Profit appropriation pursuant to the articles of association

Profit appropriation pursuant to the articles of association

Pursuant to the company’s articles of association, the profit is at the disposal of the general meeting of shareholders. Distributions from the profit may only be made if the financial statements show that this is permitted. The articles of association also state that the general meeting of shareholders may resolve to make interim distributions. The provisions of the articles of association and the law apply to the amount and formalities for this.

Independent auditor’s report

Independent auditor's report

To the shareholders and the Supervisory Board of Eneco Groep N.V. and all other stakeholders

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 2017 AND ASSURANCE REPORT CONCERNING THE STRATEGIC KPI’S 2017 INCLUDED IN THE ANNUAL REPORT 2017


Our opinion
Concerning the financial statements

We have audited the accompanying financial statements 2017 of Eneco Groep N.V. (“Eneco” or the “Company”), based in Rotterdam. The financial statements include the consolidated financial statements and the company financial statements.

In our opinion:

  • the consolidated financial statements give a true and fair view of the financial position of Eneco Groep N.V. as at 31 December 2017, and of its result and its cash flows over 2017 in accordance with International Financial Reporting Standards as adopted by the European Union (“EU-IFRS”) and with Part 9 of Book 2 of the Dutch Civil Code; and
  • the company financial statements give a true and fair view of the financial position of Eneco Groep N.V. as at 31 December 2017, and of its result for 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
Concerning the strategic KPI’s 2017


In our opinion:

  • the Strategic KPI's on page 8 of the Report 2017 (the “KPI’s”) provide, in all material respects, a reliable and appropriate reflection of the policies of the Company with respect to Corporate Social Responsibility and the business operations, the events and the performances in that area during 2017; and
  • the Board of Management Report 2017 on page 2 - page 67 and Annexes Board of Management Report on page 143 - page 165 (together the “Report”) has, in all material respects, been prepared in accordance with the Company’s internal accounting policies as disclosed in chapter 'Reporting policy' on page 151 to page 153 of the Report.

The Report contains prospective information, such as ambitions, strategy, targets, expectations and projections. Inherent to this information is that actual future results may be different from the prospective information and therefore may be uncertain. We do not provide any assurance on the assumptions and feasibility of this prospective information.

What we have audited
Concerning the financial statements

The consolidated financial statements comprise:

  • the consolidated balance sheet as at 31 December 2017;
  • the following statements for the year ended December 31, 2017: the consolidated income statement, the consolidated statements of comprehensive income, the consolidated changes in equity and the consolidated cash flow statement; and
  • the notes comprising a summary of the significant accounting policies and other explanatory information.

The company financial statements comprise:

  • the company balance sheet as at 31 December 2017;
  • the company profit and loss account for 2017; and
  • the notes comprising a summary of the accounting policies and other explanatory information.
Concerning the KPI’s

We have audited the KPI’s in the Report. The Report includes a description of the policies of Eneco with respect to Corporate Social Responsibility and the business operations, the events and the performances of in that area during 2017.

Basis for our opinion
Concerning the financial statements

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.

We are independent of Eneco in accordance with the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Concerning the KPI's

We conducted our audit in accordance with Dutch law, including the Dutch Standard 3810N “Assurance engagements relating to sustainability reports”. Our responsibilities regarding this audit are described in section ‘Our responsibilities for the audit of the financial statements, the Report and the KPI’s’.

We are independent of Eneco in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Materiality
Concerning the financial statements

Based on our professional judgement we determined the materiality for the financial statements as a whole at € 20 million. The materiality is based on a weighing of factors of which the most important are:

  • 0.8% of revenues from energy sales and energy related activities; and
  • 10% of profit before tax.

We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

We agreed with the Supervisory Board that misstatements in excess of € 1 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Concerning the KPI’s

We have determined materiality per KPI. The materiality per KPI is based on 5% of the realized value in 2017.

We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the annual report for qualitative reasons.

Scope of the group audit

Eneco Groep N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Eneco.

Our group audit mainly focused on significant business units. We have:

  • performed an audit of the financial information at the group entities Retail, Business to Business, Energy Trade, Generation & Storage, Eneco Belgium and LichtBlick; and
  • performed audit procedures on specific account balances, classes of transactions or disclosures at other group entities.

For the audit of Eneco Belgium we used the work of other auditors from within the Deloitte network. For the audit of LichtBlick we used the work of auditors from outside the Deloitte network.

By performing the procedures mentioned above at business units, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.

Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.

These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Business Combinations

Description of the key audit matter

How we have audited this key audit matter

During 2017 Eneco has obtained control over LichtBlick Holding AG (“LichtBlick”) in Germany and ENI Gas & Power N.V. and ENI Wind N.V. (together: “ENI”) in Belgium for a consideration of € 0.4 billion and € 0.3 billion respectively. Application of the acquisition method for these business combinations, in which the acquired assets, liabilities and contingent liabilities are recognized at fair value, resulted in the recognition of goodwill for € 0.2 billion and € 0.2 billion respectively.

The valuation of the acquired assets, liabilities and contingent liabilities at fair value is determined by management of Eneco and based on an evaluation of facts and circumstances on the acquisition dates. This valuation was a key audit matter in our audit because to an extent the valuation process is complex and subjective.

We have audited the accounting of the acquisitions LichtBlick and ENI. We have analyzed the fair value of most of the identified assets acquired, liabilities and contingent liabilities assumed which were used to allocate the respective cost prices and to determine the resulting goodwill.

In these analyses we have involved our internal valuation experts to evaluate the valuation methods applied by Eneco (mainly the ‘excess earnings method’ and the ‘relief from royalty method’) and we verified the most significant assumptions, including the expected future cash flows, the applied discount rate (“WACC”), the expected churn of the acquired customer bases, the economic life of assets and the ‘royalty rate’ where applicable based on historical trends and external sources.

A significant part of the respective considerations resulted in the recognition of goodwill which has been allocated to the (group of) cash generating units (“CGU’s”) of respectively Germany and Belgium.

We have also assessed the reasonableness of the goodwill recognized through our audit of the annual impairment test of goodwill.

The disclosures on the acquisition of the aforementioned entities are included in note 15 of the financial statements.

Impairment of (in)tangible fixed assets

Description of the key audit matter

How we have audited this key audit matter

The (in)tangible fixed assets constitute a significant part of the balance sheet of the Company. Circumstances on the energy markets and regulatory developments may lead to impairment of (in)tangible fixed assets.

Both

  • the examination of possible impairment triggers relating to the CGU’s, and
  • testing for an impairment - which Eneco is obliged to perform under EU-IFRS in respect of (groups of) cash generating units to which goodwill has been allocated

are significant to our audit given the volatility of electricity and gas prices and because to an extent the estimation process is complex and subjective and it is based on assumptions, among which the WACC.

The (in)tangible fixed assets comprise for a significant part of sustainable production assets and, as result of the acquisition of LichtBlick and ENI Belgium, customer databases, brand names and goodwill.

We have assessed the segment and CGU-structure that Eneco applies for the obliged annual test of goodwill impairment (“Impairment Test”). We have also assessed management’s examination of triggers indicating an impairment of (groups of) CGU’s. Finally we assessed that the Impairment Test for each group of CGU’s to which goodwill is allocated to determine whether the goodwill is impaired.

For our procedures we have used our internal valuation experts. We have evaluated the design and tested the implementation of internal control measures focused on the realization of the Impairment Test. We have verified the reliability of the information on which the expectations have been based and assessed the reasonableness, relevance and consistency of the assumptions applied. In this respect we have specifically focused on the WACC applied and the forecast of the cash flows in the value-in-use model. We have also examined the disclosures regarding the assumptions and the outcome of the Impairment Test as included in note 14 ‘Intangible Fixed Assets’ of the financial statements. There, among other matters, it is stated that the recoverable amount (value in use) of the (group of) CGU’s exceeds the carrying amount.

Estimation uncertainty when determining the Energy Reconciliation

Description of the key audit matter

How we have audited this key audit matter

The energy reconciliation for electricity and gas is where purchases and sales are reconciled (the “Energy Reconciliation”). The following processes play a key part in preparing the Energy Reconciliation: allocation, reconciliation, gross margin modelling, reconciliation records, and grid loss estimation. The Energy Reconciliation forms the basis for (the completeness of) the revenues from energy sales and the related balance sheet items.

The estimation of revenues within the Energy Reconciliation was one of our key audit matters, because to an extent the estimation process is complex and subjective and it is based on assumptions, among which the customers’ consumption of electricity and gas. In this respect we also refer to note 2.2 ‘Revenues’ and note 3 ‘Revenues from energy sales and energy-related activities’ in the consolidated profit and loss account, where the estimation of the revenues is explained in more detail.

We have tested the design and the implementation of internal control measures of the Company in respect of the process for preparing the Energy Reconciliation. In addition, we have verified the reliability of the information on which the estimation of revenues has been based and we have assessed the reasonableness, relevance and consistency of the assumptions applied. We have verified the arithmetic integrity of the Energy Reconciliation model. In this respect we have specifically focused on the standard annual consumption and the estimation of the influence of weather conditions on this consumption. In addition, we have performed audit procedures on the revenues still to be invoiced after year-end, including subsequent review testing in 2018.

Reliability and continuity of the automated data processing

Description of the key audit matter

How we have audited this key audit matter

For the reliability and continuity of its business operations and for the reliability of its financial reporting, Eneco relies heavily on (the connectivity between) systems, applications and interfaces (the “IT-infrastructure”). The design, existence and operating effectiveness of the IT controls with which the IT-infrastructure is managed, are critical for the reliability and continuity of Eneco’s processes and, thus, for the realization of the financial statements. The IT-infrastructure supporting the customer processes for example processes large volumes of transactions. Impairment of the integrity of (customer) data or downtime may lead to the invoicing and the estimation of revenues not being performed accurately, completely and timely whereas recovery is complex. The IT-infrastructure supporting Eneco’s trade activities is also critical because of the large volume, the significance for the financial results, and the complexity. This is why change management and data protection were among the major focus areas when performing our procedures.

We have tested the reliability and continuity of the IT-infrastructure, solely to the extent necessary within the scope of our financial statements audit. To this end, we have included specialized IT auditors in our audit team. Our procedures comprised the assessment of the IT-infrastructure developments relevant to the financial statements audit, and subsequently testing the design, the existence and the operating effectiveness of IT control measures. Our management letter to the Board of Management and the Supervisory Board reports the deficiencies that we have identified and our recommendations for further improvements. Following additional, controls and substantive procedures we have established that the deficiencies identified have not resulted in material misstatements in the financial statements. We refer to the paragraph 'Operational risks' on page 56 to page 59.

REPORT ON THE OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT

In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of:

  • the Report; and
  • the Other Information.

Based on the following procedures performed, we conclude that the other information:

  • is consistent with the financial statements and does not contain material misstatements; and
  • contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.

We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of the other information, including the Report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Engagement

We were engaged by the General Meeting as auditor of Eneco Groep N.V. as of the audit for the year 2017 and have operated as statutory auditor since that financial year.

DESCRIPTION OF RESPONSIBILITIES REGARDING THE FINANCIAL STATEMENTS
Responsibilities of Board of Management and the Supervisory Board for the financial statements, the Report and the KPI’s

The Board of Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

The Board of Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The Board of Management is also responsible for the preparation of the Report in accordance with the internally applied accounting principles as disclosed in the chapter 'Reporting policy' on page 151 of the Report, including the identification of stakeholders and the determination of material topics. Decisions made by the Board of Management with respect to the scope of the KPI’s and the accounting policies are disclosed in chapter 'About this report' on page 10 of the Report.

In this context, the Board of Management is responsible for such internal control as the Board of Management determines is necessary to enable the preparation of the financial statements, the Report and the KPI’s that are free from material misstatement, whether due to fraud or error.

The Supervisory Board is responsible for overseeing the Company’s (financial) reporting process.

Our responsibilities for the audit of the financial statements, the Report and the KPI’s

Concerning the financial statements

Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

We have exercised professional judgement and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.:

  • Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control..
  • Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
  • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
  • Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
  • Evaluating the overall presentation, structure and content of the financial statements, including the disclosures.
  • Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation..

Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.

We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identified during our audit.

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

From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.

Concerning the Report and the KPI’s

Our responsibility is to express an opinion on the Report based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standard 3810N “Assurance engagements relating to sustainability reports”. This requires that we comply with ethical requirements and that we plan and perform the audit to obtain reasonable assurance about whether the Report is free from material misstatement.

The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant for the preparation of the Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An assurance engagement aimed at providing reasonable assurance also includes evaluating the appropriateness of the reporting framework used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the Report.

Our main procedures included the following:

  • Performing an external environment analysis and obtaining an understanding of the sector, relevant social issues, relevant laws and regulations and the characteristics of the organization.
  • Evaluating the acceptability of the reporting policies and their consistent application, such as assessment of the outcomes of the stakeholder dialogue and the reasonableness of accounting estimates made by management.
  • Evaluating the application level in accordance with the Sustainability Reporting Guidelines of GRI.
  • Evaluating the design and implementation and operating effectiveness of the systems and processes for data gathering and processing of information as presented in the Report.
  • Interviewing management responsible for the sustainability strategy and policies at corporate level.
  • Interviews with relevant staff responsible for providing the information in the Report, carrying out internal control procedures on the data, and the consolidation of the data in the Report.
  • Investigating internal and external documentation, including examination of information on a test basis, to determine whether the information in the Report is reliable.
  • Analytical review of the data and trend explanations submitted with respect to the KPI’s.

Rotterdam, February 16, 2018

Deloitte Accountants B.V.


Signed on the original,



J.A. de Bruin