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In a difficult market environment, SWM succeeded in increasing its EBIT by nearly 10% to EUR 518 million in

2016. SWM thus continued the favourable development it had recorded in the previous year, which shows

that our core business is still resting on a rock-solid foundation. Further contributions were made by the cost-reduction measures within the framework of our “Sustainably fit” programme and rising revenues from energy

generation from renewable sources. This provides confirmation for us that the early and decisive entry into

renewable energies was the correct decision not only from an ecological, but also from an economic perspec-

tive, giving SWM more favourable prospects than other energy suppliers in Germany.

Nevertheless, SWM closed the 2016 financial year in negative territory, posting a consolidated net loss of

EUR 164 million. This was due to extraordinary non-recurrent burdens arising from the exit from nuclear power.

Impairments on gas extraction plants also had to be recognised in the balance sheet, as we adopted even more

conservative expectations for future gas prices.

In the future, too, the market environment in our business segments will remain challenging: energy supply

continues to be characterised by substantial structural changes. In public transport, high investments in the

expansion and modernisation of our infrastructure and vehicle fleet are on the agenda. We will continue the

refurbishing of our public pools. This means that SWM will continue to operate at the crossroads between

margin erosion in its traditional core business and the enormous capital required to finance important invest-

ments in the future.

We are taking on these challenges with confidence. In autumn 2016, we thus launched the SWM22 initiative,

a far-reaching strategy and efficiency enhancement project that will help us make our income positive, further

improve our competitiveness and find answers for innovative and important solutions to major urban issues of

our time. What will Munich look like in the future? What economic, social and technological trends will shape

our business? What new income and efficiency potential will emerge for us from these developments?

We took a close look at these and many other questions in interdisciplinary work groups. The interdisciplinary

approach was chosen because we are firmly convinced that our ability to offer new services through improved

networking across all business units and thus tap new business areas will be an important key to our future

business success.

The project will run throughout 2017, but critical elements of our strategy have already be confirmed or

developed further:

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We remain a trail blazer in the expansion of renewable energies and stick to our ambitious goals in both the

electricity and heating segments: By 2025, we intend to be generating sufficient green electricity in our own

plants to cover all of Munich’s consumption. With our district-heating vision, which is unique in Germany, we

want to turn Munich into Germany’s first city to generate its district heating entirely from renewable energies

by 2040 – with a key contribution from the use of geothermal energy.

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Together with our MVG subsidiary, we intend to significantly expand our mobility services: We want to offer

people environmentally benign and city-friendly ways to rapidly reach their destinations in Munich.

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We will continue the extension of the fibre-optic high-speed network that we are installing together with

our M-net telecommunications subsidiary.

DEAR SWM CUSTOMERS AND

BUSINESS PARTNERS,

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ANNUAL REPORT 2016  STADTWERKE MÜNCHEN

Letter from the Management Board