement of gas

payments, EWE has offered customers with standardised

special-rate contracts a considerable reimbursement on

gas payments for the period between 1 April 2008 and

30 June 2009. under the terms of the offer, customers

must waive their claims against the company and agree

to accept the company’s current General Terms and

Conditions. As of the end of the year, around 385,000

customers had accepted the compensation offer. EWE

had already made a one-time payment to its customers

in 2010. Now that repayments have been made, the

issue is expected to be pursued further only in isolated

cases. The legal dispute and subsequent public debate

in the EWE supply region began following a ruling made

by German Federal Supreme Court. On 14 July 2010,

the Court declared that the price adjustment clause in

“classic” natural gas contracts for the period from 1 April

2007 was invalid.

No transfer of vNG shares in the short term

At the vNG Annual General Meeting of 15 December

2011, a resolution was passed not to transfer the shares

held by EWE to EnBW Energie Baden-Württemberg AG.

The approval of the vNG Annual General Meeting is a

necessary prerequisite for EWE to be able to dispose of

its shares in vNG, amounting to 47.9 per cent, to third

parties. For this reason, the vNG shares cannot be sold

to EnBW for the time being. The vNG shares are no

longer reported or accounted for as being “held for sale”

in the 2011 EWE consolidated financial statements;

instead, they are recognised under the equity method.

Changes in the Boards of Management

To further strengthen the partnership between swb AG

and EWE ENERGIE AG, the seats on the boards of both

utility companies were interchanged with effect from

1 July 2011. Following the reassignment of duties, the

members of the two companies’ boards hold the same

position in each company:

• Jörg Budde, Board member for Procurement and Sales

• Dr. Torsten köhne, Board member for Generation

and Finances

• Dr. Thomas Neuber, Board member for Energy

Services, Storage and IT

• uwe Schramm, Board member for human Resources

and Networks

At EWE AG the Board of Management was enlarged from

three to four members. The Supervisory Board appointed

Dr. heiko Sanders as the new CFO with effect from

1 July 2011. The previous CFO, Michael Wagener, is responsible

for human Resources, IT, Legal and Procurement

in his position as Deputy Chief Executive Officer.

his remit also includes the establishment of a central

Energy Trading division. At the same time, Dr. Willem

Schoeber resigned as Chief Executive Officer from the

board of swb AG so that he could fully concentrate on

his duties on the Board of Management of EWE AG.

EWE TEL has a new brand strategy

Since June 2011 EWE TEL has been offering its services

under the EWE brand. Contracts held by around 590,000

customers in Lower Saxony, Bremen and parts of Brandenburg

and North Rhine-Westphalia will not be affected.

The reason for the brand change is the convergence

bet ween the telecommunications and energy markets.

The new brand strategy is intended to reflect this and

facilitate the marketing of combined products. The regional

brand Teleos (East Westphalia-Lippe) is now also

part of the EWE brand. Following the same principle, in

Bremen and Bremerhaven the telecommunications products

previously marketed under the nordcom brand are

now to switch to the swb brand.

EWE TEL sells cable network business

EWE TEL has sold its cable network business in hamburg

(Martens) to ACN Telekabel holding Gmbh. This is a

further step towards the new strategic orientation, by

which EWE TEL concentrates on regions in which it can

offer bundled energy and telecommunications products.

ACN is the parent company of DTk Deutsche Telekabel

Gmbh. All Martens employees will receive a transfer offer

from ACN Telekabel holding Gmbh. The contractual

relationships with customers will continue unaltered and

will be transferred from EWE TEL to the new owner. The

sale is still subject to approval by the German Federal

Cartel Office.


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Employees

The number of employees shown below includes all

current personnel, both full and part-time, trainees and

assistants. In 2011 the EWE Group had an average of

8,828 employees. This corresponds to an increase of

4.3 per cent compared with 2010.

The Corporate Centre business area is responsible for

management functions within the holding company

and employed an average of 287 employees in the 2011

financial year (previous year: 246).

The average number of employees in the EWE Energy

business area was 2,592 (previous year: 2,432).

The swb business area employed an average of 2,405

staff (previous year: 2,378).

The average number of employees in the New Markets

and ICT business area came to 3,544 (previous year:

3,409).

Training

Because the majority of EWE is municipally owned, the

company is committed to providing the young people of

the region with professional qualifications. The various

business areas offer a range of vocational training and

degree programmes. In addition to the courses themselves,

young people can also choose from a wide variety

of training, mentoring and leisure activities which go far

beyond the scope of their chosen field – from communication

training sessions through to economics classes

as well as sporting and cultural activities. The exceptionally

high number of award-winning employees is proof

Employees by business area

3,409

246

2010

Total

8,465

2,432

2,378

3,544

that EWE’s training programmes are a great success

and provide trainees with excellent professional prospects,

even outside of the Group.

Professional training

In a dynamic sector shaped by intensifying competition,

wide-reaching technical upheaval and a complex political

environment, the ongoing professional training of

employees becomes vitally important. EWE employees

have a wide range of internal and external training opportunities

at their disposal. Together with EWE’s comprehensive

social and health benefits and its commitment

to ensuring a good work-life balance, these measures also

help to attract experienced employees.

Executive Development

With over 8,000 employees in three sectors and five

regions in Germany and abroad, the EWE Group has

enormous resources of expertise and commitment at

its disposal. EWE’s goal is to help make the best use of

this potential and to help employees to develop their

strengths. Project groups, workshops and a suggestion

scheme encourage EWE’s employees to take an active

role in the company. There are training and coaching

sessions for executives to allow them to reflect on and

improve their management skills. In April 2011, the

company’s internal training academy commenced its

work to create a network of selected management personnel

(and also young trainees in future) with the aim

of selectively enhancing leadership and strategic skills

and improving understanding of how the business works

as a whole within the Group.

287

2011

Total

8,828

2,592

2,405

Corporate Centre

EWE Energy

swb

New Markets

and ICT

53


54 EWE annual rEport 2011

Earnings, assets and

financial position

The financial statements for EWE AG as of 31 December

2011 have been prepared in accordance with International

Financial Reporting Standards (IFRS) as applicable

in the Eu. There were no significant changes in

the Group of consolidated companies compared with

the corresponding period in the previous year.

In accordance with IAS 8, depreciation, amortisation

and impairment was increased for the 2010 financial

year by Euro 142.8 million and the goodwill of swb AG,

which is reported under “non-current assets”, was adjusted

accordingly. Furthermore, the vNG shares were

moved away from “non-current assets held for sale”

and reported and accounted for retroactively under

“investments accounted for under the equity method”.

This gives rise to a total negative effect amounting to

Euro 195.8 million for the result of the 2010 financial year.

Earnings position

In the 2011 financial year, the EWE Group generated

external sales (without electricity and energy taxes) of

Euro 7.5 billion (previous year: Euro 7.0 billion). Of total

Group sales, 72 per cent came from the EWE Energy

business area, 16 per cent from the swb business area

Condensed consolidated income statement

and 12 per cent from the New Markets and ICT business

area. The Corporate Centre / Consolidation business area

is responsible for the head office functions of EWE AG

and the direct shareholdings of EWE AG, which have no

appreciable sales. The EWE Energy business areas contributed

significantly to the year-on-year increase in sales

of Euro 0.5 billion.

The materials usage ratio, measured as the cost of materials

and services in relation to revenue from sales,

rose slightly from 77.7 per cent to 78.1 per cent. The rise

in personnel expenses is related to the change in employee

numbers.

EBITDA deteriorated considerably by Euro 227.7 million

to Euro 470.7 million, a decline of 32.6 per cent, which

was primarily due to the drop in the result of equity investments.

One of the causes of this was the impairment

loss of Euro 123.9 million recognised on equity investments

in connection with a change to the energy policy

environment. This largely relates to the shares in Stadtwerke

Bielefeld Gmbh. Another reason is the negative

earnings contribution of Euro 129.8 million arising from

the continued recognition of the vNG shares under the

equity method.

In addition to these effects, the current efforts surrounding

regulation in Turkey, which caused a change of

Euro 146.8 million in goodwill and in intangible assets,

Euro million 2011 2010 Change absolute Change in %

Sales (without electricity and energy tax) 7,455.4 6,969.6 485.8 7.0 %

Cost of materials and services -5,823.4 -5,414.6 -408.8 7.5 %

Personnel expenses -603.7 -577.6 -26.1 4.5 %

other income and expenses -327.1 -307.1 -20.0 6.5 %

Result of equity investments -229.3 27.1 -256.4 -946.1 %

Result from financial instruments -1.2 1.0 -2.2 -220.0 %

EBITDA 470.7 698.4 -227.7 -32.6 %

Depreciation, amortisation and impairment -595.0 -729.3 134.3 -18.4 %

EBIT 1 -124.3 -30.9 -93.4 302.3 %

Net interest income / expense -184.1 -184.4 0.3 -0.2 %

Profit before tax -308.4 -215.3 -93.1 43.2 %

Income taxes 26.5 -31.3 57.8 -184.7 %

Result for the period

of this:

-281.9 -246.6 -35.3 14.3 %

Attributable to the parent company -265.9 -244.3 -21.6 8.8 %

Attributable to minority interests -16.0 -2.3 -13.7 595.7 %

-281.9 -246.6 -35.3 14.3 %

1 Earnings before interest and taxes


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

100

80

60

40

20

0

Sales by business area

(in per cent)

100

80

60

40

20

0

2010

12

16

72

12

16

were the main cause for the year-on-year decline in

EBIT from Euro -30.9 million to Euro -124.3 million.

Net interest income/expense, which has remained

practically unchanged from the previous year, is principally

made up of interest paid on four bearer bonds

(EWE bonds), interest on current bank debt and expenses

for compounding non-current provisions.

As a result of the one-off effects described above, the

EWE Group has once again reported a negative result

for the 2011 financial year.

Consolidated balance sheet

New Markets

and ICT

swb

EWE Energy

Assets and financial position

Assets

Euro million 31.12.2011 in %

Equity and liabilities

Euro million 31.12.2011 in %

The EWE Group’s solid balance sheet structure has not

changed significantly in comparison to the previous

year. The decline stems largely from write-downs on

shareholdings performed in 2011.

The nature of business engaged in by the EWE Group

means that it has a high investment intensity and a

correspondingly high level of capital commitment. Noncurrent

assets therefore account for 75.8 per cent of

total assets.

Capital expenditure came to Euro 626.8 million in the

financial year 2011, down slightly from the previous

year (Euro 631.6 million), and mostly went towards expanding

infrastructure and new technologies.

Non-current assets are financed by means of equity

and non-current borrowings.

Non-current borrowings include four EWE bonds with

a total volume of Euro 2.1 billion and terms of 10 years

(2014), 12 years (2021), 15 years (2019) and 9 years (2020).

The equity ratio is slightly below the previous year’s

level at 26 per cent, but is still high.

31.12.2010

adjusted 1 in %

Non-current assets 7,431.1 76 % 7,950.3 79 %

Current assets (of which held for sale

Euro 202.0 million, previous year: Euro 0.0 million) 2,377.4 24 % 2,163.4 21 %

Total assets 9,808.5 100 % 10,113.7 100 %

31.12.2010

adjusted 1 in %

Shareholders’ equity 2,556.7 26 % 3,005.3 30 %

Non-current liabilities 5,550.0 57 % 5,418.6 53 %

Current liabilities 1,701.8 17 % 1,689.8 17 %

Total equity and liabilities 9,808.5 100 % 10,113.7 100 %

1 See section 2.5

2011

72

55


56 EWE annual rEport 2011

The condensed consolidated statement of cash flows

shows that the EWE Group’s cash flow from operating

activities came to Euro 356.1 million in the reporting

year and is therefore only slightly below the previous

year’s level.

The cash flow from investing activities amounted to

Euro -487.5 million and is, as expected, below the previous

year’s figure due to the optimisation programme

that was initiated.

One-off effects in the form of proceeds related to the

acquisition of shares by the strategic partner EnBW

Energie Baden-Württemberg AG (+ Euro 75.0 million)

and net payments received from the assumption of

debt instruments (+ Euro 87.5 million) were the primary

positive contributors to the cash flow from financing

activities for the current financial year. This was offset

by the payment of dividends to the shareholders of

EWE AG in 2011 (Euro -88.0 million).

Condensed consolidated statement of cash flows

The EWE Group’s financial flexibility is also secured via

credit lines and a syndicated revolving credit facility for

Euro 850.0 million. As of 31 December 2011, EWE AG had

drawn down Euro 0.0 million (previous year: Euro 0.0 million)

of this facility. In spite of the rating agency Moody’s

downgrading EWE, the Group still has a good credit

rating. In January 2012, Moody’s lowered the rating from

A2, negative outlook to A3, negative outlook, and justified

this with the current strains placed on the company

in the midst of a difficult market environment and the

failure to transfer the vNG shares.

Euro million 2011 2010 Change

Cash flow from operating activities 356.1 398.7 -42.6

Cash flow from investing activities -487.5 -569.1 81.6

Cash flow from financing activities 75.9 -111.2 187.1

Currency translation and consolidation changes -10.5 5.6 -16.1

Net change in cash and cash equivalents -66.0 -276.0 210.0

Cash and cash equivalents at the beginning of the period 328.9 604.9 -276.0

Cash and cash equivalents at the end of the period 262.9 328.9 -66.0

Overview of Group business areas

Euro million EWE Energy swb

New Markets

and ICT

Corporate Centre /

Consolidation EWE Group

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Business area sales 5,520.9 5,126.9 1,161.2 1,144.8 1,019.5 979.0 -246.3 -281.1 7,455.4 6,969.6

EBITDA 560.8 424.6 38.9 213.2 46.2 96.5 -175.2 -35.8 470.7 698.4

EBIT 333.1 210.6 -68.5 -33.4 -195.3 -155.2 -193.6 -52.9 -124.3 -30.9

Capital expenditure 373.8 370.4 140.1 129.9 72.7 77.2 40.2 54.1 626.8 631.6

Average number of employees 2,592 2,432 2,405 2,378 3,544 3,409 287 246 8,828 8,464


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Performance of business areas

Corporate Centre / Consolidation

business area

The Corporate Centre / Consolidation business area

comprises the Group head office and management

functions, EWE AG’s shareholdings and Group-level

consolidation. The Corporate Centre does not generate

any appreciable sales.

EBIT was Euro -193.6 million and was Euro 140.7 million

below the previous year’s value. The significant decline

is primarily attributable to the continued recognition of

the vNG shares under the equity method.

Capital expenditure in the business area was 25.7 per

cent lower at Euro 40.2 million, as against the previous

year’s value of Euro 54.1 million. The most significant

savings made were in properties, buildings as well as

operating and office equipment.

EWE Energy: Electricity sales by customer group

(in million kWh)

15,000 15000

12,000 12000

9,000

6,000

3,000

0

9000

6000

3000

0

4,278

4,109

6,908

7,914

2,328

2,438

2010 2011 2010 2011 2010 2011 2010 2011

EWE Energy: Natural gas sales by customer group

(in million kWh)

50,00050000

40,00040000

30,00030000

20,00020000

10,00010000

0 0

23,604

2010

20,493

11,592

12,277

4,871

4,473

EWE Energy business area

Electricity sales in the EWE Energy business area increased

by 7.0 per cent to 14.5 billion kWh in 2011. The

increase stems mainly from the special-rate customers

segment. Both new customer acquisitions and economic

developments had a positive effect. With standard-rate

customers, the decline in sales due to the loss of customers

could not be compensated for by deliveries to

new customers.

Natural gas sales in the EWE Energy business area came

to 37.2 billion kWh in 2011. This corresponds to a decrease

of 7.0 per cent compared with 2010. The main

causes are a considerable decline in the number of

standard-rate customers and lower quantities of gas

sold as a result of weather conditions. With special-rate

customers, economic factors caused the quantity sold

to increase. The decline at local utilities is primarily the

result of temperatures.

Total

14,461

13,514

40,067

Total

37,243

2011 2010 2011 2010 2011 2010 2011

Standard-rate

customers

Special-rate

customers

Local utilities

Total

Standard-rate

customers

Special-rate

customers

Local utilities

Total

57


58 EWE annual rEport 2011

The EWE Energy business area achieved sales of Euro

5,520.9 million (previous year: Euro 5,126.9 million).

The increase in electricity sales helped to increase revenues.

Two pricing measures for standard-rate customers

came into effect on 1 February 2011, (electricity)

and 1 September 2011, (natural gas) as a result of increased

procurement costs. The positive development

of sales figures was dampened by the full repayment of

amounts to natural gas customers based on the ruling

of the German Federal Supreme Court.

EBIT in the business area was Euro 122.5 million higher

than in the previous year at Euro 333.1 million.

Euro 373.8 million was invested in the EWE Energy

business area in the reporting year. Significant investments

were made in off-shore projects and in plants

and facilities for natural gas, telecommunications and IT.

swb: Electricity sales by customer group*

(in million kWh)

5,000 5000

4,000 4000

3,000 3000

2,000 2000

1,000 1000

0 0

swb: Natural gas sales by customer groups

(in million kWh)

10,000 10000

8,0008000

6,0006000

4,0004000

2,0002000

0 0

983

3,554

940

2,883 2,980

1,869

2,197

2,060

swb business area

2010 2011 2010 2011 2010 2011 2010 2011

* Inc. amounts from leased power plant blocks

3,704

3,552

2010 2011 2010 2011 2010 2011 2010 2011

188

198

Depreciation, amortisation and impairment were increased

by Euro 142.8 million for the 2010 financial

year and the goodwill allocated to swb was adjusted

accordingly. The result of this is a negative effect amounting

to the same on the business area’s EBIT for 2010.

At 4.7 billion kWh, the electricity sold and generated

within the swb business area was only slightly below

the previous year’s value (4.9 billion kWh). swb’s gas

sales declined by 1.9 billion kWh, primarily as a result

of the weather.

Sales for the swb business area came to Euro 1,161.2

million and were therefore practically unchanged from

the previous year. higher revenues from the sale of

electricity were offset by a weather-related decline in

revenues from its gas business.

Total

4,875

4,690

Total

8,731

6,812

Standard-rate

customers

Special-rate

customers

Local utilities

Total

Standard-rate

customers

Special-rate

customers

Local utilities

Total


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

EBIT was negative at Euro -68.5 million. The primary

causes of this were one-off effects arising from changes

in the basic conditions in the energy industry, and these

changes made it necessary to recognise an impairment

loss of Euro 100.7 million on the shareholding in Stadtwerke

Bielefeld Gmbh.

Capital expenditure was Euro 10.2 million higher than in

the previous year at Euro 140.1 million. It was primarily

driven by investments in electricity supply equipment

such as power plants and the “Gemeinschaftskraftwerk

Bremen” construction project.

Poland: Natural gas sales

(in million kWh)

1,000 1000

800 800

600 600

400 400

200

0 0

833.8

873.7

2010 2011

Turkey: Natural gas sales

(in million kWh)

16,000 16000

12,800 12800

9,600 9600

6,400 6400

3,200 3200

0 0

12,066.4

15,485.8

2010 2011

New Markets and ICT business area

All of the foreign shareholdings allocated to this business

area recorded increased sales volumes and customer

numbers in 2011. The companies in Poland supplied

10,579 customers with a total of 873.7 million kWh of

natural gas in the reporting year. This represents growth

of 9.9 per cent and 4.8 per cent respectively year on

year. The Turkish shareholdings improved their natural

gas sales by 28.3 per cent to 15.5 billion kWh. The considerable

rise is a result of the quantity situation and

weather conditions. Customer numbers rose significantly

once again by 11.1 per cent to 675,272 at present.

Poland: Natural gas customers

12,000 12000

9,600 9600

7,200 7200

4,800 4800

2,400 2400

0 0

9,630

10,579

2010 2011

Turkey: Natural gas customers

700,000 700000

560,000 560000

420,000 420000

280,000 280000

140,000 140000

0 0

675,272

607,604

2010 2011

59


60 EWE annual rEport 2011

The EWE Group’s telecommunications and IT companies

put in a sound performance over the course of the financial

year in a tough competitive environment. Including

the telecommunications company htp, which is presented

as an associated company, the telecommunications

companies served around 670,000 customers as of 31 December

2011. The year-on-year drop in customer numbers

was primarily the result of the sale of the hamburg

business area (Martens Antennen- und kabel anlagenbau

Gmbh).

Sales in the New Markets and ICT business area in the

2011 financial year came to Euro 1,019.5 million in total

(previous year: Euro 979.0 million). The Telecommunications

business unit and the Turkey business unit provided

the largest contributions to revenues at 47 per cent and

36 per cent respectively.

The negative EBIT of Euro -195.3 million is primarily due

to impairment within the Turkey business unit. This is a

result of write-downs of Euro 146.8 million on impaired

goodwill as well as on intangible assets at Bursagaz and

kayserigaz. Declining sales revenues and provisions

also had a negative effect on the Telecommunications

business unit.

Capital expenditure in the business area came to Euro

72.7 million. It was mainly allocated to the Telecommunications

business unit. Investments were also made in

the expansion of gas networks in Poland.

Telecommunication customers*

700,000700000

600,000600000

500,000500000

400,000400000

300,000300000

200,000200000

100,000100000

0 0

719,827

668,426

2010 2011**

* including htp

** Decline is result of sale of Martens

Notes to the annual financial

statements of EWE AG in accordance

with German commercial law

EWE AG as a holding company is responsible for the

management of the EWE Group as a multi-service

company. Its tasks are the strategic and cross-market

development of the business areas and the strategic

planning and guaranteeing of financing within the Group.

Earnings position

The earnings position of EWE AG is primarily shaped by

the investment income and net interest income.

The result of financial investments was Euro -132.8 million

and was predominantly influenced by impairment

losses on the shareholding in vNG AG and on shareholdings

in Turkey. This effect, compounded further by the

assumption of loss from EWE TEL Gmbh, offsets the

positive profit transfer of EWE ENERGIE AG and the investment

results of swb AG and vNG AG.

Net interest income / expense came to Euro -108.6 million,

an improvement on the previous year. With increased

interest income resulting from a one-off effect from the

strategic partnership with EnBW, expenses increased

only slightly, taking into account interest from a bond

issued in November 2011.

The other operating income of Euro 111.7 million is primarily

attributable to income with affiliated companies.

A one-off effect from the previous year that was related

to electricity and energy tax and did not impact on

earnings no longer applied, resulting in an increase of

Euro 206.5 million.

Personnel expenses came to Euro 29.8 million, primarily

due to allocations to pension provisions being reduced

year on year by Euro 2.5 million. Depreciation, amortisation

and impairment remained constant.

Other operating expenses came to Euro 118.1 million

and were shaped by the expenses of affiliated companies

and increased advertising expenses for EWE AG

made necessary by increased competition.


Group manaGement report

Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Earnings before taxes (EBT) came to Euro -295.8 million.

The change in tax expense was caused by the

change in result and also because a one-off effect in

the previous year, which did not affect the result and

was related to electricity and energy tax recognised

in other taxes, no longer applied.

The distributable profit of Euro 88.0 million includes

not only the profit carried forward from the previous

year but also Euro 337.2 million transferred from retained

earnings.

Capital expenditure

Capital expenditure came to Euro 88.6 million in the

reporting year and was broken down as follows:

Euro million 2011 2010

Land and buildings

operating and

6.7 18.4

office equipment 6.1 7.7

Intangible assets – 4.4

Financial investments 75.8 853.7

Total 88.6 884.2

Financial investments are primarily loans to affiliated

companies.

Financial position

Cash flow from operating activities came to Euro -119.3

million for the financial year. The net loss for the year,

which formed the basis for the calculation, was Euro

258.4 million. Depreciation, amortisation and impairment,

in particular with regard to financial investments

and effects from the reversal of provisions, brought

about an improvement in the cash flow. This gives rise

to an operating cash flow (annual result + depreciation,

amortisation and impairment + non-cash changes in

provisions + / - gains/losses from the disposal of noncurrent

assets + / - other non-cash income and expenses)

of Euro 99.9 million as against Euro 102.7 million in

the previous year. This is outweighed by cash outflows

from current assets arising from cash pooling schemes

with affiliated companies.

Cash outflows from investing activities were dominated

by capital expenditure in property, plant and equipment

as well as long-term loans. The partial repayment of

long-term loans by subsidiaries had a particularly positive

offsetting effect. EWE AG’s cash flow from financing

activities reflects the cash inflows from the issue of a

new bond and from contributions made by the strategic

partner EnBW into the capital reserves. This was offset

by the payment of the previous year’s dividends. Cash

and cash equivalents decreased by Euro 53.1 million.

Cash flow statement

1 January to 31 December 2011 /

Source of funds (+), use of funds (-)

Euro million 2011 2010

Cash flow from

operating activities

Cash flow from

- 119.3 - 105.5

investing activities

Cash flow from

- 63.2 + 218.4

financing activities

Change in cash and

+ 129.4 - 85.9

cash equivalents - 53.1 + 27.0

Assets position

EWE AG’s total assets were Euro 4,889.6 million and

reflect the Group’s balanced asset and capital structure.

The balance sheet structure shows EWE AG’s function

as the parent company in the EWE Group, which holds

the Group’s strategic shareholdings. At Euro 4,006.6

million or 81.9 per cent, fixed assets were the dominant

asset category, with financial assets the largest item at

Euro 3,738.4 million. The reclassification of the shareholding

in vNG AG from current assets due to changes

in the assessment regarding the ability to dispose of it

in the short term caused a particular increase in these

assets in the financial year.

Current assets including prepaid expenses and deferred

income came to Euro 883.0 million and was therefore

considerably lower than the previous year’s value of

Euro 1,897.2 million due to the above-mentioned reclassification

of vNG AG. Receivables from affiliated

companies is the most dominant item. These contain in

particular loan receivables and receivables from cash

pooling schemes, thus reflecting the function that EWE AG

serves as financier for the EWE Group in its capacity as

the holding company.

61


62 EWE annual rEport 2011

In equity and liabilities, there was a decline in shareholders’

equity despite a contribution of Euro 75.0 million

being made by strategic partner EnBW to capital reserves;

this does not take distributable profit into account. The

cause of this is the amount transferred from retained

earnings; this transfer was related to the result. Nonetheless,

this resulted as before in a high equity ratio of

38.7 per cent. In addition to equity, non-current assets

were also offset by non-current borrowings of Euro 2,673.7

million. This means that non-current assets are covered

in their entirety by long-term capital. Four issued bonds

totalling Euro 2,142.7 million and non-current loans from

banks including a promissory note totalling Euro 453.4

million make up the largest part of the EWE Group’s

non-current borrowings. Current borrowings accounted

for 6.6 per cent of the balance sheet total.

Important events since the end of the

financial year

No events of particular significance between the end of the

financial year and the preparation of the annual financial

statements that would have made an alternative presentation

of the earnings, financial or assets position of

the Group necessary have occurred.

Assets

Dependency report in accordance

with Section 312 of the German Stock

Corporation Act (AktG)

The company has prepared a report on connections with

affiliated companies as required under Section 312 of

the German Stock Corporation Act (AktG). This report

ends with the following statement by the Board of

Management:

“For legal transactions or measures taken and listed in

the report on connections with affiliated companies, our

company has received an appropriate consideration for

each transaction under the circumstances of which we

were aware at the time that the legal transactions were

conducted and measures were taken, and our company

has not been disadvantaged by the implementation of

the measures.”

Supplementary report

No events of particular significance have occurred

since the end of the financial year.

31.12.2011 31.12.2010

Euro million % Euro million %

Fixed assets 4,006.6 81.9 % 3,174.6 62.6 %

Current assets 883.0 18.1 % 1,897.2 37.4 %

Capital

4,889.6 100.0 % 5,071.8 100.0 %

31.12.2011 31.12.2010

Euro million % Euro million %

Shareholders’ equity 1 1,893.1 38.7 % 2,155.3 42.5 %

Non-current liabilities 2,673.7 54.7 % 2,573.4 50.7 %

Current liabilities 322.8 6.6 % 343.1 6.8 %

1 Shareholders’ equity, not taking distributable profit into account.

4,889.6 100.0 % 5,071.8 100.0 %


Group manaGement report

COuRSE OF BuSINESS AND ECONOMIC ENvIRONMENT EARNINGS, ASSETS AND FINANCIAL POSITION SuPPLEMENTARy REPORT RISk REPORT OuTLOOk

Risk report

Structure and core elements of the

opportunity and risk management system

The early identification and active, pre-emptive management

of potential opportunities and risks are of crucial

importance for the lasting, successful development of

the EWE Group. The standardised planning and controlling

process at Group level, featuring an integrated

early recognition system for opportunities and risks, is

the integral base of the Group-wide opportunity and

risk management system. Its principal organisational

element is the Group Risk Management, whose main

task is the further development and coordination of the

process-oriented early recognition system for risks on

the basis of guidelines applicable throughout the Group

as well as the risk reporting to the Board of Management.

The Group’s energy trading activities are subject

to special risk guidelines, which are used to set up a

trading framework reflecting the Group’s specific corporate

goals, particularly relating to supervision and

the separation of functions.

Early recognition process for risks

The risks are identified early at the level of the individual

companies with responsibility for the risks in a regular

and structured process while observing the relevant Group

standards, evaluated in terms of potential damage and

likelihood of occurrence, and reported to EWE AG’s central

Risk Controlling team along with a list of appropriate

measures to limit the risks. Regular reporting for the

energy trading department is based on risk measurement

instruments specially developed for this area.

The risks identified at the level of the individual companies

are included in summarised reporting at business

area and Group level in accordance with their significance

as measured by the key budget target figures. The data

gathered in the regular, systematic risk early recognition

process and urgent risk reports issued at short notice

when certain thresholds are reached form the basis for

an evaluation of the EWE Group’s current and future risk

situation. Regular reports based on this information and

geared towards materiality are submitted to the Board

of Management and the supervisory bodies.

The main categories of risk which according to current

information can affect the course of business as well

as that of the assets, earnings and financial position of

EWE are as follows:

Ambient risks

Ever more changes to the international macroeconomic

market environment as well as adjustments to the legal

and social environment increase the potential risks

to the EWE Group’s sustainable business development

in terms of the main objectives of its business areas. Of

particular importance to EWE now and in the future are

the effects of regulatory decisions on the energy market

in Germany, Poland and Turkey as well as the terms of

competition in the telecommunications market. Depending

on the form that the regulations take, this may affect

the profitability of the network business. Legal risks also

continue to exist in connection with the enforceability

of necessary gas price adjustments. EWE sees its active

involvement in the industry associations relevant to its

business areas as an opportunity to play a constructive

role in the political decision-making process and shape

ambient conditions.

Market risks

In its EWE Energy, swb and New Markets and ICT business

areas, EWE remains exposed to volume and margin

risks as well as a rising credit risk for business partners

due to the increasing pressure of competition on both

national and international procurement and sales markets

as a result of the financial and economic crisis. The

IT activities in the ICT business unit remain exposed to

the risk that they will be affected by a reluctance to invest

which may prevail in their core markets due to the

tense market environment.

In the gas market in recent years, an increase in the services

provided, a growth in market liquidity (particularly

with respect to high-grade gas) and an increasing discrepancy

between spot and futures market prices calculated

on the stock exchange, on the one hand, and

purchase prices from long-term purchase agreements

on the other (which are usually linked to oil prices), have

all been observed. At present, the prices available on

the spot and futures markets are considerably better

than those in long-term agreements. EWE is addressing

this situation by engaging in active risk management

for its entire gas procurement portfolio and by adjusting

specific contract structures to market conditions.

63


64 EWE annual rEport 2011

There continue to be risks, specifically on the Turkish

market, from the oil-based pricing of gas purchases in

long-term agreements and as a result of the regulation

of purchase prices.

In order to meet the various challenges posed by the

market and the competition, EWE developed flexible

and customer-oriented product and price strategies

early on and offers product portfolios which reflect the

demands of the market. Successful cooperation between

business areas in developing combined energy

and telecommunications products has proven to provide

an important competitive edge.

Derivative financial instruments are used to limit the

price risks relating to exchange rates, interest rates and

commodities, to which the EWE Group is exposed. Only

those exchange rate, commodity and interest rate risks

which affect Group cash flow are hedged. These risks

are hedged using micro-hedges or portfolio hedges. The

Group always checks whether hedge accounting can be

used to reduce earnings volatility. however, derivatives

which do not qualify for hedge accounting or for which

hedge accounting is inappropriate are still considered

economic hedges.

No derivative financial instruments are used without

corresponding underlying transactions, i.e. for purely

speculative purposes.

The EWE Group uses the following derivative instruments

to hedge price risks: electricity futures contracts, coal

swaps, AAu and CER transactions, currency options,

currency futures as well as interest rate swaps, caps and

collars. Only business partners with excellent credit

ratings are considered.

Fair value hedges for commodities to hedge against gas

price risks resulting from future sales are recognised.

Oil swaps or TTF-based hedges are used as hedging instruments.

The risks inherent in electricity, gas and coal

trading are also in part hedged using commodity cash

flow hedges.

Operating risks

The basis for EWE’s sustainable commercial success lies

in continuing to operate innovative and highly complex

production and network infrastructure efficiently and to

make corresponding targeted investments, both in the

energy and telecommunications areas.

To reduce potential risks and make consistent use of

available opportunities, the highly qualified employees

working there take part in a continuous training process

to secure and improve their high level of qualifications

in terms of present and future standards and especially

with regard to safety measures and statutory requirements.

Furthermore, special quality assurance plans and

coordinated redundancy concepts, which are developed

continually in line with requirements, have been implemented

so as to guarantee process stability.

With respect to larger projects and investments, there

are risks related to their timely completion within budget

limitations, and these risks are continuously monitored.

In the case of the RIFFGAT offshore wind farm project,

the unresolved border issue continues to cause uncertainty

regarding the approval already granted. In the

area of exploratory drilling there are the inherent risks

associated with drilling, liability for the environment and

uncertainties regarding the size of deposits. The major

investment projects in electricity generation (mainly

in a new gas and steam turbine power plant in Bremen

and the retrofitting of the existing power plant fleet),

together with the gas cavern projects, are subject not

only to the project risk itself but also to a long-term

commercial risk, which is addressed by means of structured

sales strategies.


Course of business and eConomiC environment earnings, assets and finanCial position supplementary report risk report outlook

Environmental risks

The EWE Group is subject to numerous environmental

protection laws and regulations. Requirements must be

strictly adhered to and record-keeping must be ensured.

Environmental risks from ongoing business are addressed

by means of preventative measures. The EWE Group is

insured against certain environmental risks.

The swb Erzeugung Gmbh & Co. kG subsidiary is certified

in accordance with the DIN EN ISO 14001 international

standard for environmental management. This

system regulates the planning, implementation and

monitoring of environmental protection measures.

Legal risks

As part of its business activities in Germany and other

countries, the EWE Group is exposed to a variety of

legal risks in the countries in which it operates. These

risks relate both to general statutory regulations and

special, industry-specific statutory regulations as well as

those imposed by regulatory bodies and other institutions.

The type and extent of the legal disputes surrounding

gas supply contracts with private end customers show

that it will not be possible to completely exclude such

risks – in particular those relating to the General Terms

and Conditions associated with such contracts – even

in the future. Relevant legislative developments are

continuously observed and assessments are made regarding

possible effects on business activities. A legal

appraisal is also regularly conducted when relevant

contracts are concluded and projects agreed.

Financial risks

EWE’s operating activities in the various business areas

in Germany and abroad give rise to financial risks in the

form of liquidity, credit, interest and exchange rate risks

as well as market price risks on the international energy

procurement and sales markets which are vital to EWE.

In light of the financial and economic crisis, EWE has

stepped up its continuous monitoring, position evaluation,

credit scoring of business partners and active risk

management and is implementing suitable instruments

related to relevant target figures to manage risk on the

basis of risk guidelines for specific business areas. The

financial risk management instruments used are explained

in more detail in the section covering disclosures

on financial instruments in the Notes to the consolidated

financial statements.

Group manaGement report

The EWE Group is also exposed to impairment risks

that may, in most cases, come about either as a result

of rising capital market interest rates or from the continuously

deteriorating business prospects of individual

companies. Shareholdings are regularly tested for impairment

and the controlling and development of shareholdings

is part of a continuous management process.

The risk of deterioration of EWE’s external rating is in

principle constant, and is addressed by EWE by means of

ongoing monitoring and – if at all possible – by initiating

suitable measures to counteract this.

Risks from joint Group functions

The latest information and communications technology

is used to provide efficient support for all business

processes in the individual business areas. As the quality

and, in particular, the permanent availability of the

systems are a critical factor in the success of the business

and the further development of the business, extensive

hardware and software measures are implemented and

constantly refined using the latest models to improve

the quality of software development and ensure high

availability. Starting from this high quality level, systems

are constantly refined, including intensive staff training,

data security and data protection.

Opportunities

The basic conditions for the development of the energy

industry have been fundamentally affected by the “turnaround”

passed by the German government in early 2011.

The role of renewable energies will continue to grow

and the importance of intelligent solutions to manage

the increasing decentralisation of energy and load flows

and flexibly balance out supply and demand in electricity

and gas networks will grow. With an underlying strategy

that focuses on these core aspects, the EWE Group has

been particularly well prepared for these future challenges

for a number of years now. Increasingly linking

and combining elements from expertise in the energy

industry with available capacities in telecommunications

and IT gives rise to opportunities for new products that

provide customers with more value and improve the

chance of standing out from the competition.

65


66 EWE annual rEport 2011

In the field of electricity generation, the Group expects

that its earnings position will be improved and stabilised

not only through its continued investment in both

land-based and offshore wind farms, but also through

its investment in a flexible gas and steam turbine power

plant in Bremen with the parallel implementation of a

long-term strategy conceived within the context of a

partnership. The structure of the EWE Group’s power

plant fleet energy mix will also improve with specific

emissions being reduced.

In its operating business, the EWE Group will, in the

coming years, benefit from further enhancement of its

cooperation with subgroups and the optimum use of

expertise and resources present within the Group to

improve the efficiency and effectiveness of processes

and make use of the potential of synergy effects in order

to ensure long-term competitiveness.

Summary assessment of the risk

situation

The established and process-oriented early recognition

system for risk did not reveal any individual risks or a

total risk position in 2011 which could jeopardise the

continued existence of the EWE Group. The Group Internal

Audit department and the external auditor supervise

and regularly audit the risk early recognition

system to ensure that it functions correctly and effectively

and complies with legal requirements. For the

current financial year 2012, no risks to the continued

existence of the Group as a going concern have been

identified to date.

Report on the internal control and

risk management system

Information pursuant to Section 315

para. 2 no. 5 and Section 289 para. 5 of

the German Commercial Code (hGB)

The goal of EWE’s financial reporting is to provide interested

parties with our annual and interim financial

statements, which contain complete and accurate information.

Our internal control system (ICS) for accounting

identifies possible sources of error and limits

the risks related to these sources of error. This internal

control system is applied to all accounting and financial

reporting across the entire EWE Group.

The internal control system is designed on the basis

of the organisational structure of our accounting and

financial reporting process.

One of the core functions of this process is the management

of the Group as a whole and its operating units.

The targets laid out by the Board of Management of

EWE AG define the direction in this regard. We prepare

our medium-term plans once a year on the basis of these

and our expectations regarding developments in our

operating business. These plans include target figures

for the upcoming financial year and subsequent years.

We produce forecasts for the financial year in progress,

which are reviewed and amended on a regular basis. The

EWE AG Board of Management meets with the Board

members and Managing Directors of its main subsidiaries

on a regular basis to evaluate quarterly and annual

financial reports and to update forecasts.

Individual companies are responsible for their own accounting,

which is subject to local standards, and the

accounting ICS is tailored to the individual requirements

of each company on the basis of Group-wide guidelines.

Because EWE AG functions as the holding company for

the Group as a whole, it also plays a central role when

it comes to accounting. This role includes consolidating

figures and testing goodwill for impairment. Certain

processes, such as the calculation of pension provisions,

are outsourced together to an external service provider

and are also subject to Group-wide quality standards.


Group manaGement report

COuRSE OF BuSINESS AND ECONOMIC ENvIRONMENT EARNINGS, ASSETS AND FINANCIAL POSITION SuPPLEMENTARy REPORT RISk REPORT OuTLOOk

The members of the EWE AG Board of Management

issue a declaration under oath to a third party and sign

the confirmation by the legal representatives for reports

issued outside the Group. By doing so, they confirm that

the applicable accounting standards and guidelines of

the EWE Group codified in the Group Accounting handbook

have been complied with and that the figures give

a true and fair view of the assets, financial and earnings

position of the Group.

Possible financial reporting risks are identified on a

company division level using quantitative, qualitative

and process-related criteria. Our ICS is based on our

generally binding guidelines. We have also defined minimum

requirements for central accounting processes to

guarantee that data is collected and managed properly.

using a risk and control matrix, we have assessed risks

resulting from subjective judgements or complex situations

which could affect balance sheet items.

The EWE Group uses a standard procedure introduced

in 2010 to determine whether the necessary control

measures have taken place and have been implemented

correctly. The Group Internal Audit department also reviews

the internal control system throughout the year

as part of the auditing programme.

The Finance and Audit Committee of the Supervisory

Board regularly checks whether the accounting ICS is

effective. The Board of Management informs the Audit

Committee of possible financial reporting risks once a

year, explains the control measures that have been implemented

and presents the methods that have been

used to ensure that the control mechanisms have been

implemented correctly.

Outlook

Forecast macroeconomic developments

2011 was the fourth year of a worldwide financial and

economic crisis. While the measures taken by the governments

of industrialised nations and emerging markets

did bring about economic recovery, they also caused

government debt to grow massively in the industrialised

countries. The reciprocal relationship between the

sovereign debt and banking crises is expected to continue

to define how the economy fares in 2012. Dependency

on political decisions generally makes forecasts for the

current year difficult.

The German Council of Economic Experts, in its forecasts

for the global economy, does not expect there to be

any new turmoil in the financial markets. That said, the

recovery of the global economy in the first half of 2012

will initially lose considerable steam due to the noticeable

slowdown in economic activity in the emerging markets

and growth in the developed markets being minimal at

best. A drop in inflation rates in the emerging markets

has been forecast for the second half of the year. It is also

expected that the problems in the industrialised nations

will disperse. It is expected that both will bring about an

improvement, such that forecasts for the global economy

predict growth of 4.0 per cent for the entire year.

For the eurozone, economic development is anticipated

to be even weaker than 2011 with growth of 0.9 per cent.

Experts also expect growth in Germany to be low. The

expected growth rates lie between 0.4 and 0.9 per cent.

Domestic demand, in particular, is expected to pick up.

Experts are concerned, however, about developments in

the foreign trade balance and a slowdown in the growth

of the employment market.

In Poland, growth of 2.0 to 3.5 per cent is expected for

2012. The cause of this is the European debt crisis. In view

of the rapidly rising government debt, rating agencies

have threatened to downgrade Poland’s credit rating.

The Turkish government hopes that the coming years

will bring stability to developments. According to Germany

Trade & Invest, the Turkish government forecasts

growth of 4.0 per cent for 2012 and 5.0 per cent for

2013 and 2014.

67


68 EWE annual rEport 2011

Forecast development of the Group

The year 2011 was dominated by the changes to the

energy policy environment in Germany and current

regulatory plans in Turkey. The EWE Group has introduced

measures to improve competitiveness and expects

that these, in conjunction with its cost saving

programmes, will bring about a positive development

in the years to come. We expect to see a moderate increase

in Group sales of around 5 per cent in 2012 and

2013. The EWE Group believes that the measures mentioned

above and the fact that 2011 was negatively affected

by multiple one-off effects mean that a positive

EBIT in the triple-digit million range can be achieved for

both 2012 and 2013.

Expected developments in the

EWE Energy business area

Sales and earnings developments in the EWE Energy

business area are subject to fluctuations of the economy

and are largely determined by weather conditions and

movements in the oil price. It is not expected that earnings

developments will be significantly affected in the

years to come following the voluntary one-off payment

and the full repayment made as a solution to satisfy

customers in the dispute surrounding the gas price rises

of recent years. Prices for natural gas were increased as

of 1 September 2011, as a result of increased costs for

gas procurement. A mild rise in sales is expected for 2012

and 2013, as is a corresponding improvement in the result

for gas. The prices for electricity were increased as

of 1 February 2011. Due to changes made by regulatory

authorities, another electricity price rise will take place on

1 March 2012. In spite of these regulatory developments,

which are reflected in increasing procurement costs, it

is expected that the business area will see an improvement

in the result for electricity in 2012 and 2013.

Expected developments in the

swb business area

The energy turnaround and the decommissioning of

eight nuclear power plants have caused the conversion

of generation structures to be accelerated considerably.

With the construction of a gas and steam turbine

power plant together with partners, as well as the

modernisation of existing plants, in particular for the

purpose of increasing efficiency and flexibility, the swb

business area is well prepared for the future. A series

of measures have been taken in the field of conventional

generation to improve competitiveness. It is expected

that competition will intensify in the coming years in

the end-use market for electricity and gas. The intense

competition in the gas sector and the relatively low

wholesale prices for electricity were decisive factors in

the year-on-year deterioration of the result. Fundamental

cost-cutting measures are expected to bring

about rises in operating results in the years to come.

Expected developments in the

New Markets and ICT business area

The ICT business unit expects customer numbers to rise

moderately in 2012 and 2013, leading to an improvement

in sales. This forecast is based on both the continued

expansion of telephony and data services for the state

of Lower Saxony, as well as on the planned growth in

the IT services area. In light of changes in the market

and a consistent decline in gross margins in the telecommunications

business area, the measures already

introduced will be pursued further. The business unit

expects a positive result for 2012 and 2013.

The Turkey business unit intends to further expand its

networks and gas supply facilities in the coming years.

Both gas sales and customer numbers are expected to

grow in 2012 and 2013, with a corresponding positive

impact on results.

The continued expansion of the network is planned for

the Poland business unit. A moderate increase in sales

and positive developments in earnings are expected in

2012 and 2013.

These statements are based on current knowledge and

assumptions. They are estimates made on the basis of

all information currently available to us. If the assumptions

do not materialise or additional risks should come

to light, actual results may differ from the forecast results.

For this reason we make no guarantee as to the

accuracy of these statements.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Consolidated financial statements

69 Consolidated financial statements

70 Income statement for the EWE Group

71 Statement of comprehensive income for the

EWE Group

72 Balance sheet for the EWE Group

74 Statement of changes in shareholders’ equity

for the EWE Group

76 Cash flow statement for the EWE Group

77

Notes to the consolidated financial statements

of EWE AG

77 Information about the company

77 Accounting methods

104 Significant judgements, estimates and assumptions

106 Standards issued but not yet binding

109 Notes to the income statement

113 Notes to the balance sheet

161 Confirmation by the legal representatives

162 Auditor’s report

69


70 EWE AnnuAl rEport 2011

Income statement for the EWE Group

for the period from 1 January to 31 December 2011

EUR million Note 2011

2010

adjusted 1

Sales 5 7,901.9 7,409.8

Electricity and energy taxes 5 -446.5 -440.2

Sales (without electricity and energy tax) 7,455.4 6,969.6

Changes in inventories 2.8 -2.3

other own work capitalised 2 6 57.3 56.7

other operating income 7 213.2 274.8

Cost of materials and services 2 8 -5,823.4 -5,414.6

Personnel expenses 9 -603.7 -577.6

Depreciation, amortisation and impairment 10 -595.0 -729.3

other operating expenses 11 -600.4 -636.3

Result of investments accounted for under the equity method 12 -214.1 24.0

other investment income 13 -15.2 3.1

Result from financial instruments -1.2 1.0

EBIT 3 -124.3 -30.9

Interest income 14 27.7 22.0

Interest expense 14 -211.8 -206.4

Profit before tax -308.4 -215.3

Income taxes 15 26.5 - 31.3

Result for the period -281.9 -246.6

of this:

Attributable to the parent company -265.9 -244.3

Attributable to minority interests -16.0 -2.3

1 See section 2.5

2 Previous year’s figure adjusted due to change in reporting

3 Earnings before interest and taxes

-281.9 -246.6


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Statement of comprehensive income for the EWE Group

for the period from 1 January to 31 December 2011

EUR million Note 2011

2010

adjusted 1

Result for the period -281.9 -246.6

Adjustment item for translation differences from foreign subsidiaries 26 -63.7 33.3

Actuarial gains and losses from

defined-benefit pension commitments and similar obligations 28 -61.4 -79.5

Deferred taxes on pensions 18.6 24.1

Cash flow hedges 38 -47.1 56.3

Deferred taxes on reserve for cash flow hedges 15.1 -17.9

Market value of available-for-sale financial instruments 26 0.4 -0.6

Deferred taxes on reserve for available-for-sale financial instruments -0.1 0.2

Share of other income from financial investments accounted

for under the equity method 26 -17.9 0.3

Other comprehensive income after taxes -156.1 16.2

Comprehensive income after taxes -438.0 -230.4

of this:

Attributable to the parent company -414.7 -230.1

Attributable to minority interests -23.3 -0.3

1 See section 2.5

-438.0 -230.4

71


72 EWE AnnuAl rEport 2011

Balance sheet for the EWE Group

as of 31 December 2011

Assets

EUR million Note 31.12.2011

31.12.2010

adjusted 1

01.01.2010

adjusted 1

Non-current assets

Intangible assets 16 1,069.1 1,293.5 1,573.7

Property, plant and equipment 17 5,126.9 5,014.1 4,821.0

Investments accounted for under the equity method 18 877.6 1,364.4 1,412.0

other financial assets 2 19 257.3 253.6 246.4

Income tax receivables 34 7.7 8.8 9.5

other non-financial assets 2 3.5 4.2 3.6

Deferred taxes 34 89.0 11.7 12.5

7,431.1 7,950.3 8,078.7

Current assets

Inventories 20 296.0 251.7 266.6

Trade receivables 21 1,049.4 944.6 732.2

other financial receivables and assets 2 22 371.7 420.0 406.6

Income tax receivables 34 85.8 61.0 49.0

other non-financial receivables and assets 2 23 113.1 158.4 230.9

Cash and cash equivalents 24 259.4 327.7 604.5

2,175.4 2,163.4 2,289.8

Non-current assets held for sale 25 202.0

2,377.4 2,163.4 2,289.8

Total assets 9,808.5 10,113.7 10,368.5

1 See section 2.5

2 Previous year’s figure adjusted due to change in reporting


Equity and liabilities

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

EUR million Note 31.12.2011

Shareholders’ equity 26

31.12.2010

adjusted 1

01.01.2010

adjusted 1

Subscribed capital 243.0 243.0 243.0

Capital reserve 1,609.5 1,534.5 1,532.1

Retained earnings 690.4 1,192.3 1,513.3

Equity attributable to shareholders

of the parent company 2,542.9 2,969.8 3,288.4

Attributable to minority interests 13.8 35.5 36.0

Non-current liabilities

2,556.7 3,005.3 3,324.4

Construction subsidies 27 758.1 750.0 749.3

Provisions 28 1,477.6 1,400.3 1,314.6

Bonds 29 2,104.0 1,990.1 1,988.9

Liabilities to banks 30 637.7 708.9 731.0

other financial liabilities 2 32 128.5 109.4 139.7

Income tax liabilities 34 4.3 1.1 0.8

other non-financial liabilities 2 33 4.4 5.4 3.5

Deferred taxes 34 435.4 453.4 474.6

Current liabilities

5,550.0 5,418.6 5,402.4

Construction subsidies and emissions rights 27 69.6 78.3 93.1

Provisions 28 158.6 169.7 94.5

Liabilities to banks 30 81.6 33.5 36.6

Trade payables 31 856.2 903.1 690.6

other financial liabilities 2 32 410.0 353.0 571.8

Income tax liabilities 34 19.8 24.2 11.5

other non-financial liabilities 2 33 106.0 128.0 143.6

1,701.8 1,689.8 1,641.7

Total equity and liabilities 9,808.5 10,113.7 10,368.5

1 See section 2.5

2 Previous year’s figure adjusted due to change in reporting

73


74 EWE AnnuAl rEport 2011

Statement of changes in shareholders’ equity for the EWE Group

EUR million

Subscribed

capital of the

EWE Group

Capital

reserve of the

EWE Group

Accumulated

income

Revaluation

reserve in

accordance

with IFRS 3

Reserve for cash

flow hedges

As of 31.12.2009 243.0 1,532.1 1,489.7 74.5 11.9

Reclassification of VNG shares 1 -91.7

As of 31.12.2009 – adjusted 243.0 1,532.1 1,398.0 74.5 11.9

Result for the period -48.4

Adjustment in accordance with IAS 8 1 -142.8

Reclassification of VNG shares 1 -53.1

Result for the period – adjusted -244.3

Reclassification of VNG shares 1

other comprehensive income 38.4

Total result

Capital increase 2.4

Dividend payments -88.0

Change in the group of consolidated companies -2.9

other changes

As of 31.12.2010 243.0 1,534.5 1,062.8 74.5 50.3

Result for the period -265.9

other comprehensive income -32.0

Total result

Capital increase 75.0

Dividend payments -88.0

Transactions under joint control 0.8

As of 31.12.2011 243.0 1,609.5 709.7 74.5 18.3

1 See section 2.5


RETAINED EARNINGS

Comprehensive other income

Reserve for

available-for-sale

financial

instruments

Cumulative

translation

differences

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Measurement

of pension

provisions IFRS 5

Change from

equity valuation

without effect on

profit and loss

Equity

attributable to

shareholders

of the parent

company

Attributable

to minority

interests

Shareholders’

equity

-29.8 41.3 10.3 0.8 3,373.8 36.0 3,409.8

-10.3 16.6 -85.4 -85.4

-29.8 41.3 17.4 3,288.4 36.0 3,324.4

-48.4 -2.3 -50.7

-142.8 -142.8

-53.1 -53.1

-244.3 -2.3 -246.6

0.2 0.2 0.2

-0.4 31.3 -55.4 0.1 14.0 2.0 16.0

-230.1 -0.3 -230.4

2.4 2.4

-88.0 -0.1 -88.1

-2.9 -2.9

0.0 -0.1 -0.1

-0.4 1.5 -14.1 17.7 2,969.8 35.5 3,005.3

-265.9 -16.0 -281.9

0.3 -56.4 -42.8 -17.9 -148.8 -7.3 -156.1

-414.7 -23.3 -438.0

75.0 75.0

-88.0 -0.2 -88.2

0.8 1.8 2.6

-0.1 -54.9 -56.9 -0.2 2,542.9 13.8 2,556.7

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76 EWE AnnuAl rEport 2011

Cash flow statement for the EWE Group

for the period from 1 January to 31 December 2011 / Source of funds (+), use of funds (-)

EUR million

See Notes,

Note 42 2011

2010

adjusted 1

EBIT 2 -124.3 -30.9

Depreciation, amortisation and impairment 728.2 736.8

Reversals of depreciation and impairment -33.6 -1.6

Reversal of construction subsidies -57.9 -51.5

Interest paid -134.6 -134.6

Interest received 27.3 20.8

Income tax payments / rebates -55.0 -46.6

Net gain / loss on disposal of non-current assets 10.8 5.8

Non-cash foreign currency gains / losses 0.1

Non-cash changes in provisions 197.8 137.1

Income / loss from companies accounted for under the equity method 145.2 51.7

Net non-cash gain / loss from derivative financial instruments 7.8 -34.0

other non-cash income and expenses -5.4 18.8

Changes in inventories -45.1 17.3

Changes in receivables and other assets -17.4 -265.0

Changes in liabilities -287.7 -25.5

Cash flow from operating activities 356.1 398.7

Construction subsidies received 77.9 50.9

Proceeds from disposal of intangible assets 0.1

Expenditure for investments in intangible assets -18.1 -20.7

Proceeds from disposal of property, plant and equipment 12.0 5.4

Expenditure for investments in property, plant and equipment -550.7 -574.2

Proceeds from disposal of financial assets 47.2 4.6

Expenditure for investment in financial assets -55.9 -35.1

Cash flow from investing activities -487.5 -569.1

Proceeds from issuing equity instruments 77.5 2.4

Dividend payments to shareholders of the parent company and

minority shareholders -88.2 -88.1

Proceeds from assumption of financial liabilities 586.1 149.8

Repayment of non-current financial liabilities -498.6 -177.8

other net cash flow from / for financing activities -0.9 2.5

Cash flow from financing activities 75.9 -111.2

Change in cash and cash equivalents -55.5 -281.6

Change in cash and cash equivalents due to changes in exchange rates

and in the group of consolidated companies -10.5 5.6

Cash and cash equivalents at the beginning of the period 328.9 604.9

Cash and cash equivalents at the end of the reporting period 262.9 328.9

1 See section 2.5

2 Earnings Before Interest and Taxes


Consolidated finanCial statements

CONSOLIDATED FINANCIAL STATEMENTS NOTES CONFIRMATION By ThE LEGAL REPRESENTATIvES

Notes to the consolidated financial statements

of EWE AG

1. Information about the company

The consolidated financial statements for the year to 31 December 2011, were approved by the Board

of Management on 13 February 2012, for presentation to the Supervisory Board.

EWE’s registered offices are at Donnerschweer Straße 22 – 26 in 26123 Oldenburg, Germany. The company

is registered in the Commercial Register of the Oldenburg District Court under the number hRB 33.

EWE Aktiengesellschaft (known in the following as “the company” or “EWE AG”) and its subsidiaries

(in the following “the EWE Group”) supply and generate energy (in particular electricity and gas),

water and also provide information technology and telecommunications services. It operates in the

Ems / Weser / Elbe region of Germany as well as in Lower Saxony and Bremen. The EWE Group’s gas

operations also extend to eastern Germany, Poland and Turkey. Electricity and gas are predominantly

purchased from third parties.

2. Accounting methods

2.1 Basis of preparation

EWE AG’s consolidated financial statements have been prepared pursuant to Section 315a para. 1 of the

German Commercial Code (hGB) as of 31 December 2011, in accordance with the binding International

Financial Reporting Standards (IFRS) and the interpretations of the IFRS Interpretations Committee

(IFRS IC), both issued by the International Accounting Standards Board (IASB), London, as of 31 December

2011, and as adopted by the European union. Other requirements of the German Commercial Code

(hGB) have also been taken into account.

The consolidated financial statements have been prepared on the basis of depreciated or amortised

cost except for the valuation of financial instruments and available-for-sale financial assets measured

at fair value. The carrying amounts of those assets and liabilities reported in the balance sheet that are

designated as underlying translations in fair value hedges that would otherwise be recognised at amortised

cost have been adjusted to reflect changes in the fair values attributable to the risks that are being

hedged in effective hedge relationships. The consolidated financial statements are prepared in euros. All

values are rounded to the nearest million (Euro million) in accordance with common commercial practice,

except when otherwise indicated.

The income statement and statement of comprehensive income are presented separately, as are the

balance sheet, the cash flow statement and the statement of changes in shareholders’ equity. Segment

reporting is an integral part of the Notes.

Rounding may result in minor variations in totals and percentages in the consolidated financial statements.

The income statement has been prepared using the total cost method.

The consolidated financial statements and the Group management report for EWE AG for 2011 are

published in the electronic version of the German Federal Gazette.

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78 EWE AnnuAl rEport 2011

2.2 Principles of consolidation

The consolidated financial statements comprise the financial statements of EWE AG and its subsidiaries

as of 31 December 2011.

Subsidiaries are fully consolidated from the acquisition date, i.e. the date on which the Group acquired

control of the subsidiary. Consolidation ends as soon as the parent company no longer has a controlling

interest in the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting

period as the financial statements of the parent company using uniform accounting methods. All intra-

Group balances, transactions, unrealised gains and losses from intra-Group transactions and dividends

are eliminated in full.

The comprehensive income of a subsidiary is allocated to minority interests, even if this leads to a

negative balance.

Any changes in a parent company’s stake in a subsidiary which do not lead to it losing control are treated

as equity transactions.

If the parent company loses control over a subsidiary, the following steps are taken:

• The assets (including goodwill) and liabilities of the subsidiary are derecognised,

• the carrying amount of all minority interests in the former subsidiary is derecognised,

• the accumulated translation differences recognised in equity are derecognised,

• the fair value of the consideration received in return is recognised,

• the fair value of the remaining shareholding is recognised,

• the net profit or loss is recognised in the income statement,

• the components of other comprehensive income attributable to the parent company are reallocated

to the income statement or retained earnings if required by the IFRS.

Despite holding a majority interest of 51 per cent in hansewasser ver- und Entsorgungs-Gmbh, Bremen

(hvE), the EWE Group is not able to exercise a controlling influence over the company. This is because

the rights of the minority shareholder, the Free and hanseatic City of Bremen, are so extensive that they

prevent any control over the company. however, because EWE exerts a significant influence over the

company, hvE is included in the consolidated financial statements as an associated company. Gemeinschaftskraftwerk

Bremen Gmbh & Co. kG, Bremen (GkB) continues to be recognised as an associated

company although a controlling interest is held. Control over GkB is not possible as major resolutions

require a qualified majority.

The EWE Group has no significant influence on the financial and business decisions of associated companies

in which it holds a direct or indirect stake of 20 per cent or less of the voting rights and which

are recognised as financial assets in accordance with IAS 39. This is borne out by the fact that no IFRS

information that is of relevance for these financial statements has been provided for these companies.

Shares in subsidiaries and associated companies which are of minor importance from an overall Group

perspective are accounted for in accordance with IAS 39. This particularly relates to subsidiaries without

operations or with only a negligible amount of business.

The Group’s shareholdings are published in the electronic German Federal Gazette in accordance with

Section 313 para. 2 numbers 1–4 and para. 3 of the German Commercial Code (hGB). The subsidiaries

included in the consolidated financial statements, shareholdings accounted for under the equity method

and other shareholdings are listed in section 44 of the Notes.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The Group of consolidated companies changed as follows in the 2011 financial year:

Type of consolidation and number Germany Abroad Total

Full consolidation

1 January 2011 33 6 39

Additions 1 0 1

Disposals 0 0 0

31 December 2011 34 6 40

Companies accounted for under the equity method

1 January 2011 10 0 10

Additions 1 0 1

Disposals 2 0 2

31 December 2011 9 0 9

Total

1 January 2011 43 6 49

Additions 2 0 2

Disposals 2 0 2

31 December 2011 43 6 49

2.3 Summary of significant accounting methods

The main accounting methods applied when preparing these consolidated financial statements of the

EWE Group are detailed below. unless specified otherwise, these methods were applied consistently to

the reporting periods shown.

a) Business combinations and goodwill

Business combinations are accounted for using the purchase method. The cost of a company acquisition

is calculated as the fair value of the consideration transferred at the acquisition date plus the minority

interests in the acquired company. The acquiring company in each acquisition measures the minority

interests in the acquired company either at fair value (known as the “full goodwill method”) or as the

corresponding proportion of the identifiable net operating assets of the acquired company (known as

the “purchased goodwill method”). Any costs incurred due to the merger are recognised as expense.

When the EWE Group acquires a company, it decides on the appropriate classification and designation

of the financial assets and liabilities that it assumes on the basis of the terms of the contract, economic

factors and the economic environment at the time of acquisition. This includes separating derivatives

embedded in host contracts.

In step acquisitions, the fair value of the shares in the acquired company held by the acquiring company

is recalculated as of the acquisition date, and the resulting gain or loss is recognised as profit or loss.

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80 EWE AnnuAl rEport 2011

The agreed contingent consideration is measured at fair value at the acquisition date. Subsequent changes

in the fair value of contingent considerations representing an asset or liability are recognised either in

the income statement or in other comprehensive income in accordance with IAS 39. Contingent considerations

classified as equity are not re-evaluated, and are recognised in equity when paid. Should

IAS 39 not be applicable to the contingent consideration concerned, it is measured in accordance with

the corresponding IFRS.

Goodwill is measured at acquisition cost when initially recognised. Acquisition cost is measured as the

amount by which the consideration transferred exceeds the acquired identifiable assets and liabilities

assumed by the Group. If this consideration is lower than the fair value of the net assets acquired, the

difference is recognised directly in the income statement.

After initial recognition, goodwill is recognised at acquisition cost less accumulated impairment losses.

To determine if goodwill acquired as part of a merger is impaired, it is allocated to the cash-generating

units of the Group intended to benefit from the acquisition. This principle applies even if other assets or

liabilities of the acquired company are allocated to these cash-generating units as well.

If goodwill is allocated to a cash-generating unit and a business area of this unit is sold, the goodwill

allocable to the sold business area is considered a component of the carrying amount of the business

area when calculating the income from the sale of this business area. The value of the sold proportion

of the goodwill is calculated on the basis of the value of the sold business area relative to the value of

the remainder of the cash-generating unit.

b) Shares in an associated company

Shares that the EWE Group holds in associated companies are recorded using the equity method. An

associated company is a company in which the EWE Group exerts a significant influence.

under the equity method, shares in associated companies are recognised in the balance sheet at acquisition

cost plus any changes in the EWE Group’s proportion of the net assets of the associated company

since the acquisition. The goodwill related to the associated company is included in the carrying amount

of these assets, and is neither amortised nor assessed for impairment.

The income statement contains the EWE Group’s proportion of the associated company’s net profit for

the period. Changes recognised directly in the other comprehensive income of the associated company

are recognised by the Group in proportion to its shareholding and included cumulatively in the statement

of changes in shareholders’ equity.

The Group’s proportion of an associated company’s result for the period is presented in the income statement.

This includes the profit attributable to the associated company’s shareholders and therefore to

the profit after taxes and minority interests in the subsidiaries of the associated companies.

The associated company generally prepares its financial statements to the same balance sheet date as

the EWE Group. Group-wide accounting methods are adapted whenever necessary.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The Group applies the equity method to determine whether it is necessary to recognise an additional

impairment loss on the shares that it holds in associated companies. The Group examines whether there

is objective evidence of impairment of its holdings in an associated company as of any given balance

sheet date. If there is, the difference between the recoverable amount of its stake in the associated

company and the carrying amount of this stake is recognised in profit and loss as an impairment loss.

If the Group ceases to exert a significant influence over the company, it measures the fair value of all

shares that it holds in the previously associated company. Differences between the carrying amount

of the stake in the associated company at the time that influence was lost and the fair value of the

shares held in the company are recognised in the income statement, along with revenue from the sale

of shareholdings.

c) Currency translation

The EWE consolidated financial statements are prepared in euros, the functional currency of the parent

company. Every company in the EWE Group sets its own functional currency. The items in the financial

statements of each company are measured in this functional currency.

Foreign currency transactions and balances

Foreign currency transactions are translated by Group companies into their functional currency according

to the spot rate on the date of the transaction.

Monetary assets and liabilities in a foreign currency are translated into the functional currency on each

balance sheet date according to the spot rate on the balance sheet date.

All translation differences are recognised in profit and loss with the exception of monetary items designated

as hedges of a net investment of the EWE Group in a foreign operation. These are recognised in

other comprehensive income until the sale of the net investment, and are only reallocated to the income

statement once they are disposed of. Any taxes resulting from the translation differences for these

monetary items are also recognised directly in other comprehensive income.

Non-monetary items held at their historical acquisition or production cost in a foreign currency are

translated at the exchange rate applicable on the date of the transaction. Non-monetary items recognised

at fair value in a foreign currency are translated at the exchange rate applicable when their fair

value was calculated.

Group companies

upon consolidation, the assets and liabilities of foreign operations are translated into euros on the balance

sheet date. Expense and income are translated using the exchange rate applicable on the date of the

respective transaction. The resulting translation differences arising from consolidation are recognised

in other comprehensive income. The amount recognised in other comprehensive income for a foreign

operation is reallocated to the income statement when this foreign operation is disposed of.

Any goodwill arising after 1 January 2005, on the acquisition of a foreign operation and any adjustments

based on the fair value to the carrying amount of the assets and liabilities and resulting from the acquisition

of this foreign operation are treated as assets and liabilities of the foreign operation and translated

using the exchange rate on the balance sheet date.

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82 EWE AnnuAl rEport 2011

The following exchange rates were used to translate individual financial statements in foreign currencies:

1 Euro Spot rate Average rate

31.12.2011 31.12.2010 2011 2010

Polish złoty (PLN) 4.46 3.96 4.12 3.99

Turkish lira (TRY) 2.44 2.06 2.34 2.00

d) Realisation of income

Income is recognised when it is likely that the Group will accrue the economic benefit and the amount

of the income can be reliably determined, regardless of the time of payment. Income is recognised at the

fair value of the consideration received or due while taking contractual payment terms into account,

but not taking taxes or other fees into account. The EWE Group has analysed its business relationships

in order to determine whether it serves as the client or as a broker. The following criteria must also be

fulfilled in order for income to be recognised:

Sale of goods

Income is recognised when the considerable risks and rewards associated with ownership of the sold goods

have been transferred to the buyer. This transfer generally takes place upon delivery of the goods.

When supplying customers with electricity and gas, the substantial risks and rewards are deemed to have

been transferred to the buyer when the flow rate has been metered. As meter readings cannot be taken

on the balance sheet date some of the revenues are recognised on the basis of statistical calculations.

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

Provision of services

Telecommunications services and IT services provided by the EWE Group are invoiced promptly in regular

intervals. Revenue is recognised when the services are provided.

Revenue from production contracts (Euro 3.6 million in the reporting year, previous year: Euro 2.7 million)

is recognised under the percentage of completion method. The percentage of completion is determined

by the ratio of costs incurred to the total costs estimated for the contract at the balance sheet date. If

it proves impossible to make a reliable estimate of the revenue from a contract, only income equivalent

to the total reimbursable costs incurred is recognised.

Receivables from production contracts are composed of the net amounts of

• costs incurred plus recognised profits, less

• total recognised losses and interim invoiced amounts

for all production contracts for which the costs incurred plus recognised profits (less recognised losses)

exceed the amounts of interim invoices. If the interim invoiced amounts exceed the costs incurred plus

recognised profits (less recognised losses), the amount is recognised under “other current liabilities”.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

If it is likely that total costs will exceed the total income from a production contract, the imminent losses

are recognised immediately as an expense by deducting them from the balance of the production contract.

Imminent losses only include losses still anticipated on the balance sheet date.

Customers’ construction subsidies are reversed pro rata temporis over the useful life of mains connections

and recognised in sales.

Interest income

Interest income and expense is recognised for all financial instruments held at amortised cost; the rate

used is that which would be required to discount the estimated future proceeds and expenditure to the

exact net carrying amount of the financial asset or liability over the anticipated term of the financial

instrument, or a shorter period if applicable. Interest income is shown in the income statement.

Usage fees

Income from usage fees is deferred according to the economic intention of the applicable agreements

and recognised pro rata temporis.

Dividend income

Income is recognised when the legal entitlement to payment arises.

e) Government grants

A government grant is recognised only when there is reasonable assurance that the company will comply

with any conditions attached to the grant and the grant will be received. Grants are recognised as income

over the period necessary to offset them against the related cost for which they are intended to compensate.

Grants relating to assets are presented in the balance sheet as deferred income and amortised

at a steady rate over the estimated useful life of the subsidised asset in profit and loss.

When the EWE Group receives non-monetary grants, the asset and the grant are recognised at nominal

value and reversed at a steady rate over the estimated useful life of the subsidised asset in profit and loss

whenever possible.

f) Taxes

Effective income taxes

The actual tax reimbursement claims and tax liabilities for the current period are recognised to the extent

of the anticipated reimbursement from or payment to the tax authorities. The amount is calculated on

the basis of the tax rates and tax legislation applicable on the balance sheet date in the countries in which

the EWE Group operates and generates taxable income.

Effective taxes related to items that are booked directly in equity are recognised in equity rather than the

income statement. Management evaluates individual tax situations on a regular basis to decide whether

there is room for interpretation in applicable tax law. Provisions for taxes are formed if necessary.

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84 EWE AnnuAl rEport 2011

Deferred taxes

Deferred tax is calculated by applying the liability method for all temporary differences between the

accounting values of assets or liabilities in the balance sheet and their tax values on the balance sheet date.

Deferred tax liabilities are recognised for all taxable temporary differences, with the exception of

• deferred tax liabilities from the initial recognition of goodwill, or of an asset or liability from a transaction

that is not a merger and which has no influence on either the net profit for the period in accordance

with commercial law or the taxable profit at the time of the transaction,

• deferred tax liabilities arising on taxable temporary differences in connection with shareholdings in

subsidiaries, associated companies and shares in joint ventures if the Group can control the time at

which the temporary differences will reverse and it is probable that the temporary differences will

not reverse for the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused

tax credits to the extent that taxable income is likely to be available to offset against the deductible

temporary differences and the unused tax losses and tax credits, with the exception of

• deferred tax assets from deductible temporary differences resulting from the initial recognition of

goodwill, or of an asset or liability from a transaction that is not a merger and which has no influence

on either the net profit for the period or the taxable profit at the time of the transaction,

• deferred tax assets arising on deductible temporary differences in connection with shareholdings in

subsidiaries, associated companies and shares in joint ventures if it is probable that the temporary

differences will not reverse for the foreseeable future or there will not be sufficient taxable profit

available to offset against the temporary differences.

The carrying amount of deferred tax assets is reviewed on each balance sheet date 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 reviewed on

each balance sheet date and recognised to the extent that it has become probable that there will be

sufficient future taxable profit to utilise the deferred 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 realised or the liability is settled, based on tax rates/laws applicable as of the

reporting date.

Deferred taxes that relate to items recognised in equity are also recognised in equity. Deferred taxes

are recognised either in other comprehensive income or directly in equity, depending on the underlying

transaction.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Deferred tax assets and deferred tax liabilities are offset when the EWE Group has the legal right to

settle its effective tax entitlements against its effective tax liabilities and they are levied by the same

taxing authority on the same entity.

Deferred tax benefits arising from an acquisition which do not fulfil the criteria for recognition at the date

of acquisition are recognised in following periods, provided that information comes to light regarding

facts and circumstances at the time of acquisition that demonstrates that they did fulfil these criteria. The

change is reflected as either a reduction of goodwill, provided the reduction occurs during the reporting

period (and does not exceed the goodwill) or in income.

VAT

Income, expenses and assets are recognised after deducting vAT. The following are exceptions to this rule:

• vAT incurred on the purchase of assets or the use of services which cannot be recovered from the

taxing authority is recognised as part of the production costs of the asset or as part of the expense.

• Receivables and liabilities are recognised inclusive of vAT.

The amount of vAT due from or payable to the taxing office is reported in the balance sheet under

receivables or liabilities.

g) Non-current assets held for sale and discontinued operations

Non-current assets or disposal groups that are classified as held for sale are measured at the lower of

carrying amount and fair value less cost to sell. Non-current assets or disposal groups are classified as

held for sale if the carrying amount of the asset or disposal group is mainly realised through a sales

transaction rather than through continued use. This is only the case if the sale is highly probable and

the asset or disposal group is available for immediate sale. Management must have committed to a

plan to sell the asset or disposal group, and the sale should be expected to qualify for recognition as a

completed sale within one year from the date of classification.

Property, plant, equipment and intangible assets classified as held for sale are not amortised or depreciated.

If the intention to sell is abandoned, the asset or disposal group concerned must be reported at the lower

of the two following values at the time of abandonment:

• original amortised carrying amount,

• recoverable amount within the meaning of IAS 36.

Any valuation differences arising from the reclassification must be taken directly to profit and loss.

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86 EWE AnnuAl rEport 2011

h) Property, plant and equipment

Property, plant and equipment is recognised at cost of acquisition or production, plus the present value

of existing future obligations to recultivate land and remove buildings, less accumulated depreciation

and / or accumulated impairment losses. The cost of production consists of the direct costs plus the

directly attributable share of overhead.

Subsequent acquisition or production costs, for example in relation to investments in expansions or replacements,

are only recognised as part of the acquisition/production cost for the asset (or, if appropriate,

as a separate asset) if it is probable that the EWE Group will derive economic benefits from the asset in

the future and the cost of the asset can be measured reliably. Expense for repairs and maintenance which

are not considered significant investments in replacements (day-to-day servicing) are recognised in profit

and loss in the financial year in which they arise.

Exploratory drilling is accounted for at cost under the successful efforts method. If exploratory drilling

is successful, all costs for this drilling are capitalised. All other costs, such as seismic and geological

analyses, are recognised as an expense.

Items of property, plant and equipment are depreciated on a straight-line basis, with the exception of

land. Depreciation relating to gas exploration and production also takes place under the unit of production

method. As the economic benefit derived from gas resources depends on the quantities extracted

at any given time, the unit of production method is used to represent the useful life. The percentage is

then applied to the residual carrying amount at the start of the period.

The following useful life terms are applied to assets for the purpose of straight-line depreciation:

Buildings

Technical equipment and machines

up to 50

Electricity supply equipment 8 – 45

Gas supply facilities 10 – 55

other technical equipment and machines 3 – 50

Gas storage facilities 33 – 40

other plant, operating and office equipment 5 – 14

Assets under property, plant and equipment are either derecognised upon disposal or when no future

economic benefits are expected from their use or disposal. Any gain or loss arising from derecognition

of the asset is calculated as the difference between the net disposal proceeds and the carrying amount

of the asset and is included in the income statement in the period when the asset is derecognised.

The assets’ residual carrying values, useful lives and methods of depreciation are reviewed at the end

of each financial year and adjusted prospectively, if appropriate.

Years


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

i) Leases

Determining whether an arrangement contains a lease is based on the substance of the arrangement

at its conclusion and requires an assessment of whether fulfilment of the arrangement is dependent on

the use of a specific asset or assets and whether the arrangement conveys a right to use the asset, even

if this right is not explicitly granted.

As per the transitional provisions of IFRIC 4, leases agreed before 1 January 2005 are now treated as

agreed on 1 January 2005.

Finance leases, in which substantially all of the risks and rewards related to the leased asset are transferred

to the Group, involve the capitalisation of the leased asset at the commencement of the lease term.

The leased asset is recognised at the lower of fair value or the present value of the minimum lease payments.

Lease payments are apportioned between finance expense and the reduction of the outstanding

liability so as to produce a constant rate of interest on the remaining balance of the liability for the

term of the lease. Finance expense is taken to profit and loss and recognised in the income statement.

Leased assets are depreciated over the term of the lease. If there is no reasonable certainty that ownership

of the leased asset will be transferred to the EWE Group at the end of the lease term, the asset is

depreciated in full over the shorter of the lease term and its anticipated useful life.

Lease payments from operating leases are recognised as an expense in the income statement on a

straight-line basis over the lease term.

j) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset

that requires a substantial amount of time to be spent on preparation for its intended use or sale, are

capitalised as part of the acquisition / production costs of that asset. All other borrowing costs are recognised

as an expense in the period in which they arise. Borrowing costs are interest payments and other

costs incurred by a company in connection with the borrowing of funds.

k) Investment property

Investment property is measured initially at its cost, including transaction costs. The cost of replacing

part of an investment property is reflected in the carrying amount of the property when incurred, provided

the criteria for recognition are fulfilled. The carrying amount does not include the maintenance

costs for the property. Subsequent to initial recognition, investment property is measured at amortised

cost less impairment losses.

Investment property is derecognised when it is disposed of or when the investment property is permanently

withdrawn from use and no further economic benefit can be expected to be derived from its disposal.

The difference between the net disposal proceeds and the carrying amount of the asset is recognised in

the income statement in the period in which the asset is derecognised.

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88 EWE AnnuAl rEport 2011

Property is only transferred to or from the investment property portfolio when there is a change in use.

For transfers from investment property to owner-occupied property, the cost of the property for the

purposes of subsequent valuation is the fair value of the property at the point in time that the use of

the property changes. Transfers from owner-occupied property to investment property are accounted

for using the method described in the “Property, plant and equipment” section until the date at which

the use of the property changes.

l) Intangible assets

All intangible assets not acquired in a business combination are measured initially at cost. The cost of

an intangible asset acquired in a business combination is its fair value at the acquisition date. In subsequent

periods, intangible assets are recognised at cost less any accumulated amortisation and any

accumulated impairment losses. Development costs are not capitalised (with the exception of those

development costs that meet the criteria for capitalisation); they are recognised in profit and loss in

the period in which they are incurred.

Intangible assets are categorised into those with indefinite useful lives and those with finite useful lives.

Intangible assets with finite lives are amortised over their useful lives and assessed for impairment if

there is any indication to this effect. The period and method of amortisation for intangible assets with

finite lives are reviewed at least at the end of each reporting period, if not more frequently. Any changes

to the method or period of amortisation as a result of changes in the useful life or expected pattern of

consumption of the future economic benefit provided by the asset are treated as changes in accounting

estimates. Amortisation of intangible assets with limited useful lives is recognised in the income statement

under the expense category corresponding to the function of the intangible asset in the company.

Intangible assets with indefinite useful lives or the cash-generating unit they are allocated to are tested

for impairment at least once a year. Intangible assets with indefinite useful lives are not amortised.

The useful life of any intangible asset with an indefinite useful life is reviewed each year to determine

whether events and circumstances continue to support an indefinite useful life assessment for that asset.

If they do not, the change in the useful life assessment from indefinite to finite is made prospectively.

The gain or loss arising from the derecognition of an intangible asset is determined as the difference

between the net disposal proceeds and the carrying amount of the asset and is recognised in profit and

loss in the period in which the asset is derecognised.

Trademarks and licences

Acquired trademarks and licences are recognised based on their historical cost. Trademarks and licences

acquired in a business combination are measured at fair value on the acquisition date. Trademarks and

licences have finite useful lives and are recognised at cost less any accumulated amortisation. They are

amortised using the straight-line method over an estimated useful life of 15 to 25 years.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Acquired software licences are capitalised on the basis of the costs incurred in the acquisition and preparing

the software for its intended use. These costs are amortised over an estimated useful life of three

to five years.

Contractual customer relationships

Contractual customer relationships acquired in a business combination are measured at fair value on

the acquisition date. Contractual customer relationships have a finite useful life and are recognised at

cost less accumulated amortisation. Contractual customer relationships are amortised over the anticipated

length of the customer relationship using the straight-line method.

Research and development costs

Research costs are recognised as an expense in the period in which they are incurred. Project development

costs are only recognised as intangible assets if the EWE Group can demonstrate the following:

• that the completion of the intangible asset is technically feasible, thus making it available for internal

use or sale;

• that the Group intends to complete the intangible asset and use or sell it, and is able to use or sell

the intangible asset;

• how the asset will generate future economic benefits;

• that adequate resources are available to complete the asset;

• that it is able to measure reliably the expenditure attributable to the intangible asset during its development.

Development costs are accounted for using the cost model after initial recognition, i.e. at cost less any

accumulated amortisation and any accumulated impairment losses. Amortisation begins once the development

phase is completed and the asset is ready for use, and continues for the expected useful life

of the asset. The EWE Group tests the asset for impairment once a year during the development phase.

Research costs in the EWE Group do not currently meet the requirements of IAS 38 and are therefore

not recognised.

Emissions rights

As part of the European emissions trading system, the EWE Group receives annual assigned amount units

free of charge. In exchange, the Group is obliged to return a quantity of emissions rights equivalent to

its emissions the previous year.

Emissions rights (CO 2 certificates) are recognised as intangible assets under other current receivables.

The emissions rights allocated to the subgroup swb free of charge are recognised at a value of Euro 0.00

at the time they are issued. Purchased certificates are initially recognised at their acquisition cost and

subsequently measured at amortised average cost, whereby a comparison is always made with market

prices. A liability is recognised for those emissions rights held on the reporting date that are to be returned

the following year based on actual use. They are measured at the amortised cost of existing rights.

If there is a shortfall of assigned amount units on the reporting date, a provision is made for the market

value of the emissions rights that still have to be purchased.

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The following useful life terms are applied to assets for the purpose of straight-line depreciation:

Concessions, licences and rights 15 – 25

Computer software and licences 3 – 5

Client base 5 – 17

Limits to the useful lives of intangible assets such as software, licences, client base, rights of use and

operating concessions are based on economic factors or contractual terms.

m) Financial instruments – initial recognition and subsequent measurement

I. Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit

or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets or as

derivatives designated as hedging instruments in an effective hedge, as appropriate. The EWE Group

classifies its financial assets at initial recognition.

All financial assets are recognised initially at fair value. In the case of financial investments that are not

classified as being measured at fair value through profit or loss, transaction costs are also reflected and

are allocable to the acquisition of the assets directly.

Purchases or sales of financial assets that require delivery of assets within a time frame established by

regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e.

the date that the EWE Group commits to purchase or sell the asset.

The EWE Group’s financial assets include cash and short-term investments, trade receivables, receivables

from issued loans and other receivables, quoted and unquoted financial instruments and derivative

financial instruments.

Subsequent measurement

The measurement of financial assets subsequent to initial recognition depends on their classification

as follows:

Financial assets at fair value through profit and loss

The group of financial assets measured at fair value through profit and loss includes financial assets held

for trading and other financial assets that are classified as being measured at fair value through profit

and loss upon initial recognition. Financial assets are designated as held for trading if they are acquired

for the purpose of selling or repurchasing them in the near future. This category includes the EWE Group’s

derivative financial instruments that are not designated as hedging instruments under IAS 39. Derivatives,

including embedded derivatives recognised separately, are also designated as held for trading.

Years


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Financial assets at fair value through profit and loss are carried in the balance sheet at fair value with

changes in fair value recognised in the income statement.

None of the EWE Group’s financial assets were initially recognised at fair value through profit and loss.

The EWE Group evaluates its financial assets held for trading (other than derivatives) to determine

whether the intention to sell them in the near term is still appropriate. If the EWE Group is unable to

trade these financial assets due to inactive markets and the management’s intention to sell them in

the foreseeable future is abandoned, the EWE Group may elect to reclassify these financial assets

under certain circumstances. The reclassification to loans and receivables, available for sale or held to

maturity, depends on the nature of the asset. This reclassification does not affect any financial assets

designated at fair value through profit or loss using the fair value option at designation; these instruments

cannot be reclassified after initial recognition.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair

value if their economic characteristics and risks are not closely related to those of the host contracts

and the host contracts are not held for trading or designated at fair value though profit or loss. These

embedded derivatives are measured at fair value with changes in fair value recognised through profit

and loss. Reassessment only occurs if there is a change in the terms of the contract that significantly

alters the cash flows that would otherwise be required by the contract.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not listed in an active market. After initial recognition, such financial assets are measured at amortised

cost as part of a subsequent measurement using the effective interest method, minus any reductions

for impairment. The calculation of amortised cost includes all premiums and discounts arising from the

acquisition as well as any fees or costs that represent an integral component of the effective interest

rate. Gains from the amortisation process using the effective interest method are recognised in the income

statement. Impairment losses are recognised in the income statement. Trade receivables, other

financial receivables as well as cash and cash equivalents are allocated to this category.

Held-to-maturity financial investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified

as held-to-maturity investments when the Group intends and is in a position to hold them until maturity.

After initial recognition, held-to-maturity investments are measured at amortised cost using the

effective interest method, minus any reduction for impairment. The calculation of amortised cost includes

all premiums and discounts arising from the acquisition as well as any fees or costs that represent

an integral component of the effective interest rate. Gains from the amortisation process using the effective

interest method are recognised in the income statement. Impairment losses are recognised in

the income statement. The EWE Group held no held-to-maturity investments as of 31 December in the

2010 and 2011 financial years.

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Available-for-sale financial assets

Available-for-sale (AfS) financial assets include equity instruments and debt securities. Equity instruments

classified as available for sale are those that are neither classified as held for trading nor designated at

fair value through profit or loss. Debt securities in this category are those that are intended to be held

for an indefinite period of time and that may be sold in response to needs for liquidity or changes in the

market conditions.

After initial measurement, available-for-sale financial assets are measured in subsequent periods at fair

value. unrealised gains or losses are recognised in other comprehensive income and reported cumulatively

in the other reserve. If such an asset is derecognised, the cumulative gain or loss is recognised in

the income statement. If an asset is determined to be impaired, the cumulative loss is reclassified to

the income statement through profit and loss and derecognised in the other reserve.

The EWE Group evaluates whether the ability and intention to sell its available-for-sale financial assets

in the near term is still appropriate. If the EWE Group is unable to trade these financial assets due to

inactive markets and the management’s intention to sell them in the foreseeable future changes substantially,

the EWE Group may elect to reclassify these financial assets under certain circumstances.

Reclassification to loans and receivables is permitted when the financial assets meet the definition

of loans and receivables and the EWE Group has the intention and ability to hold these assets for the

foreseeable future or until maturity. Reclassification to the category of held-to-maturity financial

investments is permitted only when the company has the ability and intention to hold the financial

asset accordingly.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at

the date of reclassification becomes the asset’s new carrying amount and any previous cumulative gain

or loss on this asset that has been recognised directly in equity is amortised to profit or loss over the

remaining life of the investment using the effective interest method. Any difference between the new,

amortised acquisition cost and the expected cash flows must be amortised using the effective interest

method over the remaining life of the asset. If the asset is subsequently determined to be impaired,

then the amount recorded in equity is reclassified to the income statement. This category encompasses

interests in affiliated companies, other shareholdings and securities within the EWE Group.

Derecognition

A financial asset (or part of an asset, or part of a group of similar financial assets) is derecognised if any of

the following apply:

• The rights to the cash flows from the financial asset have expired.

• The EWE Group has transferred its contractual rights to receive the cash flows from the financial assets,

or has assumed a contractual obligation to pass these cash flows on immediately under an agreement

that meets the pass-through criteria of IAS 39.19, and thereby either (a) transfers substantially

all of the risks and rewards of ownership of the financial asset, or (b) does not retain or transfer

substantially all of the risks and rewards of the asset, but has relinquished control of the asset.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

If the EWE Group transfers its contractual rights to receive the cash flows from an asset or enters into

a pass-through agreement without retaining or transferring substantially all of the risks and rewards of

ownership of the asset, but retains control of the asset, it recognises the asset to the extent to which

it has a continuing involvement in the asset. The EWE Group also recognises an associated liability in

these cases. The transferred asset and the associated liability are measured on a basis that reflects the

rights and obligations that the EWE Group retains.

Insofar as the EWE Group’s continuing commitment represents a pro forma guarantee with regard to

the transferred asset, the extent of its continuing commitment is the lower of the original carrying

amount of the asset and the maximum amount of the consideration received that the EWE Group

could be required to repay.

II. Impairment of financial assets

The EWE Group assesses at each reporting date whether there is any objective evidence that a financial

asset or a group of financial assets is impaired. A financial asset or a group of financial assets is only

deemed impaired if there is objective evidence of impairment as a result of one or more events that

occurred after the initial recognition of the asset (a “loss event”) and the impact of that loss event (or

events) on the estimated future cash flows of the financial asset or group of financial assets can be

reliably determined. Evidence of impairment may include indications that the debtors or a group of

debtors is experiencing significant financial difficulty, default or delinquency in interest or principal repayments,

the probability that they will enter bankruptcy or other financial reorganisation and when

observable data indicates that there is a measurable decrease in the estimated future cash flows, such

as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, it is first assessed whether objective evidence of impairment

exists individually for financial assets that are individually significant, and whether such evidence exists

individually or collectively for financial assets that are not individually significant. If the EWE Group

determines that no objective evidence of impairment exists for an individually assessed financial asset,

whether significant or not, it includes the asset in a group of financial assets with similar default risk

characteristics and collectively assesses them for impairment. Assets that are individually assessed for

impairment and for which an impairment allowance is, or continues to be, recognised are not included

in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured

as the difference between the asset’s carrying amount and the present value of estimated future

cash flows (excluding expected future credit losses that have not yet been incurred). The present value

of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current

effective interest rate.

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94 EWE AnnuAl rEport 2011

The carrying amount of the asset is reduced through the use of an allowance account and the impairment

loss is recognised in profit and loss. Interest income continues to be accrued on the reduced carrying

amount and is accrued using the rate of interest used to deduct the future cash flows for the purpose

of measuring the impairment loss. The interest income is recorded as part of financial income in the income

statement. Receivables together with the associated impairment allowance are derecognised when

it is deemed that there is no realistic prospect of future recovery and all collateral has been realised and

liquidated. If, in a subsequent reporting period, the amount of the estimated impairment loss increases or

decreases because of an event occurring after the impairment was recognised, the previously recognised

impairment loss is increased or reduced by adjusting the allowance account. If a derecognised receivable

is later deemed recoverable again because of an event that occurs after derecognition, the recovery is

recorded directly in the income statement.

Available-for-sale financial assets

For available-for-sale financial assets, the EWE Group assesses at each reporting date whether there is

objective evidence that an investment or a group of investments is impaired.

In the case of equity instruments classified as available for sale, objective evidence would include a

significant or prolonged decline in the fair value of the instrument below its acquisition cost. “Significant”

is evaluated against the original acquisition cost of the investment and “prolonged” against the

period in which the fair value has been below its original acquisition cost. When there is evidence of

impairment, the cumulative loss – measured as the difference between the acquisition cost and the

current fair value, less any impairment loss on that instrument previously recognised in profit and loss –

is derecognised in the other reserve and recognised in profit and loss. Impairment allowances for equity

instruments are not reversed through profit or loss; increases in their fair value after impairment are

recognised directly in other comprehensive income.

When assessing the impairment of debt instruments classified as available for sale, the same criteria

are applied as with financial assets carried at amortised cost. however, the amount recorded for impairment

is the cumulative loss measured as the difference between the amortised acquisition cost

and the current fair value, less any impairment loss on that instrument previously recognised through

profit or loss.

Future interest income continues to be accrued on the reduced carrying amount of the asset and is determined

using the rate of interest used to deduct the future cash flows for the purpose of measuring

the impairment loss. The interest income is recorded as part of financial income. If, in a subsequent reporting

period, the fair value of a debt instrument increases and the increase can be objectively related

to an event occurring after the impairment was recognised through profit or loss, the amount is reversed

through profit or loss.

III. Financial liabilities

Initial recognition and measurement

According to IAS 39, financial liabilities are classified as financial liabilities which are either measured

at fair value through profit or loss or at amortised cost. The EWE Group classifies its financial liabilities

at initial recognition.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

When a financial liability is recognised initially, it is measured at fair value, less any directly attributable

transaction costs for loans.

Subsequent measurement

The measurement of financial liabilities subsequent to initial recognition depends on their classification

as follows:

Financial liabilities at fair value through profit and loss

Financial liabilities measured at fair value through profit and loss include the Group’s financial liabilities

held for trading and other financial liabilities that are classified as being measured at fair value through

profit and loss upon initial recognition.

Financial liabilities are designated as held for trading if they are acquired for the purpose of selling them

in the near future. This category includes the EWE Group’s derivative financial instruments that are not

designated as hedging instruments under IAS 39. Embedded derivatives recognised separately are also

designated as held for trading, with the exception of derivatives that are designated as effective hedging

instruments.

Gains or losses on financial liabilities held for trading are recognised in profit and loss.

None of the EWE Group’s financial liabilities were initially recognised at fair value through profit and loss.

Other financial liabilities measured at amortised cost

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the

effective interest method. Gains and losses are recognised in profit or loss using the effective interest

method when the financial liability is derecognised and as part of amortisation.

The calculation of amortised cost includes all premiums and discounts arising from the acquisition as

well as any fees or costs that represent an integral component of the effective interest rate. The amortisation

calculated using the effective interest method is recognised in the income statement. Gains

and losses are recognised in profit or loss when the financial liabilities are derecognised.

Trade payables and other financial liabilities

Trade payables are obligations to pay for goods or services that have been received or supplied in the

normal course of business. These liabilities are designated as current liabilities if they are due within

one year or less (or within the normal business cycle, if it is longer). Otherwise they are classified as

non-current liabilities.

Trade payables are initially recognised at fair value. They are then recognised at amortised cost.

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96 EWE AnnuAl rEport 2011

Financial guarantees

Financial guarantees issued by the EWE Group are contracts that require a payment to be made to reimburse

the holder for a loss it incurs because a specified debtor fails to make a payment when due in

accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially

as a liability at fair value less any transaction costs that are directly attributable to the issuance of the

guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure

required to settle the present obligation at the reporting date and the amount recognised less cumulative

amortisation.

Derecognition

A financial liability is derecognised when the obligation specified in the contract is met, is cancelled or expires.

If an existing financial liability is exchanged for a different financial liability from the same lender with

substantially different terms, or there has been a substantial modification of the terms of an existing

financial liability, this exchange or modification is accounted for as a derecognition of the original financial

liability and the recognition of a new financial liability. The difference between the carrying amounts of

the liabilities is recognised in profit or loss.

IV. Offsetting financial instruments

Financial assets and liabilities are only offset such that only the net amount is reported in the balance

sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an

intention to settle on a net basis, or to realise the asset concerned and settle the associated liability

simultaneously.

V. Fair value of financial instruments

The fair value of financial instruments that are traded in active markets is determined by reference to

quoted market prices or publicly quoted prices (bid price for long positions and ask price for short positions)

at each reporting date, without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate

valuation techniques. Such techniques may include using recent arm’s length transactions between

knowledgeable, willing and independent parties, comparison with the current fair value of another

financial instrument that is essentially the same, the use of discounted cash flow methods or other

valuation models.

An analysis of the fair values of financial instruments and further details as to how they are measured

are provided in Note 39.

n) Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The EWE Group uses derivative financial instruments such as currency futures, interest rate swaps and

forward commodity contracts and swaps to hedge its exchange rate risks, interest rate risks and commodity

price risks. Such derivative financial instruments are initially recognised at fair value at the date

on which a derivative contract is entered into and are remeasured at fair value in subsequent periods.

Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when

the fair value is negative.

The fair value of forward commodity contracts that meet the definition of a derivative under IAS 39

but are entered into in accordance with the EWE Group’s purchasing requirements are recognised in

the income statement.


Consolidated finanCial statements notes Confirmation by the legal representatives

For the purpose of hedge accounting, hedging instruments are classified as:

Consolidated finanCial statements

• fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or

liability or an unrecognised firm commitment,

• cash flow hedges when hedging the exposure to fluctuations in cash flows that is either attributable

to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction

or the foreign currency risk in an unrecognised firm commitment,

• hedges of a net investment in a foreign operation.

At the inception of a hedge, the hedge relationship to which the EWE Group wishes to apply hedge accounting

and the risk management objectives and strategies for undertaking the hedge are both formally

designated and documented. The documentation includes identification of the hedging instrument,

the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the

effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in

the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedge relationships are

expected to be highly effective in achieving the offsetting of changes in fair value or cash flows. They are

assessed on an ongoing basis to determine that they have actually been highly effective throughout the

financial reporting periods for which they were designated.

hedges that meet the strict criteria for hedge accounting are accounted for as described below:

Fair value hedges

The change in the fair value of a derivative interest hedging instrument is recognised in the income

statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded

as part of the carrying amount of the hedged item and is also recognised in the income statement.

For fair value hedges relating to items carried at amortised cost, any adjustment to the carrying amount

is amortised through profit or loss over the remaining term of the hedge until maturity. Amortisation

as per the effective interest method may begin as soon as an adjustment exists, but no later than when

the hedged item ceases to be adjusted for changes in its fair value which are attributable to the risk

being hedged.

If the hedge item is derecognised, the unamortised fair value is recognised immediately in the income

statement.

When an unrecognised firm commitment is designated as a hedged item in the balance sheet, the subsequent

cumulative change in the fair value of the firm commitment attributable to the hedged risk is

recognised as an asset or liability with a corresponding gain or loss recognised in the result for the period.

Cash flow hedges

The effective portion of the gain or loss on a hedging instrument is recognised directly in other comprehensive

income in the cash flow hedge reserve, while any ineffective portion is recognised immediately

through profit or loss in the income statement.

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98 EWE AnnuAl rEport 2011

The EWE Group uses currency futures as hedges of its exposure to exchange rate risk resulting from

forecast transactions and firm commitments, as well as forward commodity contracts for its exposure

to volatility in commodity prices. Coal swaps are used to hedge currency and market price risks involved

in the procurement of coal. For more detailed explanations, please refer to Note 38.

Amounts recognised as other comprehensive income and accumulated in the reserve are transferred

to the income statement in the period when the hedged transaction affects the result for the period,

such as when the hedged financial income or financial expense is recognised or when a forecast sale

occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts

recognised as other comprehensive income are transferred to the initial acquisition cost of the non-

financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or

loss previously recognised in equity is transferred to the income statement. If the hedging instrument

expires or is sold, terminated or exercised without replacement or rollover into another hedging instrument,

or if the criteria for its designation as a hedge no longer apply, any cumulative gain or loss previously

recognised in other comprehensive income remains in the reserve until the forecast transaction or firm

commitment affects profit or loss.

To hedge against interest rate risks the EWE Group entered into interest rate swaps in which it receives

cash flows at a variable rate and pays cash flows at a fixed rate. Insofar as these interest rates swaps

meet the requirements of hedge accounting, namely in terms of their effectiveness as hedges, the

changes in the market value of these financial instruments are accounted for during their term using

hedge accounting. For more detailed explanations, please refer to Note 38.

Hedges of a net investment

hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted

for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or

losses on the hedging instrument relating to the effective portion of the hedge are recognised as other

comprehensive income while any gains or losses relating to the ineffective portion are recognised in

the income statement. On disposal of the foreign operation, the cumulative value of any such gains or

losses recorded in shareholders’ equity is transferred to the income statement.

Current versus non-current classification

Derivative financial instruments that are not designated as effective hedging instruments are classified

as current or non-current or separated into a current and non-current portion based on an assessment

of the facts and circumstances (i.e. the underlying contracted cash flows).

• If the EWE Group holds a derivative as an economic hedge for a period of more than 12 months

after the balance sheet date (and does not apply hedge accounting), the derivative is classified as

non-current (or separated into a current and non-current portion) in a manner consistent with the

classification of the underlying item.

• Embedded derivatives that are not closely related to the host contract are classified in a manner

consistent with the cash flows of the host contract.

• Derivative financial instruments that are designated as hedging instruments and are effective as such

are classified in a manner consistent with the classification of the underlying hedged item. The derivative

financial instrument is only separated into a current portion and a non-current portion if a

reliable allocation can be made.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

o) Inventories

Inventories are initially valued at cost of acquisition or production. All costs must be included in acquisition

and production costs if they form part of the acquisition, processing or miscellaneous costs incurred in

transforming the inventories to their current state and transporting them to their current location.

Acquisition costs include import duties and any non-deductible taxes, external transport and shipping

costs (e.g. transport costs that are stated separately on an invoice), as well as any other costs that can

be directly attributed to the acquisition of inventories. Directly allocable costs may be one-off costs or

overheads.

Discounts for early payment as well as bonuses and rebates granted before and after the conclusion of

the sales contract are deducted as reductions in acquisition costs.

Inventories are held at the lower of acquisition or production cost and net realisable value.

The net realisable value is the estimated value of the sales price that could be realised in the course of

normal business less the estimated costs until production and the estimated required cost of sales.

If the circumstances that originally led to a write-down no longer apply or if there are clear indications

that the net realisable value has risen on the basis of changed economic conditions, this write-down

must be reversed. This reversal must be performed so that the new carrying amount corresponds to

both the lower of acquisition or production cost as well as the newly determined net realisable value.

The value can therefore not exceed the original acquisition or production cost.

p) Impairments of non-financial assets

The EWE Group assesses at each balance sheet date whether there is any indication that a non-financial

asset may be impaired. If such indications exist, or if an asset requires annual impairment testing, the

EWE Group makes an estimate of the recoverable amount of the asset. The recoverable amount of an

asset or cash-generating unit is the higher of fair value less cost to sell and value in use. The recoverable

amount is to be determined for each individual asset, unless the asset does not generate cash inflows

which are largely independent of those from other assets or groups of assets. If the recoverable

amount of an asset or cash-generating unit is less than its carrying amount, the asset is impaired and

its carrying amount is reduced to its recoverable amount. value in use is calculated by discounting the

future cash flows expected to be derived from the asset to their present value on the basis of a pre-tax

discount rate which reflects current market expectations concerning the interest effect and specific risks

related to the asset. In determining fair value less cost to sell, recent market transactions are taken into

account, if available. If no such transactions can be identified, an appropriate valuation model is used.

This model uses valuation multiples, prices of listed shares in subsidiaries and other available indicators

of fair value.

Impairment losses on continuing operations, including the impairment of inventories, are recognised in

profit and loss under the expense categories corresponding to the function of the impaired asset in the

company. This does not apply if the asset has been revalued previously and is then recognised at its revalued

amount in other comprehensive income. In this case, the impairment loss up to the amount of a

previous revaluation is also recognised in other comprehensive income.

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Tests are conducted at each balance sheet date to determine whether there are any indications that an

impairment loss recognised in prior periods for any assets except goodwill may no longer exist or may

have decreased. If any such indication exists, the EWE Group estimates the recoverable amount of the

asset or cash-generating unit. An impairment loss recognised in prior periods for an asset other than

goodwill is only reversed if there has been a change in the assumptions used to estimate the asset’s recoverable

amount since the last impairment loss was recognised. The increased carrying amount of an

asset attributable to a reversal of an impairment loss may not exceed the carrying amount or recoverable

amount that would have been determined (net of amortisation or depreciation) had no impairment

loss been recognised for the asset in prior years. Reversals of impairment losses are recognised in profit

and loss, unless the asset is carried according to the revaluation method. Reversals of impairment losses

of a revalued asset are treated as revaluation increases.

The following criteria apply for particular assets:

Goodwill

Goodwill is tested for impairment once a year (to 31 December). A test is also conducted if circumstances

indicate that goodwill may have been impaired.

Impairment is tested by calculating the recoverable amount of the cash-generating unit (or group of

cash-generating units) to which the goodwill was allocated. An impairment loss is recognised if the recoverable

amount of the cash-generating unit goes below the carrying amount of the unit. Impairment

losses on goodwill may not be reversed in subsequent periods.

Intangible assets

Intangible assets with an indefinite useful life are tested for impairment at least once a year to 31 December.

These impairment tests are conducted on the basis of the particular circumstances surrounding

each individual asset or cash-generating unit. A test is also conducted if circumstances indicate that

goodwill may have been impaired.

q) Cash and cash equivalents

Cash and cash equivalents encompass cash in hand, bank balances and short-term investments with a

term of less than three months. Cash pool receivables are also taken into consideration when calculating

cash and cash equivalents for the cash flow statement.

r) Provisions

Principles

Provisions are recognised when the Group has a present obligation (de jure or de facto) as a result of

a past event, when it is probable that an outflow of resources embodying economic benefits will be

required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed (for example under an insurance

contract), the reimbursement is recognised as a separate asset, but only when the reimbursement is

virtually certain. The expense relating to any provision is presented in the income statement less any

reimbursement.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Provisions are measured at the present value of the expected expenses based on a pre-tax interest rate

that reflects current market expectations concerning the interest effect and the specific risks related to

the obligation. Increases in provisions that arise solely as a result of the accrual of interest are recognised

as interest expenses in profit and loss.

Provisions are classified according to their term. Provisions or parts of a provision for an obligation which

is likely to fall due within twelve months of the balance sheet date are classified as current provisions.

Provisions which are only likely to fall due after twelve months are classified as non-current.

Provisions for imminent losses

Provisions for imminent losses are made to the extent that the general conditions for onerous contracts

are met and for the amount by which the costs unavoidably connected with the contract exceed the

expected economic benefits.

Provisions for recultivation and restoration

Provisions for recultivation obligations after caverns and natural gas fields have ceased operations are

made for the present value of the obligation. They are capitalised and amortised or the provisions are

compounded. The expense of compounding recultivation obligations is recognised as interest expense

in the income statement. The release of recultivation provisions is recognised as other operating income.

Changes in estimates or adjustments to discount rates with respect to the measurement of the recultivation

provision give rise to retrospective changes in the valuation of the gas caverns. Adjustments made

in the measurement of the provision are added to the acquisition costs for the caverns if the obligation

increases, whereas they are deducted from the acquisition costs of the caverns if the obligation is reduced.

If the reduction in the provision in equity and liabilities exceeds the carrying amount of the caverns in

the non-current assets, the surplus amount is recognised directly in profit and loss.

Warranty provisions

Where a large number of similar obligations exist – such as in the event of legal guarantees – the probability

of an outflow of funds is determined based on this group of obligations. A provision is also recognised

as a liability if the probability of an outflow of funds is low in relation to an individual obligation

in this group.

Provision for assigned amount units

If there is a shortage of emissions rights in the current year, i.e. emissions have already been produced

and these emissions exceed the amount of emissions rights allocated or purchased for the full year, a

provision is made for the assigned amount units that still have to be purchased. Provisions may not be

made for future emissions, however, even if forecasts indicate that a shortage of emissions rights is likely.

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102 EWE AnnuAl rEport 2011

s) Pensions and other post-employment defined-benefit plans

Pensions

Provisions for pensions and similar obligations are made for direct pension commitments to (former)

employees with vested entitlements to company pension benefits. In the EWE Group the legal basis

for these obligations are collective bargaining agreements, works agreements and individual commitments.

They are accounted for using the projected unit credit method in accordance with IAS 19. This

involves measuring the amount of future obligations using actuarial methods as well as estimating the

relevant parameters (e.g. interest rate, mortality rates, pay and pension forecasts). This method allocates

the expenses required for the increased entitlements to the period in which they arise. The increase in

entitlement is the share of the total forecast benefit that is attributable to a given financial year, taking

vesting conditions into account.

EWE-Treuhandverein e.v. was established in 2009 as part of the introduction of defined-contribution,

funded direct commitments. To the extent that assets are transferred to EWE-Treuhandverein e.v. to fund

retirement benefits, these assets constitute plan assets eligible for netting out within the meaning of

IAS 19.7.

EWE Group recognises actuarial gains and losses immediately, i.e. in the financial year in which they

arise, directly and for the full amount in other comprehensive income. Interest on pension obligations

is disclosed within interest expense.

In addition to the direct commitments, certain groups of employees are obligatorily insured with the

state insurance agency versicherungsanstalt des Bundes und der Länder (vBL). Annual levies and recapitalisation

payments have to be made annually to vBL to fund these commitments. These benefit

commitments are generally accounted for as a defined-benefit multi-employer plan within the meaning

of IAS 19. Due to the lack of information required as per IAS 19.30 on the defined-benefit pension plan,

this plan has been recognised as a defined-contribution plan. If the plan is underfunded, the participating

employers are obliged to compensate for the shortfall. The amount of additional funding required

is determined by vBL and levied on the members in line with their obligations in the form of the recapitalisation

payment, which is currently of indefinite duration.

Similar long-term obligations to employees include long-term obligations under phased early retirement

agreements. In the EWE Group these are generally concluded in the form of the block model. The resulting

obligations are determined on the basis of actuarial principles. If these obligations are funded by plan

assets, the obligations are netted out with the fair value of the relevant plan assets.

Termination benefits

Termination benefits are payable as a result of either a Group company’s decision to terminate an employee’s

employment before the normal retirement date or an employee’s decision to accept voluntary

redundancy in exchange for those benefits. The EWE Group recognises termination benefits when it is

demonstrably committed to terminating the employment of personnel within the framework of a detailed,

formal plan without realistic possibility of withdrawal, or it is demonstrably committed to provide

termination benefits to employees taking voluntary redundancy. Termination benefits that fall due more

than twelve months after the balance sheet date are discounted to their present value.


Consolidated finanCial statements notes Confirmation by the legal representatives

t) Construction subsidies

Construction subsidies include subsidies for capital expenditure and construction.

Consolidated finanCial statements

The EWE Group receives construction subsidies for installing mains electricity, gas and water connections

for standard-rate and special-rate customers. The construction subsidies are recognised as liabilities and

reversed in line with the useful life of the subsidised equipment. The reversal is made to sales, as the

income from the construction subsidies is closely linked to the fundamental electricity and gas business

and therefore relates to the EWE Group’s normal operations.

Investment subsidies are recognised as liabilities and reversed in line with the useful life of the subsidised

equipment. Their reversal is recognised in the income statement.

2.4 Changes in accounting methods

New and modified standards and interpretations

The IASB has adopted amendments to existing IFRS standards and adopted new standards that are

binding for financial years beginning on or after 1 January 2011. The following standards and interpretations

have been applied for the first time in the reporting year and have had the following effects on

EWE’s consolidated financial statements:

IAS 24 “Related Party Disclosures” (amended):

The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions

emphasise a symmetrical view of related party relationships and clarifiy the circumstances in

which persons and key management personnel affect related party relationships of an entity. In addition,

the amendment introduces a partial exemption from the disclosure obligations of IAS 24 for transactions

with public bodies and entities that are controlled, jointly controlled or significantly influenced

by the same public body as the reporting entity. The adoption of the amendment did not have any impact

on the earnings, assets or financial position of the Group, but resulted solely in further disclosures

in the Notes.

IAS 32 “Financial Instruments: Presentation” (amended):

The IASB issued an amendment that alters the definition of a financial liability according to IAS 32,

to enable entities to classify certain subscription rights and options or warrants as equity instruments.

The amendment is applicable if the rights to acquire a fixed number of the entity’s own equity instruments

for a fixed amount in any currency are given pro rata to all of the existing owners of the same

class of an entity’s non-derivative equity instruments. The amendment has had no effect on the earnings,

assets or financial position of the Group because the Group does not have these type of instruments.

IFRIC 14 “Prepayments of a Minimum Funding Requirement” (amended):

The amendment removes an unintended consequence when an entity is subject to minimum funding

requirements and makes an early payment of contributions to cover such requirements. The amendment

permits a prepayment of future service cost by the entity to be recognised as a plan asset. The

Group is not subject to minimum funding requirements in the eurozone, therefore the amendment of

the interpretation has no effect on the earnings, assets or financial position of the Group.

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104 EWE AnnuAl rEport 2011

IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”:

According to the interpretation, equity instruments issued to a creditor to repay all or part of a financial

liability are classified as “consideration paid”. The equity instruments issued are measured at fair value.

If fair value cannot be determined reliably, the equity instruments issued are measured at the fair value

of the liability extinguished. Gains and losses are recognised directly in profit and loss. The amendment

is effective for financial years beginning on or after 1 July 2010. Their first-time application had no impact

on the EWE interim consolidated financial statements.

2010 improvements to IFRS:

The IASB has issued its Annual Improvements to IFRS, a collection of amendments to several International

Financial Reporting Standards. The amendments are to be applied to financial years beginning

on or after 1 July 2010, or to financial years beginning on or after 1 January 2011.

• IFRS 3 Business Combinations

• IFRS 7 Financial Instruments: Disclosures on the Nature and Extent of Risks

• IAS 1 Presentation of Financial Statements

• IAS 21, IAS 28, IAS 31 amendments resulting from IAS 27R

• IFRIC 13 Customer Loyalty Programmes: Measurement of Fair values

• IAS 34 Interim Reporting: Note Disclosures

Its first-time application had no significant impact on the EWE consolidated financial statements.

2.5 Previous year’s figures adjusted

In the 2011 financial year, it became apparent that the goodwill attributed to swb in the consolidated

balance sheet as of 31 December 2010, using the same measurement parameters was too high. The

goodwill reported for swb under intangible assets in accordance with IAS 8 to the value of Euro 451.1

million was adjusted to Euro 308.3 million to 31 December 2010. The impairments recognised under

depreciation, amortisation and impairment in 2010 increased accordingly from Euro 586.5 million to

Euro 729.3 million.

Because the transfer of shares in vNG – verbundnetz Gas Aktiengesellschaft, Leipzig (vNG) to EnBW

Energie Baden-Württemberg AG, karlsruhe (EnBW) was rejected at the vNG Annual General Meeting

on 15 December 2011, the vNG shares, which had been reported as held for sale since 30 June 2009,

had to once again be reclassified to investments accounted for under the equity method. In this connection,

the following, necessary adjustments were made to the 2009 and 2010 consolidated financial

statements.

In 2009, the shares were reclassified from “non-current assets held for sale” (Euro -1,000.0 million) to

“Investments accounted for under the equity method”. As of 31 December 2009, the value of the vNG

shares, taking into account any adjustments under the equity method, was Euro 914.6 million. The

vNG shares as measured using the equity method was Euro 861.7 million as of 31 December 2010, and

Euro 705.6 million as of 31 December 2011.

3. Significant judgements, estimates and assumptions

When drawing up the EWE consolidated financial statements, the Management makes judgements,

estimates and assumptions which have an effect on the income, expenses, assets and liabilities, as well

as on the contingent liabilities reported at the end of the reporting period. The uncertainty of these assumptions

and estimates can lead to circumstances where it is necessary to make considerable adjustments

to the carrying amount of the assets or liabilities concerned.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The following section explains the most important forward-looking assumptions and other primary

sources of uncertainty related to estimates that are present on the balance sheet date and which may

give rise to risks that would make adjustments to the carrying amount of assets and liabilities necessary.

Accounting for acquisitions

When an equity interest is acquired, all identifiable assets, liabilities and contingent liabilities are recognised

at fair value as of the acquisition date for the purpose of initial consolidation as part of the

purchase price allocation. In identifying intangible assets the fair values are determined using suitable

valuation methods.

Goodwill

An impairment test is carried out for goodwill at least annually or whenever information from internal

or external sources indicates possible impairment. This impairment test is based on assumptions about

the future, which requires estimates to be made of future cash flows from cash-generating units that

include goodwill. These estimates can affect the measurement of future cash flows and lead to impairment

losses on goodwill.

Intangible assets and property, plant and equipment

Expected useful lives and measurement of impairment losses on these assets are based on management

judgement.

Fair value of financial instruments

If the fair value of the financial assets and financial liabilities recorded in the balance sheet cannot be

determined using data from an active market, it is calculated using measurement methods, including

the discounted cash flow method. The input parameters used in the model are based on observable

market data insofar as this is possible. If this is not possible, a measure of judgement is used to determine

fair value. This judgement is affected by such input parameters as liquidity risk, credit risk and

volatility. Changes in assumptions with regard to these factors can affect the fair value recorded for

the financial instruments.

Provisions for pensions and similar obligations

The measurement of pension obligations takes place using actuarial assumptions on demographic variables

(staff fluctuation, mortality rates) and financial variables (interest rates, future pay increases, future

pension increases, expected return on claims for reimbursement). The discount rate used is determined

taking the specific structure of the cash flow for the obligations earned into account. The calculation is

based on the pension obligations as of the balance sheet date. Calculations are made using the yield curve,

the DJ EuroStoxx 50 and the iBoxx indices and taking the daily values as of 31 December 2011. In accordance

with IAS 19.78 the discount rate is determined as being the capital market return on high-quality

corporate bonds whose currency and maturity correspond to those of the obligation being measured.

If there is no sufficient market for the required maturities, the return is interpolated or extrapolated for

these maturities along the available yield curve in accordance with IAS 19.81.

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106 EWE AnnuAl rEport 2011

Provisions for recultivation and restoration

The provisions for recultivation and demolition are based on surveys by third parties. The costs of recultivation

have been estimated for all caverns in the event that they cease to be used. This amount is

discounted to the settlement date. The measurement of the provision for recultivation is reviewed on

every balance sheet date and any adjustment to a revised best estimate is made as necessary. Changes

in the expected timing and amount of the payments needed to settle the obligation and changes in the

discount rate result in an adjustment of the provisions for recultivation.

Income taxes

Calculating effective and deferred taxes involves assumptions. The use of deferred tax assets depends

on earning sufficient taxable income.

Changes in estimates

At the time the consolidated financial statements were prepared, there was no indication of significant

changes in the assumptions and estimates used for accounting and valuation.

4. Standards issued but not yet binding

Standards issued but not yet binding are listed below. This listing of standards and interpretations issued

are those that the EWE Group reasonably expects to have an impact on disclosures, earnings, assets or

financial position when applied at a future date. The EWE Group intends to adopt these standards when

they come into force.

IAS 1 Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income:

The amendments to IAS 1 change the grouping of items presented in other comprehensive income.

Items that could be reclassified (or “recycled”) to profit or loss at a future point in time are to be presented

separately from items that will not be reclassified. The amendment affects presentation only

and therefore has no impact on the Group’s earnings, assets or financial position. The amendment is

effective for financial years beginning on or after 1 July 2012.

IAS 12 Income Taxes – Recovery of Underlying Assets:

The amendment clarifies the determination of deferred taxes on investment property measured at fair

value. The amendment introduces a (rebuttable) presumption that deferred taxes on investment property

measured using the fair value model in IAS 40 should be determined on the basis that its carrying

amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax

on non-depreciable property, plant and equipment that are measured using the revaluation model in

IAS 16 always be measured on the basis of the sale of the asset. The amendment is effective for financial

years beginning on or after 1 January 2012.

This amendment has no effect on the consolidated financial statements of the EWE Group.

IAS 19 Employee Benefits (amendment):

The IASB has issued comprehensive amendments to IAS 19. These range from fundamental changes

affecting the concept of expected returns on plan assets and the removal of the corridor method to

simple clarifications and re-wording. As the EWE Group recognises actuarial gains and losses in other

comprehensive income, this amendment has no effect on the EWE Group’s consolidated financial

statements. The effects of other amendments in IAS 19 are currently being examined by the Group.

The amendment is effective for financial years beginning on or after 1 January 2013.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

IAS 27 Consolidated and Separate Financial Statements (revised 2011):

As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for

subsidiaries, jointly controlled entities, and shareholdings in a company’s separate financial statements.

The Group does not prepare separate financial statements in this manner. The amendment is effective

for financial years beginning on or after 1 January 2013.

IAS 28 Investments in Associates and Joint Ventures (revised 2011):

As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed “Investments in Associates

and Joint ventures” and describes the application of the equity method to investments in joint ventures,

which was previously restricted solely to associates. The amendment is effective for financial years beginning

on or after 1 January 2013.

Amendments to IAS 32 and IFRS 7 – Offsetting Financial Assets and Financial Liabilities:

These standards have been revised with respect to the offsetting of financial assets and liabilities. The

results have been published in the form of amendments to IAS 32 “Financial Instruments: Presentation”

and IFRS 7 “Financial Instruments: Disclosures”.

The principle behind the requirements laid out in IAS 32 regarding offsetting have been retained and

have merely been made more specific by providing additional guidelines on their application. The expanded

guidelines are effective retroactively for financial years beginning on or after 1 January 2014.

however, the disclosure obligations added to IFRS 7 with respect to certain offsetting agreements are

new. The obligation to disclose applies regardless of whether the offsetting agreement has actually resulted

in the affected financial assets and liabilities being offset. It is necessary not only to describe the

qualitative aspects of the offsetting rights but also to address the quantitative specifics. The information

can be summarised either on the basis of the type of financial instrument or on the basis of the

type of transaction. The amendments to IFRS 7 are effective retroactively for financial years beginning

on or after 1 January 2013. Their effects on the EWE consolidated financial statements are currently

under review.

IFRS 7 Financial Instruments: Disclosures – Enhanced Disclosure Requirements on the Transfer of

Financial Assets:

The amendment defines a wide range of additional disclosure about financial assets that have been

transferred but not derecognised to enable the user of the consolidated financial statements to understand

the relationship with those assets that have not been derecognised and their associated liabilities.

In addition, the amendment requires disclosures about continuing involvement in transferred and

derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity’s

continuing involvement in those derecognised assets. The amendment is effective for financial years

beginning on or after 1 July 2011. This amendment affects only the disclosure and does not affect the

earnings, assets or financial position of the Group.

IFRS 9 Financial Instruments: Classification and Measurement:

IFRS 9 represents the first step in the IASB project to replace IAS 39 and covers the classification and

measurement of financial assets and liabilities as defined in IAS 39. The standard is effective for financial

years beginning on or after 1 January 2015. In subsequent phases, the IASB will address hedge accounting

and impairment of financial assets. The adoption of the changes from the first phase of IFRS 9

will have an effect on the classification and measurement of the Group’s financial assets, but are not

expected to have an impact on the classification and measurement of financial liabilities. The Group will

quantify the impact of applying the standard as soon as the other steps in the project are completed,

in order to get as full a picture as possible.

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108 EWE AnnuAl rEport 2011

IFRS 10 Consolidated Financial Statements:

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses

the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation

– Special Purpose Entities.

IFRS 10 establishes a single control model that applies to all entities including special purpose entities.

The changes introduced by IFRS 10 will require management under current legislation to exercise significant

judgement to determine which entities are controlled and whether they are therefore required

to be included in the group of consolidated companies in the consolidated financial statements. The

standard is effective for financial years beginning on or after 1 January 2013.

The effects of the application of the standard on EWE’s consolidated financial statements are currently

under review.

IFRS 11 Joint Arrangements:

IFRS 11 replaces IAS 31 “Interests in Joint ventures” and SIC-13 “Jointly Controlled Entities — Non-Monetary

Contributions by venturers”.

IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation.

Instead, these companies must be accounted for using the equity method in future. The application

of this new standard will not impact the EWE consolidated financial statements in this regard.

The standard is effective for financial years beginning on or after 1 January 2013.

IFRS 12 Disclosure of Interests in Other Entities:

This standard regulates all of the disclosures related to consolidated financial statements and consolidates

all of the disclosures for subsidiaries. These disclosure obligations were previously regulated in

IAS 27. The standard also regulates disclosures regarding jointly controlled entities and shareholdings

which were previously governed by IAS 31 and IAS 28, as well as structured entities. A number of new

disclosures are also required. The standard is effective for financial years beginning on or after 1 January

2013.

IFRS 13 Fair Value Measurement:

This standard establishes uniform guidelines for fair value measurements. IFRS 13 does not govern when

an entity is required to use fair value for assets and liabilities, but rather provides guidance on how to

correctly measure fair value under IFRS when fair value is required or permitted. The Group is currently

assessing the impact that this standard will have on its asset and financial position and profitability.

The standard is effective for financial years beginning on or after 1 January 2013.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine:

The sole purpose of IFRIC 20 is to govern the accounting of stripping costs incurred over the course of

the production phase in a surface mine. The interpretation first becomes effective for financial years

beginning on or after 1 January 2013. The first-time application will not have any effect on the consolidated

financial statements of the EWE Group.


NOTES TO ThE INCOME STATEMENT

5. Sales

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Sales are initially presented as gross sales including the electricity and energy taxes. Sales include electricity

and energy taxes invoiced to customers of Euro 446.5 million (previous year: Euro 440.2 million).

Net sales are the sales after deducting the electricity and energy taxes.

Segment reporting includes a breakdown of sales by products and services (Note 41).

6. Other own work capitalised

Own work capitalised includes construction and extension work on supply networks and the expansion

of wind energy plants. Capitalised internal expenses also include directly attributable overhead.

7. Other operating income

EUR million 2011 2010

Derivative financial instruments 58.0 142.9

Rental and lease income 22.0 15.1

Reversal of provisions 13.8 28.1

Income from CHP charges / premiums 8.6 6.8

Foreign currency gains 4.2 2.5

Disposal proceeds on items of property, plant and equipment 3.2 2.7

Management of waterworks 3.0 3.0

Income from impairment reversal (see Note 17) 33.6 0.5

other 66.8 73.2

Total 213.2 274.8

8. Cost of materials and services

EUR million 2011 2010

Raw materials, consumables, supplies and purchased merchandise 5,169.4 4,767.2

Purchased services 654.0 647.4

Total 5,823.4 5,414.6

9. Personnel expenses

EUR million 2011 2010

Wages and salaries 487.5 465.5

Social security contributions and retirement and other benefits 116.2 112.1

Total 603.7 577.6

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110 EWE AnnuAl rEport 2011

Retirement benefits amount to Euro 33.8 million (previous year: Euro 31.2 million), of which service

expense in the reporting period accounts for Euro 21.4 million (previous year: Euro 18.9 million) and

past service expense for Euro 0.0 million (previous year: Euro 0.0 million).

Expenses for the employer’s share of contributions to statutory retirement pension insurance amounted

to Euro 58.4 million (previous year: Euro 56.3 million).

The following table shows the average number of employees over the year:

2011 2010

Full-time staff 7,791 7,484

Part-time staff 895 865

Trainees and assistants 142 116

Total 8,828 8,465

10. Depreciation, amortisation and impairment

Depreciation and amortisation of property, plant and equipment and intangible assets is generally carried

out on a straight-line basis over the useful life of the assets.

Depreciation of property, plant and equipment amounts to Euro 380.1 million (previous year: Euro

371.6 million) and amortisation of intangible assets to Euro 43.1 million (previous year: Euro 47.6 million).

In the reporting year, an impairment loss of Euro 23.6 million was recognised on property, plant and

equipment (previous year: Euro 17.7 million). The impairment loss on intangible assets amounted to

Euro 148.2 million (previous year: Euro 292.4 million). Of this, Euro 58.1 million related to goodwill

(previous year: Euro 286.8 million). Prior to the adjustment as per IAS 8 (see section 2.5), impairment

losses on intangible assets amounted to Euro 149.6 million in the previous year. This includes impairment

losses on goodwill amounting to Euro 144.0 million.

11. Other operating expenses

EUR million 2011 2010

Concession fees (see Note 43) 134.7 128.0

Additions to provisions 65.9 37.2

Derivative financial instruments 62.3 113.6

Fees and advisory expenses 41.6 38.1

Rental and lease expenses 26.2 36.3

other taxes 14.4 9.0

Disposal of intangible assets and property, plant and equipment 13.8 9.4

Impairment allowances on receivables 9.5 14.8

Exploration and production of gas reserves 9.3 9.8

Combined Heat and Power Act (KWKG) 4.7 12.5

Foreign currency losses 2.4 4.0

Hedging expenses 0.6 9.4

other 215.0 214.2

Total 600.4 636.3


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Expenses for natural gas exploration and production consist of exploratory drilling, production, transport

and administration as well as geological and geophysical analyses.

Exchange rate gains of Euro 4.2 million (previous year: Euro 2.5 million) were set off against exchange

rate losses.

12. Result of investments accounted for under the equity method

EUR million 2011

2010

adjusted 1

Current result of investments accounted for under the equity method -110.9 24.0

Impairment losses on investments accounted for under the equity method -103.2

Total -214.1 24.0

1 See section 2.5

The result of investments accounted for under the equity method principally relates to the shareholdings

in vNG and Stadtwerke Bielefeld Gmbh, Bielefeld. Prior to the reclassification of the shareholdings in

Stadtwerke Bielefeld to non-current, held-for-sale assets, impairment testing was performed in respect

of the changes in the fundamental conditions in the energy market (cf. Note 18). A loss amounting to

Euro -129.8 million was attributable to the shareholdings in vNG in 2011 and Euro -2.8 million to the

same in 2010.

13. Other investment income

EUR million 2011

2010

adjusted 1

Income from equity investments 21.8 10.0

Impairment losses on financial investments -30.0 -7.5

Income from profit transfer agreements 0.3 0.7

Expenses from loss transfer agreements -6.6 -1.0

Gains from the disposal of equity investments 0.2 0.9

Losses from the disposal of equity investments -0.9

Total -15.2 3.1

1 See section 2.5

The impairment of financial investments reflects the permanent impairment of shares in other nonconsolidated

shareholdings.

14. Net interest income / expense

EUR million 2011 2010

Interest and similar income 27.7 22.0

Interest and similar expenses -148.0 -141.5

Interest portion of additions to

Pension provisions -57.4 -58.9

Recultivation provisions -3.8 -3.3

other provisions -2.6 -2.7

Total -184.1 -184.4

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112 EWE AnnuAl rEport 2011

15. Income taxes

EUR million 2011 2010

Effective income taxes 29.1 48.2

of which:

Tax expense for the current period 26.2 42.7

Tax expense / (income) for prior periods 2.9 5.5

Deferred taxes -55.6 -16.9

of which:

Temporary differences 13.0 -16.7

Tax losses carried forward -68.6 -0.2

-26.5 31.3

The weighted average EWE Group tax rate for 2011 was 29.0 per cent (previous year: 29.0 per cent) for

the EWE Group. As in the previous year, this is made up of corporation tax, the solidarity surcharge and

trade tax.

The increase in deferred tax assets on loss carryforwards is due primarily to expenses that relate to a

foreign operation and were declared for tax purposes for the first time. Due to the high rate of tax in

that company’s tax jurisdiction, this led to an increase in deferred tax assets, amounting to Euro 53.4

million, of which Euro 27.2 million was for the previous year.

In the reporting year, shareholders’ equity increased as a result of the offsetting of deferred taxes against

other comprehensive income to the amount of Euro 33.6 million (previous year: Euro 6.4 million).

Income taxes recognised in other comprehensive income

EUR million 2011 2010

Deferred taxes on pensions 18.6 24.1

Deferred taxes on reserve for cash flow hedges 15.1 -17.9

Deferred taxes on reserve for available-for-sale financial instruments -0.1 0.2

Total 33.6 6.4


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The amount of tax on the EWE Group’s net profit before tax differs from the theoretical tax expense

obtained by applying the weighted average Group tax rate to net profit before taxes. The following

table shows the reconciliation between the two:

Tax reconciliation

EUR million 2011

2010

adjusted 1

Profit before tax -308.4 -215.3

Hypothetical tax expense -89.4 -62.4

Difference due to taxable profit for trade tax 5.5 4.1

Divergence from expected tax rate

Divergence due to difference with Group tax rate 30.9 15.0

Permanent divergences 5.0 32.8

Change in tax rate 0.0 -0.2

Non-recognised deferred tax assets 0.4 0.4

Use of tax losses carried forward -0.4 -0.4

Non-deductible expenses 17.4 46.9

Tax-free income -10.1 -19.4

Equity accounting for associated companies 34.3 14.5

Non-periodic taxes -23.9 -2.6

other 3.8 2.6

Effective tax expenses -26.5 31.3

Effective tax rate in %

1 See section 2.5

8.6 -14.5

Non-periodic taxes primarily comprise deferred tax income from the recognition of loss carryforwards

of previous years relating to a foreign operation (Euro -27.2 million).

NOTES TO ThE BALANCE ShEET

16. Intangible assets

EUR million 31.12.2011

31.12.2010

adjusted 1

Concessions, trademarks, licences and similar rights 292.4 440.5

Payments made on account 0.1 5.6

Goodwill 388.4 459.2

Intangible assets with indefinite useful lives 388.2 388.2

Total 1,069.1 1,293.5

1 See section 2.5

113


114 EWE AnnuAl rEport 2011

The following table shows the changes in intangible assets:

EUR million

Concessions,

trademarks,

licences and

similar rights

Payments

made on

account Goodwill

Intangible

assets with

indefinite

useful lives Total

Cost

As of 1.1.2011

Change in group of consolidated

companies / company acquisitions

Additions / disposals from mergers

642.6 5.6 869.3 388.2 1,905.7

and spin-outs -5.3 -4.0 -9.3

Additions 18.0 0.1 18.1

Reclassifications 8.6 -5.6 3.0

Currency adjustments -50.7 -50.5 -101.2

Disposals 8.1 8.1

As of 31.12.2011 605.1 0.1 814.8 388.2 1,808.2

Accumulated amortisation and

impairment

As of 1.1.2011

Change in group of consolidated

companies / company acquisitions

Additions / disposals from mergers

202.1 410.1 612.2

and spin-outs -5.3 -4.0 -9.3

Amortisation in the reporting year 43.1 43.1

Impairment in the reporting year

Reclassifications

90.1 58.1 148.2

Currency adjustments -9.3 -37.8 -47.1

Disposals

Reversals of amortisation and

impairment

8.0 8.0

As of 31.12.2011 312.7 426.4 739.1

Carrying amounts

As of 31.12.2011 292.4 0.1 388.4 388.2 1,069.1


EUR million

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Concessions,

trademarks,

licences and

similar rights

Payments

made on

account Goodwill

Intangible

assets with

indefinite

useful lives Total

Cost

As of 1.1.2010

Change in group of consolidated

603.1 4.0 850.7 392.0 1,849.8

companies / company acquisitions 3.4 3.4

Additions / disposals from mergers

and spin-outs 0.1 0.1

Additions 17.5 3.2 20.7

Reclassifications 10.2 -1.6 -3.8 4.8

Currency adjustments 15.7 15.6 31.3

Disposals 4.0 0.4 4.4

As of 31.12.2010 642.6 5.6 869.3 388.2 1,905.7

Accumulated amortisation and

impairment

As of 1.1.2010

Change in group of consolidated

companies / company acquisitions

Additions / disposals from mergers

152.4 123.7 276.1

and spin-outs 0.1 0.1

Amortisation in the reporting year 47.6 47.6

Impairment in the reporting year 1 5.6 286.8 292.4

Reclassifications -0.1 -0.1

Currency adjustments 0.5 0.5

Disposals

Reversals of amortisation and

impairment

4.0 0.4 4.4

As of 31.12.2010 202.1 410.1 612.2

Carrying amounts

As of 31.12.2010

1 See section 2.5

440.5 5.6 459.2 388.2 1,293.5

The conditions required for capitalising development costs were not met. Development costs were

therefore recognised as expenses, together with research costs. In 2011, Euro 13.3 million (previous

year: Euro 16.3 million) was spent on research and development.

Impairment losses on intangible assets were recognised through profit and loss under depreciation,

amortisation and impairment in the statement of comprehensive income.

There are no restrictions of title to intangible assets and none have been pledged as collateral for liabilities.

115


116 EWE AnnuAl rEport 2011

Testing goodwill and intangible assets with indefinite useful lives for impairment

To test for impairment, the goodwill acquired in mergers and brands and indefinite concession agreements

were allocated to the following cash-generating units:

EWE Energy business area

• swb business area

• New Markets and ICT business area

• Poland business unit

• Turkey business unit

• TC business unit

• IT business unit

Carrying values of goodwill, brands and concession agreements allocated to cash-generating units:

EUR million Cash-generating units

EWE Energy swb Turkey 1/2 TC 1 IT 1 Total

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Goodwill 3.4 3.4 308.3 308.3 3 25.6 96.3 42.8 42.8 8.3 8.3 388.4 459.1

Brands 95.9 95.9 95.9 95.9

Concession

agreements 292.3 292.3 292.3 292.3

1 Allocated to the New Markets an ICT business area

2 Includes: Bursagaz, kayserigaz, EWE Doğalgaz

3 As mentioned under 2.5, an impairment loss was recognised on swb’s goodwill, reducing it from Euro 451.1 million to Euro 308.3 million.

Cash-generating units

The Group performed its annual impairment test on 31 December 2011. A test is also conducted if circumstances

indicate that goodwill may have been impaired. The Group’s impairment test for goodwill

is based on the measurement of the recoverable amount of the cash-generating unit.

The recoverable amount is calculated by calculating the fair value less costs to sell.

This fair value is calculated using a discounted cash flow method, which calculates the present value of

all future cash flow surpluses which the cash-generating unit is expected to generate. The sum of the

present values (for each CGu) was reduced by 1 per cent to take hypothetical costs to sell into account.

Future cash flows for the Energy and swb business areas and the Poland, Turkey, TC and IT units are determined

based on current budgets as approved by the Board of Management and the Supervisory Board.

The planning horizon is three years, followed by a normal year which forms the basis for extrapolating

cash flows thereafter. The planning horizon was extended whenever appropriate to take returns on investment

into account.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The budgets take past experience into account as well as certain assumptions, for example on exchange

rates and oil price developments. For the company EWE Doğalgaz and the Poland business unit, the

latest available budgets provided by the managing directors or business managers are used as the basis

for calculations.

The discount rates are derived from capital market data for sector-specific peer groups. They take into

account expectations of the risk-free market interest rate and the specific risks of the cash-generating

unit. The individual weighted average cost of capital (WACC) after taxes determined in this way was

then used for the respective planning horizon. The extrapolated cash flow takes an unchanged discount

for sustainable growth of 1.0 per cent into account. All of the respective discount rates used are listed

in the following table:

Cash-generating units WACC Growth rate

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Energy business area 4.79 % / 3.79 % 4.80 % / 3.80 % 1.00 % 1.00 %

swb business area 4.79 % / 3.79 % 4.80 % / 3.80 % 1.00 % 1.00 %

New Markets and ICT business area

Subgroup Poland 5.53 % / 4.53 % 5.35 % / 4.35 % 1.00 % 1.00 %

Bursagaz - 6.62 % / 5.62 % – 1.00 %

Kayserigaz - 6.62 % / 5.62 % – 1.00 %

EWE Doğalgaz 6.46 % / 5.46 % 6.62 % / 5.62 % 1.00 % 1.00 %

TC business unit 5.42 % / 4.42 % 5.08 % / 4.08 % 1.00 % 1.00 %

IT business unit 8.59 % / 7.59 % 7.91 % / 6.91 % 1.00 % 1.00 %

The growth rates are based on estimates made by management.

Impairment test to 30 June 2011

In view of recent developments in Turkey, the forecast cash flow for the cash-generating units Bursagaz

and kayserigaz (New Markets and ICT business area) was adjusted halfway through 2011. The current

regulatory activities will have a largely negative impact on the earnings situation. To 30 June 2011, a WACC

(Weighted Average Cost of Capital) of 6.76 per cent / 5.76 per cent and current exchange rates were

used. As a result of the updated analysis, management has identified an impairment of Euro 157.0 million

as of 30 June 2011, which was recognised in depreciation, amortisation and impairment. Euro 62.1

million of the impairment was attributable to goodwill and Euro 94.9 million to intangible assets with

a finite useful life. The impairment fell to a total of Euro 146.8 million to 31 December 2011, as a result

of exchange rate effects, with Euro 58.1 million being attributable to goodwill and Euro 88.7 million

attributable to intangible assets with a finite useful life.

Impairment test to 31 December 2011

The impairment test conducted to 31 December 2011, did not show any need for further impairment.

Any negative change to a main assumption would cause an additional impairment loss.

In the reporting year, impairment losses of Euro 58.1 million were recognised on goodwill (previous year:

Euro 286.8 million). Impairment losses on goodwill in the previous year were adjusted (see section 2.5).

As in the previous year, no impairment losses were recognised on intangible assets with an indefinite

useful life.

117


118 EWE AnnuAl rEport 2011

17. Property, plant and equipment

EUR million 31.12.2011 31.12.2010

Land and buildings 484.6 489.7

Technical equipment and machines

Electricity supply equipment 1,282.3 1,299.9

Gas supply facilities 1,544.7 1,484.2

other 1,170.5 1,178.1

other plant, operating and office equipment 92.6 104.1

Payments made on account and plant under construction 552.2 458.1

Total 5,126.9 5,014.1

The following table shows changes in property, plant and equipment:

EUR million

Land and

buildings

Technical

equipment and

machines

other plant,

operating

and office

equipment

Payments

made on

account and

plant under

construction Total

Cost

As of 1.1.2011

Change in group of consolidated

companies

Additions / disposals from mergers

881.8 10,259.1 317.9 472.2 11,931.0

and spin-outs -25.3 -0.5 -25.8

Additions 8.7 290.9 18.0 235.2 552.8

Reclassifications 14.8 113.5 4.4 -134.9 -2.2

Currency adjustments -0.4 -42.0 -0.8 -1.6 -44.8

Disposals 12.2 186.0 21.8 8.6 228.6

As of 31.12.2011 892.7 10,410.2 317.2 562.3 12,182.4

Accumulated depreciation and

impairment

As of 1.1.2011

Change in group of consolidated

companies

Additions / disposals from mergers

392.1 6,296.9 213.8 14.1 6,916.9

and spin-outs -12.9 -0.4 -13.3

Depreciation in the reporting year 21.8 329.0 29.3 380.1

Impairment in the reporting year 20.1 3.4 0.1 23.6

Reclassifications 0.9 3.7 -0.3 -3.7 0.6

Currency adjustments -11.8 -0.4 -0.4 -12.6

Disposals

Reversals of depreciation and

6.7 178.7 20.8 206.2

impairment -33.6 -33.6

As of 31.12.2011 408.1 6,412.7 224.6 10.1 7,055.5

Carrying amounts

As of 31.12.2011 484.6 3,997.5 92.6 552.2 5,126.9


EUR million

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Land and

buildings

Technical

equipment and

machines

other plant,

operating

and office

equipment

Payments

made on

account and

plant under

construction Total

Cost

As of 1.1.2010

Change in group of consolidated

811.1 9,841.2 331.3 455.6 11,439.2

companies 10.7 10.7

Additions / disposals from mergers

and spin-outs 5.3 11.2 0.4 16.9

Additions 25.3 298.0 23.1 229.4 575.8

Reclassifications 42.8 168.4 4.8 -223.5 -7.5

Currency adjustments 0.1 12.9 0.2 0.3 13.5

Disposals 2.8 72.6 41.9 0.3 117.6

As of 31.12.2010 881.8 10,259.1 317.9 472.2 11,931.0

Accumulated depreciation and

impairment

As of 1.1.2010

Change in group of consolidated

companies

Additions / disposals from mergers

369.8 6,022.2 223.1 3.2 6,618.3

and spin-outs 3.1 8.5 0.4 12.0

Depreciation in the reporting year 20.9 321.5 29.2 371.6

Impairment in the reporting year 5.6 0.2 11.9 17.7

Reclassifications 1.0 0.1 -1.0 0.1

Currency adjustments 3.0 0.1 3.1

Disposals

Reversals of depreciation and

1.7 64.4 39.3 105.4

impairment -0.5 -0.5

As of 31.12.2010 392.1 6,296.9 213.8 14.1 6,916.9

Carrying amounts

As of 31.12.2010 489.7 3,962.2 104.1 458.1 5,014.1

Items of property, plant and equipment amounting to Euro 29.1 million (previous year: Euro 31.5 million)

were pledged as collateral, of which the lending bank imposes restrictions on the use of Euro 38.1 million

(previous year: Euro 40.1 million). The lending bank is only entitled to exercise its rights if the borrower

fails to meet its contractual obligations.

Impairment losses of Euro 6.5 million (previous year: Euro 14.1 million) on property, plant and equipment

for exploration (gas supply facilities) were recognised in profit and loss. In the financial year, depreciation,

amortisation and impairment totalling Euro 17.0 million was reversed (previous year: Euro 0.5 million).

The residual carrying amount came to Euro 71.5 million as of the balance sheet date (previous year: Euro

20.0 million).

Impairment losses totalling Euro 23.6 million (previous year: Euro 17.6 million) are shown under depreciation,

amortisation and impairment in the income statement.

Euro 3.1 million of compensation received in 2010 for a coal silo destroyed by fire in Bremen-hastedt was

recognised in profit and loss.

119


120 EWE AnnuAl rEport 2011

18. Investments accounted for under the equity method

The following table shows summarised financial information on companies accounted for under the

equity method, none of which are publicly listed. however, these key figures do not correspond to

EWE AG’s equity interest (2010 including vNG), but rather are reported in full.

EUR million 2011 2010

Balance sheet total 3,929.3 4,654.7

Borrowings 3,057.9 2,949.4

Sales 8,672.6 7,165.4

Result -162.8 129.8

Interests in companies accounted for under the equity method changed as follows:

EUR million 2011 2010

opening balance on 1 january 1,364.4 497.4

Adjustment from reclassification of VNG shares 914.6

Adjusted opening balance on 1 january 1,364.4 1,412.0

Group share of net profit / loss -110.9 23.9

Dividends received -34.3 -75.7

Additions 28.9 3.9

Reclassification -211.4

Disposal -31.0

Changes without effect on profit and loss -17.9 0.3

Impairment -110.2

Closing balance on 31 December 877.6 1,364.4

As of 31 December 2011, investments in associated companies include goodwill of Euro 69.2 million

(previous year: Euro 69.2 million), of which the swb business area accounts for Euro 50.1 million (previous

year: Euro 50.1 million) and the TC business unit for Euro 19.1 million (previous year: Euro 19.1 million).

The additions concern the increase in contributions at Gemeinschaftskraftwerk Bremen Gmbh & Co. kG,

Bremen, amounting to Euro 24.8 million and the increase in contributions in the shareholding Weserkraftwerk

Bremen Gmbh & Co. kG, Bremen, amounting to Euro 4.1 million.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

The restructuring concerns the reclassification of the shareholdings in Stadtwerke Bielefeld Gmbh,

Bielefeld, as the city of Bielefeld has exercised the buy-back right it was granted by contract as a result

of the change in the shareholder structure of swb AG (“change of control” clause). The amount of the

purchase price is currently being decided in arbitration proceedings. As a result of ongoing contract negotiations,

the shareholding has been reclassified to non-current assets held for sale (see Note 25). These

have been recognised at face value less costs to sell. Prior to the reclassification, an impairment loss of

Euro 100.7 million (previous year: Euro 0.0 million) was recorded as a result of the changed conditions in

the energy market (cf. Note 12). Adjustments required under the equity method were no longer recorded

as of the time of reclassification.

The impairment loss concerns the impairment of the shareholdings of Stadtwerke Bielefeld Gmbh

amounting to Euro 107.7 million (previous year: Euro 0.0 million), which was offset against the income

from the adjustment of the put option amounting to Euro 7.0 million. This was reported under the result

from associated companies to the amount of Euro 100.7 million.

19. Other financial assets

EUR million 31.12.2011 31.12.2010

Loans to affiliated companies 59.9 37.1

Interests in other shareholdings 57.0 71.3

Derivative financial instruments 56.3 52.0

Interests in affiliated companies 55.9 65.0

other loans 23.4 23.5

Energy saving loans 0.6 1.4

other 4.2 3.3

Total 257.3 253.6

The interests in affiliated companies and loans to affiliated companies relate to non-consolidated equity

investments.

20. Inventories

EUR million 31.12.2011 31.12.2010

Gas reserves 235.7 194.1

Raw materials, consumables and supplies 45.4 34.2

Work in progress 11.2 19.6

Finished goods and merchandise 3.3 3.1

Payments made on account 0.4 0.7

Total 296.0 251.7

There were no restrictions on use or other charges over inventories.

121


122 EWE AnnuAl rEport 2011

21. Trade receivables

Trade receivables are all due within one year.

Collateral of Euro 4.5 million (previous year: Euro 3.1 million) was received in the form of cash.

EUR million Carrying amount Neither

overdue nor

impaired

Trade receivables

Trade receivables

of which overdue on balance sheet date and not individually written down

Less than

30 days

Between

30 and 90

days

Between

91 and 180

days

Between

181 and 360

days

More than

360 days

Total

as of 31.12.2011

1,049.4

as of 31.12.2010

884.0 165.4 105.2 14.6 8.8 7.5 29.3

944.6 773.8 170.8 108.7 17.5 7.7 7.7 29.2

The following table shows changes in impairment allowances for trade receivables:

EUR million 2011 2010

Impairment allowances on 1 january 39.7 38.8

Exchange rate differences -0.5 0.2

Additions 12.1 1.5

Used -4.5

Reversals -5.2 -1.1

Change in group of consolidated companies 0.3

Impairment allowances on 31 December 41.6 39.7

The total amount of impairment allowances consists of individual write-downs of Euro 14.0 million

(previous year: Euro 13.1 million) and generalised impairment allowances of Euro 27.6 million (previous

year: Euro 26.6 million).

The individual write-downs were on trade receivables from customers that are in unexpected economic

difficulties. The assumption is nevertheless that some of the receivables will be recovered in future.

Additions to write-downs on trade receivables are shown in the income statement under other operating

expenses, and amounts from the reversal of write-downs are shown under other operating income.


Consolidated finanCial statements notes Confirmation by the legal representatives

22. Other financial receivables and assets

Consolidated finanCial statements

EUR million 31.12.2011 31.12.2010

Derivative financial instruments 134.5 124.5

Receivables from affiliated companies 61.5 68.8

Securities 51.0 127.4

Receivables from investee companies 34.3 7.0

Receivables from companies accounted for under the equity method 1 27.1 43.4

Receivables from contract production 6.3 7.8

Receivables from CHP levy / surcharges 3.0

Creditors with a debit balance 2.6 3.7

Receivables from claims for reimbursement 1.9 1.9

Accrued interest receivables 1.0 1.0

Energy saving loans 0.8 1.1

Miscellaneous other financial assets 47.7 33.4

Total 371.7 420.0

1 Of which to companies accounted for under IFRS 5 Euro 0.9 million (previous year: Euro 0.0 million)

Other financial receivables and assets are due within one year.

The receivables from affiliated companies are non-consolidated shareholdings.

EUR million Carrying amount Neither

overdue nor

impaired

other financial receivables

and assets

other financial receivables

and assets

as of 31.12.2011

as of 31.12.2010

of which overdue on balance sheet date and not individually written down

Total

Less than

30 days

Between

30 and 90

days

Between

91 and 180

days

Between

181 and 360

days

More than

360 days

371.7 363.5 8.2 7.4 0.1 0.1 0.1 0.5

420.0 399.0 21.0 18.3 1.8 0.2 0.4 0.3

The following table shows valuation allowances for other financial receivables and assets:

EUR million 2011 2010

Impairment allowances on 1 january 1.3 1.4

Reversals -0.1 -0.1

Impairment allowances on 31 December 1.2 1.3

Additions to write-downs on other receivables and assets are shown in the income statement under

other operating expenses, and amounts from the reversal of write-downs are shown under other operating

income.

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124 EWE AnnuAl rEport 2011

23. Other non-financial receivables and assets

Other non-financial receivables and assets are due within one year.

EUR million 31.12.2011 31.12.2010

Payments made on account 50.9 27.3

Emissions rights 30.6 35.5

Prepaid expenses 12.9 4.4

VAT 9.0 5.1

own-use electricity trading 0.1 9.5

Miscellaneous other non-financial assets 9.6 76.6

Total 113.1 158.4

24. Cash and cash equivalents

See Note 42 for the composition of cash and cash equivalents in the cash flow statement.

25. Non-current assets held for sale

The vNG shares measured using the equity method have been classified as held for sale since 30 June

2009. In light of the rejection at the vNG Annual General Meeting on 15 December 2011, to transfer

the shares in vNG to EnBW, fundamental requirements for accounting as per IFRS 5 are no longer met.

Because these requirements for accounting under IFRS 5 no longer apply, the shares in vNG are accounted

for under the equity method from the time at which they were classified as “held for sale”. The financial

statements for the periods since the classification as “held for sale” have been adjusted accordingly.

The original, amortised carrying amount to 31 December 2011, was recognised, and was below the recoverable

amount as per IAS 36. The shares have been attributed to the Corporate Centre / Consolidation

business area.

Furthermore, in the first half of 2011, the shares in Stadtwerke Bielefeld Gmbh, Bielefeld, which had

been measured using the equity method and for which there is a specific intent to sell, were reclassified

(see Note 18). They were measured at fair value less costs to sell. The changes in fair value amounting

to Euro 9.3 million have been reported in the result of equity investments. The shares have been attributed

to the swb business area.


26. Shareholders’ equity

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Components and changes in equity are shown in the statement of changes in shareholders’ equity.

The subscribed capital of EWE AG amounts to Euro 242,988,000 (previous year: Euro 242,988,000)

and is divided into 242,988 (previous year: 242,988) registered shares of Euro 1,000.

On 21 July 2009, 26 per cent of the EWE AG share capital was transferred to EnBW. Weser-Ems-Energiebeteiligungen

Gmbh (WEE), Oldenburg, still holds 59 per cent of the shares in EWE AG and Energieverband

Elbe-Weser Beteiligungsholding Gmbh (EEW), Oldenburg, still holds 15 per cent. The shareholder

of WEE is Ems-Weser-Elbe versorgungs- und Entsorgungsverband Beteiligungsgesellschaft mbh (EWEverband

Gmbh), Oldenburg. The sole shareholder of EWE-verband Gmbh and EEW is Ems-Weser-Elbe

versorgungs- und Entsorgungsverband (EWE-verband), Oldenburg. The members of EWE-verband are

the town, city and district authorities in our supply area between the rivers Ems, Weser and Elbe.

The capital reserve is primarily the result of the regulations of Section 272 para. 2 No. 4 of the German

Commercial Code (hGB). In 2011, EnBW contributed Euro 75.0 million (previous year: Euro 2.4 million)

to the capital reserve.

Retained earnings comprises the accumulated income and comprehensive other income. The comprehensive

other income comprises the revaluation reserve in accordance with IFRS 3, the changes in fair

value of cash flow hedges, market values of available-for-sale financial instruments recognised without

effect on profit and loss, currency translation differences on foreign financial statements, actuarial

gains and losses recognised without effect on profit and loss, IFRS 5 adjustments and changes in the

carrying amounts of associated companies accounted for under the equity method without effect on

profit and loss.

Proposal for the appropriation of profit

The Board of Management proposes to the Annual General Meeting that a dividend for the 2011 financial

year of Euro 88,000,534.08 (Euro 362.16 per Euro 1,000.00 nominal share capital of Euro 242,988,000.00)

be distributed to the shareholders out of EWE AG’s distributable profit of Euro 88,000,534.08.

Minority interests principally consist of third-party shareholders in Bursagaz and AOv.

27. Construction subsidies and emissions rights

EUR million 31.12.2011 31.12.2010

Non-current Current Non-current Current

Construction subsidies 758.1 45.8 750.0 44.8

obligation to return emissions rights 23.8 33.5

Total 758.1 69.6 750.0 78.3

Construction subsidies mainly consist of subsidies for construction costs. They are reversed over the

useful life of the subsidised assets. Reversals are recognised in the income statement under sales.

125


126 EWE AnnuAl rEport 2011

28. Provisions

EUR million 31.12.2011 31.12.2010

Non-current Current Total Non-current Current Total

Provisions for pensions and similar obligations 1,302.9 1,302.9 1,235.8 1,235.8

other provisions

obligations towards employees 34.5 5.7 40.2 38.4 8.4 46.8

obligations from recultivation of

gas caverns 82.1 82.1 75.9 75.9

Miscellaneous other provisions 58.1 152.9 211.0 50.2 161.3 211.5

Total 1,477.6 158.6 1,636.2 1,400.3 169.7 1,570.0

Provisions for pensions and similar obligations

The EWE Group’s benefit payments to its employees correspond to the IAS 19 definition of post-

employment defined-benefit plans. Overall, the pension commitments largely depend on the length

of service and the employee’s remuneration.

The obligations include both those from pensions already being paid and those from entitlements to

future pensions.

The characteristic feature of obligations under defined-benefit plans is that the EWE Group has to ful fil

them in the amount agreed and therefore bears both the funding risk and the biometric risks (e.g. longevity

risk) in full.

In the case of the funded direct commitments introduced for the first time in 2009, the Group companies

that take part in this model pay an annual benefit charge to EWE-Treuhandverein e.v. for each entitled

employee. The accumulated benefit charges over the period of entitlement, plus the returns earned on

them, are converted into an annuity when benefits begin to be drawn. The participating Group company

guarantees the value of the nominal contributions. In line with IFRIC D9 the defined-benefit obligation

(DBO) of the new direct commitment is recognised as the higher of the present value of the guaranteed

obligation and fund assets. Similarly, current service expense is the higher of the current service expense

of the guaranteed obligations and fund contributions. Finally, to the extent that plan assets exceed the

present value of the guarantee obligation, the interest expense on the obligation is considered to mirror

the expected return on plan assets, with a reversed positive or negative value. The result is recognition

of the actual extent of the obligation and the costs. As long as plan assets exceed the present value of

the minimum benefit there is no balance sheet disclosure and expenses generally correspond to the

contributions made, which is basically the same as accounting for a defined-contribution plan. It does,

however, ensure that the minimum obligation under labour law is permanently covered by external assets

or if necessary by internal reserves, which is enough to satisfy the defined-benefit element of the

plan’s structure.

On balance this model also transfers the bulk of the funding risk for the retirement benefits to the employees

who benefit from them, particularly with regard to the nominal guarantee during the entitlement

phase. In exchange they have the opportunity of earning appropriate returns on the capital invested.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Current contributions in the form of annual service expenses are recognised as personnel expenses for

the respective period and disclosed in the operating result (EBIT). The interest component is included

in net interest.

The balance sheet figures for the defined-benefit pension commitments are as follows:

EUR million 31.12.2011 31.12.2010

Present value of financial obligations funded via EWE-Treuhandverein 4.6 2.4

Fair value of plan assets 4.6 2.4

Funding status 0.0 0.0

Present value of financial obligations not funded via EWE-Treuhandverein 1,302.9 1,235.8

Unrecognised past service expense 0.0 0.0

Amount not recognised as an asset due to IAS 19 limit 0.0 0.0

Carrying amount 1,302.9 1,235.8

The following amounts have been recognised in the income statement:

EUR million 2011 2010

Current service expense 21.4 18.9

Interest expense 57.5 58.9

Forecast return on plan assets -0.1 0.0

Past service expense 0.0 0.0

Total 78.8 77.8

The following table shows the change in the present value of the obligations:

EUR million 2011 2010

Present value at beginning of year 1,238.4 1,138.8

Current service expense 21.4 18.9

Interest expense 57.5 58.9

Actuarial (gains) / losses without effect on profit and loss 61.4 79.5

Past service expense 0.0 0.0

Pension payments from company assets -69.9 -68.0

Pension payments from plan assets 0.0 0.0

Change in group of consolidated companies 0.0 0.0

Reclassifications 0.0 9.4

other -1.3 0.9

Present value as of the balance sheet date 1,307.5 1,238.4

127


128 EWE AnnuAl rEport 2011

The performance of plan assets is as follows:

in Euro ’000 2011 2010

Fair value at beginning of year 2,437.7 834.3

Forecast return on plan assets 97.5 33.4

Actuarial gains / (losses) -315.4 41.8

Employer contributions 1,541.4 1,035.6

Salary conversion 647.7 492.6

Pension payments from plan assets -1.2 0.0

Change in group of consolidated companies 0.0 0.0

Asset withdrawals / (asset transfers) 165.9 0.0

other 0.0 0.0

Fair value as of the balance sheet date 4,573.6 2,437.7

Since 2010, the assets in the fund have been invested in Fidelity Target Funds with target dates between

2015 and 2040. The capital was invested on the basis of the expected retirement dates of EWE’s employees.

These fund assets comprise 89 per cent shares, 8 per cent fixed-interest securities and 3 per cent

fund assets.

The following table shows the change in the carrying amount of the obligation:

EUR million 2011 2010

Carrying amount at beginning of year 1,235.8 1,138.0

Expense recognised in the income statement 78.8 77.8

Pension payments from company assets and contributions to EWE-Treuhandverein -72.1 -69.5

Actuarial (gains) / losses 61.4 79.5

Change in group of consolidated companies 0.0 0.0

Reclassifications 0.0 9.4

other -1.0 0.6

Carrying amount at end of year 1,302.9 1,235.8

Total actuarial gains and losses of Euro 61.4 million (previous year: Euro 79.5 million) were recognised

in other comprehensive income.

The pension obligations were calculated using the 2005 G actuarial tables by klaus heubeck and based

on the following main actuarial assumptions:

Assumptions / parameters (in %) 31.12.2011 31.12.2010

Discount rate 4.50 4.75

Forecast return on plan assets 4.00 4.00

Future pay increases 2.50 2.50

Future pension increases 1.75 1.75

Fluctuation rate 0.00 0.00


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Notwithstanding the assumptions mentioned above, the pension obligations calculated as of the current

balance sheet date for swb are based on a salary progression of 2.0 per cent p. a. and a pension progression

of 1.0 per cent p. a. (plus a premium of 0.67 per cent of the DBO for expected one-off payments in

lieu of adjustments to the pension, as well as an average fluctuation rate of 2.0 per cent p. a.). 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 pension progression of 4.0 per cent p. a.

Since 2007, the present value of defined-benefit obligations, the fair value of the plan assets and adjustments

to the obligations from past experience as the difference between expected and actual developments

have changed as follows:

EUR million 2011 2010 2009 2008 2007

On 31 December

Present value of the defined-benefit obligation 1,307.5 1,238.2 1,138.8 607.4 583.7

Present value of plan assets 4.6 2.4 0.8 0.0 0.0

underfunding / (overfunding)

Adjustments to plan liabilities based on

1,302.9 1,235.8 1,138.0 607.4 583.7

past experience

Adjustments to plan assets based on

18.9 5.6 -55.1 35.3 -6.0

past experience -0.3 0.0 0.0 0.0 0.0

The expected pension payments for 2012 amount to Euro 70.3 million. The expected inflows of cash

into the plan assets amount to Euro 2.0 million.

Increasing or reducing the discount rate by one percentage point would have the following effects:

Change in discount rate EUR million 2011 2010

Increase

by 1 %

Decrease

by 1 %

Increase

by 1 %

Decrease

by 1 %

Effect on

present value of obligations

not funded externally

current service expense

-149.9 196.9 -143.2 187.9

in the following financial year

interest expense on the obligation

-4.0 5.8 -3.8 5.5

in the following financial year 4.0 -5.3 3.8 -5.0

Defined-contribution pension schemes in the EWE Group relate to the statutory retirement pension

insurance. In 2011, employer contributions amounted to Euro 58.4 million (2010: Euro 56.3 million).

129


130 EWE AnnuAl rEport 2011

Statement of provisions

EUR million

As of

01.01.2011 Additions Reversals

other

changes 1

Interest

effects Used

As of

31.12.2011

Provisions for pensions and

similar obligations 1,235.8 81.3 -0.2 -1.5 57.4 -69.9 1,302.9

other provisions

obligations towards

employees 46.8 11.1 -0.8 -3.4 1.2 -14.7 40.2

obligations from recultivation 75.9 2.3 0.1 3.8 82.1

Miscellaneous other provisions 211.5 181.3 -13.2 -2.9 1.4 -167.1 211.0

Total 1,570.0 276.0 -14.2 -7.7 63.8 -251.7 1,636.2

1 Other changes mainly relate to changes without effect on profit or loss

Provisions relating to personnel expenses include obligations for phased early retirement and anniversaries.

Recultivation provisions are primarily made for the costs of recultivating natural gas caverns in the

event of closure. The provisions are based on a public law obligation under the Mining Ordinance for

Drilling, underground Storage and Raw Material Extraction by Means of Drilling in Lower Saxony (BvOT)

and the German Federal Mining Act (BBergG). The amount of the provisions is determined by external

surveys. Provisions for recultivation expenses are disclosed under non-current liabilities as no recultivation

work is expected in the near future. Recultivation provisions are recognised at the amount needed

to settle the obligation, discounted to the balance sheet date. A discount rate of 5.0 per cent was used

in the reporting year as before. The expense of compounding recultivation obligations is recognised as

interest expense in the income statement.

All provisions for obligations from recultivation of gas caverns are classified as non-current provisions,

because they are currently expected to be utilised in 2032. External reports are ordered on a regular

basis to determine recultivation costs.

utilisation of the provision is expected to begin in 2014 for the construction of a fly ash storage facility.

The second fly ash storage facility has been filled. The Free and hanseatic City of Bremen will set the

recultivation schedule. No announcement was made before the end of the financial year.

It is also expected that there will be an obligation to dismantle the Bremen-hafen power plant in 2050.

Miscellaneous other provisions consist mainly of contingent obligations for pending transactions, process

risks, obligations to acquire assigned amount units, obligations from the surplus revenue absorption for

electricity, invoicing, removal, demolition and document storage obligations, contingent acquisition price

obligations as well as obligations for environmental restoration and restructuring.


29. Bonds

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

To refinance its acquisition of vNG and swb, EWE AG issued two unsecured bearer bonds on 14 October

2004, for a total of Euro 1,500 million. The first tranche was made up of Euro 1,000 million at an issue

price of 99.326 per cent, maturing on 14 October 2014, and with a fixed coupon of 4.375 per cent. The

second tranche for Euro 500 million matures on 14 October 2019, bears interest at 4.875 per cent p.a.

and was issued at 99.791 per cent.

On 16 July 2009, EWE AG issued a further euro bond for Euro 500 million to refinance existing liabilities.

The bond was sold at an issue price of 98.976 per cent; it matures on 16 July 2021 and has a fixed coupon

of 5.250 per cent.

To refinance part of the bond that matures on 14 October 2014, EWE AG issued an unsecured bearer

bond on 4 November 2011. It was made up of Euro 500.0 million at an issue price of 99.425 per cent,

maturing on 4 November 2020, and with a fixed coupon of 4.125 per cent. In the course of this transaction,

portions of the bond maturing in 2014 were traded for participations in the new bond at a par

value of Euro 357.3 million.

30. Liabilities to banks

EUR million 31.12.2011 31.12.2010

Non-current Current Non-current Current

Liabilities to banks 637.7 81.6 708.9 33.5

The majority of fixed-interest liabilities to banks of Euro 567.3 million (previous year: Euro 585.9 million)

have an average interest rate of 4.41 to 5.36 per cent (previous year: 4.92 to 5.36 per cent) and the

majority of floating-rate liabilities to banks of Euro 152.0 million (previous year: Euro 156.5 million) have

an average interest rate of 1.66 to 2.19 per cent (previous year: 1.07 to 1.64 per cent). The average remaining

fixed-interest period for the fixed-interest liabilities is 2.91 to 3.54 years (previous year: 3.91 to

4.54 years) and for the floating-rate liabilities 93 days to 6.64 years (previous year: 94 days to 7.64 years).

31. Trade payables

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

131


132 EWE AnnuAl rEport 2011

32. Other financial liabilities

EUR million 31.12.2011 31.12.2010

Non-current Current Non-current Current

Derivative financial instruments 74.7 146.8 44.8 114.7

Liabilities towards affiliated companies 16.7 10.0

Liabilities towards companies accounted for under

the equity method 0.4 7.5

Liabilities towards investee companies 32.3 11.9

Collateral 81.5 59.9

Purchase price obligations 3.1

Sponsorship agreement with EWE Research Institute 23.7 27.4

Research and development 14.8 19.6

Accrued interest on bonds 26.7 26.9

Liabilities towards employees 10.0 43.2 8.0 36.8

Miscellaneous other financial liabilities 5.3 62.4 9.6 82.2

Other financial liabilities 128.5 410.0 109.4 353.0

The liabilities towards affiliated companies relate to non-consolidated shareholdings.

Collateral primarily relates to payments that Bursagaz and kayserigaz receive from all new customers

when the contract is signed and which are repayable on termination of the contract. The liabilities are

classified as current as customers can terminate the contracts at any time. This collateral cannot be

realised otherwise.

33. Other non-financial liabilities

EUR million 31.12.2011 31.12.2010

Non-current Current Non-current Current

Tax liabilities 65.1 74.3

Payments received on account 22.2 22.1

own-use electricity trading 1.7 14.9

Miscellaneous other non-financial liabilities 4.4 17.0 5.4 16.7

Other non-financial liabilities 4.4 106.0 5.4 128.0

34. Deferred taxes

Deferred tax assets of Euro 89.0 million (previous year: Euro 11.7 million) and deferred tax liabilities of

Euro 435.5 million (previous year: Euro 453.4 million) result from taxable temporary differences and

tax loss carryforwards.


Consolidated finanCial statements notes Confirmation by the legal representatives

Deferred tax assets and liabilities relate to the following items:

Consolidated finanCial statements

31.12.2011 31.12.2010

EUR million Assets Liabilities Assets Liabilities

Intangible assets 5.4 177.5 6.1 207.4

Property, plant and equipment 4.1 555.0 2.5 538.7

other assets 9.8 21.0 2.9 20.1

of which derivative financial instruments 19.0 18.3

Non-current assets 19.2 753.5 11.5 766.2

Inventories 0.2 39.1 0.2 30.7

Receivables 1.2 4.1 2.6 5.3

other assets 3.7 45.3 2.2 40.2

of which derivative financial instruments 41.6 37.5

Current assets 5.0 88.5 5.0 76.2

Construction subsidies 177.6 166.4

Pension provisions 118.0 0.0 110.1 6.9

other provisions 37.8 19.4 40.9 9.3

Borrowings 36.8 20.8 30.3 3.4

Non-current liabilities 370.3 40.2 347.7 19.6

Construction subsidies and emissions rights 10.5 6.6

other provisions 18.0 12.8 8.9 12.3

Borrowings 55.8 0.5 55.3 3.8

Current liabilities 84.4 13.2 70.8 16.1

Tax losses carried forward 70.1 1.5

Deferred taxes before offsetting 549.0 895.4 436.5 878.1

offsetting -460.0 -460.0 -424.8 -424.8

Deferred taxes after offsetting 89.0 435.5 11.7 453.4

Of the net deferred tax assets, Euro 20.7 million (previous year: Euro 2.7 million) have a term of more

than one year. Net deferred tax liabilities of Euro 20.1 million (previous year: Euro 17.2 million) will be

realised within one year and Euro 415.4 million (previous year: Euro 436.2 million) will be realised later

than twelve months.

Deferred tax assets for tax losses carried forward are recognised to the extent that it is probable that

tax benefits will be realised by future taxable profits. It is sufficiently certain that the benefits from

these tax losses carried forward will be realised.

At the end of the reporting year, the amount of tax loss carry forwards for which no deferred tax assets

were recognised was Euro 3.8 million (previous year: Euro 2.5 million). Of the tax losses carried forward,

Euro 0.4 million will expire within one year and Euro 3.4 million between two and five years (see also

Note 15).

No deferred tax assets are recognised for these tax loss carry forwards as it is not probable that the tax

benefits will be realised in the foreseeable future.

Temporary differences for which no deferred tax claims were recognised in the balance sheet amounted

to Euro 0.1 million (previous year: Euro 1.6 million).

133


134 EWE AnnuAl rEport 2011

EUR million 31.12.2011 31.12.2010

Effective income taxes 69.3 44.6

Tax receivables 93.5 69.8

Tax liabilities -24.1 -25.3

Deferred taxes -346.5 -441.7

Deferred tax assets 89.0 11.7

Deferred tax liabilities -435.5 -453.4

-277.1 -397.1

The amount of temporary differences in connection with equity interests in subsidiaries and associated

companies for which in line with IAS 12.39 no deferred tax liabilities were recognised in the reporting

year is Euro 26.5 million (previous year: Euro 21.7 million).

35. Contingent receivables / liabilities and other liabilities

Contingent receivables

As of 31 December 2011, there were contingent receivables amounting to Euro 4.7 million (previous year:

Euro 10.3 million).

Guarantees and warranties

At the balance sheet date, guarantees and warranties totalled Euro 110.7 million (previous year: Euro

92.4 million), of which Euro 42.3 million (previous year: Euro 33.8 million) were given to creditors of

an associated company.

Obligations to acquire intangible assets and property, plant and equipment

Contractual commitments of Euro 5.9 million (previous year: Euro 4.0 million) relate to the purchase

of intangible assets. Contractual commitments of Euro 300.6 million (previous year: Euro 245.7 million)

relate to property, plant and equipment. These primarily concern purchase commitments relating to

supply contracts for wind energy plants and other related capital expenditure (Euro 227.8 million).

Other contingent liabilities and obligations

An obligation exists to pay an additional purchase price of up to Euro 102.3 million if the public transport

services are spun out of Stadtwerke Bielefeld Gmbh or if the town of Bielefeld agrees to assume

their losses on a permanent basis. The shareholding in Stadtwerke Bielefeld has been reported as a

non-current asset held for sale (see Note 25). This contingent liability will no longer apply when this

shareholding has been sold.

Additional obligations of Euro 17.4 million (previous year: Euro 17.4 million) to an associated company

resulted from share capital not called up as well as miscellaneous contingent liabilities amounting to

Euro 4.0 million (previous year: Euro 0.0 million).

There is an obligation arising from a shareholding in a power plant company to contribute financing for

the construction of a new power plant proportionate to the shares held. The amount of the contribution

is calculated on the basis of the agreed investment plan and comes to Euro 26.4 million less any

payments already rendered. There is a contingent obligation to provide additional contributions of no

more than 5 per cent of the shareholding (Euro 2.1 million).

Long-term, market-standard supply contracts are also in place for the purchase of electricity and gas.


36. Leases

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Obligations under operating leases

Financial obligations under operating leases relate primarily to real estate, vehicles, a cavern facility and

other property, plant and equipment. The leases have different terms and conditions. The lease payments

for office buildings are regularly adjusted in line with price indices.

The following table shows future accumulated minimum lease payments from uncancellable operating

leases:

EUR million 31.12.2011 31.12.2010

Up to one year 25.3 19.3

After between one and five years 58.5 60.4

After more than five years 55.9 70.8

Total 139.7 150.5

Minimum lease payments of Euro 28.4 million and contingent rental payments of Euro 0.1 million were

recognised in profit and loss in the 2011 reporting period.

37. Capital management

The goals of the Group with respect to capital management are in ensuring the continuation of the

Group as a going concern, the optimisation of the capital structure and the maintenance of financial

flexibility.

Long-term capital management at the EWE Group is based on an analysis of the optimal capital structure

considering both equity and borrowings. Optimising the capital structure means minimising the total

cost of capital and implies a target rating in the A band for the EWE Group.

Shareholders’ equity consists of equity attributable to shareholders of the parent company and minority

interests.

Shareholders’ equity and the balance sheet total have developed as follows:

EUR million 31.12.2011

31.12.2010

adjusted 1

Total shareholders' equity 2,556.7 3,005.3

Equity ratio 26.1 % 29.7 %

Balance sheet total

1 See section 2.5

9,808.5 10,113.7

38. Derivative financial instruments and hedge accounting

a) Strategy and goals

The EWE AG Board of Management lays down the basic risk management policy for the EWE Group.

The implementation of this policy is the responsibility of the appropriate departments of the Group.

Financial risks are identified, evaluated and hedged against. The risk management policy is implemented

in line with the guidelines. The prior approval of the Board of Management is required for hedging

strategies which deviate from the guidelines. The Board of Management is also informed on a regular

basis about the extent and total of the risk exposure. Derivative financial instruments are used for

hedging purposes.

135


136 EWE AnnuAl rEport 2011

Derivative financial instruments are used to limit the price risks relating to exchange rates, interest rates

and commodities to which the EWE Group is exposed. Only those exchange rate, commodity and interest

rate risks which affect Group cash flow are hedged. These risks are hedged using micro-hedges or portfolio

hedges. The Group always checks whether hedge accounting can be used to reduce earnings volatility.

however, derivatives which do not qualify for hedge accounting (IAS 39.88) or for which hedge

accounting is inappropriate are still considered economic hedges.

The EWE Group uses the following derivative instruments to hedge price risks: electricity futures contracts,

coal swaps, AAu and CER transactions, currency options, currency futures as well as interest rate swaps,

caps and collars. Only business partners with excellent credit ratings are considered.

The effectiveness of the hedging relationship (fair value and cash flow hedges) is checked via an effectiveness

test using the critical term match method and the cumulative dollar offset method. Coal swaps

are reviewed retrospectively using a regression analysis.

The market values of derivative financial instruments are dependent on movements in the underlying

market factors. Individual measurements are made using the market data available on the valuation date.

b) Fair value hedges

Fair value hedges for commodities to hedge against gas price risks resulting from future sales are recognised.

Oil swaps or TTF-based hedges are used as hedging instruments. When using fair value hedges,

both the underlying transaction and the derivative are recognised at fair value through profit and loss

in terms of the hedged risk. value changes in the underlying transactions are compensated for by valuation

changes in the derivatives. For the fair value of the derivatives, valuation changes totalling Euro

8.3 million (previous year: Euro 9.4 million) were recognised in profit and loss in the reporting year.

The corresponding market value fluctuations of the underlying transactions were recognised for the

same amount in the income statement. The fair values of derivatives used in fair value hedges were

made up of negative market values of Euro 0.1 million (previous year: Euro 0.8 million) and positive

market values of Euro 1.1 million (previous year: Euro 10.0 million).

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

EUR million Nominal volume Fair value

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Commodity derivatives (fair value hedges) 4.1 34.9 1.0 9.2

c) Cash flow hedges

Cash flow hedges are primarily used in the Group’s operating business to hedge foreign currency risks

involved in gas trading and the procurement of coal.

At the reporting date, the recognised fair values of derivatives used as cash flow hedges for foreign exchange

were made up of positive market values of Euro 11.3 million (previous year: Euro 7.5 million)

and negative market values of Euro 0.7 million (previous year: Euro 2.8 million). In the reporting year,

the effective part of foreign currency cash flow hedges came to Euro 3.1 million (previous year: Euro 7.1

million) and was recognised in other comprehensive income. hedging instruments offset hedged items

in full in the reporting year. The basis adjustment was Euro 2.2 million (previous year: Euro 4.4 million).

Currency futures contracts are concluded for the most part to hedge foreign currency risks from commodities

trading, such that exchanges may occur at different points in time within the next twelve months

or even within the next one to five years depending on the anticipated commodities trades.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

At the reporting date, the recognised fair values of derivatives used as cash flow hedges for interest were

made up of negative market values of Euro 2.3 million (previous year: Euro 2.7 million). In the reporting

year, the effective part of interest rate cash flow hedges came to Euro -0.2 million (previous year:

Euro -0.1 million) and was recognised in other comprehensive income. The ineffective part amounted

to Euro 0.9 million (previous year: Euro -0.2 million) and was recognised in net interest. Gains and losses

from interest derivatives cumulatively recognised in equity (reserve for cash flow hedges) to 31 December

2011, are recognised directly through profit and loss in the income statement consistently until the

bank loans have been repaid no later than July 2014.

EWE AG is exposed to commodity risks from fluctuations in the price of the commodities electricity,

gas and coal. One method used to hedge these risks is the use of commodity cash flow hedges. At the

reporting date, the recognised fair values of derivatives used as cash flow hedges for commodities were

made up of positive market values of Euro 7.6 million (previous year: Euro 29.2 million) and negative

market values of Euro 39.9 million (previous year: Euro 7.2 million). In the reporting year, the effective

part of commodity cash flow hedges came to Euro -40.6 million (previous year: Euro 31.4 million) and

was recognised in other comprehensive income. The ineffective part came to Euro -0.3 million (previous

year: Euro -2.4 million). The basis adjustment was Euro 3.9 million (previous year: Euro 9.3 million).

Derivatives related to cash flow hedges:

EUR million Nominal volume Fair value

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Currency derivatives 206.7 167.5 10.6 4.7

Interest rate derivatives 30.0 30.0 -2.3 -2.7

Commodity derivatives 257.3 174.1 -32.3 22.0

Total 494.0 371.6 -24.0 24.0

d) Other derivatives

The following table shows the derivatives which do not qualify for hedge accounting but are still used

to hedge risk items:

EUR million Nominal volume Fair value

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Currency derivatives 52.5 43.8 1.5 1.0

Interest rate derivatives 101.5 81.8 -5.6 -5.2

Commodity derivatives

Electricity futures contracts 3,198.5 2,146.2 10.3 -15.9

other commodity derivatives 585.3 315.0 -12.5 12.7

other derivatives 7.5 419.7 -1.4 -8.8

Total 3,945.3 3,006.5 -7.7 -16.2

39. Additional disclosures on financial instruments and risk management

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

value levels

The following is an overview of EWE AG’s disclosures related to financial instrument categories under

IAS 39, classes under IFRS 7 and fair value levels:

137


138 EWE AnnuAl rEport 2011

Carrying amounts, basis of recognition and fair values according to measurement categories

EUR million

Measurementcategory

under

IAS 39

Carrying

amount

31.12.2011 BASIS OF RECOGNITION uNDER IAS 39

Amortised

costs

Acquisition

costs

Fair value

without

effect on

profit and

loss

Fair value

through

profit and

loss

Fair value

31.12.2011

Assets

other non-current assets

Loans and receivables

Interests in affiliated companies, other

LaR 88.2 88.2 91.5

shareholdings

Financial assets at fair value through profit

and loss

Derivatives outside hedging relationships

AfS 112.9 112.9 112.9

(held for trading) FAHfT 47.7 47.7 47.7

Derivatives in a hedging relationship n.a. 8.6 8.6 8.6

Trade receivables

other receivables and assets

LaR 1,049.4 1,049.4 1,049.4

Securities AfS 49.6 49.6 49.6

other financial assets LaR 186.2 186.2 186.2

Cash and cash equivalents

Financial assets at fair value through profit and

loss (current)

Derivatives outside hedging relationships

LaR 259.4 259.4 259.4

(held for trading) FAHfT 123.1 123.1 123.1

Derivatives in a hedging relationship n.a. 11.4 11.4 11.4

Securities FAHfT 1.4 1.4 1.4

Equity and liabilities

Bonds FLAC 2,104.0 2,104.0 2,302.5

Liabilities to banks FLAC 719.3 719.3 771.5

Trade payables FLAC 856.2 856.2 856.2

other liabilities

Financial liabilities at fair value through profit

and loss

Derivatives outside hedging relationships

FLAC 317.0 317.0 317.0

(held for trading) FLHfT 178.5 178.5 178.5

Derivatives in a hedging relationship

of which aggregated by measurement category

under IAS 39:

n.a. 43.0 43.0 43.0

Loans and receivables (LaR) 1,583.2 1,583.2 1,586.5

Available-for-sale financial assets (AfS) 162.5 112.9 49.6 162.5

Financial assets held for trading (FAHfT)

Financial liabilities measured at amortised

172.2 172.2 172.2

cost (FLAC) 3,996.5 3,996.5 4,247.2

Financial liabilities held for trading (FLHfT) 178.5 178.5 178.5


EUR million

Assets

other non-current assets

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Measurementcategory

under

IAS 39

Carrying

amount

31.12.2010 BASIS OF RECOGNITION uNDER IAS 39

Amortised

costs

Acquisition

costs

Fair value

without

effect on

profit and

loss

Fair value

through

profit and

loss

Fair value

31.12.2010

Loans and receivables LaR 65.3 65.3 66.1

Interests in affiliated companies, other

shareholdings AfS 136.2 136.2 136.2

Financial assets at fair value through profit

and loss

Derivatives outside hedging relationships

(held for trading) FAHfT 33.2 33.2 33.2

Derivatives in a hedging relationship n.a. 18.8 18.8 18.8

Trade receivables LaR 944.6 944.6 944.6

other receivables and assets

Securities AfS 124.3 124.3 124.3

other financial assets LaR 168.1 168.1 168.1

Cash and cash equivalents LaR 327.7 327.7 327.7

Financial assets at fair value through profit and

loss (current)

Derivatives outside hedging relationships

(held for trading) FAHfT 96.6 96.6 96.6

Derivatives in a hedging relationship n.a. 27.9 27.9 27.9

Securities FAHfT 3.1 3.1 3.1

Equity and liabilities

Bonds FLAC 1,990.1 1,990.1 2,126.9

Liabilities to banks FLAC 742.3 742.3 796.6

Trade payables FLAC 903.1 903.1 903.1

other liabilities

Financial liabilities at fair value through profit

and loss

Derivatives outside hedging relationships

FLAC 302.9 302.9 302.9

(held for trading) FLHfT 146.0 146.0 146.0

Derivatives in a hedging relationship

of which aggregated by measurement category

under IAS 39:

n.a. 13.5 13.5 13.5

Loans and receivables (LaR) 1,505.7 1,505.7 1,506.5

Available-for-sale financial assets (AfS) 260.5 136.2 124.3 260.5

Financial assets held for trading (FAHfT)

Financial liabilities measured at amortised

132.9 132.9 132.9

cost (FLAC) 3,938.4 3,938.4 4,129.5

Financial liabilities held for trading (FLHfT) 146.0 146.0 146.0

139


140 EWE AnnuAl rEport 2011

The carrying amounts of other non-current assets are generally equal to fair value. The available-forsale

financial assets are non-consolidated shareholdings that are not traded on an active market and

whose fair value cannot be reliably determined. These financial instruments are measured at cost.

Trade receivables, other receivables and assets as well as cash and cash equivalents have short residual

maturities. Their carrying amounts on the reporting date are therefore generally equal to fair value. The

maximum default risk is the carrying amount of the assets recognised in the balance sheet.

The EWE Group trades derivative financial instruments with various partners, especially market partners

with sound credit ratings. The derivatives measured using input parameters observable on a market

primarily include interest rate swaps, currency futures and options, coal swaps, oil or gas swaps and

CO 2 forwards. The most common measurement methods include forward price and swap models that

calculate present values. The models include a range of measurements, e.g. currency spot and futures

rates, yield curves and forward rates for the underlying commodities.

The fair value of publicly listed bonds is equal to the nominal amount multiplied by the quoted price

on the reporting date. As of 31 December 2011, the fair value of the bonds is higher than their carrying

amount.

The fair value of fixed-rate liabilities to banks is determined as the present value of debt-related payments

based on the relevant interest rate curve. With floating-rate liabilities to banks, it is assumed that the

carrying amount will fundamentally correspond to the fair value due to the regularity of adjustments

made to the interest rates on the basis of current market parameters.

Trade payables and other liabilities mostly have short residual maturities and the carrying amounts are

therefore generally equivalent to fair value.

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

fair-value hierarchy:

EUR million 31.12.2011

Financial assets held at fair value

Level 1 Level 2 Level 3 Total

Securities 51.0 51.0

Derivative financial instruments 190.8 190.8

Total 51.0 190.8 241.8

Financial liabilities held at fair value

Derivative financial instruments 220.1 1.4 221.5


Consolidated finanCial statements notes Confirmation by the legal representatives

EUR million 31.12.2010

Financial assets held at fair value

Consolidated finanCial statements

Level 1 Level 2 Level 3 Total

Securities 127.4 127.4

Derivative financial instruments 176.4 176.4

Total 127.4 176.4 303.8

Financial liabilities held at fair value

Derivative financial instruments 150.6 8.8 159.4

The levels of the fair-value hierarchy and their application to assets and liabilities are described below:

Level 1: Quoted prices (unadjusted) on active markets for identical assets or liabilities.

Level 2: Information other than quoted market prices that is observable directly (e.g. prices) or indirectly

(e.g. derived from prices).

Level 3: Information on assets or liabilities that is not based on observable market data.

b) Development of fair values in level 3

The following table gives an overview of financial instruments allocated to fair value level 3:

EUR million Derivative financial instruments (liabilities)

As of 1.1.2011 8.8

Total income in the income statement -7.0

other -0.4

As of 31.12.2011 1.4

EUR million Derivative financial instruments (liabilities)

As of 1.1.2010 17.4

Total income in the income statement -9.1

Currency adjustments 0.5

As of 31.12.2010 8.8

141


142 EWE AnnuAl rEport 2011

c) Net results according to measurement category

The following table shows the net results (not including profit sharing schemes / dividends) for each

IAS 39 category:

EUR million From interest From subsequent measurement Net result

At fair value

Currency

translation

Impairment

allowance

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Loans and receivables (LaR) 27.7 22.0 1.8 -1.5 -9.5 -14.8 20.0 5.7

Available-for-sale financial assets (AfS) -30.0 -7.5 -30.0 -7.5

Financial instruments held for trading

(FAHfT and FLHfT) -5.6 30.2 -5.6 30.2

Financial liabilities measured

at amortised cost (FLAC) -148.0 -141.5 -148.0 -141.5

Total -120.3 -119.5 -5.6 30.2 1.8 -1.5 -39.5 -22.3 -163.6 -113.1

Interest income and expense on financial instruments is recognised in the item net interest income /

expense. Other components of the net result are recognised in other operating income and expenses

as well as in the result of equity investments.

40. Risk management

Liquidity risks

Liquidity risk means the risk of a company not being able to meet its financial obligations as necessary.

In order to make sure it remains solvent, the EWE Group obtains the majority of the funds used for working

capital and capital expenditure from the proceeds of operating business and external financing. The

EWE Group continually monitors the risk of a possible cash shortage using liquidity planning. This takes

the maturities of financial investments and financial assets as well as expected cash flows from operating

activities into account. The management of liquidity within the EWE Group is governed by a guideline.

As part of operating liquidity management, all cash is pooled daily within the EWE Group (cash pooling).

Group companies with excess liquidity are obliged to pool it centrally and provide companies with liquidity

shortfalls with the funds they need. EWE AG raises or deposits the funds centrally. This enables

liquidity needs and surpluses to be managed for the Group as a whole and for individual Group companies.

Group companies are also provided with financing for long-term financing projects. The procurement

of financing on the banking and capital markets is generally performed by EWE AG at the level of the

parent company.

The EWE Group manages its liquidity by maintaining a sufficient supply of cash, cash equivalents and

lines of credit with banks, and by means of the cash inflows from operations. In July 2011, the Group’s

financial flexibility was increased by the refinancing of the existing syndicated revolving credit facility

for Euro 850 million. The new line of credit for Euro 850 million has a term of five years and two options

to extend it to a total of seven years. Its purpose is to provide general operating working capital.

As of 31 December 2011, EWE AG had drawn down Euro 0.0 million (previous year: Euro 0.0 million) of

the facility. As of the balance sheet date, bilateral credit facilities totalling Euro 357.6 million (previous

year: Euro 368.6 million) were also available, of which Euro 53.3 million (previous year: Euro 40.3 million)

have been drawn in the form of guarantees.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

There were no financial covenants whatsoever from financing agreements within the EWE Group.

The cash held with banks and in money market funds as well as the current and non-current lines of

credit give EWE AG sufficient flexibility to cover the Group’s refinancing needs.

The following overview “Maturities of financial liabilities” shows future repayments on the primary

and derivative financial liabilities.

Interest and principal repayments:

EUR million CASH FLOWS

< 1 year 1 – 5 years > 5 years

Interest Interest Repay- Interest Interest Repay- Interest Interest

31.12.2011

fixed floating ment fixed floating ment fixed floating

Primary financial liabilities:

Bonds 99.4 341.2 642.7 286.9 1,500.0

Liabilities to banks 28.0 2.7 81.7 74.9 7.0 452.0 10.4 1.4 187.1

Trade payables 0.2 854.8

other financial liabilities 11.3 0.3 273.1 1.0 41.7 0.3 3.8

Derivative financial liabilities:

Currency derivatives 32.8 11.8

Interest rate derivatives 4.5 3.6

Electricity derivatives (not own-use) 108.5 49.5

other commodity derivatives (not own-use) 51.4 45.2

EUR million CASH FLOWS

< 1 year 1 – 5 years > 5 years

Interest Interest Repay- Interest Interest Repay- Interest Interest

31.12.2010

fixed floating ment fixed floating ment fixed floating

Primary financial liabilities:

Bonds 94.4 333.8 1,000.0 255.0 1,000.0

Liabilities to banks 29.5 2.2 22.9 95.9 7.0 516.6 17.5 2.1 194.5

Trade payables 902.6

other financial liabilities 0.6 0.3 226.4 0.3 1.1 48.3 0.2 10.0

Derivative financial liabilities:

Currency derivatives 101.2 93.1

Interest rate derivatives 5.8 4.2 4.9 3.9

Electricity derivatives (not own-use) 139.4 14.1

other commodity derivatives (not own-use) 12.2 15.6

Repayment

Repayment

143


144 EWE AnnuAl rEport 2011

Electricity cash flow derivatives (not own-use)

EUR million 31.12.2011 31.12.2010

< 1 year 1 – 5 years < 1 year 1 – 5 years

Cash outflows 1,065.0 613.3 942.2 233.0

Cash inflows -956.5 -563.8 -802.8 -218.9

Cash flows net 108.5 49.5 139.4 14.1

The cash outflows relate to electricity derivatives with negative market values (Euro 135.8 million) and

to electricity derivatives with positive market values (Euro 146.1 million). When viewed from a perspective

of the economic conditions surrounding the fulfilment of any electricity derivative transaction (purchase

and sale of electricity), only an overall examination of all cash inflows and cash outflows, which

forms a foundation for internal liquidity planning, can be considered to provide meaningful information.

Loan default risks

Loan default risk describes the threat of economic loss if a business or trading partner is not able to

meet its contractual obligations. In the operating business, trade receivables are monitored continually.

Default risk is accounted for by recognising individual impairment allowances and generalised impairment

allowances. The most significant loan default risks that the EWE Group is exposed to arise in specialrate

customer business, energy trading for portfolio management and the investment of cash assets.

In order to limit the risk of loan default arising from difficulties in payment or insolvency in special-rate

customer business, offers are only presented to new customers with good credit ratings.

Trading transactions can give rise to risks in that the counterparty and trading partner is insolvent or unable

to deliver. The risk can come to bear if the trading partner defaults (e.g. in the case of bankruptcy) and

can consist of:

• Loss of receivables for physical merchandise and financial transactions

• Repurchase risk for purchase contracts if prices have since risen

• Non-acceptance risk for sales contracts if prices have since dropped

Potential default risks are limited, among other things, by means of specific clauses in framework agreements

with trading partners. These framework agreements lay down the general terms for individual

contracts in order to allow them to be carried out efficiently. Together with the joint arrangements for

amending the framework agreement – normally a framework agreement from the European Federation

of Energy Traders (EFET) – they contribute to ensuring that business is orderly and risk-focused. The

framework agreements include clauses on any collateral to be provided or on measures to protect the

parties from losses due to insolvency.

To keep the credit risk of energy trading partners low, business is conducted preferably only with trading

partners with good to very good credit ratings. To determine their credit score, all trading partners

are subject to an internal ranking on a regular basis. After they have been classified in a rating category,

a limit is set for the maximum market value of open positions with this partner. The internal credit

scoring includes both quantitative and qualitative factors. If available, the results of external rating

agencies and providers of commercial information (Standard & Poor’s, Moody’s, Fitch, D&B) are used

wherever possible. Transactions are only permitted with trading partners for whom a euro limit has

been set and who have not reached their limit. The Energy Trading division is obliged to ensure that the

limits are not exceeded. The Risk Controlling division continuously monitors compliance with limits.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

In connection with the investment of cash and cash equivalents, the EWE Group is exposed to losses if

the counterparty does not meet their contractual payment obligations. Cash and cash equivalents are

therefore invested solely with banks as overnight and term deposits and in money market funds with

daily redemption and excellent credit ratings. Risk is also managed by diversifying across counterparties

by means of a limit system.

Market risks

Currencies

Exchange rate risk is the risk of changes in the fair value or future cash flows of a financial instrument

denominated in a foreign currency due to changes in exchange rates.

The Group is mainly exposed to exchange rate risks resulting from trading raw materials, primarily gas

and coal, in foreign currencies. The risk is due to the variability of future cash flows resulting from volatile

exchange rates, in particular EuR/uSD and EuR/PLN. The Group forms hedges in line with the risk

guideline to minimise this risk.

The following table shows the sensitivity of other comprehensive income (due to changes in the fair value

of coal swaps and currency futures) to movements in the exchange rate for the currencies concerned

that can reasonably be considered possible. This is based on EWE Group’s assumption that the coal swaps

and currency futures used as hedging instruments constitute a highly effective hedging relationship. All

other variables remain constant.

Overview of foreign currency risk:

EUR million

Change in

exchange rate

Euro / foreign

currency

Effect on

income statement

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Coal swaps

using hedge accounting +10 % 0.7 -2.1

using hedge accounting -10 % 0.1

not using hedge accounting +10 % -0.9 2.6

not using hedge accounting -10 % -0.1 0.1

Currency futures

using hedge accounting +10 % -14.2 -12.2

using hedge accounting -10 % 18.2 15.4

Call options

using hedge accounting +10 % 0.5

using hedge accounting -10 %

Receivables in foreign

currency

not using hedge accounting +10 % -0.9 0.1

not using hedge accounting -10 % 1.2 0.5

Liabilities in foreign currency

not using hedge accounting +10 % -0.7 -0.9

not using hedge accounting -10 % 0.8 1.1

Total +10 % -2.5 1.8 -13.5 -13.8

Total -10 % 1.9 1.7 18.3 15.4

145


146 EWE AnnuAl rEport 2011

Receivables in foreign currencies as of the balance sheet date mainly consist of bank balances in uS

dollars for settling liabilities from coal shipments.

The exchange rate risk of the coal swaps and currency futures relates to the transactions carried out

at year-end in the course of hedge accounting.

The largest part of concluded currency futures transactions serves to hedge the price of future physical

coal deliveries classed as highly probable (in the time until 2014), which in turn contribute in conjunction

with other underlying transactions (generally electricity sales and AAu purchases) to providing medium

and long-term stability and to hedging profit contributions from electricity generation.

Currency futures contracts are also used to hedge the prices of future gas deliveries with a hedging

horizon of around four years. The hedging horizon is based on the planned and highly probable sales

quantity until January 2016.

Other currency futures contracts are concluded to hedge the prices of gas acquired in Turkey. The hedging

horizon of six months is based on the ability to anticipate required purchase quantities and prices.

Interest

Interest rate risk is the risk of changes in the fair value or future cash flows of a financial instrument due

to changes in market interest rates.

The aim of EWE’s interest rate risk management is to manage and monitor the interest-bearing and interest

rate sensitive assets and liabilities on the balance sheet. The objective is to mitigate the impact

of interest rate fluctuations and risks on the Group’s earnings and assets position. The majority of the

interest rates on the EWE Group’s debt instruments are fixed contractually either directly or indirectly.

As a result, changes in interest rates only have an appreciable impact on EWE’s net interest income or

expense when it undertakes new financing or intends to make refinancing arrangements.

Interest rate risks for primary financial instruments are assessed using an individual sensitivity analysis.

This method shows the effect, if any, of changes in market interest rates on interest income and expense,

other items of the income statement and on other comprehensive income. The sensitivity analysis for

interest rate risk is based on the following assumptions:

Changes in the market interest rates for fixed-interest primary financial instruments only have an effect

on profit and loss for the period if these are carried at fair value. Fixed-interest financial instruments

carried at amortised cost are not subject to interest rate risk.

Floating-rate debt instruments and interest rate derivatives based on variable interest rates can lead to

earnings volatility.


Overview of interest rate risks:

EUR million

Interest rate derivatives

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Change in

interest rates

Effect on

income statement

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

using hedge accounting +100bp 0.7 1.0

using hedge accounting -100bp -0.7 -1.1

not using hedge accounting +100bp 2.2 2.2

not using hedge accounting -100bp -1.9 -2.6

Floating-rate liabilities

to banks +100bp -1.5 -1.6

to banks -100bp 1.5 1.6

Total +100bp 0.7 0.6 0.7 1.0

Total -100bp -0.4 -1.0 -0.7 -1.1

Other price risks

Other price risks are the risks of changes in the fair value or future cash flows of a financial instrument

due to market risks other than those previously mentioned. At the EWE Group this concerns price risks

for commodities.

Market risks in electricity trading

To measure, manage and limit the market price risks which affect the entire energy trading portfolio,

a number of different strategies are applied in conjunction with dynamic price limits. The amount of

these limits is determined for each supply year and the Risk Controlling team monitors compliance on

a regular basis.

volume limits are also used to limit risk. These guarantee that the spread is always sold on the generation

side, and that the Company’s marketing and sales strategy (generation) and supply strategy (sales)

are adhered to. Special limit increases are arranged when necessary.

Sensitivity analyses are performed as needed in the form of scenario analyses and stress tests; these

show the effects of future price developments on the value of the current portfolio.

The table, below, shows the change in value of recognised electricity forwards based on the assumption

that the relevant price of electricity changes by + / -10 per cent, categorised by effects on the income

statement (“MtM through profit and loss”) and on equity (“hedge accounting”).

147


148 EWE AnnuAl rEport 2011

Overview of market price risk for electricity:

EUR million

Electricity futures transactions

Change in price

developments

Effect on

income statement

not using hedge accounting +10 % 14.7 8.1

not using hedge accounting -10 % -14.7 -8.1

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Market risks in gas trading

In contrast to the gas supply contracts with end customers which are based on the oil price, supply

contracts with end customers which have a fixed gas price are subject to a market risk. To minimise

this risk, the Energy Trading division concludes futures contracts in the form of oil swaps or TTF-based

hedges, taking into account the individual terms of supply.

Overview of market price risk for gas:

EUR million

Change in price

developments

Effect on

income statement

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Gas futures transactions

using hedge accounting +10 % 0.3 2.0

using hedge accounting -10 % -0.3 -2.0

not using hedge accounting +10 % 18.4 14.2

not using hedge accounting -10 % -18.4 -14.2

oil swaps

using hedge accounting +10 % 0.1 1.4

using hedge accounting -10 % -0.1 -1.4

not using hedge accounting +10 % 21.0 -4.0

not using hedge accounting -10 % -21.0 4.0

Total +10 % 39.4 10.2 0.4 3.4

Total -10 % -39.4 -10.2 -0.4 -3.4

Coal hedges / CO 2 certificates

In terms of commodities, the most significant market price risks result from changes in the price of

coal and CO 2 certificates.


Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Coal hedging

The following table shows the sensitivity of shareholders’ equity to changes in the coal price (due to

changes in the fair value of coal swaps) that can reasonably be considered possible, as quoted in uS

dollars on the API-2 index. This is based on the EWE Group’s assumption that the coal swaps used as

hedging instruments constitute a highly effective hedging relationship. hedging transactions are in

place for coal deliveries up to 2014, meaning that different delivery prices are possible depending on

the settlement date. The sensitivity analysis assumes an even rise in coal prices across all delivery dates;

the effects were translated from uS dollars into euros at each reporting date.

Overview of market price risk for coal:

EUR million

Coal swaps

Change in price

developments

Effect on

income statement

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

using hedge accounting +10 % 19.9 18.6

using hedge accounting -10 % -19.9 -18.6

not using hedge accounting +10 % 0.4

not using hedge accounting -10 % -0.4

CO 2 certificate hedges

There is a current deficit of emissions certificates due to organisational inadequacies. These inadequacies

are due to electricity and heat generation forecasts and the underallocation of CO 2 certificates

by the German Emissions Trading Authority (DEhSt). Since the beginning of the second trading period

(2008 – 2012), this has given rise to an open certificate position in every year or over the entirety of

NAP II (national allocation plan), which it will close on an ongoing basis based on the established

sales strategy.

The electricity and heat units sold, for which emissions rights are not allocated, are hedged through certificate

purchases. EuAs (Eu allowances) and CERs (Certified Emissions Reductions) are used as hedges.

A 10 per cent change in the price of CO 2 over all supply periods was assumed for the sensitivity analysis.

Overview of market price risk for CO 2 certificates:

EUR million

Change in price

developments

Effect on

income statement

Effect on

other comprehensive income

31.12.2011 31.12.2010 31.12.2011 31.12.2010

Co2 certificates futures

transactions

using hedge accounting +10 % 2.2 0.8

using hedge accounting -10 % -2.2 -0.8

not using hedge accounting +10 % 0.5

not using hedge accounting -10 % -0.5

149


150 EWE AnnuAl rEport 2011

41. Segment reporting

Management has based its definitions of the company’s business segments (business areas) on the reports

that are regularly reviewed by EWE’s chief operating decision makers. The head operating decision

maker is responsible for allocating resources to business segments and assessing their performance.

The segments in the EWE Group are determined in accordance with internal reporting approaches. This

is referred to as the “management approach”. A change to the Group’s internal organisational structure

in the 2010 financial year led to a change in the composition of the Group’s reportable business areas.

The new structure puts the company in a perfect position to meet the challenges faced by multi-service

companies.

EWE’s new business areas are as follows:

EWE Energy

• swb

• New Markets and ICT

• Corporate Centre / Consolidation

The reportable EWE Energy business area combines electricity and natural gas sales and trading, natural

gas production, procurement and storage, electricity generation from renewable sources and other energyrelated

services marketed under the EWE brand. The EWE NETz business unit has been allocated to the

EWE Energy business area. This unit plans, builds and operates electricity, natural gas and telecommunications

networks in the Ems / Weser / Elbe and Brandenburg regions. All the activities for providing drinking

water to Bremervörde, Cuxhaven, Oldenburg, Scheeßel and varel are also pooled in this business area.

The reportable swb business area consists of the subgroup swb. The activities of swb AG and its subsidiaries

are focused on providing energy and water services, in particular the supply of energy and water to

Bremen, Bremerhaven and the surrounding areas, as well as on electricity generation and waste disposal.

All other business areas have been combined in accordance with IFRS 8.16 and disclosed as the New Markets

and ICT business area. This includes EWE’s activities in Poland and Turkey as well as the information

technology and telecommunications business.

The Corporate Centre / Consolidation business area is responsible for the head office functions of EWE

AG as a holding company as well as EWE AG’s direct shareholdings and Group-wide consolidation. The

shares held in vNG are reported in this business area.

Intra-Group sales represents sales between segments. These sales are invoiced at arm’s length terms.

The total of external and internal sales is the segment sales.

The segment result corresponds to earnings before interest and taxes (EBIT) for the year.


EUR million

EWE

Energy

2011

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Depreciation, amortisation and impairment relates to intangible assets and property, plant and equipment.

Capital expenditure relates to intangible assets and property, plant and equipment (including capitalisation

from recognised provisions) and financial investments.

The following table shows external sales by product and service:

EWE

Energy

2010

swb

2011

swb

2010

New

Markets

and ICT

2011

New

Markets

and ICT

2010

CorporateCentre

/ Consolidation

2011

Corporate

Centre /

Consolidation

2010

Consolidated

2011

Consolidated

2010

Electricity 3,624.5 3,397.6 640.8 581.5 4,265.3 3,979.1

Gas 1,595.0 1,437.1 283.5 296.6 398.7 341.6 2,277.2 2,075.3

ICT 515.0 506.0 515.0 506.0

other 163.8 158.9 227.4 237.0 3.2 12.2 3.4 1.1 397.9 409.2

External sales 5,383.3 4,993.6 1,151.7 1,115.1 916.9 859.8 3.4 1.1 7,455.4 6,969.6

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

EUR million

Germany

2011

Germany

2010

Abroad

2011

Abroad

2010

EWE Group

2011

EWE Group

2010

External sales 7,054.3 6,615.7 401.1 353.9 7,455.4 6,969.6

Segment assets 7,986.5 7,606.2 1 537.2 759.5 8,523.7 8,365.7 1

Capital

expenditure

1 Previous year’s figures adjusted

607.5 619.8 19.3 11.8 626.8 631.6

Due to the large number of customers and the wide range of business activities there are no customers

whose volume of business in relation to the entire volume of business of the EWE Group is significant.

151


152 EWE AnnuAl rEport 2011

Segment report 31.12.2011

EUR million

SALES

EWE Energy

31.12.2011

EWE Energy

31.12.2010

swb

31.12.2011

swb

31.12.2010

External sales 5,383.3 4,993.5 1,151.7 1,115.2

Inter-segment sales 137.6 133.4 9.5 29.6

Total sales 5,520.9 5,126.9 1,161.2 1,144.8

RESuLT

Segment earnings (EBIT) 333.1 210.6 -68.5 -33.4

Interest income

Interest expense

Result before tax (EBT) for the period

Income taxes

Result for the period

OTHER INFORMATION

Segment assets 4,410.9 4,213.4 2,709.7 2,522.9

Financial investments and securities

Interests in associated companies accounted for

under the equity method 118.7 136.8 16.7 329.5

Income tax receivables and deferred tax assets

Consolidated assets

Segment liabilities 2,934.4 2,845.2 1,363.4 1,215.8

Debt instruments (bonds and liabilities to banks)

Deferred taxes, provisions for taxes and outstanding

income taxes

Consolidated liabilities

Capital expenditure 373.8 370.4 140.1 129.9

Other operating income 184.2 416.9 25.6 51.3

Cost of materials and services -4,551.0 -4,247.6 -749.9 -713.9

Personnel expenses -193.9 -182.0 -191.7 -182.4

Depreciation and amortisation -206.4 -199.9 -106.0 -103.8

Impairment -21.3 -14.1 -1.4 -142.8

Other operating expenses -427.2 -704.6 -122.0 -130.7

Result of equity investments -8.0 -3.2 -2.7 3.3

Result of equity investments in associated companies 8.9 0.2 -93.4 25.4

Material non-cash items -35.5 -64.6 -27.7 9.4

1 See section 2.5


New Markets

and ICT

31.12.2011

New Markets

and ICT

31.12.2010

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Corporate Centre /

Consolidation

31.12.2011

Corporate Centre /

Consolidation

31.12.2010

Consolidated

31.12.2011

Adjusted

as consolidated 1

31.12.2010

916.9 859.8 3.5 1.1 7,455.4 6,969.6

102.6 119.2 -249.7 -282.2

1,019.5 979.0 -246.3 -281.1 7,455.4 6,969.6

-195.3 -155.2 -193.6 -52.9 -124.3 -30.9

27.7 22.0

-211.8 -206.4

-308.4 -215.3

26.5 -31.3

-281.9 -246.6

1,026.3 1,267.3 376.8 362.1 8,523.7 8,365.7

224.7 302.0

36.6 36.4 705.6 861.7 877.6 1,364.4

182.5 81.6

9,808.5 10,113.7

543.0 545.1 -872.6 -709.5 3,968.2 3,896.6

2,823.3 2,732.5

460.4 479.3

7,251.9 7,108.4

72.7 77.2 40.2 54.1 626.8 631.6

23.5 30.6 -20.1 -224.0 213.2 274.8

-670.6 -625.0 148.1 171.9 -5,823.4 -5,414.6

-189.1 -182.4 -29.0 -30.8 -603.7 -577.6

-92.3 -98.5 -18.4 -17.1 -423.1 -419.3

-149.2 -153.1 -171.9 -310.0

-146.5 -120.3 95.3 319.3 -600.4 -636.3

0.2 0.5 -4.7 2.5 -15.2 3.1

0.2 1.1 -129.8 -2.8 -214.1 24.0

-34.1 -7.2 -156.6 -58.1 -253.9 -120.5

153


154 EWE AnnuAl rEport 2011

42. Cash flow statement

The cash flow statement shows the flow of funds from operating activities, investing activities and

financing activities.

Cash and cash equivalents consist of the balance sheet item cash and cash equivalents, amounting to

Euro 259.4 million (previous year: Euro 327.7 million), and cash pool receivables of Euro 3.5 million

(previous year: Euro 1.2 million). They consist of cash in hand and bank balances.

To determine cash flow from operating activities, the additions to and reversals of provisions are presented

as non-cash changes in provisions and use of provisions is shown in changes in liabilities and

other components of equity and liabilities.

Cash flow from financing activities includes profit distributions and dividends of Euro 88.0 million

(previous year: Euro 88.0 million) to EWE shareholders and Euro 0.2 million (previous year: Euro 0.1

million) to minority interests.

The non-cash capital expenditure consists essentially of Euro 2.1 million (previous year: Euro 0.4 million)

for the capitalisation of recultivation provisions and removal obligations.

As in the previous year, cash and cash equivalents were not subject to any restrictions on use as of

31 December 2011.

43. Information on easements

A number of easements, or agreements on the use of land for electricity, natural gas and water mains,

exist between companies in the EWE Group and the local authorities in EWE’s supply area.

These easements give the EWE Group companies the right to use public rights of way in the area covered

by the agreement to install, operate and maintain facilities and equipment for directly providing end-users

with electricity, natural gas and water.

A concession fee is payable to the local authorities for the use of the public rights of way.

The agreements generally run for 20 years. If the easements are not renewed, there is a statutory obligation

to surrender the local distribution facilities to the new energy utility against payment of reasonable

compensation to the EWE Group.


44. Significant shareholdings

Shareholdings as of 31.12.2011

in Euro ’000

Name and registered office of the company

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Equity

interest in %

Shareholders’

equity

Net profit /

loss for the

period

Affiliated companies

Consolidated:

AoV IT.Services GmbH, Gütersloh 50.07 % 1 6,561 736 4

BCC Business Communication Company GmbH, Wolfsburg 100.00 % 1 4,106 -1,169 4

Bremer Kommunikationstechnik GmbH, Bremen 100.00 % 1 14,709 848 4

BTC Business Technology Consulting AG, oldenburg 100.00 % 13,049 2, 4

BTC IT Services GmbH, oldenburg 100.00 % 1 1,463 2, 4

Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş.,

Bursa, Turkey 80.00 % 1 86,224 20,717 4

EWE Doğalgaz Sanayi ve Ticaret A.Ş., Istanbul, Turkey 100.00 % 5 5,336 1,977 4

EWE ENERGIE AG, oldenburg 100.00 % 639,440 2, 4

EWE Energia Sp. z o. o., Międzyrzecz, Poland 99.98 % 1 48,500 2,289 3

EWE Enerjia A.Ş., Istanbul, Turkey 100.00 % 6 420,802 197 4

EWE IMMoBILIEN GmbH, oldenburg 100.00 % 25 2, 4

EWE NETZ GmbH, oldenburg 100.00 % 1 251,357 2, 4

EWE Polska Sp. z o.o., Poznań, Poland 100.00 % 99,867 -2,596 3

EWE TEL GmbH, oldenburg 100.00 % 95,908 2, 4

EWE WASSER GmbH, Cuxhaven 100.00 % 1 216 2, 4

hmmh multimediahaus AG, Bremen 100.00 % 1 4,409 1,261 4

Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş.,

Kayseri, Turkey 80.00 % 1 5,285 -1,715 4

nordcom Niedersachsen GmbH, oldenburg 100.00 % 1 525 2, 4

offshore Windpark RIFFGAT GmbH & Co. KG, oldenburg 99.14 % 7 157,493 -1,241 4

PRo CoNSULT Management- und Systemberatung GmbH, Mainz 100.00 % 1 390 288 4

Riffgat Beteiligungs GmbH & Co. KG, oldenburg 100.00 % 1 46,986 -17 4

swb AG, Bremen 100.00 % 277,960 -64,395 4

swb Beleuchtung GmbH, Bremen 100.00 % 1 250 786 4

swb Bremerhaven GmbH, Bremerhaven 100.00 % 1 1,980 7,131 4

swb CREA GmbH, Bremerhaven 100.00 % 1 77 -391 4

swb Entsorgung GmbH & Co. KG, Bremen 100.00 % 1 143,721 -8,240 4

swb Erzeugung GmbH & Co. KG, Bremen 100.00 % 1 12,509 -46,075 4

swb Erzeugung und Entsorgung AG & Co. KG, Bremen 100.00 % 1 189,463 4,518 4

swb Gasportfoliomanagement GmbH, Bremen 100.00 % 9 25 -317 4

swb Messung und Abrechnung GmbH, Bremen 100.00 % 1 517 2,764 4

swb Netze Bremerhaven GmbH & Co. KG, Bremerhaven 100.00 % 1 31,611 5,410 4

swb Netze GmbH & Co. KG, Bremen 100.00 % 1 212,487 36,673 4

swb Services GmbH & Co. KG, Bremen 100.00 % 1 5,460 279 4

swb Vertrieb Bremen GmbH, Bremen 100.00 % 1 7,249 -4,995 4

swb Vertrieb GmbH, Bremen 100.00 % 1 25 503 4

swb Vertrieb Bremerhaven GmbH & Co. KG, Bremerhaven 100.00 % 1 554 1,760 4

swb Windpark am Zolltor GmbH & Co. KG, Bremerhaven 100.00 % 1 2,000 301 3

swb Windpark Industriehäfen GmbH & Co. KG, Bremerhaven 100.00 % 1 1,600 174 3

Windfarm Märkisch Linden GmbH & Co. KG, Kränzlin 100.00 % 1 10,511 -1,044 4

155


156 EWE AnnuAl rEport 2011

in Euro ’000

Name and registered office of the company

Other equity investments:

Equity

interest in %

Shareholders’

equity

Net profit /

loss for the

period

BIBER GmbH – Bildung, Betreuung, Erziehung, oldenburg 100.00 % 73 2, 4

E & D Energie- und Dienstleistungs GmbH & Co. KG, Cologne 84.76 % 29,500 -86 3

ENRo Ludwigsfelde Energie GmbH, Ludwigsfelde 100.00 % 1 6,877 494 3

Entwässerungsgesellschaft Cuxhaven mbH, Cuxhaven 100.00 % 1 2,777 3

EWE Biogas GmbH & Co. KG, Wittmund 100.00 % 1 1,045 165 3

EWE Urbanisation Dienstleistungs GmbH (UDG), Bremervörde 100.00 % 2,374 2, 4

NaturWatt GmbH, oldenburg 90.00 % 1 993 -317 3

PBB GmbH, oldenburg 100.00 % 1 1,381 2, 4

SoCoN Sonar Control Kavernenvermessung GmbH, Giesen 62.00 % 1 6,915 3,469 3

TEWE Energieversorgungsgesellschaft mbH Erkner, Erkner 100.00 % 1 4,749 428 3

Associated companies

Consolidated:

DoTI Deutsche offshore-Testfeld- und Infrastruktur-GmbH & Co. KG,

oldenburg 47.50 % 1 246,461 -7,445 3

Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen 57.40 % 1 26,820 -2,116 4

hanseWasser Bremen GmbH, Bremen 38.20 % 1 65,385 8,809

Hansewasser Ver- und Entsorgungs-GmbH, Bremen 51.00 % 1 45,631 11,718 4

htp GmbH, Hanover 50.00 % 22,401 3,897 3

MVR Müllverwertung Rugenberger Damm GmbH & Co. KG,

Hamburg 20.00 % 1 35,439 19,388 3

swb Weserwind GmbH & Co. KG, Bremen 50.00 % 1 1,309 517 4

VNG – Verbundnetz Gas AG, Leipzig 47.90 % 734,428 59,361 3

Weserkraftwerk Bremen GmbH & Co. KG, Bremen 50.00 % 1 11,571 -2,013 4

Other equity investments:

Gasversorgung Angermünde GmbH, Angermünde 49.00 % 1 1,505 270 3

Stadtwerke Bielefeld GmbH, Bielefeld 49.90 % 8 262,049 33,902 4

Stadtwerke Ludwigsfelde GmbH, Ludwigsfelde 20.00 % 1 9,624 2,474 3

Stadtwerke Strausberg GmbH, Strausberg 38.38 % 1 11,748 1,008 3

Städtische Betriebswerke Luckenwalde GmbH, Luckenwalde 20.00 % 1 10,373 2,070 3

Verkehr und Wasser GmbH, oldenburg 26.00 % 8,000 -1,045 3

1 Indirect shareholdings

2 Control and / or profit transfer agreements exist with this company.

3 Figures for equity and net profit / loss are from 2010.

4 Figures for equity and net profit / loss are from 2011.

5 99.97 per cent of the shares are held indirectly.

6 0.01 per cent of the shares are held indirectly.

7 28.5 per cent of the shares are held indirectly.

8 Shares are held for sale as non-current assets.

9 50.0 per cent of the shares are held indirectly.

10 Company is recognised under the equity method as part of hansewasser ver- und Entsorgungs-Gmbh, Bremen.

4, 10


45. Related party disclosures

Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Transactions with companies included in the consolidated financial statements are eliminated as part

of consolidation. The group of related companies of the EWE Group has grown as a result of the revised

definition of IAS 24. The following are deemed related companies of the EWE Group:

• Shareholders with a controlling interest (EWE-verband Gmbh) or the most senior shareholder with

a controlling interest (EWE-verband) of EWE AG

• Companies that exert significant influence on EWE AG (investor EnBW)

• Parties under the influence of the shareholders or investor

• Non-consolidated affiliated companies

• Associated companies accounted for under the equity method

• Assets measured in accordance with IFRS 5.

Related persons with influence on a key position include the members of the Board of Management

and Supervisory Board of EWE AG.

Primarily financial relationships and relationships for commercial services exist with the group of

shareholders. EnBW carried out the capital increase by means of a contribution to capital reserves.

The relations with the group of associated companies accounted for under the equity method and

those accounted for in accordance with IFRS 5 are primarily financial and for supplies and services

relating to natural gas. All transactions are concluded on standard market terms.

The following table shows the transactions with related parties:

Shareholders of / investors in EWE AG

EUR million 2011 2010

Capital increase 75.0 2.4

Financing 8.9

Other related companies

EUR million 2011 2010

Energy procured 18.6 9.1

Energy sold 55.8 23.6

157


158 EWE AnnuAl rEport 2011

Associated companies accounted for under the equity method and companies accounted for in

accordance with IFRS 5

EUR million 2011 2010

Services rendered 29.5 9.1

Purchase of goods 3.5

Sale of goods 24.5

Energy procured 29.2 140.3

Energy sold 3.0 17.0

Services purchased 6.2 6.1

Financing 6.2 0.4

Receivables 1 27.1 43.4

Liabilities 0.4 14.1

1 Of which to companies accounted for under IFRS 5 Euro 0.9 million (previous year: Euro 0.0 million)

Non-consolidated affiliated companies

EUR million 2011 2010

Loans 59.9 37.1

Receivables 57.9 67.6

Cash pool receivables 3.5 1.3

Trade payables 4.8 2.6

Cash pool payables 6.6 7.5

other liabilities 5.3 0.2

The members of Ems-Weser-Elbe versorgungs- und Entsorgungsverband are the local authorities and

municipalities in our supply area between the rivers Ems, Weser and Elbe. They are supplied with electricity,

gas and telecommunications and information services on standard market terms.

The EWE Group concluded no significant transactions with related individuals. The supply of electricity

and gas and the provision of telecommunications services to related parties takes place on arm’s

length terms.

Information on the Boards of EWE AG

Supervisory Board

Günther Boekhoff Chairman

honorary Mayor of the town of Leer, Leer

Rainer Janßen First Deputy Chairman

Technical Supervisor of EWE NETz Gmbh, varel

hans-Peter villis Second Deputy Chairman

Chairman of the Board of Management of EnBW AG, Castrop-Rauxel

Martin Döscher Third Deputy Chairman

honorary District Administrator of Cuxhaven, köhlen


Consolidated finanCial statements notes Confirmation by the legal representatives

hans Eveslage Fourth Deputy Chairman

District Administrator of Cloppenburg, Barßel

Wolfgang Behnke Systems Integrator of EWE AG, Osterholz-Scharmbeck

Consolidated finanCial statements

uwe Borck ver.di Regional Department Director, königs Wusterhausen,

since 1 January 2011

hermann Bröring Administrator (retired), Lingen

Claus Christ Technical Supervisor of EWE NETz Gmbh, Remels

Dr. hans Michael Gaul Düsseldorf

Carsten hahn Administrator, EWE NETz Gmbh, Osterholz-Scharmbeck

Gregor heller Senior Trades Consultant of EWE AG, haselünne

Dr. Stephan-Andreas kaulvers Chief Executive Officer of Bremer Landesbank, Bremen

Aloys kiepe ver.di District Trade Secretary, Emden

Sigrid Leidereiter ver.di District Trade Secretary, Bremen

ulrike Schlieper SPD party chairwoman on the Friesland District Council, Sande

Alwin Schlörmann Director of EWE Business Region Oldenburg / varel,

Bad zwischenahn

Prof. Dr. Gerd Schwandner Mayor of the City of Oldenburg, Oldenburg

Dierk Schwarting Technical Supervisor of EWE NETz Gmbh, Ganderkesee

Dr. hans-Josef zimmer Member of the Board of Management of EnBW AG,

Steinfeld (Rhineland-Palatinate)

Board of Management

Dr. Werner Brinker Chief Executive Officer of EWE AG, Rastede

Michael Wagener Deputy Chief Executive Officer of EWE AG, Rastede

Dr. heiko Sanders Member of the Board of Management of EWE AG, Wiesmoor,

since 1 July 2011

Dr. Willem Schoeber Member of the Board of Management of EWE AG, Bremen

Remuneration paid to the members of the Boards of Management and of committees of subsidiaries

came to Euro 3.5 million (previous year: Euro 6.4 million). The members of the Supervisory Board received

remuneration of Euro 1.1 million (previous year: Euro 1.1 million).

Contributions to pension provisions for active members of the Board of Management of EWE AG for

the financial year totalled Euro 2.5 million (previous year: Euro 4.0 million).

Provisions totalling Euro 9.1 million (previous year: Euro 9.1 million) were made for pension obligations

to former members of the Board of Management and their surviving dependants. Total payments of

Euro 2.3 million (previous year: Euro 0.8 million) were made in the reporting period.

159


160 EWE AnnuAl rEport 2011

46. Auditors’ fees and services provided

Companies consolidated in the EWE Group purchased the following services from the auditors of the

consolidated financial statements, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

(PwC), and from companies of the international PwC network:

EUR million 2011 2010

Audit of annual financial statements 1.4 1.7

other audit services 0.6 0.1

Tax advisory services 0.1 0.2

other services 1.8 3.4

Total 3.9 5.4

47. use of Section 264 para. 3 of the German Commercial Code (HGB)

The following subsidiaries made use of the exemption under Section 264 para. 3 of the German Commercial

Code (hGB) in financial year 2011:

• BTC Business Technology Consulting AG, Oldenburg

• BTC IT Services Gmbh, Oldenburg

EWE TEL Gmbh, Oldenburg

EWE IMMOBILIEN Gmbh, Oldenburg

EWE WASSER Gmbh, Cuxhaven

48. Group situation report

EWE AG’s consolidated financial statements are incorporated into the consolidated financial statements

of EWE-verband Gmbh.

49. Events after the balance sheet date

Apart from the proposal for the appropriation of profit (Note 26) there were no significant events after

the balance sheet date.

Oldenburg, Germany, 13 February 2012

Board of Management

Dr. Werner Brinker Michael Wagener

Dr. heiko Sanders

Dr. Willem Schoeber


Consolidated finanCial statements

CONSOLIDATED FINANCIAL STATEMENTS NOTES CONFIRMATION By ThE LEGAL REPRESENTATIvES

Confirmation by the legal

representatives

We confirm that – to the best of our knowledge and in accordance with the applicable accounting

standards – the consolidated financial statements give a true and fair view of the assets, financial and

earnings position of the Group and that the Group management report presents the course of business,

earnings and the Group’s situation in a true and fair way and that the main risks and opportunities of

the Group’s expected future development are described.

Oldenburg, Germany, 13 February 2012

Board of Management

Dr. Werner Brinker Michael Wagener

Dr. heiko Sanders

Dr. Willem Schoeber

161


162 EWE AnnuAl rEport 2011

Auditor’s report

We have audited the consolidated financial statements prepared by EWE Aktiengesellschaft, Oldenburg,

comprising the balance sheet, the income statement and statement of comprehensive income, statement

of changes in equity, cash flow statement and the notes to the consolidated financial statements,

together with the group management report, which is combined with the management report of EWE

Aktiengesellschaft, Oldenburg, for the business year from January 1 to December 31, 2011. The preparation

of the consolidated financial statements and the combined management report in accordance with

the IFRSs, as adopted by the Eu, and the additional requirements of German commercial law pursuant

to Section 315a (1) hGB [handelsgesetzbuch – German Commercial Code] are the responsibility of the

Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated

financial statements and the combined management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Section 317 hGB

and German generally accepted standards for the audit of financial statements promulgated by the

Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany – IDW]. Those standards require

that we plan and perform the audit such that misstatements materially affecting the presentation of

the net assets, financial position and results of operations in the consolidated financial statements in

accordance with the applicable financial reporting framework and in the combined management report

are detected with reasonable assurance. knowledge of the business activities and the economic and

legal environment of the Group and expectations as to possible misstatements are taken into account

in the determination of audit procedures. The effectiveness of the accounting-related internal control

system and the evidence supporting the disclosures in the consolidated financial statements and the

combined management report are examined primarily on a test basis within the framework of the audit.

The audit includes assessing the annual financial statements of those entities included in consolidation,

the determination of the entities to be included in consolidation, the accounting and consolidation

principles used and significant estimates made by the Company’s Board of Managing Directors, as well as

evaluating the overall presentation of the consolidated financial statements and the combined management

report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with

the IFRSs, as adopted by the Eu, and the additional requirements of German commercial law pursuant

to Section 315a (1) hGB and give a true and fair view of the net assets, financial position and results of

operations of the Group in accordance with these provisions. The combined management report is consistent

with the consolidated financial statements and as a whole provides a suitable view of the Group’s

position and suitably presents the opportunities and risks of future development.

Oldenburg, February 14, 2012

PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Thomas Dräger Carsten Engelhardt

Wirtschaftsprüfer Wirtschaftsprüfer

(German Public Auditor) (German Public Auditor)


Financial statements

of the EWE AG 2011

163 Financial statements of the EWE AG

164 Balance sheet for EWE AG, Oldenburg

165 Income statement for EWE AG, Oldenburg

Auditors’ report FinAnciAl stAtements oF the ewe AG

163


164 EWE AnnuAl rEport 2011

Balance sheet for EWE AG, Oldenburg

as of 31 December 2011

Assets

EUR million 31.12.2011 31.12.2010

Fixed assets

Intangible assets 5.7 6.2

Property, plant and equipment 262.5 276.5

Financial investments 3,738.4 2,891.9

4,006.6 3,174.6

Current assets

Receivables and other assets 648.4 1,562.1

Securities 49.6 124.3

Cash and cash equivalents 147.2 200.3

845.2 1,886.7

Prepaid expenses and deferred income 37.8 10.5

4,889.6 5,071.8

Equity and liabilities

EUR million 31.12.2011 31.12.2010

Shareholders’ equity

Subscribed capital 243.0 243.0

Capital reserve 1,633.1 1,558.1

Retained earnings 17.0 354.2

Distributable profit 88.0 97.2

1,981.1 2,252.5

Provisions 100.2 80.3

Liabilities 2,808.3 2,739.0

4,889.6 5,071.8


Income statement for EWE AG, Oldenburg

for the period from 1 January to 31 December 2011

Financial statements oF the ewe aG

EUR million 2011 2010

Result of financial investments -132.8 133.3

Net interest income / expense -108.6 -115.5

other operating income 111.7 315.6

-129.7 333.4

Personnel expenses 29.8 32.3

Depreciation, amortisation and impairment 18.2 18.0

other operating expenses 118.1 106.5

166.1 156.8

Operating result -295.8 176.6

Extraordinary profit / loss – - 0.1

Taxes 37.4 -130.3

Net loss / income for the year -258.4 46.2

Carried forward from the previous year 9.2 51.0

Withdrawn from reserves 337.2 –

Distributable profit 88.0 97.2

165


166 EWE AnnuAl rEport 2011

Glossary

alpha ventus

The first German offshore wind farm

in the North Sea, some 45km north

of the island of Borkum. alpha ventus

is a pioneering joint venture between

EWE, E.ON Climate & Renewables

and vattenfall Europe New Energy.

The operator of the wind farm is

Deutsche Offshore-Testfeld und Infrastruktur-Gmbh

& Co. kG (DOTI),

a consortium made up of the three

project companies. EWE AG is lead

investor with a stake of 47.5 per cent.

App

An app (short for “application”) is a

program for mobile devices such as

smartphones and tablet PCs. unlike

conventional computer software,

which usually offers a wide variety

of functions, an app is generally developed

to serve a sole, specific purpose

– for example, to set heating

temperatures at home with just a

few touches of a button while out

and about.

Base load power plants

Base load refers to the minimum

amount of electricity always present

in the grid over the course of a

given day to cover the expected demand

for electricity. Base load power

plants refer to those electricity

generation plants that feed in a

certain amount of electricity determined

in advance for the entire

day. This amount must be as close

to its generation limit as it can be

(“full load”). Therefore, power plants

with the lowest fuel costs possible

and the most stable and reliable electricity

feed-in possible are preferred

for this task.

Biogas

Describes a blend consisting mainly

of methane and carbon dioxide. The

valuable part used for energy is the

methane.

Biomass

Describes the total mass of organic

material in a defined ecosystem which

has been biochemically synthesised.

Brent

Is the most important type of crude

oil from a European perspective.

Brent is a light crude oil with low

sulphur content. It comes from the

North Sea and is traded on the International

Petroleum Exchange in London

and on other futures exchanges.

Carbon footprint

The total amount of carbon dioxide

emissions as recorded in a CO 2 balance

sheet is described as a carbon

footprint. The emissions recorded

may be for products (production, use,

disposal), business premises (energy,

processes, vehicle fleet) or for

regions (villages, towns, rural districts).

Emissions are mainly measured

by analysing consumption data.

Cavern / cavern borehole

Subterranean cavities in salt formations

which have been hollowed out

by water several hundred metres underground.

Caverns can be used, for

example, as natural gas storage facilities,

to compensate for seasonal

fluctuations in natural gas sales.

Combined Heat and Power

(CHP) / CHP plants

A ChP plant uses both the electrical

energy generated by converting

primary energy and the resulting

(waste) heat. This increases the efficiency

of these plants considerably.

CO 2

Carbon dioxide is a colourless, odourless

gas that in very low concentrations

is a natural part of the air. Carbon

dioxide is also produced by the

combustion of substances containing

carbon, such as the fossil fuels

coal and gas.

CO 2 emissions

In the energy industry carbon dioxide

is produced when fuels containing

carbon are burnt. The gas emitted

into the atmosphere is blamed for

causing the greenhouse effect – the

warming of the Earth’s surface – thus

earning the name “greenhouse gas”.

CO 2 emissions rights trading /

certificates

European system for trading CO 2

emissions rights in two trading periods

(2005–2007 and 2008–2012)

based on the kyoto Protocol and Eu

climate protection resolutions. Facility

operators must hold rights for

their CO 2 emissions. The rights are

allocated by national governments.

If they produce more CO 2 than they

are entitled to, they must reduce the

amount of CO 2 emitted by their facilities

or purchase additional emissions

rights. If they produce less CO 2

than they are entitled to, they can

sell their excess entitlement on the

free market.

Contracting

The process of outsourcing a company’s

own activities to a service company.

When used in connection with

supply, plant, heat or energy contracting

it means the supply of consumables

(heat, cold, power, steam,

compressed air, etc.) and the construction

and operation of the necessary

facilities.

District heating

heat which is produced in a central

heat plant or a decentralised ChP

plant and then distributed to individual

households or companies by

means of pipes.


DSL (digital subscriber line)

Broadband technology (high-speed

data transmission over the internet)

using simple copper wire, such

as that which is found in traditional

telephone lines. This transmission

protocol allows data to be transferred

and received at great speed (up to 16

Mbit / s for private customers).

Energy turnaround

Energy turnaround is the term used

to describe the shift in the energy

supply industry away from the use

of finite, exhaustible commodities

and towards the use of renewable

energies. Within the context of the

German government’s energy policy,

this means the phase-out of nuclear

energy and the target of replacing

fossil fuels such as oil, gas and coal

with a larger proportion of renewable

energies. In practical terms, this

means that not only capacities for

renewable energies have to be massively

expanded, but also that electricity

grids have to be upgraded and

modified in order to handle the fluctuations

in power yields from wind

and solar energy (e.g. more wind in

the north of Germany, more sun in

the south).

Energy and CO 2 management

Energy management is the measurement,

planning and control of energy

generation and usage with the goal

of increasing energy efficiency and

reducing consumption. A company’s

energy management system may encompass,

for example, the recording

of every point at which energy is consumed,

a precise investigation of how

this comes about and how demand

is met. This enables the company to

find out how energy can be saved,

for example by optimising their use

of facilities, by making use of more

efficient equipment or by generating

or drawing electricity to meet demand

with pinpoint precision. CO 2

management applies the same principle

to CO 2 emissions.

eTelligence

A project sponsored by the German

Federal Ministry of Economics and

Technology as part of the E-Energy

programme. eTelligence conducts research

into how electricity generators,

consumers, energy service providers

and network operators can be

brought together on a regional energy

market in the trial region of Cuxhaven.

This entails coordinating the

power consumption of business customers

and private households with

electricity generation from renewable

sources using modern IT and telecommunications

technology.

EWE bio trio

An EWE product offering telecommunications

/ internet, electricity

and natural gas from a single supplier

and based consistently on renewable

energies.

EWE Heating Savings Package

An EWE product that provides window

sensors and remote-controlled

heating thermostats with an internet

connection, a smartphone app and

access to an online portal. A computer

or mobile phone can be used

to set the desired temperature for

each room at all times of the day,

which is then achieved by remotely

controlling the radiators.

EWE trio smartbox

The name given to an intelligent gas

and electricity metering system for

end consumers. It enables EWE customers

to see how much energy they

are using in the home at any time,

where any “energy guzzlers” are hiding

and how they can save energy by

altering their consumption patterns.

Fuel cell

In a fuel cell, hydrogen and oxygen

react to produce water. The two gases

are separated by an electrolyte

and only exchange electrons via an

electrical conductor. This flow of

electrons makes the fuel cell a

source of electrical power. The heat

service

produced is also used, however. The

product of the reaction is pure water,

which means that the fuel cell is

particularly environmentally friendly.

Gas and steam power plants

Gas and steam turbine power plants

use their fuel twice over. Firstly, they

use gas to power the first turbine,

much like the engine of an aeroplane.

The hot exhaust gases from

this process are then used by the gas

and steam power plant to heat water

and generate steam, which is used to

drive a second turbine. In this way,

the energy from the fuel is used with

optimum efficiency.

German Emissions Trading

Authority

The division of the German Federal

Environment Agency responsible for

implementing emissions trading as

a market-based climate protection

instrument as well as project-based

mechanisms (Joint Implementation

and Clean Development Mechanism)

under the kyoto protocol.

German Federal Network Agency

higher federal authority within the

German Federal Ministry of Economics

and Technology. Among its other

responsibilities, the Agency has regulated

the German gas and electricity

networks together with the relevant

regional authorities since July 2005.

Intelligent load manager

An EWE product that connects industrial

or biogas plants with EWE via a

communication module so that they

can be controlled remotely. EWE

uses information technology to network

many plants into a single, virtual

power plant that produces electricity

when it is imminently needed

or optimises how industrial plants

draw electricity so that it reduces the

burden on the electricity grid. This

enables operators of biogas plants

to achieve higher revenues and allows

operators of industrial plants

to reduce their energy costs.

167


168 EWE AnnuAl rEport 2011

Megawatt

One million watts. The watt is a measure

of electrical power. One watt is

the energy that must be provided to

allow a current of one ampere to flow

with a voltage of one volt. One watt is

also the mechanical work that must

be done to lift 100 grams by one metre

within one second.

NEXT ENERGy

The EWE Research Centre for Energy

Technology, also known as NEXT EN-

ERGy, is a research institute for the

natural sciences and is affiliated with

the Carl von Ossietzky university,

Oldenburg. The institute is organised

under the umbrella of a non-profit

association, the EWE Research Centre

for Energy Technology. Members

of the association include EWE AG,

which is the primary sponsor, as well

as the university of Oldenburg and

the state of Lower Saxony. Around

80 employees carry out research into

improving the performance of energy

storage devices, fuel cells and photovoltaic

systems, and into making

them more efficient.

Offshore wind farm

A collection of wind turbines built

as a permanent construction in the

open sea in areas with strong winds.

Since the German Renewable Energies

Act came into force, wind farms

have been subsidised by offering the

operators a fixed price for the power

they feed into the grid and guaranteeing

that it will be purchased.

Photovoltaics

The direct transformation of radiant

energy, primarily solar energy,

into electrical energy. It has been

used since 1958, initially for supplying

power to space satellites using

solar cells. Nowadays it is used all

over the world for generating power

and panels can be found on the

roofs of buildings, noise protection

walls or in the open. Photovoltaics

is a subsection of the more general

field of solar technology, which also

includes other technical uses of the

sun’s energy.

Primary energy

The term for energy derived from

naturally occurring forms or sources

(oil, natural gas, coal, bio mass).

Renewable energies

The term for energy derived from

sustainable sources. These include

solar energy, hydroelectrical power,

wind energy, biomass and geothermal

power.

Renewable Energy Act (EEG)

The Renewable Energy Act (EEG) was

passed in its original form on 29

March 2000 and is intended to conserve

fossil energy resources and promote

the continued development of

technologies to generate electricity

from renewable energies. This is

achieved partly by guaranteed fixed

prices and by priority feed-in for power

generated from renewable sources.

Replacement reserve /

replacement reserve market

The base load covers the predictable

demand of all electricity customers

for electricity. If more electricity

is needed than is expected,

readily controllable power plants

are started up quickly to supply this

additional electricity. If, on the other

hand, less electricity is required than

previously thought, the surplus electricity

must be consumed quickly or

power plants feeding in the electricity

must be shut down to keep the

grid in balance. This compensation

method is called control energy and

is performed at three different levels.

If the network operator is unable

to balance out the variations in the

first two levels, they call suppliers,

who then quickly supply the needed

amount of energy or purchase all or

part of the surplus energy. A market

exists for this service and is known

as the replacement reserve market.

Virtual power plant

A virtual power plant is composed

of a number of decentralised devices

for generating, consuming and storing

energy, which are connected with

one another using information and

communications technology and

coordinated centrally, so that they

function in a similar way to a single

conventional power plant. Examples

include not only photovoltaics

systems, emergency power generators

and combined heat and power

plants, but also cold stores and

industrial processes. virtual power

plants enable renewable energies to

be integrated efficiently into the existing

energy supply system.

Wind farm

A collection of wind turbines.

Wind Farm Center

Wind Farm Center is an IT product

created by the EWE subsidiary BTC

for planning, controlling, monitoring,

servicing and managing wind farms –

including offshore projects.

ZentrumZukunft

zentrumzukunft is a training and

conference centre run by EWE. It is

a forum for testing new solutions

in the fields of energy technology,

building automation and home automation

that increase household

efficiency and comfort and make

intelligent use of renewable energies.

Thousands of specialists from

the region have learnt how to use

the building automation, home automation

and energy technology of

the future at zentrumzukunft.


Index

Accounting 66

Accounting methods 69, 77–103

Actuarial assumptions 128

Annual General Meeting 27, 28, 52, 104,

124, 125

Balance sheet total 55, 62, 120, 135

Biogas 4, 13, 166

Biogas plant 6, 12, 13, 46, 51, 167

Boards, company bodies 158–159

Borrowing costs 87

Capital expenditure 22, 26, 34, 49, 50,

55–61, 103, 134, 142, 151, 152, 154

Carbon footprint 17

Cash and cash equivalents 72, 76, 100,

138–140, 144, 164

Cash flow 56, 61, 64, 71, 74, 76, 91–94,

96–99, 105, 112, 116, 117, 125, 136, 137,

142–145, 154

Cash Flow Statement 44, 61, 69, 76, 77,

100, 124, 154, 162

CO 2 footprint 16, 17, 166

Consolidated financial statements 28, 48,

52, 69, 77–79, 81, 103, 104, 106–108, 160,

161, 162

Contingent liabilities 104, 105, 134

Corporate Centre / Consolidation 43, 48,

54, 56, 57, 78, 124, 150, 151, 153, 162

Credit facility 56, 142

Credit risk 63, 144

Default risks 144

Deferred taxes 71–73, 84, 112, 132–134,

152, 106

Discount rates 101, 117

Dividend payment 56, 74

Early recognition system for opportunities

and risks 63, 66

EBIT 49, 54–60, 68, 70, 76, 127, 151, 152

List of abbreviations

AktG Aktiengesetz, the German Stock Corporation Act

App Short for application

CHP Combined heat and power plant

BTC BTC Business Technology Consulting AG

DEHSt Deutsche Emissionshandelsstelle,

the German Emissions Trading Authority

DOTI Deutsche Offshore-Testfeld und

Infrastruktur-Gmbh & Co. kG

DSL Digital Subscriber Line

EBIT Earnings before interest and taxes

EBITDA Earnings before interest, taxes, depreciation

and amortisation

EBT Earnings before taxes

EEG Erneuerbare-Energien-Gesetz,

the German Renewable Energy Act

EBITDA 56

Energy turnaround 22, 23, 27, 39, 40, 65,

68, 167

Energy taxes 54, 70, 82, 109

Equity 55, 62, 73, 75, 78, 80, 83, 84, 92,

94, 98, 106, 112, 125, 135, 137, 147, 149, 155,

156, 164

Equity method 43, 52, 54, 72, 79–81, 104,

107, 111, 120, 124, 152, 156–158

Equity ratio 55, 62, 135

Fair value 77–82, 85, 88–92, 94–97, 99,

102, 104–106, 108, 116, 121, 124, 125, 129,

136–140, 145–147, 149

Financial instruments 52, 64, 65, 70, 71,

75, 76, 77, 83, 91, 95, 96, 98, 103, 104, 105,

107, 109, 110, 112, 121, 123, 126, 132, 133,

135, 136, 137, 140, 142, 146

Financial liabilities 73, 76, 94–96, 107, 132,

146, 152

Financial statements 28, 34, 60, 62, 64,

162, 163, 165

Financing 26, 31, 42, 43, 49, 56, 60, 76,

142, 154, 157, 158

Goodwill 54, 58, 60, 66, 78–81, 84, 85,

100, 104, 105, 110, 113–119, 120

Hedge accounting 64, 96–98, 135–137, 145

Holding 43, 52, 54, 60, 66, 150

Intangible assets 54, 60, 72, 76, 85, 88, 89,

90, 100, 105, 110, 113–115, 117, 133, 151, 164

Interest rate risk 64, 98, 146, 147

Inventories 70, 72, 76, 99, 121, 133

Liquidity risk 105, 142

Market risks 63, 145–148

Other income 54, 71, 75, 125

Operating leases 87, 135

Pension provision 60, 66, 75, 111, 133, 159

Personnel expenses 54, 60, 70, 109, 127,

130, 152, 165

Proposal for the appropriation of profit 28,

125, 160

Provisions for recultivation 101, 106, 130

Rating 31, 35, 49, 56, 65, 144

Rating Category 138, 139, 142

Renewable energies 6, 9, 13, 15, 23, 33, 36,

39, 44, 47, 50, 167, 168

Research and development (R & D) 34,

49–51, 89, 115, 132

Result for the period 54, 70, 71, 74, 80, 97,

98, 146, 152

Retained earnings 3, 28, 61, 62, 73–75, 78,

125, 164

Return on sales 49, 171

Risk management 34, 63–66, 97, 135, 137,

142, 146

Sales 22, 38, 55, 60, 68, 82, 109, 150

Segment reporting 77, 109, 150

Subscribed capital 73, 74, 123, 164

Subsidiaries 43, 46, 48, 61, 66, 71, 77, 150,

159, 160

Successful efforts method 86

Tax reconciliation 113

Tranche 44, 131

Transaction costs 87, 90, 95, 96

Transparency 16, 41, 42, 48

Total cost method 77

Value in use 99

WACC (weighted average cost of

capital) 117

Wind energy 4, 8, 9, 37, 39, 46, 109, 134, 168

Wind farm 6, 8, 9, 44–46, 166, 168

service

ENBW Energie Baden-Württemberg AG

GuD Gas and steam turbine power plant

HGB handelsgesetzbuch, the German Commercial Code

htp hannovers Telefon Partner Gmbh

ICS Internal control system

ICT Information and communications technology

IFRS International Financial Reporting Standards

MVR Müllverwertung Rugenberger Damm Gmbh & Co. kG

MW Megawatts

RIFFGAT Offshore wind farm project by EWE and its business partners

TRAC-X TRAC-X Transport Capacity Exchange Gmbh

VDSL very high Speed Digital Subscriber Line (see DSL)

VNG verbundnetz Gas AG, Leipzig

169


170 EWE AnnuAl rEport 2011

Financial calendar 2012

Tuesday, 17 April 2012 Annual report 2011 – Press conference on financial statements

Wednesday, 22 August 2012 Interim report 2012

Imprint

Published by

EWE Aktiengesellschaft

Donnerschweer Straße 22–26

26123 Oldenburg

Team editorial and text

EWE Aktiengesellschaft

Corporate Communications

Phone: +49 (0) 4 41/48 05-18 30

Email: geschaeftsbericht@ewe.de

Forward-looking statements

This annual report contains forwardlooking

statements based on assumptions

and estimates by the management

of EWE AG. Although company

management believes that these

assumptions and estimates are accurate,

actual future developments and

results may differ considerably from

these assumptions and estimates due

to a wide variety of factors. These

Concept and design

IR-One AG & Co., hamburg

www.ir-1.com

Photography

Stephan Meyer-Bergfeld, Oldenburg

Avenue Images, EWE picture library

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 estimates

made in this annual report. EWE

AG neither intends nor assumes any

Printed by

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EWE on the Internet

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obligation to update for ward-looking

statements to reflect events or developments

after the date of this report.

This annual report also exists in German;

in the event of any divergences,

the German version of the annual

report has prece dence over the English

version. Both language versions

are available for download from

http://www.ewe.de.


Five-year financial summary

EWE Group

EUR million 2011

2010

adjusted

2009

adjusted 2008 2007

Electricity sales in million kWh 18,828.4 17,809.5 14,067.8 13,348.4 14,323.3

Natural gas sales in million kWh 60,373.8 61,660.4 49,849.9 40,454.1 37,618.0

Sales 1 7,455.4 6,969.6 5,798.4 5,327.3 4,656.2

Return on sales in % -3.8 -3.5 1.9 4.0 6.4

EBITDA 470.7 698.4 734.2 746.2 702.4

EBITDA margin in % 6.3 10.0 12.7 14.0 15.1

EBIT -124.3 -30.9 322.3 426.1 442.9

EBIT margin in % -1.7 -0.4 5.6 8.0 9.5

Result for the period -281.9 -246.6 107.7 211.0 299.2

Capital expenditure (total) 626.8 631.6 698.8 923.9 566.8

Cash flow from operating activities 356.1 398.9 647.2 382.0 381.4

Share capital 243.0 243.0 243.0 200.0 200.0

Shareholders’ equity 2,556.7 3,005.3 3,324.4 2,002.2 1,782.1

Equity ratio in % 26.1 29.7 32.1 27.3 29.3

Return on equity in % 3 -10.1 -7.8 4.0 11.1 18.6

Balance sheet total 9,808.5 10,113.7 10,368.5 7,347.1 6,077.4

Borrowings 2 2,823.3 2,732.5 2,756.5 2,597.8 1,916.0

Employees avg. 8,828 8,464 6,446 5,347 4,693

Apprentices and trainees (31.12.) 492 493 504 331 250

1 Without electricity and natural gas taxes

2 Bonds and liabilities to banks

3 The return on equity is calculated by dividing the net profit for the period by the

average amount of shareholders’ equity in the current year and previous year.

The accounting methods applied may result

in rounding differences of +/- one unit

(euro, per cent, etc.).


EWE Aktiengesellschaft

Donnerschweer Straße 22–26, 26123 Oldenburg

www.ewe.com