Report on the Consolidated Financial Statements

Audit opinion

We have audited the Consolidated Financial Statements of

Energie AG Oberösterreich,
Linz,

and its subsidiaries (“the Group”), comprising the Consolidated Statement of Financial Position as of 30 September 2019, the Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement and the Statement of Changes in Equity for the fiscal year ending on that day, as well as the Notes to the Consolidated Financial Statements.

It is our opinion that the Consolidated Financial Statements comply with the statutory requirements and offer an adequately accurate representation of the asset and financial position of the Group as at 30 September 2019, as well as the Group's earnings position and cash flows during the fiscal year ending as of that date, in accordance with the International Financial Reporting Standards (IFRS), as they are to be applied in the EU and the additional requirements stipulated in § 245a of the Austrian Commercial Code (UGB).

Basis for our audit opinion

We have conducted our audit in accordance with EU Directive No. 537/2014 (AP Directive hereinafter) and the Austrian Principles of Proper Auditing of Financial Statements. These principles require the application of the International Standards on Auditing (ISA). Our responsibilities under these regulations and standards are set out in more details in section “Responsibilities of the Auditor in Auditing the Consolidated Financial Statements” of our audit certificate. We are independent from the Group in compliance with the Austrian corporate law and professional regulation and have discharged our other professional duties in accordance with these requirements. We are of the opinion that the audit evidence obtained by us is sufficient and suitable for forming the basis for our audit opinion.

Highly significant audit findings

Audit findings bearing special significance are findings concerning circumstances that, in our professional judgement, were the most significant for our audit of the Consolidated Financial Statements for the fiscal year. These findings were considered in the context of our audit of the Consolidated Financial Statements in their entirety as well as in forming our audit opinion, which we do not present separately for these findings.

Impairment of the cash generating unit “Electricity grid”

See section 5.5. of the Notes "Impairment of other intangible assets and property, plant and equipment" and 16.2. "Impairment of cash generating units without own goodwill".

Risks inherent in the Annual Financial Statements

Energie AG Oberösterreich has carried out impairment testing of the cash generating unit “Electricity grid” in the 2018/2019 fiscal year. This has resulted in the recognition of depreciation, amortisation and impairments in the amount of EUR 109.6 million.

In previous years, Energie AG Oberösterreich derived the recoverable amount from the attributable fair value less costs of disposal on the basis of the multiplier method. The determination relied on sales transactions of companies (grid operators) in countries with comparable regulatory models. Due to a lack of recently completed market transactions conducted by sufficiently comparable companies, the previous measurement method could no longer be applied after 30 September 2019. Energie AG Oberösterreich has therefore turned to determining the recoverable amount on the basis of the value in use. The company was supported by an external expert in determining whether recently completed market transactions are available and of sufficient comparability.

The assessment on the availability and comparability of market transactions is based on assumptions and estimates, e.g. with respect to the characteristics of the regulatory model, the company size criteria or the specific risk situation in individual countries. The measurement of the value in use of the cash-generating unit “Electricity grid” under IAS 36 requires assumptions and estimates, such as the estimated future cash inflows surpluses, as well as the determination of the applicable discount rate.

The Consolidated Financial Statements are therefore exposed to the risk of inadequate assumptions and estimates having a significant impact on the recoverable amount and therefore the recognised value of the cash-generating units reported in the Consolidated Statement of Financial Position, as well as the operating result in the Consolidated Statement of Income.

Our auditing approach

We have verified the assessment made with respect to whether comparable market transactions are available on completeness in consultation with our valuation experts and verified the underlying assumptions concerning the selection of comparable market transactions.

In consultation with our valuation experts, we have assessed the impairment testing carried out by the company as follows:

  • To form an opinion about the adequacy of internal planning of the impairment testing, we have examined the planning process and verified the planning data, on which the measurement is based, against the current budget figures approved by the Supervisory Board as well as the mid-term planning approved by the Management Board.
  • Additionally, we discussed the assumptions made for growth rates and operating results with the company's respective managers and ascertained to what degree external factors, particularly including the regulatory environment, were given adequate consideration.
  • We furthermore examined the methodology used for impairment testing and determination of the capital cost rates on their conformity with the applicable standards. Our valuation experts assessed the appropriateness of the assumptions made for determining the capital cost rate, on which the determination of capital cost rates were based, against market- and industry-specific reference values and verified the arithmetic accuracy of the calculation procedure.
  • We have also assessed the appropriateness of the disclosures made in the Notes.

Initial consolidation and purchase price allocation

See section 3.1 in the Notes - “Scope of consolidation – Principles“ and 5.1 “Estimates”.

Risks inherent in the Annual Financial Statements

Energie AG Oberösterreich previously held a 65% equity stake in ENAMO GmbH, as well as 100% of the limited partner's interest in Energie AG Oberösterreich Vertrieb GmbH & Co KG, in which ENAMO GmbH was the general partner. With effect on 1 April 2019, Energie AG Oberösterreich acquired the remaining 35% equity interest in ENAMO GmbH. As a result, Energie AG Oberösterreich obtained control over ENAMO GmbH and Energie AG Oberösterreich Vertrieb GmbH & Co KG. The total purchase price amounted to EUR 6.85 million.

IFRS 3 requires the previously held equity interest in Energie AG Oberösterreich Vertrieb GmbH & Co KG and ENAMO GmbH to be recognised at their fair value on the acquisition date. The result from the remeasurement of the previously held equity interests amounts to EUR 48.3 million and was recognised in the other operating income.

The allocation of the consideration and the fair value of the previously held interests to the acquired assets and assumed liabilities resulted in the recognition of customer relationships and the amount of EUR 41.7 million and goodwill of EUR 20.6 million.

The measurement of the customer relationships required for the purposes of the purchase price allocation is based on management appraisals with respect to the essential measurement assumptions, such as capital costs, the development of revenues and profit margins, and expected exchange rates.

The Consolidated Financial Statements are exposed to the risk that the previously held interests were not measured realistically and that the acquired assets and assumed liabilities were not identified in their entirety or measured inaccurately. There is also the risk that the disclosures made in the Notes to the Consolidated Financial Statements with respect to the acquisition are incomplete or inadequate.

Our auditing approach

Our audit carried out (in consultation with our valuation specialists) included the following fundamental audit measures:

  • We have gained an understanding of the acquisition transaction by conducting interviews with management personnel and other employees of Energie AG Oberösterreich, as well as by reviewing the relevant contracts. We have reconciled the total purchase price with the relevant purchase contract (assignment agreement) and the payment receipts.
  • We also evaluated whether the applied identification of the acquired assets and assumed liabilities conforms with the requirements under IFRS 3. We have assessed whether the applied measurement methods reconcile with the relevant measurement principles.
  • We have discussed the planning assumptions made for the determination of the fair values with the persons responsible for the planning, and ascertained whether external information and historical experiences were given adequate consideration. We have also verified the methodologically adequate calculation and appropriateness of the weighted capital cost rates. This included a comparison of the assumptions and parameters for capital costs against our own assumptions and publicly available data.
  • We have assessed the arithmetic accuracy of the measurement of identified assets and liabilities by verifying selected calculations under risk-oriented criteria.
  • We have further verified the accurate presentation of the corporate acquisition in the Consolidated Financial Statements of Energie AG Oberösterreich. This included an assessment of whether the disclosures made in the Notes with respect to the acquisition are complete and appropriate.

Responsibilities of the legal representatives and the Audit Committee for the Annual Financial Statements

The legal representatives are responsible for compiling the Consolidated Financial Statements and their compliance with the IFRS rules applicable in the EU and the additional requirements stipulated in § 245a of the Austrian Commercial Code (UGB), which requires a reasonably accurate representation of the Group's asset, financial and earnings position. The legal representatives are further responsible for the internal controls deemed necessary by them for preparing a set of Consolidated Financial Statements that is free from significant intentional or unintentional misrepresentations.

In compiling the Consolidated Financial Statements, the legal representatives have the duty to form an opinion on the Group's ability to continue its business operations, to disclose any relevant circumstances relating to the continuation of the business operations and to base their considerations on the principle of continued business operations, unless they intend to liquidate the Group, cease business operations or find themselves in lack of any viable alternative to such course of action.

The Audit Committee is responsible for supervising the Group's accounting processes.

Responsibilities of the auditors for the audit of the Consolidated Financial Statements

Our objective is to assure an adequate degree of certainty on whether the Consolidated Financial Statements in their entirety are free from significant intentional or unintentional misrepresentations and to issue an audit certificate that reflects our audit findings. An adequate degree of certainty means a high degree of certainty, but is not an absolute guarantee that the audit conducted in accordance with the AP Directive and the Austrian Principles of Proper Auditing, which require application of ISA, has in fact identified all significant misrepresentations that may be contained in the audited financial statements. Misrepresentations may result from malicious acts or misconceptions and are deemed significant if they could, individually or collectively, have a potential influence on the commercial decisions made by their readers on the basis of these Consolidated Financial Statements.

In conducting our audit in accordance with the AP Directive and the Austrian Principles of Proper Auditing, which require application of ISA, we form our opinions on the basis of our professional judgement and maintain a critical view of the circumstances presented to us throughout the entire course of the audit.

We further adhere to the following:

  • We identify and assess the risks stemming from any significant intentional and unintentional misrepresentations in the financial statements, plan our audit activities as a response to these risks, perform our audit activities and gain sufficient and suitable audit evidence to serve as the basis for our audit findings. The risk of significant misrepresentations resulting from malicious acts remaining undetected is higher than the risk resulting from misconceptions, because malicious acts may include fraudulent acts, forgery, intentional omissions, deceiving representations or the circumvention of internal controls.
  • In order to plan audit activities that adequately address the prevailing circumstances, we gain an understanding of the system of internal controls bearing relevance for our audit, but without the objective of forming an audit opinion on its effectiveness.
  • We evaluate the appropriateness of the accounting methods applied by the legal representatives, as well as the tenability of values estimated by the legal representatives and represented in the accounts and the disclosures associated with such estimates.
  • We draw inferences about the appropriateness of the legal representatives operating under the accounting principle of continued business operations, as well as, on the basis of the evidence presented to us for our audit, whether any events or circumstances are subject to a considerable uncertainty that would give rise to doubts about the viability of the Group continuing its business operations. If we arrive at the conclusion that a material uncertainty exists, we are obliged to draw attention to the associated disclosures contained in the Consolidated Financial Statements in our audit certificate, or to modify our audit certificate if these disclosures are inappropriate. We draw our conclusions on the basis of the audit evidence gathered by the date of our audit certificate. Future events or circumstances may however result in the Group resolving to discontinue its business operations.
  • We form an opinion on the overall presentation, structure and contents of the Consolidated Financial Statements including the disclosures therein, as well as on whether they present a suitable view of the underlying business transactions and events.
  • We issue our audit opinion on the Consolidated Financial Statements on the basis of sufficient and suitable audit evidence for the financial information of the business units or the business activities of the Group. We are responsible for managing, supervising and performing the audit of the Consolidated Financial Statements. We bear the sole responsibility for our audit opinion.
  • We consult with the Audit Committee on matters such as the planned scope and timing of the audit as well as significant audit findings, including any significant defects in the system of internal control system detected during our audit.
  • We also issue a statement to the Audit Committee confirming our adherence to the relevant professional requirements pertaining to our independence, and exchange information with the Audit Committee on all relationships and other circumstances that may reasonably be expected to affect our independence and, if applicable, any associated precautionary measures.
  • From the circumstances discussed with the Audit Committee, we determine those that had the highest significance for the audit of the consolidated financial statements for the fiscal year and are therefore the circumstances bearing special audit significance. We describe these circumstances in our audit certificate, unless public disclosure of a certain circumstance is prohibited by law or other legal requirement, or determine in very rare cases that certain circumstances should not be disclosed in our audit certificate because the negative implications of disclosing them could reasonably be expected to exceed the benefits for the public interest.

Other statutory and legal requirements

Report on the Group Management Report

Austrian corporate law requires an assessment of whether the Group Management Report reconciles with the Consolidated Financial Statements and whether it was compiled in accordance with the applicable legal requirements.

The legal representatives are responsible for compiling the Group Management Report in compliance with the requirements under Austrian corporate law.

We have conducted our audit on the basis of the professional principles for the auditing of the Group Management Report.

Audit opinion

We have formed the opinion that the Group Management Report complies with the applicable legal requirements, that it contains accurate information pursuant to § 243a UGB, and that it reconciles with the Consolidated Financial Statements.

Declaration

Our audit of the Consolidated Financial Statements and the knowledge gained about the Group and its business environment has not identified any material misrepresentations in the Group Management Report.

Other Disclosures

The legal representatives are responsible for the other required disclosures. Such other disclosures encompass all information presented in the annual report, with the exception of the Consolidated Financial Statements, the Group Management Report and the audit certificate. We expect to be provided with the Annual Report after the date of this auditor's certificate.

These other disclosures are not included in our audit opinion for the Consolidated Financial Statements and we give no assurance for their accuracy.

The audit of the Consolidated Financial Statements requires us to read these other disclosures as soon as they are made available and to decide whether, considering our understanding formed during the audit, they represent a material inconsistency to the Consolidated Financial Statements or are otherwise misrepresented in a significant way.

Additional information pursuant to Article 10 AP Directive

Our firm was elected auditors of the financial statements by the General Meeting held on 19 December 2018. The Supervisory Board has granted our firm the mandate to audit the company's financial statements on 12 June 2019. We have been the Group's auditors for more than 25 years.

We hereby declare that our audit opinion presented in Section “Report on the Consolidated Financial Statements” reconciles with the additional report to the Audit Committee pursuant to Article 11 of the AP Directive.

We hereby declare that we have not performed any prohibited non-audit services (Article 5 para 1 AP-VO) and that we have maintained our independence from the audited company during the conduct of our audit of the financial statements.

Responsible auditor

Mrs Mag. Gabriele Lehner is the auditor in charge of the audit of the Consolidated Financial Statements.

Linz, 3 December 2019

KPMG Austria GmbH
Chartered Accountants and Tax Consultants

Mag. Gabriele Lehner, Auditor (signature)

Mag. Gabriele Lehner
Auditor

The Consolidated Financial Statements with our audit certificate may only be published or disclosed in the format certified by us. This Auditor's Certificate refers exclusively to the full original Consolidated Annual Financial Statements and the Group Management Report issued in German. The provisions of § 281 para 2 UGB must be observed for any other versions.