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Independent auditor’s report

Independent auditor’s report

Certificate of the audit of the consolidated financial
statements and Group management report

to EWE Aktiengesellschaft

Opinion
We have audited the consolidated financial statements of EWE Aktiengesellschaft, Oldenburg, and its subsidiaries (the Group), consisting of the consolidated statement of financial position as at 31 December 2017, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the business year from 1 January to 31 December 2017, as well as the notes to the consolidated financial statements, including a summary of significant accounting methods. We also audited the Group management report prepared by EWE Aktiengesellschaft for the business year from 1 January to 31 December 2017 and merged with the management report of the company. In accordance with the statutory regulations in Germany, we did not audit the non-financial Group declaration or corporate governance declaration in the sub-section of the Group management report entitled ‘Proportion of Women’. In our opinion, on the basis of the knowledge obtained in the audit,

  • the accompanying consolidated financial statements are consistent with the IFRS as adopted by the EU and the supplementary statutory German regulations that are applicable pursuant to Section 315e (1) HGB in all relevant aspects, and, with consideration for these regulations, provide an accurate representation of the net assets and financial position of the Group as at 31 December 2017 and of its results of operations for the business year from 1 January to 31 December 2017, and
  • the accompanying Group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this Group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion of the Group management report does not encompass the content of the aforementioned corporate governance declaration or the non-financial statement of the Group.
  • Pursuant to Section 322 (2) line 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the Group management report.

Basis for the opinions
We carried out our audit of the consolidated financial statements and Group management report in accordance with Section 317 HGB and Regulation (EU) No 537 / 2014 of the European Parliament and of the Council, with consideration for the German Generally Accepted Standards on Auditing as promulgated by the Institute of Public Auditors in Germany (IDW). Our responsibility under these regulations and standards is described in more detail in the section of our audit opinion entitled ‘Responsibilities of the auditor for the audit of the consolidated financial statements and Group management report’. We are independent of the Group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. Furthermore, pursuant to Article 10 (2) (f) of Regulation (EU) No 537 / 2014, we declare that we have not provided any non-audit services prohibited by Article 5 (1) of Regulation (EU) No 537 / 2014. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the Group management report.

Key audit matters in the audit of the consolidated financial statements
ey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the business year from 1 January to 31 December 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon; we do not provide a separate opinion on these matters.

We describe what we consider to be key audit matters below:

1. Impairment of cash-generating units with goodwill and certain energy-generating assets
Reasons for specification as a key audit matter
In the consolidated financial statements of EWE Aktiengesellschaft, key goodwill is recognised in the line item ‘Intangible assets’ and key energy-generating assets are recognised in the line item ‘Property, plant and equipment’. In order to determine any need for impairment, goodwill undergoes an annual or event-based impairment test and property, plant and equipment undergoes an event-based impairment test on the level of the cash-generating units to which the goodwill and / or property, plant and equipment in question has been allocated. In particular, cash-generating units with certain energy-generating assets include offshore wind farms and conventional generation.

For the purposes of the impairment test, the fair value less costs of disposal is determined on the basis of the present value of the future cash flows resulting from the budgets for the next three years (medium-term planning) or a longer period determined by the company that have been prepared by the Management and approved or recognised by the Supervisory Board. In this context, expectations regarding future market developments, including changes in certain energy prices and country-specific assumptions regarding changes in macroeconomic parameters, are taken into consideration. Present values are determined using discounted cash flow methods. Discounting is carried out on the basis of the weighted average cost of capital of each cash-generating unit. The result of these measurements is largely dependent on the estimation of future cash flows and the discount rates used by the Management. In light of the material significance, the complexity of the measurement models and the discretionary assumptions of the Management, we consider the determination of fair value as part of the impairment test a key audit matter.

Audit procedure
During our audit, we analysed the process and accounting and measurement methods implemented by the Management of EWE Aktiengesellschaft to determine the fair value of cash-generating units and gained an understanding of the process stages and internal controls that were implemented. We verified the consistency of the measurement methods implemented by the internal measurement guidelines with the relevant IFRS regulations as well as their implementation by EWE Aktiengesellschaft.

We analysed selected plans by comparing them with the actual results generated in the past and with consideration for current developments. We understood the key assumptions regarding growth and the course of business by discussing them with the Management of EWE Aktiengesellschaft and verified the plausibility of the underlying long-term commodity and energy price forecasts. We evaluated their suitability on this basis. Furthermore, we audited the sensitivity analyses carried out by the company in order to estimate impairment risks in the event of a potential change in a key assumption on which the measurement was based.

The suitability of the other key measurement assumptions such as the discount rate and growth rate were audited with the support of internal measurement specialists and on the basis of a market indicator analysis. Furthermore, we verified the mathematical correctness of the measurement models.

Our audit has not led to any reservations with regard to the determination of fair value.

Reference to related disclosures
The disclosures of the company regarding goodwill can be found in the notes to the consolidated financial statements in the section ‘Notes to the Statement of Financial Position’ in section 17 ‘Intangible Assets’. Further disclosures regarding energy-generating assets can be found in the notes to the consolidated financial statements in the section ‘Notes to the Statement of Financial Position’ in section 18 ‘Property, Plant and Equipment’ and in section 10 ‘Depreciation, Amortisation and Write-downs’ in the section ‘Notes to the Statement of Profit and Loss’.

2. Accrual accounting of proceeds from electricity and gas sales (demarcation of consumption)
Reasons for specification as a key audit matter
In the consolidated financial statements of EWE Aktiengesellschaft, some revenue is estimated for energy deliveries (electricity marketing and distribution, gas marketing and distribution and the billing of electricity received from renewables).

In the EWE Group, the total sales are determined through measurement, reading and estimation. In this regard, the procedures differ due to state standards, technical measurement methods and time-based processes. The EWE Group applies accrual accounting for customers in Germany whose consumption cannot be read and billed as at the reporting date. The accrual accounting method is applied monthly on a rolling basis. The turnover estimates concern the energy deliveries per customer between the date of the last meter reading and the end of the year, as well as an allocation of the actual measured delivered quantity to the period since the previous measurement. The total volumes supplied represent the output variable. Network losses and metered quantities for which readings have been taken at the supply points – and have been billed as part of the monthly billing process – are deducted from these volumes. The remaining quantity serves as the basis for the statistical quantity of customers from whom readings are taken as part of the annual billing process. These quantities are allocated and evaluated in line with assumptions regarding customer habits and historical consumption data / profiles of the customer. Statistics regarding customer requirements and revenue from customers who are billed annually are checked and, if necessary, updated during the next meter reading and billing processes in the following year. For off-grid customers, the EWE Group forms expectations regarding their consumption. Customers pay instalments periodically towards the expected consumption. For each current month, the total quantity and customers who are billed monthly are on the basis of some forecasts for the sake of urgent calculation. Any necessary adjustments are made in the following month. In light of the material significance of the recognised revenue and deferred receivables, the complexity of the estimation models and the discretionary assumptions of the Management used as part of the estimation procedure, we consider the determination of the deferred receivables including the related revenue a key audit matter.

Audit procedure
During our audit, we also audited the suitability and effectiveness of the internal control system for estimating and continuously accounting for revenue. With regard to the estimated proceeds, our audit entailed various analytical examinations and data analyses using actual data in order to test the plausibility of the turnover estimates of EWE Aktiengesellchaft. Furthermore, we audited the consistency and continuity of the applied estimate procedures for determining consumption demarcation and examined the suitability of the estimates of the previous year by comparing them against actual statements from the year.

We also analysed the estimated sales quantities used by the Group, including the underlying estimation parameters such as degree day statistics, and in doing so carried out a comparison of the recognised accrued / deferred quantities against the actual quantities. Plausibility checks using actual values as at the reporting date were carried out for key commercial customers using random samples.

Our audit has not led to any reservations with regard to the accrual / deferral of receivables from customers and the related revenue.

Reference to related disclosures
The disclosures concerning proceeds from energy deliveries can be found in the notes to the consolidated financial statements in the section ‘Notes to the Statement of Profit and Loss’ in section 5 ‘Revenue’ and in the section ‘Notes to the Statement of Financial Position’ in section 43 ‘Segment Reporting’.

3. Provisions for obligations from rehabilitation and deconstruction (especially of underground gas storage facilities and wind farms)
Reasons for specification as a key audit matter
The consolidated financial statements of EWE Aktiengesellschaft contain significant provisions for obligations from rehabilitation and deconstruction in order to meet the obligations of the company, as an operator of underground gas storage facilities, wind farms and power plants, to abandon and demolish them upon the termination of its operations and implement necessary rehabilitation measures. In some cases, the exact scope has not yet been specified under public or private law. The obligation is measured using the discounted settlement amount as at the reporting date. In order to determine the settlement amount, the expected disbursements at prices as at the reporting date are first inflated in order to factor in future cost increases and then discounted at a rate specific to the liability and its term. Especially in order to evaluate geological particularities with regard to underground gas storage facilities, the determination of the settlement amount is also based on external appraisals and information from the facility managers. The assumptions of the Management – as to the scope of the public or private obligations, the geological particularities, the rehabilitation methods, the estimated remaining time until rehabilitation or demolition and the future cost increases and discount rate – used to calculate the provisions for obligations from rehabilitation and deconstruction are based on discretionary judgement.

In light of the material significance, the complexity of the measurement models and the discretionary assumptions of the Management, we consider the calculation of the provisions for obligations from rehabilitation and deconstruction a key audit matter.

Audit procedure
During our audit, we analysed the process and accounting and measurement methods implemented by the Management of EWE Aktiengesellschaft to determine the provisions for obligations from rehabilitation and deconstruction and gained an understanding of the process stages and internal controls that were implemented.

We verified the consistency of the measurement methods implemented by the internal measurement guidelines with the relevant IFRS as well as their implementation by the Management of EWE Aktiengesellschaft.

The suitability of the other significant measurement assumptions such as expected costs and rehabilitation methods have also been examined with the support of external experts of the company. Furthermore, we verified the mathematical correctness of the measurement models.

Our audit has not led to any reservations with regard to the determination of fair value.

Reference to related disclosures
The disclosures of the company regarding the provisions for obligations from rehabilitation and deconstruction can be found in the notes to the consolidated financial statements in the section ‘Notes to the statement of financial position’ in section 29 ‘Provisions’.

Other information

The Supervisory Board is responsible for the ‘Report of the Supervisory Board of EWE Aktiengesellschaft’. Otherwise, Management is responsible for the other information. The other information comprises the non-financial Group declaration in Section 3 of the Group management report, the corporate governance declaration in the sub-section of the Group management report entitled ‘Proportion of Women’ and other components intended for the annual report of which we received copies prior to the provision of this audit opinion, especially the responsibility statement. Furthermore, the other information comprises the other components of the annual report that are likely to be provided to us after we award the audit opinion, especially the report of the Supervisory Board pursuant to Section 171 (2) AktG.

Our opinions on the consolidated financial statements and on the Group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, consider whether the other information

  • is materially inconsistent with the consolidated financial statements, with the Group management report or our knowledge obtained in the audit, or
  • otherwise appears to be materially misstated.

Responsibilities of Management and the Supervisory Board for the consolidated financial statements and the Group management report
Management is responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and results of operations of the Group. In addition, management is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, management is responsible for the preparation of the combined management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a combined management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined management report.

The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the Group management report.

Responsibilities of the auditor for the audit of the consolidated financial statements and Group management report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this combined management report.

We exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements and of the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the combined management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
  • Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures.
  • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the combined management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions;
  • Evaluate the consistency of the combined management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides;
  • Perform audit procedures on the prospective information presented by management in the combined management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by management as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

Other legal and regulatory requirements Further information pursuant to Article 10 of Regulation (EU) No 537/2014 We were elected as Group auditor by the annual general meeting on 16 May 2017. We were engaged by the Supervisory Board on 26 June 2017 / 19 December 2017. We have been the Group auditor of EWE Aktiengesellschaft without interruption since the 2012 business year.

We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of Regulation (EU) No 537/2014 (long-form audit report).

Public auditor responsible for the engagement The public auditor responsible for the audit is Mr Olaf Boelsems.

Hamburg, 19 February 2018

Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft
Boelsems, Auditor
Eickhoff, Auditor

Independent auditor’s limited assurance report

The assurance engagement performed by Ernst & Young (EY) relates exclusively to the German version of the combined nonfinancialstatement 2017 of EWE AG. The following text is a translation of the original German Independent Assurance Report.

To EWE AG, Oldenburg

We have performed a limited assurance engagement on the group nonfinancial statement of EWE AG according to Section 315b of the German Commercial Code (HGB), which is combined with the nonfinancial statement of the parent company according to Section 289b HGB, the disclosures are marked with the symbol *NFS* in the sustainability reporting as well as the Sections ‘Business Conditions and General Framework / The EWE Group’ and ‘Report on Risks and Opportunities / Legal and Compliance Risks’ of the Group management report (hereafter: combined nonfinancial statement), for the reporting period from 1 January 2017 to 31 December 2017. Our engagement did not include any disclosures for prior years.

Management’s responsibility
The legal representatives of the Company are responsible for the preparation of the combined nonfinancial statement in accordance with Sections 315c in conjunction with 289c to 289e HGB.

This responsibility includes the selection and application of appropriate methods to prepare the combined nonfinancial statement as well as making assumptions and estimates related to individual disclosures, which are reasonable in the circumstances. Furthermore, the legal representatives are responsible for such internal controls that they have considered necessary to enable the preparation of a combined nonfinancial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s declaration relating to independence and quality control
We are independent from the entity in accordance with the provisions under German commercial law and professional requirements, and we have fulfilled our other professional responsibilities in accordance with these requirements.

Our audit firm applies the national statutory regulations and professional pronouncements for quality control, in particular the by-laws regulating the rights and duties of Wirtschaftsprüfer and vereidigte Buchprüfer in the exercise of their profession [Berufssatzung für Wirtschaftsprüfer und vereidigte Buchprüfer] as well as the IDW Standard on Quality Control 1: Requirements for Quality Control in audit firms [IDW Qualitätssicherungsstandard 1: Anforderungen an die Qualitätssicherung in der Wirtschaftsprüferpraxis (IDW QS 1)].

Auditor’s responsibility
Our responsibility is to express a limited assurance conclusion on the combined nonfinancial statement based on the assurance engagement we have performed.

We conducted our assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised): Assurance Engagements other than Audits or Reviews of Historical Financial Information, issued by the International Auditing and Assurance Standards Board (IAASB). This Standard requires that we plan and perform the assurance engagement to obtain limited assurance about whether the combined nonfinancial statement of the Company has been prepared, in all material respects, in accordance with Sections 315c in conjunction with 289c to 289e HGB. In a limited assurance engagement the assurance procedures are less in extent than for a reasonable assurance engagement and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the auditor's professional judgment.

Within the scope of our assurance engagement, which has been conducted primarily between January and February 2018, we performed amongst others the following assurance and other procedures:

  • Inquiries of employees regarding the selection of topics for the combined nonfinancial statement, the risk assessment and the concepts of EWE AG for the topics that have been identified as material,
  • Inquiries of employees responsible for data capture and consolidation as well as the preparation of the combined nonfinancial statement, to evaluate the reporting processes, the data capture and compilation methods as well as internal controls to the extent relevant for the assurance of the combined nonfinancial statement,
  • Inspection of relevant documentation of the systems and processes for compiling, analyzing and aggregating data in the relevant areas, e.g. environment and employees in the reporting period and testing such documentation on a sample basis,
  • Inquiries and inspection of documents on a sample basis relating to the collection and reporting of selected data,
  • Analytical procedures at group level regarding the quality of the reported data,
  • Evaluation of the presentation of disclosures in the combined nonfinancial statement.

Assurance conclusion
Based on our assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes us to believe that the combined nonfinancial statement of EWE AG for the period from 1 January 2017 to 31 December 2017 has not been prepared, in all material respects, in accordance with Sections 315c in conjunction with 289c to 289e HGB.

Intended use of the assurance report
We issue this report on the basis of the engagement agreed with EWE AG. The assurance engagement has been performed for the purposes of the Company and the report is solely intended to inform the Company as to the results of the assurance engagement and must not be used for purposes other than those intended. The report is not intended to provide third parties with support in making (financial) decisions.

Engagement terms and liability
The “General Engagement Terms for Wirtschaftsprüfer and Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms]” dated 1 January 2017 are applicable to this engagement and also govern our relations with third parties in the context of this engagement (see attachment). In addition, please refer to the liability provisions contained there in no. 9 and to the exclusion of liability towards third parties. We assume no responsibility, liability or other obligations towards third parties unless we have concluded a written agreement to the contrary with the respective third party or liability cannot effectively be precluded.

We make express reference to the fact that we do not update the assurance report to reflect events or circumstances arising after it was issued unless required to do so by law. It is the sole responsibility of anyone taking note of the result of our assurance engagement summarized in this assurance report to decide whether and in what way this result is useful or suitable for their purposes and to supplement, verify or update it by means of their own review procedures.

Munich, 26 February 2018

Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft

Nicole Richter, (German Public Auditor)
Jan Kaiser (German Public Auditor)