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Annual Report 2011Impulse for new energies

EWE Group and business areas

1 Associated company 2 Subgroup or holding company 3 Selection of major subsidiaries

EWE GROuP

The Corporate Centre business area comprises the Group functional divisions of EWE AG as well as the sharehold-ings managed by it and Group-level 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.

CORPORATE CENTRE / CONSOLIDATION

The EWE Energy business area is responsible for the energy business in northwest Ger-many (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 in-frastructure.

EWE ENERGy SWB

The swb business area con-sists 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 seg-ment further includes the EWE Group’s conventional power generation and increas-ingly also activities in the field of renewable energies.

NEW MARkETS AND ICT

The New Markets and ICT business area combines EWE’s activities outside its original sectors and regions. They in-clude the information tech-nology and telecommunica-tions subsidiaries, and the shareholdings in the Polish and Turkish energy markets.

k

Gro

up in

form

atio

n

EWE AG

VNG AG 1

EWE IMMoBILIEN GmbH

EWE ENERGIE AG 2

EWE NETZ GmbH

EWE WASSER GmbH

DoTI GmbH & Co. KG 1

Riffgat BeteiligungsGmbH & Co. KG

MVR MüllverwertungRugenberger DammGmbH & 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

swb AG 2, 3

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

Sales distribution(in per cent)

12

16

2011

72

EWE Energy

swb

New Markets and ICT

EWE Group key figures

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

EUR million 20112010

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 %

Sales1 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 243.0 243.0 0.0 %

Shareholders’ equity 2,556.7 3,005.3 -14.9 %

Equity ratio in % 26.1 29.7 -12.3 %

Return on equity in %3 -10.1 -7.8 29.6 %

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

Borrowings2 2,823.3 2,732.5 3.3 %

Employees avg. 8,828 8,464 4.3 %

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

1 Without electricity and natural gas taxes2 Bonds and liabilities to banks3 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.

0

2000

4000

6000

80007,455.4

2010 2011

6,969.6

Consolidated sales(EuR mill.)

8,000

6,000

4,000

2,000

0

“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

”

Hanover

Oldenburg

Berlin

Bremen

EWE regions

Germany: EWE head officePoland, Turkey: sites of EWE subsidiaries and / or Group holdings

GERMANy

Warszawa (Warsaw)

Międzyrzecz

LUBUSKIE

LUBELSKIE

OPOLSKIE

DOLNOŚLĄSKIE

ŚWIĘTOKRZYSKIE

Poznań

Wieluń

Kayseri

AnkaraBursa

Istanbul

Hannover

Oldenburg

Hamburg

Berlin

Bremen

POLAND

Warszawa (Warschau)

Międzyrzecz

LUBUSKIE

LUBELSKIE

OPOLSKIE

DOLNOŚLĄSKIE

ŚWIĘTOKRZYSKIE

Poznań (Posen)

Wieluń

Kayseri

AnkaraBursa

Istanbul

Hannover

Oldenburg

Hamburg

Berlin

Bremen

TuRkEy

Title pictureWind 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.

EWE Group and business areas

1 Associated company 2 Subgroup or holding company 3 Selection of major subsidiaries

EWE GROuP

The Corporate Centre business area comprises the Group functional divisions of EWE AG as well as the sharehold-ings managed by it and Group-level 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.

CORPORATE CENTRE / CONSOLIDATION

The EWE Energy business area is responsible for the energy business in northwest Ger-many (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 in-frastructure.

EWE ENERGy SWB

The swb business area con-sists 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 seg-ment further includes the EWE Group’s conventional power generation and increas-ingly also activities in the field of renewable energies.

NEW MARkETS AND ICT

The New Markets and ICT business area combines EWE’s activities outside its original sectors and regions. They in-clude the information tech-nology and telecommunica-tions subsidiaries, and the shareholdings in the Polish and Turkish energy markets.

k

Gro

up in

form

atio

n

EWE AG

VNG AG 1

EWE IMMoBILIEN GmbH

EWE ENERGIE AG 2

EWE NETZ GmbH

EWE WASSER GmbH





EWE ENERjI A. Ş. 2

EWE TEL GmbH 2


htp GmbH 1

swb AG 2, 3







Hanover

Oldenburg

Berlin

Bremen

EWE regions

Germany: EWE head officePoland, Turkey: sites of EWE subsidiaries and / or Group holdings

GERMANy

Warszawa (Warsaw)

Międzyrzecz

LUBUSKIE

LUBELSKIE

OPOLSKIE

DOLNOŚLĄSKIE

ŚWIĘTOKRZYSKIE

Poznań

Wieluń

Kayseri

AnkaraBursa

Istanbul

Hannover

Oldenburg

Hamburg

Berlin

Bremen

POLAND

Warszawa (Warschau)

Międzyrzecz

LUBUSKIE

LUBELSKIE

OPOLSKIE

DOLNOŚLĄSKIE

ŚWIĘTOKRZYSKIE

Poznań (Posen)

Wieluń

Kayseri

AnkaraBursa

Istanbul

Hannover

Oldenburg

Hamburg

Berlin

Bremen

TuRkEy

Title pictureWind 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.

20 Management20 Group Review 201122 Letter from the Board of Management26 Supervisory Board report30 Investor Relations32 Corporate social responsibility

Content Financial report 2011

34 Group management report35 Course of business and economic environment 54 Earnings, assets and financial position62 Supplementary report63 Risk report67 Outlook

Themes pages “Impulse for new energies” More on pages 4–19

2 EWE annual rEport 2011

69 Consolidated financial statements70 Income statement for the EWE Group71 Statement of comprehensive income for the

EWE Group72 Balance sheet for the EWE Group74 Statement of changes in shareholders’ equity

for the EWE Group76 Cash flow statement for the EWE Group77 Notes to the consolidated financial statements

of EWE AG161 Confirmation by the legal representatives162 Auditor’s report

163 Financial statements of the EWE AG164 Balance sheet for EWE AG165 Income statement for EWE AG

166 Service166 Glossary169 Index and list of abbreviations170 Financial calendar170 Imprint Five-year financial summary EWE Group

3Impulse for new energIes

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

Trade expertise is what provides impetus

page 14 page 16 page 18


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 sus-tainable 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 see-ing more and more smaller, decentralised plants gener-ating 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 de-signed 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 chal-lenges, 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 exper-tise for intelligent energy supply systems. This doesn't just provide us with the means to test out new techno-logies in our own research and development depart-ment. 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 mo-tor. 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 strategi-cally 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-the-art technology, from thin-film photovoltaics systems to intelligent electricity meters right up to internet-con-nected 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 tech-nologies 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.


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 bal-ancing group. Compared to the current German energy mix, this relieves the environment of emissions amounting to 29,000 tonnes of CO2 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

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 CO2 each year.

Travelling green with wind energy

The transport of passengers and goods causes around 20 per cent of CO2 emissions – environmentally friend-ly 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 renew-able 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 num-ber of trains are powered by wind and hydroelectric


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 spearhead-ing its construction and operation.

GAS AND STEAM TuRBINE POWER PLANT IN BREMEN


BREMEN hOuSEhOLDS AND INDuSTRy

Output from wind and solar energy can vary greatly – and sometimes unpredictably – depending on the wea-ther 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 per-fect 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

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 re-serve low. Together with partners, swb is building a gas and steam turbine power plant in Bremen to specific-ally address the challenge of providing security of sup-ply while keeping flexibility to a maximum and fuel consumption to a minimum.

A flexible partner for wind and solar energy


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 mod-ule 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.


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 subsidisa-tion to a more profitable venture? The solution lies in virtual power plants, with smaller plants being coordi-nated over the internet and working together as if they

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 ad-ditional revenue possible. With the intelligent load manager for biogas plants, EWE is providing operators with a chance to participate in these market opportunities.

MARkETING BIOGAS

Integrating biogas into our energy supply and the market


The EWE Heating Savings Package

The heating Savings Package, which is already on the market in Brandenburg and on Rügen, combines energy, telecommu-nications 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 flex-ibly 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 tem-perature level in his absence.

EWE hEATING SAvINGS PACkAGE


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 CO2 emissions in private households are attributable to heating. There is considerable po-tential here, even with existing heating technology, be-cause 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

that combines reduced consumption with increased comfort and convenience. Communications techno-logy 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.

Heating to your desired temperature – intelligently

MOBILE hEATING MANAGEMENT SySTEM


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 CO2 management services, EWE determines the energy footprint of a company and assists it in implementing statutory re-quirements for emissions trading. More and more businesses are also making use of this expertise for the introduction of government-sponsored energy management systems.

EWE'S ENERGy AND CO2 MANAGEMENT


JANSSEN hOLzBAu

For businesses, sustainability is a question of responsi-bility – 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 prod-ucts provides a competitive advantage. Janssen holz-bau Gmbh, from Werlte, works together with EWE to

document the ecological benefits of wood as a environ-mentally 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 CO2 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 en-sure that holzbau Janssen has a competitive edge even over larger providers.

Advancement through sustainability


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.

zENTRuMzukuNFT


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 sys-tem, 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

built a demonstration and training centre that enables the energy and communications technologies of tomor-row to be experienced today – the zentrumzukunft. EWE also works together with more than 1,400 trades-people 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.

Trade expertise is what provides impetus

TRAINING SPECIALISTS


Group Review 2011

The subsidiaries EWE TEL and BTC re-shuffle their management. Norbert Westfal heads up commercial opera-tions, while Dirk Brameier takes over technical operations at EWE TEL. konrad Meier takes over the chair on the Board of Directors. ulf heggen-berger remains Director of Marketing and Sales. At BTC, Dirk Thole as-sumes responsibility on the Board for finances and human resources.

March

In Bremen, swb and partners con-struct a gas and steam turbine pow-er plant with output of around 445 megawatts. Following a planned construction period of 30 months, the power plant is scheduled to en-ter operation in 2013.

June

EWE looks to engage with its cus-tomers and creates customer com-mittees. 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 busi-

ness in hamburg. This is part of the new strategic direction whereby the telecommunications subsidiary con-centrates more on areas where com-bined offers with energy services are possible.

August

TRAC-X, the nationwide online trad-ing platform for natural gas devel-oped by BTC, started up on schedule. TRAC-X offers twelve German gas transmission network operators, in-cluding EWE NETz, a common book-ing platform that they are legally obliged to adhere to.

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 consump-tion. Energy savings of up to 10 per cent are possible.

20 EWE ANNuAL REPORT 2011

April

EWE presents its customers with a considerable offer on the reimburse-ment of gas payments. This was done in light of a ruling issued by the Ger-man Federal Supreme Court in 2010, in which EWE's price adjustment clauses were declared to be inva-lid. Around 400,000 customers had accepted the offer by the end of the year.

EWE TEL expands its range of prod-ucts and offers an online Tv package with new, regional content. The mo-bile, complementary Tv service for home gets off to a successful start – just seven weeks after its launch, EWE TEL welcomes the new service's 100,000th customer.

May

EWE TEL realigns itself with a new brand strategy. The telecommunica-tions services previously offered un-der the "EWE TEL" brand are now available under the "EWE" brand like the energy products. The same prin-ciple is applied in Bremen, marketing telecommunications products under the "swb" brand.

The German Energy Agency presents the "Energiesparbuch" (energy sav-ings account) project, developed by EWE for household customers, with the "Energy Efficiency Good Prac-tice" award.

October

EWE successfully issues a euro bond with a volume of €500 million and a nine-year maturity. The bond’s pri-mary purpose is to refinance existing liabilities and is being used to buy back part of the EWE bond maturing in 2014.

November

The largest tide-dependent, run- of-the-river hydroelectric plant in Europe, the Bremen Weserkraft-werk, begins its trial operation pe-riod. It will provide an output of up to ten megawatts and supply 17,000 Bremen households. swb owns 50 per cent.

EWE TEL strengthens its position in the broadband internet market by providing vDSL speeds and announc-es 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 provi-sion of access in "blank spots" in ru-ral areas.

21

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

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 competitive-ness 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 founda-tions for a change of course have been laid. For this year, we expect sales to rise moderately and EBIT to be highly positive.

Letter from the Board ofManagement

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

23management

New challenges require new approaches

With the energy turnaround, the energy industry once again faces major challenges. Follow-ing 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 turn-around. There is hardly an energy supplier in Germany so dedicated to the successful inte-gration 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 re-newable 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 ener-gies 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”.


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 vol-atile 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 com-panies 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 op-portunities 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 perform-ing in the way that they rightfully expect of EWE.

March 2012

Board of Management

Dr. Werner Brinker Michael Wagener

Dr. Willem SchoeberDr. heiko Sanders


25management

Michael WagenerDeputy Chief Executive Officer

Rastede, born in 1957, Banker,Member of the Board of Management since 2005.

Responsible for the human Re-sources, IT, Legal and Procure-ment departments and for the development of a central Energy Trading division within the Group. Michael Wagener is the human Resources Director of EWE.

Dr. Heiko SandersMember 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 SchoeberMember 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 activi-ties in Poland and Turkey.

Dr. Werner BrinkerChief 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 busi-ness areas.


During the course of the financial year 2011 the Supervisory Board monitored the manage-ment of the company continuously and received regular, comprehensive reports from the Board of Management on the company’s position, all significant events and company per-formance, 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 custom-ers. 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 custom-ers did not, however, bring about an end to the public discussion as was hoped. Subse-quently, 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

Supervisory Board report


27management

high level of flexibility, the reduction of CO2 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 sharehold-ing 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 entre-preneurial 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 direc-tion 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 Super-visory 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.


uwe Borck has served on the Supervisory Board since 1 January 2011, as an employee rep-resentative. 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 ac-cordance with the German Commercial Code (hGB), the IFRS consolidated financial state-ments, and the condensed management report for EWE and the Group for the financial year 2011 have been audited by PricewaterhouseCoopers AG, Wirtschaftsprüfungsgesell-schaft, 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 audi-tors’ 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 finan-cial 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.


29management

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 Manage-ment 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 BoekhoffChairman

kMembers of the Supervisory Board see page 158 / 159


EWE bonds and the capital market

EWE currently has four euro bonds outstanding on the capital market. Two of these euro bonds were first is-sued by the company in October 2004 with maturities of 10 and 15 years respectively and an aggregate vol-ume of €1.5 billion. In July 2009 and October 2011, EWE issued further bonds for €500 million with matur-ities of twelve and nine years respectively. The 2011 bond issue was part of a liability management transac-tion. 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 sec-ondary 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.

Investor Relations

Performance of the EWE bonds in 2011Spread vs. mid-swaps (bp)

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 disproportion-ately by the debt crisis. The consequences of the Fukush-ima 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

400

300

200

100

0Jan. MayApril JulyJune Sep.Aug.Mar.Feb. Nov. Dec.Oct.

050

100150200250300350400


31management

Financing activities in 2011

In July 2011, EWE concluded the refinancing of its exist-ing 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 success-ful 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

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

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 trans-action 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 devel-opments 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.


As a predominantly municipal supplier and service pro-vider, EWE is firmly rooted in the regions that it serves. So for the Group, the need to take responsibility for lo-cal 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 work-life balance. A number of examples are presented below.

Research and education – knowledge for tomorrow

Energy, telecommunications and information technol-ogy – 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 pri-mary 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 research-ers demonstrate their ability in the “young Researchers / School Students Experiment” competition. EWE organ-ises the state competition in Lower Saxony for school students up to 14 years of age and the regional compe-tition 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 train-ing 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 pro-gramme supports school children, in Oldenburg and other university towns and cities, who are interested in the natural sciences in their transition from school

Corporate social responsibility – thinking in a broader context

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 uni-versity 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 im-portant 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 possi-ble, all employees work flexitime and have the oppor-tunity 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 pro-vided 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.


33management

EWE encourages voluntary work to help others. On National volunteer Day, the majority of the Group com-panies give employees the day off to engage in chari-table 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 divi-sions 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 challeng-es 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 opera-tions, 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 CO2 emissions for the community of Langeoog and its local businesses and advises on how these emissions can be reduced. Authorities and businesses on the is-lands 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 effi-ciency policies and awards prizes for outstanding so-lutions – by serving as a partner for the “klima kommu-nal” environmental competition, for example.

EWE ENERGy and swb support households, not only by providing comprehensive energy saving consulting ser-vices, but also in acquiring energy-saving household ap-pliances and low-emission vehicles powered by natural gas. swb also provides grants for the acquisition of elec-tric cars when customers sign an eco-power contract.

Culture and sport – making the region more attractive

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 sup-ports 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 in-ternational 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 re-stricted by time. The focus is on supporting voluntary initiatives and excellence in sharing knowledge. For ex-ample, the foundation awards the klaus von klitzing prize for teachers dedicated to the natural sciences and who inspire students to conduct research. The “Olden-burger Schlossgespräche” gives interested citizens the chance to attend an annual science debate of a high calibre. Furthermore, with the support of the profes-sional 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 per-spectives.


Group management reporttogether 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 events53 Employees

54 Earnings, assets and financial position

54 Earnings position55 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 risks65 Opportunities66 Summary assessment of the risk situation66 Report on the internal control and risk management

system

67 Outlook

67 Forecast macroeconomic developments68 Forecast development of EWE Group

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

35Group manaGement report

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 re-sulting 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 un-employment, weak asset price growth and the drawing out of private debt, which is curbing consumption.

The united States were severely affected by the unre-solved 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 interrup-tion 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 neg-ative impact of the earthquake on GDP for 2011.

unlike the industrialised nations, many of the emerging markets were faced with the threat of economic over-heating 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.

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 con-siderably, with Greece even reaching levels beyond long-term sustainability. As a result, the credit rating of a number of the eurozone’s peripheral nations was down-graded by the rating agencies. The lack of a long-term political solution to the sovereign debt crisis in the euro-zone 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 develop-ments 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 posi-tion that it began in. Economic measures taken by the government during the crisis also helped to prevent a rise in unemployment following the economic break-down 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 be-fore the crisis. In the context of the increasingly bleak state of the global economy, however, economic devel-opment began to lose steam towards the end of 2011. The German Council of Economic Experts has calculat-ed 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 Eu-ropean 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.

Course of business and economic environment


Turkey’s growth in 2010 and 2011 was especially pro-nounced. 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 extra-ordinarily positive. The economy weakened somewhat towards the end of the year, caused in part by develop-ments 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 unem-ployment 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, busi-nesses have come out of the economic crisis stronger. Morale among businesses is good, but a mild downturn is expected in the coming months.

Energy market

Mild weather and high energy prices drove energy con-sumption down in Germany in 2011. According to pre-liminary 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 ex-perienced 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 compari-son 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 re-flects 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.

Primary energy consumption in Germany* ** (in million TCE)

* Source: Working Group for Energy Balances (AGEB)** This image does not show the electricity trading balance

200

150

100

50

00

50

100

150

200

-50

155.2

2010 2010 20102010 20102010 20102011 2011 20112011 20112011 2011

160.0

94.2

57.5 53.540.3

49.4

8.1

104.9

57.9 51.6 52.3 47.5

8.5

Mineral oil

Natural gas

hard coal

Lignite

Nuclear energy

Renewable energies

Other



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 mixThe government resolutions concerning energy policy which were passed in 2010 and 2011 to promote renew-able energies and phase out nuclear power are reflect-ed 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 marketCompetition 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 marketPrice developments on the energy markets in 2011 were primarily determined by the earthquake and tsunami disaster in Japan, the subsequent events at the Fukushi-ma 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

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 de-velopments 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 be-low 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 eco-nomic forecasts predicting decline and falling CO2 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 announce-ment of the moratorium on nuclear power caused a price rise of around 7.5 per cent on the hard coal mar-ket 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 Eu-ropean importers was not significantly more expensive.

65

60

55

50

4545

50

55

60

65

Development of base load electricity trading prices in Germany (EEX)(Base load for electricity supplies in 2012 shown in Euro / MWh)

Jan. 2011

May July Sep.Mar. Nov.0

35

70

105

140 140

105

70

35

0

uSD / t

Euro / t

Hard coal price development(For deliveries in 2012 in Euro / t and in uS$ / t)

Jan. 2011

May July Sep.Mar. 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.

CO2 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

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 in-tensified 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, Tele-communications and New Media (BITkOM), sales in in-formation technology in Germany rose by 3.2 per cent in 2011. A lack of qualified personnel is proving to in-creasingly be a hindrance to growth. The proportion of ITC companies suffering from a lack of experts is currently 47 per cent.

0

35

70

105

140 140

105

70

35

0

Development of crude oil price (Brent)(in uSD / bbl)

Jan. 2011

May July Sep.Mar. Nov.0

5

10

15

2020

15

10

5

0Jan. 2011

May July Sep.Mar. Nov.

Development of prices for CO2 certificates(in Euro / EuA)



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 infrastruc-ture 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 im-portant 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 ener-gy 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 in-troduced 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 net-works, 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 sys-tems 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 require-ments 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.

Special unbundling requirements for transmission system operatorsMore 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 trans-mission system operator, EWE NETz has selected the ITO option. All German transmission system operators are required to prepare a comprehensive network de-velopment 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 systemsThe revised German Energy Economy Law (EnWG) cre-ated 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 shift-ing 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 easementsThe 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 op-erator may also demand that the network be transferred from the current network operator against payment of reasonable compensation.


Legal unbundling of natural gas storage facilitiesAs 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 com-munications 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 Net-work 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 short-fall in network fees is to be reallocated to the remain-ing 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 considera-ble 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 net-work 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 refer-ence 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 net-work 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 intro-duced 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 ceilingOn 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 con-tract under public law to reach a comparable agreement. EWE NETz has signed a contract that provides for repay-ment 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.



Complaint proceedings against the German Federal Network AgencyDiffering interpretations of applicable regulations fre-quently result in complaint proceedings being initiated against the German Federal Network Agency. In court proceedings initiated by EWE NETz to examine the le-gality 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 re-turn 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 implemen-tation 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. Further-more, 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 re-jection of an investment budget application to connect a gas and steam turbine power plant to be constructed by Gemeinschaftskraftwerk Bremen. The matter in dis-pute concerns the applicability of the approval regula-tion which, therefore, also affects the core of a change in regulation regarding swb Netze, planned for the be-ginning 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

Bremerhaven is currently being addressed at first instance by the Bremen higher Regional Court. In these proceed-ings, 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 direc-tive is to combine the previous ChP and Energy Services Directives. The draft emphasises a primary energy con-servation 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 marketsThe 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 sup-pliers. 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 de-signed to prevent insider trading in energy trading prod-ucts and hinder market manipulation. In future, energy traders must submit data on transactions on the energy trading market to a new transaction register. The Euro-pean Agency for the Cooperation of Energy Regulators,


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 trans-actions 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 In-struments Directive (MiFID) is to make the financial markets more efficient, more resilient and more trans-parent, 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 mobilityIn 2011, the German government presented its policy on electric mobility based on the recommendations of the National Electric Mobility Platform. The target ex-pressed 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 expect-ed to support local construction by means of by-laws and concession agreements, no statutory obligation is anticipated.

Water management issuesThe new Drinking Water Ordinance has been in force since May 2011. Part of the revision involved the for-mulation of clearer regulations for the monitoring of the quality of drinking water and duties of disclosure between the health authorities and water supply com-panies. This also concerns the definition of terms, ura-nium 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 in-troduction 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 issuesThe 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 Manage-ment 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 sub-ject to European Commission approval on the basis of government aid law.



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 share-holdings 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, cross-market development and planning of the business areas, and guarantees financing within the EWE Group. Both EWE IMMOBILIEN Gmbh, which has been fully consol-idated, and vNG-verbundnetz Gas AG are allocated to the Corporate Centre business area as a shareholding together with EWE AG.

EWE IMMOBILIENEWE 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 tele-communications nodes, several residential buildings and establishments like the zentrumzukunft and the

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 devel-opment of new properties.

VNGvNG – 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 pan-regional 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 re-gion, 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 certifi-cates, as well as production, procurement and natural gas storage. The other significant companies allocated

EWE GROuP

EWE AG

VNG AG 1

EWE IMMoBILIEN GmbH

CORPORATE CENTRE /CONSOLIDATION

EWE ENERGIE AG 2

EWE NETZ GmbH

EWE WASSER GmbH




EWE ENERGy


EWE ENERjI A. Ş. 2

EWE TEL GmbH 2


htp GmbH 1

NEW MARkETS AND ICT

1 Associated company 2 Subgroup respectively lead company 3 Selection of major subsidiaries

SWB

swb AG 2, 3








to this business area are EWE NETz Gmbh (EWE NETz), EWE WASSER Gmbh (EWE WASSER), Riffgat Beteili-gungs Gmbh & Co. kG (RIFFGAT) and the associated companies DOTI Deutsche Offshore-Testfeld und In-frastruktur-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 servicesEWE ENERGIE AG sells electricity, natural gas and energy services to private and business customers, industrial clients and municipal utilities, thereby covering all cus-tomer 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 innova-tive products such as purchasing in tranches and fully flexible portfolio management as well as consulting on matters concerning CO2 emissions certificates and cer-tificate trading.

In the Ems / Weser / Elbe region and parts of Branden-burg, EWE ENERGIE operates its own network of with more than 80 natural gas stations.

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 con-siderable rise in interest in decentralised energy gener-ation 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 heat-ing 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 in-creased 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.

EWE Energy: Generation capacity for renewable energies(in MW)

0,0

27,5

55,0

82,5

110,0110.0

82.5

55.0

27.5

02010

Wind

Solar

Biomass

Water

Total

2011

2.8

2011

6.1

2011 2011

98.4

2011

0.02.0

2010

7.1

2010 2010

97.5

2010

0.7

107.3107.3

Total

2010 2011 2011 2011 201120112010 2010 20102010



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.

ProductionEWE 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 nat-ural 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, bio-mass, solar, hydroelectric), with total output of 107.3 megawatts. In addition to this is the share in the off-shore 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 Ger-many’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 photo-voltaics system at the Weser Stadium in Bremen were completed and commissioned. The system’s total out-put is 1.2 megawatt-peak (MWp).

ProcurementEWE ENERGIE procures electricity from upstream sup-pliers and via trading markets. Electricity trading acti-vities 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 suppli-ers 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.

StorageEWE 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.

NetworkEWE 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

EWE Energy: Natural gas procurement(in million kWh)

Germany

Netherlands

Russia

Other

2010

6,800.5

13,188.8

21,148.2

77.6

2011

6,061.9

11,508.5

20,838.9

54.8


northern West Pomerania. Its responsibilities include the operational management, maintenance, repair and expansion of the network infrastructure as well as net-work sales. EWE NETz also operates drinking water networks and a highly complex communications net-work. EWE TEL Gmbh commissioned EWE NETz to lay around 1,300 km of fibre optic cable in 2011 and 2012 to improve broadband coverage.

swb business area

In the swb business area the activities of swb AG and its subsidiaries comprise the provision of energy and water services to Bremen, Bremerhaven and the surrounding areas. The swb companies strengthen the EWE Group’s presence in northern Germany.

ElectricityIn the Electricity business area swb covers the entire value chain, from generation through to network oper-ation and distribution to private, commercial and in-dustrial 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-on-year 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”.

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 pro-jects 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

0

20

40

60

80

100

0

20

40

60

80

100

80.5

EWE Energy: Network length(in tkm)

100

80

60

40

20

02010 2011 2011 2011 201120112010 2010 20102010

Total

Copper

Optical fibre

55.4

34.1

81.1

14.9

55.1

32.2

14.919.117.3

Electricity

Natural gas

Telecommunication

swb: Generation capacities from conventional power plants(in MW)

0

240

480

720

960

1200

2010

1,200

960

720

480

240

02011

1,030.01,031.0



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 heatswb 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 servicesTechnical 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 contract-ing, operating industrial networks and networks for wide-area supply and street lighting.

New Markets and ICT business area

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.

PolandEWE Polska has its headquarters in Poznań, Poland. The company was established in 1998. It acts as the manage-ment company for EWE’s energy operations in Poland and serves as a platform for future growth in this mar-ket. 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 ener-gies. 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.

TurkeyEWE 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

Wind

Solar

Total

swb: Generation capacity for renewable energies(in MW)

0

10

20

30

40

50

2010

50

40

30

20

10

02011

0.2

2011

29.6

0.2

2010

39.6

29.8

39.8

20112010

0

5

10

15

10.6 10.6

4.6

2010 2011

swb: Networking length (in tkm)

15

10

5

0

4.6

0.4 0.4

Electricity

Natural gas

heat

2010 2011 2010 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 com-pany 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.

TelecommunicationsThe subsidiary EWE TEL is a full-service provider of tele-communications 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 kabel-anlagenbau 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 inter-net, telephone and Tv to customers via a single line. In partnership with EWE NETz, more than 1,300 addi-tional 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 technologyThe subsidiary BTC has its head offices in Oldenburg and offers IT consulting, system integration and manage-ment, 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 report-ing 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 / Consoli-dation 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.



Both internal and external reporting are based on the same management information systems. This techno-logical platform enables a uniform basis of data to be used for different reporting purposes and guarantees that the information used is congruent across report-ing 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 earn-ings before interest and taxes (EBIT) when looking at margins and returns. This aggregate approach is sup-plemented 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 as-sess profitability.

Internal and external Group reporting is continually ad-justed 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 in-formation 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.

EWE also remains committed to further developing re-newable energies for energy generation, complement-ed 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 com-pany’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 com-munications 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 in-creasingly important role in making this happen. When an energy production system is supported by a large number of small power generation facilities, coordinat-ing 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.


15plus strategic projectIn 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 develop-ments and successfully implemented measures amounting to around €200 million. Capital expendi-ture was most notably cut back in this regard, but cost reduction measures were also taken.

2. The optimisation of current energy business is intend-ed 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 avail-able on the internet at www.ewe.de/bullenseethesen.

eTelligence research projectProducers 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 integra-tion 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. Infor-mation on current energy usage, a personalised cost overview and comparison values in energy consump-tion 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 demon-strated how the interplay between cold stores and renew-able energy plants could optimise the consumption and generation of energy.

Research focus on network managementIn 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 solu-tions for planning, monitoring and operation. One of the main challenges is the establishment of standard-ised 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 managementIn 2012, the first serially produced, compact domestic storage systems will be available on the market. Domes-tic 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.



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 managementThe 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 small-er, 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 re-newable 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

the Callux Cockpit, which was developed by Group sub-sidiary BTC. This virtual control centre not only enables ongoing analysis but also provides the opportunity to cen-trally coordinate fuel cells, use them flexibly and generate the precise amount of energy required for the market.

Research focus on mobility managementIn 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 bet-ween 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 strate-gies 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 full-time staff and regularly employs graduands and interns. The department cooperates closely with other depart-ments within the Group, helping them to develop and introduce product and process innovations as well as tap new business areas.


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 appoint-ed Dr. heiko Sanders as the new CFO with effect from 1 July 2011. The previous CFO, Michael Wagener, is re-sponsible for human Resources, IT, Legal and Procure-ment 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 Branden-burg 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 re-gional brand Teleos (East Westphalia-Lippe) is now also part of the EWE brand. Following the same principle, in Bremen and Bremerhaven the telecommunications prod-ucts 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.



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 them-selves, 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 commu-nication training sessions through to economics classes as well as sporting and cultural activities. The exception-ally high number of award-winning employees is proof

that EWE’s training programmes are a great success and provide trainees with excellent professional pros-pects, even outside of the Group.

Professional training

In a dynamic sector shaped by intensifying competition, wide-reaching technical upheaval and a complex politi-cal environment, the ongoing professional training of employees becomes vitally important. EWE employees have a wide range of internal and external training op-portunities at their disposal. Together with EWE’s com-prehensive 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 per-sonnel (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.

Employees by business area

2010Total8,465

246

2,378

2,432

3,4092011Total8,828

287

2,405

2,592

3,544

Corporate Centre

EWE Energy

swb

New Markets and ICT



Earnings, assets and financial position

The financial statements for EWE AG as of 31 Decem-ber 2011 have been prepared in accordance with Inter-national Financial Reporting Standards (IFRS) as appli-cable 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 ad-justed 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

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 con-tributed significantly to the year-on-year increase in sales of Euro 0.5 billion.

The materials usage ratio, measured as the cost of ma-terials 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 em-ployee 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 in-vestments. One of the causes of this was the impairment loss of Euro 123.9 million recognised on equity invest-ments in connection with a change to the energy policy environment. This largely relates to the shares in Stadt-werke 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 surround-ing regulation in Turkey, which caused a change of Euro 146.8 million in goodwill and in intangible assets,

Condensed consolidated income statement

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 -281.9 -246.6 -35.3 14.3 %

of this:

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



Equity and liabilitiesEuro million 31.12.2011 in %

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 %

Assets Euro million 31.12.2011 in %

31.12.2010adjusted 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 %

Consolidated balance sheet

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 prin-cipally made up of interest paid on four bearer bonds (EWE bonds), interest on current bank debt and ex-penses 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.

Assets and financial position

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. Non-current 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 ex-panding 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.

0

20

40

60

80

100

12

16

72

Sales by business area(in per cent)

New Markets and ICT

swb

EWE Energy

100

80

60

40

20

02010

12

16

72

2011

1 See section 2.5



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 pre-vious 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).

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 mil-lion) 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 justi-fied 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

Condensed consolidated statement of cash flows

Euro million EWE Energy swbNew Markets

and ICTCorporate 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

Overview of Group business areas



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 business area

Electricity sales in the EWE Energy business area in-creased 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 cus-tomers 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 de-crease 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.

Standard-rate customers

Special-rate customers

Local utilities

Total

EWE Energy: Electricity sales by customer group(in million kWh)

0

3000

6000

9000

12000

15000

4,278

2010 2010 2010 20102011 2011 2011 2011

15,000

12,000

9,000

6,000

3,000

0

4,109

6,908

2,328

7,914

2,438

13,51414,461

Total

EWE Energy: Natural gas sales by customer group(in million kWh)

50,000

40,000

30,000

20,000

10,000

0 0

10000

20000

30000

40000

50000

23,604

2010



Local utilities

Total

2010 2010 20102011 2011 2011 2011

20,493

11,592

4,871

12,277

4,473

Total

40,06737,243



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 reve-nues. Two pricing measures for standard-rate custom-ers came into effect on 1 February 2011, (electricity) and 1 September 2011, (natural gas) as a result of in-creased 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 invest-ments were made in off-shore projects and in plants and facilities for natural gas, telecommunications and IT.

swb business area

Depreciation, amortisation and impairment were in-creased 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 amount-ing 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.



Local utilities

Total

swb: Natural gas sales by customer groups(in million kWh)

10,000

8,000

6,000

4,000

2,000

0 0

2000

4000

6000

8000

10000

3,554

2010 2010 2010 20102011 2011 2011 2011

2,883 2,9802,197

8,731

1,869 2,060

6,812

Total



Local utilities

Total

swb: Electricity sales by customer group*(in million kWh)

5,000

4,000

3,000

2,000

1,000

0 0

1000

2000

3000

4000

5000

983

2010 2010 2010 20102011 2011 2011 2011

940

3,704

188

4,875

3,552

198

4,690

Total

* Inc. amounts from leased power plant blocks



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 Stadt-werke 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.


All of the foreign shareholdings allocated to this busi-ness 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 con-siderable rise is a result of the quantity situation and weather conditions. Customer numbers rose significant-ly once again by 11.1 per cent to 675,272 at present.

Poland: Natural gas sales(in million kWh)

1,000

800

600

400

200

00

200

400

600

800

1000

2010 2011

833.8873.7

Turkey: Natural gas sales(in million kWh)

16,000

12,800

9,600

6,400

3,200

0 0

3200

6400

9600

12800

16000

2010 2011

12,066.4

15,485.8

12,000

9,600

7,200

4,800

2,400

00

2400

4800

7200

9600

1200010,579

2010 2011

9,630

Poland: Natural gas customers

Turkey: Natural gas customers

700,000

560,000

420,000

280,000

140,000

0 0

140000

280000

420000

560000

700000675,272

2010 2011

607,604



The EWE Group’s telecommunications and IT companies put in a sound performance over the course of the finan-cial year in a tough competitive environment. Including the telecommunications company htp, which is present-ed as an associated company, the telecommunications companies served around 670,000 customers as of 31 De-cember 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 anlagen-bau 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 Telecommunica-tions 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 Telecommu-nications business unit. Investments were also made in the expansion of gas networks in Poland.

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 mil-lion and was predominantly influenced by impairment losses on the shareholding in vNG AG and on sharehold-ings 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 in-vestment results of swb AG and vNG AG.

Net interest income / expense came to Euro -108.6 mil-lion, 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 pri-marily attributable to income with affiliated companies. A one-off effect from the previous year that was relat-ed 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, amorti-sation and impairment remained constant.

Other operating expenses came to Euro 118.1 million and were shaped by the expenses of affiliated compa-nies and increased advertising expenses for EWE AG made necessary by increased competition.

Telecommunication customers*

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 0

100000

200000

300000

400000

500000

600000

700000

2010 2011**

668,426719,827

* including htp** Decline is result of sale of Martens



Earnings before taxes (EBT) came to Euro -295.8 mil-lion. 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 re-tained earnings.

Capital expenditure

Capital expenditure came to Euro 88.6 million in the reporting year and was broken down as follows:

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 impair-ment, 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 non-current assets + / - other non-cash income and expens-es) 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.

Euro million 2011 2010

Land and buildings 6.7 18.4

operating and office equipment 6.1 7.7

Intangible assets – 4.4

Financial investments 75.8 853.7

Total 88.6 884.2

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 posi-tive 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 statement1 January to 31 December 2011 / Source of funds (+), use of funds (-)

Euro million 2011 2010

Cash flow from operating activities - 119.3 - 105.5

Cash flow from investing activities - 63.2 + 218.4

Cash flow from financing activities + 129.4 - 85.9

Change in cash andcash 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 share-holding 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 re-classification 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.


In equity and liabilities, there was a decline in sharehold-ers’ 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. None-theless, 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 pres-entation of the earnings, financial or assets position of the Group necessary have occurred.

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.

Assets

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 %

4,889.6 100.0 % 5,071.8 100.0 %

Capital

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 %

4,889.6 100.0 % 5,071.8 100.0 %

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


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 manage-ment of potential opportunities and risks are of crucial importance for the lasting, successful development of the EWE Group. The standardised planning and con-trolling 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 Manage-ment. 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 cor-porate 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 cen-tral 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 com-panies 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 le-gal 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. Depend-ing 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 busi-ness 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 mar-kets 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 in-vest which may prevail in their core markets due to the tense market environment.

In the gas market in recent years, an increase in the ser-vices provided, a growth in market liquidity (particularly with respect to high-grade gas) and an increasing dis-crepancy between spot and futures market prices cal-culated 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 adjust-ing specific contract structures to market conditions.


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 bet-ween business areas in developing combined energy and telecommunications products has proven to pro-vide 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 in-struments. 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 require-ments. Furthermore, special quality assurance plans and coordinated redundancy concepts, which are developed continually in line with requirements, have been imple-mented 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 uncer-tainty 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 struc-tured sales strategies.



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 certi-fied in accordance with the DIN EN ISO 14001 interna-tional 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 re-garding 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 evalua-tion, 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 ex-plained in more detail in the section covering disclosures on financial instruments in the Notes to the consoli-dated financial statements.

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 con-tinuously deteriorating business prospects of individual companies. Shareholdings are regularly tested for im-pairment and the controlling and development of share-holdings 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 technolo-gy is used to provide efficient support for all business processes in the individual business areas. As the quali-ty 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 “turn-around” 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 chal-lenges 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.


In the field of electricity generation, the Group expects that its earnings position will be improved and stabi-lised 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 In-ternal Audit department and the external auditor su-pervise and regularly audit the risk early recognition system to ensure that it functions correctly and effec-tively 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 inter-ested parties with our annual and interim financial statements, which contain complete and accurate in-formation. Our internal control system (ICS) for ac-counting 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 manage-ment 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 subsidiar-ies on a regular basis to evaluate quarterly and annual financial reports and to update forecasts.

Individual companies are responsible for their own ac-counting, 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.


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 hand-book 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 mini-mum 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 situa-tions 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 re-views 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 im-plemented 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 govern-ments of industrialised nations and emerging markets did bring about economic recovery, they also caused government debt to grow massively in the industrial-ised 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 econo-my 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 Ger-many Trade & Invest, the Turkish government forecasts growth of 4.0 per cent for 2012 and 5.0 per cent for 2013 and 2014.


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 intro-duced measures to improve competitiveness and ex-pects 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 in-crease in Group sales of around 5 per cent in 2012 and 2013. The EWE Group believes that the measures men-tioned above and the fact that 2011 was negatively af-fected 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 earn-ings 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 re-sult 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 improve-ment 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 considera-bly. 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. Funda-mental 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 tele-communications 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 assump-tions do not materialise or additional risks should come to light, actual results may differ from the forecast re-sults. For this reason we make no guarantee as to the accuracy of these statements.

69Consolidated finanCial statements

Consolidated finanCial statements notes Confirmation by the legal representatives

Consolidated financial statements

69 Consolidated financial statements

70 Income statement for the EWE Group71 Statement of comprehensive income for the

EWE Group72 Balance sheet for the EWE Group74 Statement of changes in shareholders’ equity

for the EWE Group76 Cash flow statement for the EWE Group

77 Notes to the consolidated financial statements of EWE AG

77 Information about the company77 Accounting methods104 Significant judgements, estimates and assumptions106 Standards issued but not yet binding109 Notes to the income statement113 Notes to the balance sheet

161 Confirmation by the legal representatives

162 Auditor’s report

70 EWE AnnuAl rEport 2011

Income statement for the EWE Groupfor the period from 1 January to 31 December 2011

EUR million Note 20112010

adjusted1

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

-281.9 -246.6

1 See section 2.5 2 Previous year’s figure adjusted due to change in reporting 3 Earnings before interest and taxes



Statement of comprehensive income for the EWE Groupfor the period from 1 January to 31 December 2011

EUR million Note 20112010

adjusted1


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

-438.0 -230.4

1 See section 2.5


Balance sheet for the EWE Groupas of 31 December 2011

Assets

EUR million Note 31.12.201131.12.2010

adjusted1

01.01.2010adjusted1

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



Equity and liabilities

EUR million Note 31.12.201131.12.2010

adjusted1

01.01.2010adjusted1

Shareholders’ equity 26

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

2,556.7 3,005.3 3,324.4

Non-current liabilities

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

5,550.0 5,418.6 5,402.4

Current liabilities

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


Statement of changes in shareholders’ equity for the EWE Group

EUR million

Subscribed capital of the

EWE Group

Capital reserve of the

EWE Group RETAINED EARNINGS

Equity attributable to

shareholders of the parent

company

Attributable to minority

interestsShareholders’

equity

Accumulated income Comprehensive other income

Revaluation reserve in

accordance with IFRS 3

Reserve for cash flow hedges

Reserve for available-for-sale

financial instruments

Cumulative translation differences

Measurement of pension provisions IFRS 5

Change from equity valuation

without effect on profit and loss

As of 31.12.2009 243.0 1,532.1 1,489.7 74.5 11.9 -29.8 41.3 10.3 0.8 3,373.8 36.0 3,409.8

Reclassification of VNG shares 1 -91.7 -10.3 16.6 -85.4 -85.4

As of 31.12.2009 – adjusted 243.0 1,532.1 1,398.0 74.5 11.9 -29.8 41.3 17.4 3,288.4 36.0 3,324.4

Result for the period -48.4 -48.4 -2.3 -50.7

Adjustment in accordance with IAS 8 1 -142.8 -142.8 -142.8

Reclassification of VNG shares 1 -53.1 -53.1 -53.1

Result for the period – adjusted -244.3 -244.3 -2.3 -246.6

Reclassification of VNG shares 1 0.2 0.2 0.2

other comprehensive income 38.4 -0.4 31.3 -55.4 0.1 14.0 2.0 16.0

Total result -230.1 -0.3 -230.4

Capital increase 2.4 2.4 2.4

Dividend payments -88.0 -88.0 -0.1 -88.1

Change in the group of consolidated companies -2.9 -2.9 -2.9

other changes 0.0 -0.1 -0.1

As of 31.12.2010 243.0 1,534.5 1,062.8 74.5 50.3 -0.4 1.5 -14.1 17.7 2,969.8 35.5 3,005.3


other comprehensive income -32.0 0.3 -56.4 -42.8 -17.9 -148.8 -7.3 -156.1

Total result -414.7 -23.3 -438.0



Transactions under joint control 0.8 0.8 1.8 2.6

As of 31.12.2011 243.0 1,609.5 709.7 74.5 18.3 -0.1 -54.9 -56.9 -0.2 2,542.9 13.8 2,556.7

1 See section 2.5



Statement of changes in shareholders’ equity for the EWE Group

EUR million

Subscribed capital of the

EWE Group

Capital reserve of the

EWE Group RETAINED EARNINGS

Equity attributable to

shareholders of the parent

company

Attributable to minority

interestsShareholders’

equity

Accumulated income Comprehensive other income

Revaluation reserve in

accordance with IFRS 3

Reserve for cash flow hedges

Reserve for available-for-sale

financial instruments

Cumulative translation differences

Measurement of pension provisions IFRS 5

Change from equity valuation

without effect on profit and loss

As of 31.12.2009 243.0 1,532.1 1,489.7 74.5 11.9 -29.8 41.3 10.3 0.8 3,373.8 36.0 3,409.8

Reclassification of VNG shares 1 -91.7 -10.3 16.6 -85.4 -85.4

As of 31.12.2009 – adjusted 243.0 1,532.1 1,398.0 74.5 11.9 -29.8 41.3 17.4 3,288.4 36.0 3,324.4


Adjustment in accordance with IAS 8 1 -142.8 -142.8 -142.8

Reclassification of VNG shares 1 -53.1 -53.1 -53.1

Result for the period – adjusted -244.3 -244.3 -2.3 -246.6

Reclassification of VNG shares 1 0.2 0.2 0.2

other comprehensive income 38.4 -0.4 31.3 -55.4 0.1 14.0 2.0 16.0

Total result -230.1 -0.3 -230.4



Change in the group of consolidated companies -2.9 -2.9 -2.9

other changes 0.0 -0.1 -0.1

As of 31.12.2010 243.0 1,534.5 1,062.8 74.5 50.3 -0.4 1.5 -14.1 17.7 2,969.8 35.5 3,005.3


other comprehensive income -32.0 0.3 -56.4 -42.8 -17.9 -148.8 -7.3 -156.1

Total result -414.7 -23.3 -438.0



Transactions under joint control 0.8 0.8 1.8 2.6

As of 31.12.2011 243.0 1,609.5 709.7 74.5 18.3 -0.1 -54.9 -56.9 -0.2 2,542.9 13.8 2,556.7

1 See section 2.5


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

EUR millionSee Notes,

Note 42 20112010

adjusted1

EBIT2 -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 2.52 Earnings Before Interest and Taxes


CONSOLIDATED FINANCIAL STATEMENTS NOTES CONFIRMATION By ThE LEGAL REPRESENTATIvES

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 com-pany 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 Decem-ber 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 amor-tised 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 prac-tice, 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.

Notes to the consolidated financial statements of EWE AG


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. Gemein-schaftskraftwerk 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 com-panies 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 with-out 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.



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.


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 con-siderations 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 companyShares 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 acqui-sition 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 state-ment. 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.



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 translationThe 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 balancesForeign 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 desig-nated 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 recog-nised at fair value in a foreign currency are translated at the exchange rate applicable when their fair value was calculated.

Group companiesupon 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 acqui-sition 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.


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 incomeIncome 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 goodsIncome 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 servicesTelecommunications 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”.



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 incomeInterest 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 feesIncome from usage fees is deferred according to the economic intention of the applicable agreements and recognised pro rata temporis.

Dividend incomeIncome is recognised when the legal entitlement to payment arises. e) Government grantsA 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 com-pensate. 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) TaxesEffective income taxesThe 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.


Deferred taxesDeferred 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 trans-action that is not a merger and which has no influence on either the net profit for the period in accord-ance 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.



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.

VATIncome, 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 operationsNon-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.


h) Property, plant and equipmentProperty, 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 re-placements, 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 produc-tion 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:

Years

Buildings up to 50

Technical equipment and machines

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.



i) LeasesDetermining 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 trans-ferred 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 pay-ments. Lease payments are apportioned between finance expense and the reduction of the outstand-ing 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 owner-ship 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 costsBorrowing 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 rec-ognised 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 propertyInvestment 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, pro-vided 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.


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 assetsAll 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 subse-quent 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 state-ment 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 test-ed 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 licencesAcquired 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.



Acquired software licences are capitalised on the basis of the costs incurred in the acquisition and prepar-ing the software for its intended use. These costs are amortised over an estimated useful life of three to five years.

Contractual customer relationshipsContractual 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 antici-pated length of the customer relationship using the straight-line method.

Research and development costsResearch costs are recognised as an expense in the period in which they are incurred. Project develop-ment 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 inter-nal 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 de-

velopment.

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 de-velopment 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 rightsAs 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 (CO2 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 re-turned 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.


The following useful life terms are applied to assets for the purpose of straight-line depreciation:

Years

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 measurementI. Financial assetsInitial recognition and measurementFinancial 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 measurementThe measurement of financial assets subsequent to initial recognition depends on their classification as follows:

Financial assets at fair value through profit and lossThe 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. Deriva-tives, including embedded derivatives recognised separately, are also designated as held for trading.



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 instru-ments 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 receivablesLoans 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 in-come 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 investmentsNon-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 matu-rity. 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 in-cludes 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 ef-fective 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.


Available-for-sale financial assetsAvailable-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 cumula-tively 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 sub-stantially, 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.

DerecognitionA 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 agree-ment that meets the pass-through criteria of IAS 39.19, and thereby either (a) transfers substantial-ly 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.



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 assetsThe 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 re-payments, 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 costFor 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 meas-ured 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.


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 in-come 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 assetsFor 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. “Signifi-cant” 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 im-pairment 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 de-termined 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 re-porting 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 liabilitiesInitial recognition and measurementAccording 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.



When a financial liability is recognised initially, it is measured at fair value, less any directly attributable transaction costs for loans.

Subsequent measurementThe measurement of financial liabilities subsequent to initial recognition depends on their classification as follows:

Financial liabilities at fair value through profit and lossFinancial 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 borrowingsAfter 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 amor-tisation 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 liabilitiesTrade 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.


Financial guaranteesFinancial guarantees issued by the EWE Group are contracts that require a payment to be made to re-imburse 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.

DerecognitionA 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 instrumentsFinancial 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 instrumentsThe 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 po-sitions) 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 accountingInitial recognition and subsequent measurementThe 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 com-modity 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.



For the purpose of hedge accounting, hedging instruments are classified as:

• 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 trans-action 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 ac-counting 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 hedgesThe 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 sub-sequent 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 hedgesThe effective portion of the gain or loss on a hedging instrument is recognised directly in other compre-hensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately through profit or loss in the income statement.


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 instru-ment, 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 investmenthedges of a net investment in a foreign operation, including a hedge of a monetary item that is account-ed 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 classificationDerivative 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 de-rivative financial instrument is only separated into a current portion and a non-current portion if a reliable allocation can be made.



o) InventoriesInventories 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 assetsThe 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 recovera-ble amount is to be determined for each individual asset, unless the asset does not generate cash in-flows 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 re-valued 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.


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 re-coverable 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 recover-able 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:

GoodwillGoodwill 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 re-coverable 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 assetsIntangible assets with an indefinite useful life are tested for impairment at least once a year to 31 De-cember. 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 equivalentsCash 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) ProvisionsPrinciplesProvisions 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.



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 lossesProvisions 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 restorationProvisions 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 reculti-vation 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 provisionsWhere a large number of similar obligations exist – such as in the event of legal guarantees – the proba-bility of an outflow of funds is determined based on this group of obligations. A provision is also recog-nised 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 unitsIf 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.


s) Pensions and other post-employment defined-benefit plansPensions 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 commit-ments. 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 re-capitalisation 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 participat-ing 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 recap-italisation 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 benefitsTermination benefits are payable as a result of either a Group company’s decision to terminate an em-ployee’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 de-tailed, 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.



t) Construction subsidiesConstruction subsidies include subsidies for capital expenditure and construction.

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 interpretationsThe 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 interpre-tations 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 defi-nitions 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 transac-tions 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 im-pact 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 instru-ments 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 amend-ment 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.


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 Interna-tional 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 con-nection, 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 as-sumptions and estimates can lead to circumstances where it is necessary to make considerable adjust-ments to the carrying amount of the assets or liabilities concerned.



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 rec-ognised 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 impair-ment 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 deter-mine 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 vari-ables (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 accord-ance 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.


Provisions for recultivation and restoration

The provisions for recultivation and demolition are based on surveys by third parties. The costs of re-cultivation 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 pre-sented 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 prop-erty 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.



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 be-ginning 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 ex-panded 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 re-sulted 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 informa-tion 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 under-stand the relationship with those assets that have not been derecognised and their associated liabili-ties. 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 finan-cial years beginning on or after 1 January 2015. In subsequent phases, the IASB will address hedge ac-counting 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.


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 Con-solidation – 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 sig-nificant 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 consoli-dation. Instead, these companies must be accounted for using the equity method in future. The appli-cation 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 consoli-dates 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 Janu-ary 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 consoli-dated financial statements of the EWE Group.



NOTES TO ThE INCOME STATEMENT

5. Sales

Sales are initially presented as gross sales including the electricity and energy taxes. Sales include elec-tricity 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


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


Wages and salaries 487.5 465.5

Social security contributions and retirement and other benefits 116.2 112.1

Total 603.7 577.6


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 impair-ment losses on goodwill amounting to Euro 144.0 million.

11. Other operating expenses


Concession fees (see Note 43) 134.7 128.0

Additions to provisions 65.9 37.2


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



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


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 24.01 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


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 3.11 See section 2.5

The impairment of financial investments reflects the permanent impairment of shares in other non-consolidated shareholdings.

14. Net interest income / expense


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


15. Income taxes


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


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



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


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 % 8.6 -14.51 See section 2.5

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 31.12.201131.12.2010adjusted 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 1,293.51 See section 2.5


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 642.6 5.6 869.3 388.2 1,905.7

Change in group of consolidated companies / company acquisitions

Additions / disposals from mergers 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 202.1 410.1 612.2



Amortisation in the reporting year 43.1 43.1

Impairment in the reporting year 90.1 58.1 148.2

Reclassifications

Currency adjustments -9.3 -37.8 -47.1

Disposals 8.0 8.0

Reversals of amortisation and impairment

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

Concessions, trademarks, licences and

similar rights

Payments made on account Goodwill

Intangible assets with

indefinite useful lives Total

Cost

As of 1.1.2010 603.1 4.0 850.7 392.0 1,849.8

Change in group of consolidated 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 152.4 123.7 276.1


Additions / disposals from mergers 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 4.0 0.4 4.4

Reversals of amortisation and impairment

As of 31.12.2010 202.1 410.1 612.2

Carrying amounts

As of 31.12.2010 440.5 5.6 459.2 388.2 1,293.51 See section 2.5

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.


Testing goodwill and intangible assets with indefinite useful lives for impairmentTo 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

Concessionagreements 292.3 292.3 292.3 292.3

1 Allocated to the New Markets an ICT business area2 Includes: Bursagaz, kayserigaz, EWE Doğalgaz3 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 unitsThe Group performed its annual impairment test on 31 December 2011. A test is also conducted if cir-cumstances 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 de-termined 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 invest-ment into account.



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 %


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 2011In 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 mil-lion 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 2011The 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.


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 millionLand 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 881.8 10,259.1 317.9 472.2 11,931.0

Change in group of consolidated companies


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 392.1 6,296.9 213.8 14.1 6,916.9



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 6.7 178.7 20.8 206.2


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 millionLand 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 811.1 9,841.2 331.3 455.6 11,439.2

Change in group of consolidated 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 369.8 6,022.2 223.1 3.2 6,618.3


Additions / disposals from mergers 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 1.7 64.4 39.3 105.4


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 depre-ciation, 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.


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.


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:


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 Weser-kraftwerk Bremen Gmbh & Co. kG, Bremen, amounting to Euro 4.1 million.



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 nego-tiations, 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


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


Total 296.0 251.7

There were no restrictions on use or other charges over inventories.


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

of which overdue on balance sheet date and not individually written down

TotalLess than

30 days

Between 30 and 90

days

Between 91 and 180

days

Between 181 and 360

daysMore than

360 days

Trade receivables

as of 31.12.2011

1,049.4 884.0 165.4 105.2 14.6 8.8 7.5 29.3

Trade receivables

as of 31.12.2010

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:


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.



22. Other financial receivables and assets

EUR million 31.12.2011 31.12.2010


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

of which overdue on balance sheet date and not individually written down

TotalLess than

30 days

Between 30 and 90

days

Between 91 and 180

days

Between 181 and 360

daysMore than

360 days

other financial receivables and assets

as of 31.12.2011

371.7 363.5 8.2 7.4 0.1 0.1 0.1 0.5

other financial receivables and assets

as of 31.12.2010

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:


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 oper-ating income.


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


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 re-coverable 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 at-tributed to the swb business area.



26. Shareholders’ equity

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-Energie-beteiligungen Gmbh (WEE), Oldenburg, still holds 59 per cent of the shares in EWE AG and Energiever-band Elbe-Weser Beteiligungsholding Gmbh (EEW), Oldenburg, still holds 15 per cent. The shareholder of WEE is Ems-Weser-Elbe versorgungs- und Entsorgungsverband Beteiligungsgesellschaft mbh (EWE-verband 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 compre-hensive 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 with-out 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 profitThe 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.


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 obligationsThe 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 as-sets 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 em-ployees 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.



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:


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:


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


Reclassifications 0.0 9.4

other -1.3 0.9

Present value as of the balance sheet date 1,307.5 1,238.4


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


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 employ-ees. 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:


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


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



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 progres-sion 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 adjust-ments to the obligations from past experience as the difference between expected and actual develop-ments 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) 1,302.9 1,235.8 1,138.0 607.4 583.7

Adjustments to plan liabilities based on past experience 18.9 5.6 -55.1 35.3 -6.0

Adjustments to plan assets based on 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 -149.9 196.9 -143.2 187.9

current service expense in the following financial year -4.0 5.8 -3.8 5.5

interest expense on the obligation 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).


Statement of provisions

EUR millionAs of

01.01.2011 Additions Reversalsother

changes 1Interest 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 recultiva-tion 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

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 trans-action, 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


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 re-maining 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.


32. Other financial liabilities

EUR million 31.12.2011 31.12.2010


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


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.



Deferred tax assets and liabilities relate to the following items:

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).


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 receivablesAs of 31 December 2011, there were contingent receivables amounting to Euro 4.7 million (previous year: Euro 10.3 million).

Guarantees and warrantiesAt 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 equipmentContractual 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 obligationsAn obligation exists to pay an additional purchase price of up to Euro 102.3 million if the public trans-port 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 contribu-tion 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

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 31.12.201131.12.2010adjusted 1

Total shareholders' equity 2,556.7 3,005.3

Equity ratio 26.1 % 29.7 %

Balance sheet total 9,808.5 10,113.71 See section 2.5

38. Derivative financial instruments and hedge accounting

a) Strategy and goalsThe 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.


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 port-folio hedges. The Group always checks whether hedge accounting can be used to reduce earnings vola-tility. 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 effective-ness 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 hedgesFair value hedges for commodities to hedge against gas price risks resulting from future sales are recog-nised. 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 valu-ation 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 hedgesCash 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 ex-change 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 commodi-ties 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.



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 report-ing 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 Decem-ber 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:


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 derivativesThe following table shows the derivatives which do not qualify for hedge accounting but are still used to hedge risk items:


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:


Carrying amounts, basis of recognition and fair values according to measurement categories

EUR million

Measure-ment cate-gory under

IAS 39

Carrying amount

31.12.2011 BASIS OF RECOGNITION uNDER IAS 39Fair value

31.12.2011

Amortised costs

Acquisition costs

Fair value without

effect on profit and

loss

Fair value through

profit and loss

Assets

other non-current assets

Loans and receivables LaR 88.2 88.2 91.5

Interests in affiliated companies, other shareholdings AfS 112.9 112.9 112.9

Financial assets at fair value through profit and loss

Derivatives outside hedging relationships (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 LaR 1,049.4 1,049.4 1,049.4

other receivables and assets

Securities AfS 49.6 49.6 49.6

other financial assets LaR 186.2 186.2 186.2

Cash and cash equivalents LaR 259.4 259.4 259.4

Financial assets at fair value through profit and loss (current)



Securities FAHfT 1.4 1.4 1.4


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 FLAC 317.0 317.0 317.0

Financial liabilities at fair value through profit and loss

Derivatives outside hedging relationships (held for trading) FLHfT 178.5 178.5 178.5


of which aggregated by measurement category under IAS 39:

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) 172.2 172.2 172.2

Financial liabilities measured at amortised 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

Measure-ment cate-gory under

IAS 39

Carrying amount

31.12.2010 BASIS OF RECOGNITION uNDER IAS 39Fair value

31.12.2010

Amortised costs

Acquisition costs

Fair value without

effect on profit and

loss

Fair value through

profit and loss

Assets

other non-current assets

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



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)



Securities FAHfT 3.1 3.1 3.1


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 FLAC 302.9 302.9 302.9

Financial liabilities at fair value through profit and loss

Derivatives outside hedging relationships (held for trading) FLHfT 146.0 146.0 146.0


of which aggregated by measurement category under IAS 39:

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) 132.9 132.9 132.9

Financial liabilities measured at amortised cost (FLAC) 3,938.4 3,938.4 4,129.5

Financial liabilities held for trading (FLHfT) 146.0 146.0 146.0


The carrying amounts of other non-current assets are generally equal to fair value. The available-for-sale 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 CO2 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

Level 1 Level 2 Level 3 Total

Financial assets held at fair value



Total 51.0 190.8 241.8

Financial liabilities held at fair value

Derivative financial instruments 220.1 1.4 221.5



EUR million 31.12.2010

Level 1 Level 2 Level 3 Total

Financial assets held at fair value



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 3The 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


c) Net results according to measurement categoryThe 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 valueCurrency

translationImpairment 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 risksLiquidity 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 work-ing 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 li-quidity 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 op-tions 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.



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

31.12.2011

< 1 year 1 – 5 years > 5 years

Interestfixed

Interestfloating

Repay-ment

Interestfixed

Interestfloating

Repay-ment

Interestfixed

Interestfloating

Repay-ment

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

31.12.2010

< 1 year 1 – 5 years > 5 years

Interestfixed

Interestfloating

Repay-ment

Interestfixed

Interestfloating

Repay-ment

Interestfixed

Interestfloating

Repay-ment

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


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 (pur-chase 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 risksLoan 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 impair-ment allowances. The most significant loan default risks that the EWE Group is exposed to arise in special-rate 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 agree-ments 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 trad-ing 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.



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 risksCurrenciesExchange 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 vola-tile 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

currencyEffect on

income statementEffect 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


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 hedg-ing horizon of six months is based on the ability to anticipate required purchase quantities and prices.

InterestInterest 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 in-terest 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 millionChange in

interest ratesEffect on



31.12.2011 31.12.2010 31.12.2011 31.12.2010

Interest rate derivatives

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 risksOther 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 genera-tion 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 assump-tion that the relevant price of electricity changes by + / -10 per cent, categorised by effects on the in-come statement (“MtM through profit and loss”) and on equity (“hedge accounting”).


Overview of market price risk for electricity:

EUR millionChange in price

developmentsEffect on



31.12.2011 31.12.2010 31.12.2011 31.12.2010

Electricity futures transactions

not using hedge accounting +10 % 14.7 8.1

not using hedge accounting -10 % -14.7 -8.1

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:





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



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 / CO2 certificatesIn terms of commodities, the most significant market price risks result from changes in the price of coal and CO2 certificates.



Coal hedgingThe 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:





31.12.2011 31.12.2010 31.12.2011 31.12.2010

Coal swaps



not using hedge accounting +10 % 0.4

not using hedge accounting -10 % -0.4

CO2 certificate hedgesThere is a current deficit of emissions certificates due to organisational inadequacies. These inadequa-cies are due to electricity and heat generation forecasts and the underallocation of CO2 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 cer-tificate purchases. EuAs (Eu allowances) and CERs (Certified Emissions Reductions) are used as hedges.

A 10 per cent change in the price of CO2 over all supply periods was assumed for the sensitivity analysis.

Overview of market price risk for CO2 certificates:





31.12.2011 31.12.2010 31.12.2011 31.12.2010

Co2 certificates futures transactions



not using hedge accounting +10 % 0.5

not using hedge accounting -10 % -0.5


41. Segment reporting

Management has based its definitions of the company’s business segments (business areas) on the re-ports 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 energy-related 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 telecommunica-tions 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 subsid-iaries 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.



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 capitali-sation from recognised provisions) and financial investments.

The following table shows external sales by product and service:

EUR million

EWE Energy

2011

EWE Energy

2010swb

2011swb

2010

New Markets and ICT

2011

New Markets and ICT

2010

Corpo-rate Cen-tre / Con-solidation

2011

Corporate Centre /

Consolida-tion

2010

Con-solidated

2011

Con-solidated

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 millionGermany

2011Germany

2010Abroad

2011Abroad

2010EWE Group

2011EWE 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 607.5 619.8 19.3 11.8 626.8 631.6

1 Previous year’s figures adjusted

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.


Segment report 31.12.2011

EUR millionEWE Energy

31.12.2011EWE Energy

31.12.2010swb

31.12.2011swb

31.12.2010

New Markets and ICT

31.12.2011

New Markets and ICT

31.12.2010


31.12.2011


31.12.2010Consolidated

31.12.2011

Adjusted as consolidated 1

31.12.2010

SALES

External sales 5,383.3 4,993.5 1,151.7 1,115.2 916.9 859.8 3.5 1.1 7,455.4 6,969.6

Inter-segment sales 137.6 133.4 9.5 29.6 102.6 119.2 -249.7 -282.2

Total 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

RESuLT

Segment earnings (EBIT) 333.1 210.6 -68.5 -33.4 -195.3 -155.2 -193.6 -52.9 -124.3 -30.9

Interest income 27.7 22.0

Interest expense -211.8 -206.4

Result before tax (EBT) for the period -308.4 -215.3

Income taxes 26.5 -31.3


OTHER INFORMATION

Segment assets 4,410.9 4,213.4 2,709.7 2,522.9 1,026.3 1,267.3 376.8 362.1 8,523.7 8,365.7

Financial investments and securities 224.7 302.0

Interests in associated companies accounted for under the equity method 118.7 136.8 16.7 329.5 36.6 36.4 705.6 861.7 877.6 1,364.4

Income tax receivables and deferred tax assets 182.5 81.6

Consolidated assets 9,808.5 10,113.7

Segment liabilities 2,934.4 2,845.2 1,363.4 1,215.8 543.0 545.1 -872.6 -709.5 3,968.2 3,896.6

Debt instruments (bonds and liabilities to banks) 2,823.3 2,732.5

Deferred taxes, provisions for taxes and outstanding income taxes 460.4 479.3

Consolidated liabilities 7,251.9 7,108.4


Other operating income 184.2 416.9 25.6 51.3 23.5 30.6 -20.1 -224.0 213.2 274.8

Cost of materials and services -4,551.0 -4,247.6 -749.9 -713.9 -670.6 -625.0 148.1 171.9 -5,823.4 -5,414.6

Personnel expenses -193.9 -182.0 -191.7 -182.4 -189.1 -182.4 -29.0 -30.8 -603.7 -577.6

Depreciation and amortisation -206.4 -199.9 -106.0 -103.8 -92.3 -98.5 -18.4 -17.1 -423.1 -419.3

Impairment -21.3 -14.1 -1.4 -142.8 -149.2 -153.1 -171.9 -310.0

Other operating expenses -427.2 -704.6 -122.0 -130.7 -146.5 -120.3 95.3 319.3 -600.4 -636.3

Result of equity investments -8.0 -3.2 -2.7 3.3 0.2 0.5 -4.7 2.5 -15.2 3.1

Result of equity investments in associated companies 8.9 0.2 -93.4 25.4 0.2 1.1 -129.8 -2.8 -214.1 24.0

Material non-cash items -35.5 -64.6 -27.7 9.4 -34.1 -7.2 -156.6 -58.1 -253.9 -120.5

1 See section 2.5


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 pre-sented 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 companyEquity

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


in Euro ’000

Name and registered office of the companyEquity

interest in %Shareholders’

equity

Net profit / loss for the

period

Other equity investments:

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 4, 10

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.



45. Related party disclosures

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


Capital increase 75.0 2.4

Financing 8.9

Other related companies


Energy procured 18.6 9.1

Energy sold 55.8 23.6


Associated companies accounted for under the equity method and companies accounted for in accordance with IFRS 5


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


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



hans Eveslage Fourth Deputy Chairman District Administrator of Cloppenburg, Barßel

Wolfgang Behnke Systems Integrator of EWE AG, Osterholz-Scharmbeck

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 re-ceived 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.


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 Wirtschaftsprüfungs-gesellschaft (PwC), and from companies of the international PwC network:


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 Com-mercial 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




CONSOLIDATED FINANCIAL STATEMENTS NOTES CONFIRMATION By ThE LEGAL REPRESENTATIvES

Confirmation by the legal representativesWe 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




Auditor’s reportWe have audited the consolidated financial statements prepared by EWE Aktiengesellschaft, Oldenburg, comprising the balance sheet, the income statement and statement of comprehensive income, state-ment 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 prepara-tion 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 manage-ment 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 con-sistent 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 AktiengesellschaftWirtschaftsprüfungsgesellschaft

Thomas Dräger Carsten EngelhardtWirtschaftsprüfer Wirtschaftsprüfer(German Public Auditor) (German Public Auditor)

163Auditors’ report FinAnciAl stAtements oF the ewe AG

Financial statementsof the EWE AG 2011

163 Financial statements of the EWE AG

164 Balance sheet for EWE AG, Oldenburg165 Income statement for EWE AG, Oldenburg


Balance sheet for EWE AG, Oldenburgas 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


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


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

165Financial statements oF the ewe aG

Income statement for EWE AG, Oldenburgfor the period from 1 January to 31 December 2011


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


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 Ener-gy. The operator of the wind farm is Deutsche Offshore-Testfeld und In-frastruktur-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 de-veloped to serve a sole, specific pur-pose – 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 pre-sent in the grid over the course of a given day to cover the expected de-mand for electricity. Base load pow-er plants refer to those electricity generation plants that feed in a certain amount of electricity de-termined 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 elec-tricity 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 Inter-national Petroleum Exchange in Lon-don and on other futures exchanges.

Carbon footprint

The total amount of carbon dioxide emissions as recorded in a CO2 bal-ance sheet is described as a carbon footprint. The emissions recorded may be for products (production, use, disposal), business premises (ener-gy, processes, vehicle fleet) or for regions (villages, towns, rural dis-tricts). Emissions are mainly meas-ured by analysing consumption data.

Cavern / cavern borehole

Subterranean cavities in salt forma-tions which have been hollowed out by water several hundred metres un-derground. Caverns can be used, for example, as natural gas storage fa-cilities, to compensate for seasonal fluctuations in natural gas sales.

Combined Heat and Power (CHP) / CHP plants

A ChP plant uses both the electri-cal energy generated by converting primary energy and the resulting (waste) heat. This increases the ef-ficiency of these plants considerably.

CO2

Carbon dioxide is a colourless, odour-less gas that in very low concentra-tions is a natural part of the air. Car-bon dioxide is also produced by the combustion of substances contain-ing carbon, such as the fossil fuels coal and gas.

CO2 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”.

CO2 emissions rights trading /certificates

European system for trading CO2 emissions rights in two trading pe-riods (2005–2007 and 2008–2012) based on the kyoto Protocol and Eu climate protection resolutions. Fa-cility operators must hold rights for their CO2 emissions. The rights are allocated by national governments. If they produce more CO2 than they are entitled to, they must reduce the amount of CO2 emitted by their fa-cilities or purchase additional emis-sions rights. If they produce less CO2 than they are entitled to, they can sell their excess entitlement on the free market.

Contracting

The process of outsourcing a compa-ny’s own activities to a service com-pany. When used in connection with supply, plant, heat or energy con-tracting it means the supply of con-sumables (heat, cold, power, steam, compressed air, etc.) and the con-struction and operation of the nec-essary facilities.

District heating

heat which is produced in a central heat plant or a decentralised ChP plant and then distributed to indi-vidual households or companies by means of pipes.

167service

DSL (digital subscriber line)

Broadband technology (high-speed data transmission over the inter-net) using simple copper wire, such as that which is found in tradition-al 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 renewa-ble energies. In practical terms, this means that not only capacities for renewable energies have to be mas-sively expanded, but also that elec-tricity grids have to be upgraded and modified in order to handle the fluc-tuations in power yields from wind and solar energy (e.g. more wind in the north of Germany, more sun in the south).

Energy and CO2 management

Energy management is the measure-ment, 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 en-compass, for example, the recording of every point at which energy is con-sumed, 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 de-mand with pinpoint precision. CO2 management applies the same prin-ciple to CO2 emissions.

eTelligence

A project sponsored by the German Federal Ministry of Economics and Technology as part of the E-Energy programme. eTelligence conducts re-search into how electricity genera-tors, consumers, energy service pro-viders and network operators can be brought together on a regional en-ergy market in the trial region of Cux-haven. This entails coordinating the power consumption of business cus-tomers and private households with electricity generation from renew-able sources using modern IT and tel-ecommunications technology.

EWE bio trio

An EWE product offering telecom-munications / internet, electricity and natural gas from a single sup-plier and based consistently on re-newable energies.

EWE Heating Savings Package

An EWE product that provides win-dow sensors and remote-controlled heating thermostats with an internet connection, a smartphone app and access to an online portal. A com-puter 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 cus-tomers to see how much energy they are using in the home at any time, where any “energy guzzlers” are hid-ing 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 gas-es 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

produced is also used, however. The product of the reaction is pure wa-ter, 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 aero-plane. 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 Econom-ics and Technology. Among its other responsibilities, the Agency has regu-lated the German gas and electricity networks together with the relevant regional authorities since July 2005.

Intelligent load manager

An EWE product that connects indus-trial or biogas plants with EWE via a communication module so that they can be controlled remotely. EWE uses information technology to net-work many plants into a single, vir-tual power plant that produces elec-tricity 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 al-lows operators of industrial plants to reduce their energy costs.


Megawatt

One million watts. The watt is a meas-ure 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 me-tre 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 Cen-tre 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 pho-tovoltaic 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 Ener-gies 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 guaran-teeing that it will be purchased.

Photovoltaics

The direct transformation of radi-ant energy, primarily solar energy, into electrical energy. It has been used since 1958, initially for supply-ing power to space satellites using solar cells. Nowadays it is used all over the world for generating pow-er 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 sourc-es (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 geother-mal power.

Renewable Energy Act (EEG)

The Renewable Energy Act (EEG) was passed in its original form on 29 March 2000 and is intended to con-serve fossil energy resources and pro-mote 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 pow-er generated from renewable sources.

Replacement reserve / replacement reserve market

The base load covers the predict-able demand of all electricity cus-tomers for electricity. If more elec-tricity 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 elec-tricity must be consumed quickly or power plants feeding in the electric-ity must be shut down to keep the grid in balance. This compensation method is called control energy and is performed at three different lev-els. 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 stor-ing 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. Exam-ples include not only photovoltaics systems, emergency power genera-tors and combined heat and pow-er plants, but also cold stores and industrial processes. virtual power plants enable renewable energies to be integrated efficiently into the ex-isting 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 au-tomation that increase household efficiency and comfort and make intelligent use of renewable ener-gies. Thousands of specialists from the region have learnt how to use the building automation, home au-tomation and energy technology of the future at zentrumzukunft.

169service

List of abbreviationsAktG Aktiengesetz, the German Stock Corporation Act App Short for applicationCHP Combined heat and power plantBTC BTC Business Technology Consulting AGDEHSt Deutsche Emissionshandelsstelle,

the German Emissions Trading AuthorityDOTI Deutsche Offshore-Testfeld und

Infrastruktur-Gmbh & Co. kGDSL Digital Subscriber LineEBIT Earnings before interest and taxesEBITDA Earnings before interest, taxes, depreciation

and amortisationEBT Earnings before taxesEEG Erneuerbare-Energien-Gesetz,

the German Renewable Energy Act

ENBW Energie Baden-Württemberg AGGuD Gas and steam turbine power plantHGB handelsgesetzbuch, the German Commercial Codehtp hannovers Telefon Partner GmbhICS Internal control systemICT Information and communications technologyIFRS International Financial Reporting StandardsMVR Müllverwertung Rugenberger Damm Gmbh & Co. kGMW MegawattsRIFFGAT Offshore wind farm project by EWE and its business partnersTRAC-X TRAC-X Transport Capacity Exchange GmbhVDSL very high Speed Digital Subscriber Line (see DSL)VNG verbundnetz Gas AG, Leipzig

IndexAccounting 66 Accounting methods 69, 77–103Actuarial assumptions 128Annual General Meeting 27, 28, 52, 104, 124, 125

Balance sheet total 55, 62, 120, 135Biogas 4, 13, 166 Biogas plant 6, 12, 13, 46, 51, 167Boards, company bodies 158–159Borrowing costs 87

Capital expenditure 22, 26, 34, 49, 50, 55–61, 103, 134, 142, 151, 152, 154Carbon footprint 17Cash and cash equivalents 72, 76, 100, 138–140, 144, 164Cash flow 56, 61, 64, 71, 74, 76, 91–94, 96–99, 105, 112, 116, 117, 125, 136, 137, 142–145, 154Cash Flow Statement 44, 61, 69, 76, 77, 100, 124, 154, 162CO2 footprint 16, 17, 166Consolidated financial statements 28, 48, 52, 69, 77–79, 81, 103, 104, 106–108, 160, 161, 162Contingent liabilities 104, 105, 134Corporate Centre / Consolidation 43, 48, 54, 56, 57, 78, 124, 150, 151, 153, 162Credit facility 56, 142Credit risk 63, 144

Default risks 144Deferred taxes 71–73, 84, 112, 132–134, 152, 106 Discount rates 101, 117Dividend payment 56, 74

Early recognition system for opportunities and risks 63, 66EBIT 49, 54–60, 68, 70, 76, 127, 151, 152

EBITDA 56Energy turnaround 22, 23, 27, 39, 40, 65, 68, 167Energy taxes 54, 70, 82, 109Equity 55, 62, 73, 75, 78, 80, 83, 84, 92, 94, 98, 106, 112, 125, 135, 137, 147, 149, 155, 156, 164Equity method 43, 52, 54, 72, 79–81, 104, 107, 111, 120, 124, 152, 156–158Equity 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, 149Financial 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, 146Financial liabilities 73, 76, 94–96, 107, 132, 146, 152Financial statements 28, 34, 60, 62, 64, 162, 163, 165Financing 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, 164Interest rate risk 64, 98, 146, 147Inventories 70, 72, 76, 99, 121, 133

Liquidity risk 105, 142

Market risks 63, 145–148

Other income 54, 71, 75, 125Operating leases 87, 135

Pension provision 60, 66, 75, 111, 133, 159Personnel expenses 54, 60, 70, 109, 127, 130, 152, 165Proposal for the appropriation of profit 28, 125, 160Provisions for recultivation 101, 106, 130

Rating 31, 35, 49, 56, 65, 144Rating Category 138, 139, 142Renewable energies 6, 9, 13, 15, 23, 33, 36, 39, 44, 47, 50, 167, 168Research 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, 164Return on sales 49, 171Risk management 34, 63–66, 97, 135, 137, 142, 146

Sales 22, 38, 55, 60, 68, 82, 109, 150Segment reporting 77, 109, 150Subscribed capital 73, 74, 123, 164Subsidiaries 43, 46, 48, 61, 66, 71, 77, 150, 159, 160Successful efforts method 86

Tax reconciliation 113Tranche 44, 131Transaction costs 87, 90, 95, 96Transparency 16, 41, 42, 48Total cost method 77

Value in use 99

WACC (weighted average cost of capital) 117Wind energy 4, 8, 9, 37, 39, 46, 109, 134, 168Wind farm 6, 8, 9, 44–46, 166, 168


Financial calendar 2012

Tuesday, 17 April 2012 Annual report 2011 – Press conference on financial statements

Wednesday, 22 August 2012 Interim report 2012

This annual report contains forward-looking statements based on assump-tions and estimates by the manage-ment of EWE AG. Although company management believes that these assumptions and estimates are accu-rate, actual future developments and results may differ considerably from these assumptions and estimates due to a wide variety of factors. These

Forward-looking statements

Published byEWE AktiengesellschaftDonnerschweer Straße 22–2626123 Oldenburg

Team editorial and textEWE AktiengesellschaftCorporate CommunicationsPhone: +49 (0) 4 41/48 05-18 30Email: [email protected]

Concept and designIR-One AG & Co., hamburgwww.ir-1.com

PhotographyStephan Meyer-Bergfeld, OldenburgAvenue Images, EWE picture library

Imprint

Printed byzertani Gmbh & Co. Die Druckerei kG, Bremen

EWE on the Internetwww.ewe.com

factors may include changes in the general economic situation, in the sta-tutory and regulatory framework for Germany and the Eu, and in the sector. EWE AG is neither liable for, nor gua-rantees that future developments and the actual results achieved in future will coincide with the assumptions and esti-mates made in this annual report. EWE AG neither intends nor assumes any

obligation to update for ward-looking statements to reflect events or deve-lopments after the date of this report.This annual report also exists in Ger-man; in the event of any divergences, the German version of the annual report has prece dence over the Eng-lish version. Both language versions are available for download from http://www.ewe.de.

Five-year financial summary EWE Group


adjusted2009

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

Sales1 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

Borrowings2 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 taxes2 Bonds and liabilities to banks3 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 resultin rounding differences of +/- one unit(euro, per cent, etc.).

EWE AktiengesellschaftDonnerschweer Straße 22–26, 26123 Oldenburgwww.ewe.com

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