Encavis : Annual Report 2023

Group operating KPIs*

• The Group operating KPIs are based solely on the company's operating profitability and do not take any IFRS-related valuation effects into account. The revenue includes sales totalling TEUR 11,528 (previous year: TEUR 24,856), which are skimmed off by the systems implemented throughout Europe to cap electricity prices, which is recognised as part of other expenses.
• Some of the figures for 2019 have been adjusted due to deferred tax assets and tax liabilities being recognised net for the first time in the 2020 financial year, thus making them not reconcilable with the corresponding annual reports.

2 Encavis AG ● ● ● Table of contents

Table of contents

3 FOREWORD FROM THE MANAGEMENT BOARD

6 THE ENCAVIS SHARE

8 REPORT OF THE SUPERVISORY BOARD

14 MANAGEMENT REPORT AND GROUP MANAGEMENT REPORT FOR THE 2023 FINANCIAL YEAR

64 CONSOLIDATED FINANCIAL STATEMENTS OF ENCAVIS AG

1. Consolidated statement of comprehensive income
2. Consolidated cash flow statement
3. Consolidated balance sheet

68 Consolidated statement of changes in equity

71 Notes to the consolidated financial statements of Encavis AG

1. ASSURANCE OF THE LEGAL REPRESENTATIVES
2. INDEPENDENT AUDITOR'S REPORT

177 GLOSSARY

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Foreword from the Management Board

Dear Shareholders,

Ladies and Gentlemen,

Encavis AG remains clearly on course for growth in the current 2024 financial year. We are working on shaping the turnaround in energy policy and consequently reducing the reliance on fossil fuels. Our Encavis Group wind and solar park portfolio, which is focused on Western Europe, is not affected by the war in Ukraine. Indirect effects from potential countermeasures taken by Russia in response to the sanctions imposed on the country are still not apparent at present. Despite the meteorologically weaker first half of 2023, our production volume for the past financial year exceeded the previous year's figure. The rise in production volume from 3,133 gigawatt-hours (GWh) to around 3,354 GWh in 2023 was mainly driven by the wind and solar parks acquired and connected to the grid for the first time in 2022. The overall output of the wind parks was lower than forecast due to the below-average weather conditions, while that of the solar parks was on target.

In the 2023 financial year, we acquired projects and project rights for around 550 megawatts (MW) of generation capacity, which corresponds to 1,000 GWh of electricity to be produced annually. This means that we have exceeded our own target of acquiring 750 GWh by a third - or more than 33 %!

Never before in our company's history have we acquired as many projects in a single financial year as in 2023. Today, we are able to acquire projects with significantly better returns than in previous years. The latest rise in interest rates on the market for financing the new parks will be more than offset by the lower purchase prices.

We continue to contribute to the major expansion of power generation capacity through renewable energies by realising profitable, low-risk projects. Our goal is to operate the wind and solar parks as efficiently as possible by largely standardising projects and contracts, enhancing the level of digitalisation we have achieved to date and taking additional measures. We want to operate parks profitably on the basis of private-sector contracts alone, without any subsidies. Our "Accelerated Growth Strategy 2027" focuses in particular on the core markets of Denmark, Germany, the Netherland, Italy and Spain.

The energy transition, i.e. the transformation of our energy production as a whole, must be a business case. As a company, we consistently optimise our business models and invest in sustainable processes and solutions. We, by which we mean not only industry, but also - regardless of party affiliation - policymakers, must shape the energy transition in such a way that it engages society and the economy as a whole and becomes successful for everyone. Our economic survival as a location also depends on whether we succeed in achieving this goal. That is what succeeding generations will judge us on.

Other countries such as China and the United States are making huge investments in this transformation. By contrast, uncertainty and scepticism prevail here. As a result, the biggest industrial transformation in 100 years will not take place in Germany. What we need now is a joint alliance of all democratic parties and a political framework that will last for several legislative periods. Transformation processes and the necessary investment decisions are designed for 20, 30 or 40 years and cannot be adapted or even revised after every change in the ruling coalition. We cannot and must not go back on commitments once we have made them. Only reliable prospects offer businesses planning and investment security.

By generating power from renewable energy, we are already making a crucial contribution to supplying environmentally friendly and sustainable energy. There is an abundance of sun and wind, and we are using them to drive a sustainable world. We have it in our hands to use all our resources sustainably in the long term and to continue to grow as a society and economy. As Encavis, we are paving the way into a green future as a Renewable Powerhouse with our approximately 230 solar parks and roughly 90 onshore wind parks in twelve Western European countries that are already saving around

1.3 million tonnes of harmful CO2 a year. To learn more about our sustainability strategy, as well as the latest measures and ongoing achievements in our Group-wide ESG efforts and ambitions, please refer to our Encavis AG sustainability report, which will be published on our website in an environmentally friendly online-only format from 7 May 2024 on: https://www.encavis.com/en/sustainability/.

As expected, the Group generated net operating sales below the very high prior-year level of EUR 449.1 million in the 2023 financial year (previous year: EUR 462.5 million), but above the planned level (guidance: more than

EUR 440 million). Compared to the meteorologically very strong previous-year period in 2022, which was also characterised by very high electricity prices due to the war, electricity revenue fell due to a substantial drop in prices in some cases and a return to more normal weather conditions. We were able to partially compensate for this through the wind and solar parks that were recently acquired and/or connected to the grid, as well as through the revenue from the fully consolidated Stern subgroup. The price-related reduction in net operating sales of around EUR 46.4 million had a negative impact on operating EBITDA, which now stands at EUR 319.2 million (previous year: EUR 350.0 million) and therefore also exceeds the guidance of "more than EUR 310 million" by around 3 %. This results in an EBITDA margin of around 71 % in relation to the Group's net operating sales. The decrease in this EBITDA margin was attributable to the inclusion of Stern Energy's service business in the Group's figures for the first time for the full-year period of 2023, since service business is associated with lower margins than electricity generation from renewable energy sources. In the PV Parks and Wind Parks segments, the operating EBITDA margin remained at its usual high level of more than 76 % after the deduction of revenue from the electricity price caps.

Operating earnings before interest and taxes (operating EBIT) fell only slightly to EUR 194.3 million (previous year: EUR 198.3 million) and also exceeds the guidance of "more than EUR 185 million" by a good 5 %. An operating financial result that fell only slightly despite the growth and significantly lower taxes on income compared to the exceptionally strong previous year ultimately lead to operating earnings per share of EUR 0.60, which is in line with the guidance and the previous year (both EUR 0.60). In these turbulent times, the Encavis business model is continuing to prove very resilient, with operating net revenue down on the previous year and operating earnings per share (operating EPS) at previous year levels.

The equity ratio as at 31 December 2023 increased from 28.1 % at the end of 2022 to 33.2 %. In this regard, the fully retained net profit for 2022 also had a positive effect.

Despite the reduced operating cash flow from operating activities in 2023 of EUR 234.9 million (previous year: EUR 327.2 million), cash available to the Group as at the end of 2023 for the Group's further growth stood at EUR 375.6 million (previous year: EUR 344.4 million). The majority of the decline in operating cash flow was due to the considerably lower electricity prices, resulting in around EUR 46.4 million lower operating wind and solar park revenue (price effect). Tax payments that were around EUR 34.2 million higher than in the previous-year period, also contribute to the difference between the 2023 cash flow and compared to the previous year. Another factor was the provisions and liabilities recognised in the previous year, including for the price caps already expected at the time, which affected EBITDA but not cash flow. These provisions and liabilities led to payments in the 2023 financial year. Overall, the operating cash flow for 2023 is therefore only slightly below our expectations. Around EUR 20 million of the decrease, mostly tax receivables and receivables from guarantors and insurance companies, have been deferred to the current financial year 2024. A further EUR 12.4 million from the sale of individual assets was not recognised in operating cash flow but in cash flow from investing activities. Only EUR 12.7 million in tax payments from the previous year 2022, which were reported differently in the plan, remain as a difference.

Dear shareholders, the massive expansion of renewable energy generation capacity is the only sustainable, environmentally-friendly and most cost-effective form of energy generation. Together, wind and solar power will account for over 90 % of the renewable energy capacity added in the next five years. Solar energy installations and onshore wind parks remain the cheapest options for generating power in most countries. The energy crisis marks a historic turning point towards a cleaner and more secure energy supply. The European Commission's plan to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition, REPowerEU, of 18 May 2022 includes a special EU solar strategy to double photovoltaic capacity by installing new PV systems amounting to 320 gigawatts (GW) by 2025 and a total of 600 GW by 2030. This equates to more than four times the volume of new installations per year compared to the average installed capacity per year over the last ten years. The objective of covering 45 % of total final energy consumption using renewable sources by 2030 With its recently published power plant strategy, which aims to secure electricity demand during low-wind, dark periods (dark doldrums), the German government has once again made a clear commitment to phasing out coal and accelerating the expansion of renewable energies. Renewable energies already generate more than half of our electricity. According to the German government's plans, they should cover 80 % of electricity generation by 2030. This is gigantic growth, and we at Encavis are front and centre!

After the end of the 2023 financial year, we concluded an investor agreement in March of this year with a consortium of investors led by KKR and including the family-owned company Viessmann. The aim is to enter into a strategic partnership for the long-term growth of Encavis. The investor consortium has announced its intention to make a voluntary public

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takeover offer for all issued shares of Encavis AG against payment of an offer price of EUR 17.50 per Encavis share in cash. The Management Board and Supervisory Board currently consider the offer to be advantageous for the company and our stakeholders, subject to the review of the offer document and in compliance with all due diligence and fiduciary duties.

We firmly believe that our "Accelerated Growth Strategy 2027" will enable you to benefit considerably more from the tremendous growth opportunities that arise for Encavis AG through growth investments in completely new dimensions and magnitudes than from the distribution of a dividend with a cash outflow that would reduce these investments. That is why we will propose to the Annual General Meeting that the entire consolidated earnings for the period be retained for the 2023 financial year and carried forward to new account, and that no dividend be paid per voting share. Given the historically unique growth that lies ahead of us, in which we intend to play a major role, we are convinced that this is the best decision in favour of all our shareholders.

We are delighted to be able to invite you once again this year to an in-person Annual General Meeting in Hamburg on 5 June 2024, and to talk to you personally.

In light of the Encavis Group's business strategy, which is geared towards qualitative growth, and the yet again significantly reduced electricity price level, we expect only a moderate overall increase in our KPIs in the 2024 financial year. We aim to make up for a large part of the further significant drop in electricity prices through further revenue growth at Stern Energy, expanded wind capacities in Germany and a further increase in revenue at Encavis Asset Management in the current financial year. Most of the recent acquisitions from the previous year will not be completed until the end of 2024. As a result, they will not yet contribute to revenue in 2024. These new projects will be clearly reflected in the key figures in 2025.

Based on the existing portfolio as at 20 March 2024, and in anticipation of standard weather conditions for the 2024 financial year, the Management Board therefore expects a slight increase in operating revenue to over EUR 460 million (2023: EUR 449.1 million after deduction of electricity price caps of EUR 11.5 million). Operating EBITDA is expected to amount slightly more than EUR 300 million (2023: EUR 319.2 million). The Group anticipates operating EBIT of a bit more than EUR 175 million (2023: EUR 194.3 million). The Group expects operating cash flow of EUR 260 million (2023: EUR 234.9 million). The operating cash flow per share is therefore expected to amount to EUR 1.62 (2023: EUR 1.46). Overall, the Group remains fully on track for growth in line with the "Accelerated Growth Strategy 2027".

We would be very pleased if you, our Encavis AG shareholders, would continue to place your trust in us and accompany us on our path towards significantly stronger growth. Stay healthy during these times, and stay tuned to see how, with dedication and sound judgment, we ambitiously seize the opportunities of this age and shape our future successfully.

Hamburg, March 2024

The Management Board

The Encavis share

Share's key figures

*) Dividend proposal by the Management Board and Supervisory Board to the 2024 Annual General Meeting.

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focused on financing measures, such as the approval of several guarantee credit agreements with a total volume of EUR 35 million. The Supervisory Board also approved the co-operation with badenova AG & Co. KG for the joint realisation of 500 MW of electricity generation capacity from renewable energies in Germany.

Scope of topics/focus of deliberations

In the first half of the 2023 financial year, the Supervisory Board's discussions and resolutions focused on the further development of the growth strategy until the end of 2027. In addition, the remuneration system for the members of the Management Board was adjusted with regard to ESG criteria and the German Corporate Governance Code. The Supervisory Board also dealt with the latest developments in the market, in particular in the PPA market, the development of a co-operation with badenova AG & Co. KG and electricity price trends in Europe in the relevant core jurisdictions.

In addition, the range of topics included the annual and consolidated financial statements as at 31 December 2022, which - at the recommendation of the Audit Committee and following discussions with the auditing firm PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) - were approved by the Supervisory Board in its meeting on 27 March 2023. The Management Board and Supervisory Board also dealt with the preparation of the Annual General Meeting, which was held as an in-person meeting for the first time since the pandemic, and the associated implementation measures and legal requirements.

Other meetings centred on monitoring existing development partnerships, and forming new ones, as well as evaluating new opportunities relating to the expansion of the wind and solar park portfolio. New partnerships were established in the 2023 financial year, including a framework partnership with the German company Innovar Solar GmbH and an alliance with the Freiburg-based energy supply company badenova AG & Co. KG. The Supervisory Board also discussed the developments of national and European measures on the electricity market on a regular basis, particularly the planning concerning the expansion of renewable energies.

As part of the management report of the Encavis Group and its strategic development, discussions and consultations on the financing situation for new investments continued to play an important role. This is not only due to the change in interest rates within the 2023 financial year, but also due to the increased requirements in the area of ESG and sustainable investments on the part of the investors.

The Chairman of the Supervisory Board took part in the Corporate Governance Roadshow together with the company's Management Board at the end of October and beginning of November 2023. The Chairman of the Supervisory Board reported on the resulting findings and implementation measures at the December meeting of the 2023 financial year.

In addition, the Management Board reported to the Supervisory Board on the status of the company's pending ICSID arbitration proceedings against the Italian state and the possibility of a final arbitration award in the near future.

The Supervisory Board also addressed the development of electricity prices in Europe, the performance of the wind and solar parks and the status of investment projects. In addition, an outlook on current Group financing was provided. The agenda also included reports from the respective chairmen of both committees.

The Supervisory Board's deliberations also regularly focused on the presentation of investment resources, the development of the segments Wind and PV Parks as well as the Asset Management segment and financing for future projects. The Management Board regularly presented investment opportunities and discussed the current state of negotiations. In the process, the Management Board explained the financial conditions of these projects to the Supervisory Board in detail, along with the associated opportunities and risks. Opportunities to procure capital in order to finance further growth were also discussed in detail.

The Management Board reported on the development of the existing portfolio in all of the Supervisory Board's regular meetings. The development of other target markets was considered as well.

The investor agreement concluded by the company with an investor consortium led by KKR and Viessmann after the end of the 2023 financial year in March is also considered by the Supervisory Board to be advantageous for the company and its stakeholders at the current time, subject to the review of the offer document and in compliance with all due diligence and fiduciary duties.