E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (August 2005)
61 slides from E.on's roadshow presentation, August 2005
Slide 1: Delivering Profitable Growth and Performance
“Delivering Profitable Growth and Performance“ Presentation by Dr. Wulf Bernotat, CEO E.ON AG US-Roadshow Citigroup Smith Barney August 2005
Slide 2: Three phases of E.ON's corporate development since 2000
E.ON Group - Three phases of E.ON‘s corporate development since 2000 2000-2003 2003-2005 since 2005 Transformation into a Integration Growth in the Focused Energy Company and Performance Energy Business Ÿ New challenges within the Ÿ Confirmation of our focus on Ÿ Earlier than expected earnings core
Slide 3: Focus and Growth since 2000
E.ON Group - Focus and Growth since 20001 in billion € Acquisitions Transaction Closing Date Divestments Transaction Closing Date Volume Volume Powergen 15.3 07/02 E-Plus 4.3 02/00 Ruhrgas (100%) 11.2 01/03 Cablecom 1.0 03/00 TXU retail business 2.5 10/02 Gerresheimer Glas 0.5 07/00 E.ON Energie VEB
Slide 4: Profitable growth through focus on performance improvement
E.ON Group - Profitable growth through focus on performance improvement E.ON Performance development 12% 10% ROCE Cost of Capital 8% 6% 11.3% 10.3% 9.3% 9.9% 8.0% 4% 2% 0% 2000 2001 2002 2003 2004 4
Slide 5: Significant growth steps since 2003
E.ON Group - Significant growth steps since 2003 despite ambitious performance targets Small and medium size investments of more than € 7 bn Upstream-Projects North Sea, especially Njord Construction of wind Acquisition of power Graninge Enfield gas-fired power station Consolidation of Czech downstr
Slide 6: Strategic review 2005 for further value creation
Strategic review 2005 for further value creation We will maintain the overall direction set by “on.top“ Overall Ÿ Continue to deliver performance direction Ÿ Maintain focus on core European markets unchanged Ÿ Stay in the USA, organic growth as a top priority Ÿ LNG as a possible opportunity to diver
Slide 7: Operational improvement in the energy business
Operational improvement in the energy business – A continuing group-wide process to create further value in million € ON.TOP operational improvement program • Operational improvement of 1bn€1 of 1 billion € through: - Operational excellence (e.g. best (2003 – 2006) practice transfer in generation, t
Slide 8: We focus on five core markets with strong positions in power and gas
We focus on five core markets with strong positions in power and gas US-Midwest Nordic Kentucky: No. 1 in power generation No. 4 in power generation and in power/gas retail UK No. 3 in power/gas retail No. 2 in power generation and in power/gas retail Pan-European Gas No. 3 in gas supply Central Eur
Slide 9: Central Europe – Fortify strong market position
Central Europe – Fortify strong market position in power and downstream gas Key issues E.ON's strategic direction • Downstream participations partially Broaden scope fragmented of power generation, e.g. waste-to-energy Hedge retail position with • Partially unbalanced portfolio remaining in generati
Slide 10: Pan-European gas – Strengthen and diversify
Pan-European gas – Strengthen and diversify Key issues E.ON's strategic direction • Break-up of traditional roles, regional production Selective equity and import regimes within Europe gas in North Sea and strengthen partnership with Gazprom • Increased opening of European gas markets creates new ch
Slide 11: Opportunity to extend vertically integrated gas business in UK and Nordic
Opportunity to extend vertically integrated gas business in UK and Nordic markets Njord (Norwegian Sea) St. Fergus Scoter Elgin Glenelg Franklin West-Franklin Equity-Gas Holford Gas - Storage Bacton NBP Northern Route Emden London Bunde NWE Hub - ZeebruggeHub Aachen Southern Route • Construction of
Slide 12: UK – Optimize existing strong market position
UK – Optimize existing strong market position Key issues E.ON's strategic direction Power generation • Environmental policy driving economics of power generation Invest in flexible and • Increasing volatility of commodity prices lower carbon Work with E.ON Ruhrgas intensity generation to optimize ga
Slide 13: Nordic – Stable position in consolidating market
Nordic – Stable position in consolidating market Key issues E.ON's strategic direction Power generation – Stabilized market due to normalization of hydropower reservoirs and high Acquire/build additional availability of nuclear power but volatility will generation capacity remain high and may be rei
Slide 14: US-Midwest – E.ON confirms long-term commitment
US-Midwest – E.ON confirms long-term commitment Key issues E.ON's strategic direction Stable regulatory environment in Kentucky and strong local market coverage Current focus is on • Provides sustainable competitive position organic growth in Kentucky; long-term external • Drives future profitabilit
Slide 15: Expansion into potential new markets
Expansion into potential new markets Rationale Russia • Southern and Eastern Europe as attractive potential new markets for Ÿ MoU with Gazprom E.ON to expand its business model Eastern Europe Ÿ Bulgaria (Gorna, Varna) Ÿ Romania Italy (Distrigaz North, Electrica Moldova) Ÿ Gas downstream (Thüga Itali
Slide 16: Extending integrated position in Eastern Europe
E.ON continues to extend its strong integrated position in Eastern Europe E.ON involvements in power E.ON involvements in gas Czech Rep. Czech Rep. PP ZCP STP VCP SMP ECR ECD JCP ECE JMP Slovakia Slovakia ZSE SPP EDD FOGÁZ ETI Moldova Hungary EDE Hungary KÖGÁZ1 Distrigaz North MOL DDGÁZ2 Romania Rom
Slide 17: In Italy E.ON pursues growth activities in power and gas
In Italy E.ON pursues growth activities in both power and gas Italian power market E.ON’s strategic moves in power Ÿ Europe’s 5th largest power market Investments in power generation (290 TWh) offering potential to reach • Build 800 MW CCGT power plant in significant scale in operations Livorno Ferr
Slide 18: Western Europe will increasingly rely on gas imports
Western Europe will increasingly rely on gas imports in bcm 660-715 585-625 6% 30% Supply gap 507 11% 4% Advanced projects 11% 10% 9% Other non-EU imports* 24% 21% 8% Algeria 15% 21% Russia 14% 5% 8% Norway 8% 10% Other EU imports 33% Netherlands 23% 16% Indigenous production Provisional data for 20
Slide 19: Gas supply strengthened through equity gas and potentially LNG
E.ON’s gas supply position is planned to be further strengthened through equity gas and, potentially, LNG Equity gas Potential LNG options Extend E.ON’s current small equity gas Strong projected growth in global LNG position in the North Sea demand of 9.1% to 2010 1 which gives E.ON opportunity to:
Slide 20: Cooperation areas with Gazprom
E.ON has identified various cooperation areas with Gazprom Memorandum of Understanding – July 8, 2004 Upstream Joint development of the gas field Yushno Russkoje (Western Siberia): Estimated start of production 2008, proven reserves of at least 25 years Russia Joint construction of the North Europea
Slide 21: Gas production in Russia: Yushno Russkoje
Gas production in Russia: Yushno Russkoje • Estimated start of production Yushno- Russkoje 2008 • Proven reserves of 7001 bcm or at least 25 years • Production of approximately 25 bcm p.a. (equivalent to yearly demand of Spain 100% or U.K. 25%) Tazovskoye • Total investment (100%) USD 1 bn • E.ON’s
Slide 22: North European Gas Pipeline
North European Gas Pipeline Tampere • Start of operations expected Kollsnes N O R W AY FINLAND between 2010 and 2012 • Planned investment (100%) Helsinki St. Petersburg Oslo Gävle Gryazovets Kårstø Volkhov from Vyborg to Greifswald S WEDEN Stavanger Tallin Valdai € 2.0 – 2.4 bn Stockholm Yaroslavl h
Slide 23: Russian energy market offers attractive growth opportunities
Russian energy market is of significant size and offers attractive opportunities for growth Power demand Gas consumption 4 4.0 630 405 in billion MWh in billion m3 1 1.0 0,9 0.9 0,6 0.6 0.5 0,5 96 87 0.4 0,4 76 71 43 US Japan Russia Germany France UK US Russia UK Germany Japan Italy France • The gov
Slide 24: Investment plan reflects selective approach
The investment plan reflects our selective approach towards future investments Investment plan 2005-07 in bn € Split of Investments 2005 - 07 Financial Investments 18.7 Strengthening position in upstream gas € 2.0 bn MOL1 € 0.7 bn Further acquisitions in Central Europe € 0.6 bn 6.1 Put-option on Syd
Slide 25: Strict strategic and financial investment criteria
All external growth opportunities are subject to E.ON’s strict strategic and financial investment criteria Strategic Criteria Financial Criteria • Market attractiveness • Earnings enhancing in the first full year (returns, growth, regulation, after acquisition country risk) • Returns exceeding cost
Slide 26: Ongoing review of the balance sheet
Ongoing review of the balance sheet Ordinary dividend of 2.35 Euros per share for 2004 • Represents a 17.5% year-on-year increase, thus keeping our ‘’on.top’’ commitment to double- digit dividend growth to 2006 • Position reinforced as a leading dividend payer amongst DAX companies Intention to retu
Slide 27: Dividend increase of 74% since 2000
E.ON Group – Dividend increase of 74% since 2000 Dividend per share +17.5% +14.3% 2.35 € 2.00 € +9.4% +18.5% 1.75 € 1.60 € 1.35 € 2000 2001 2002 2003 2004 Since 2000 double-digit growth rate on average: increase of 14.9% p.a. 27
Slide 28: Financial highlights
E.ON Group – Financial highlights First half in million € 2005 20041 +/- % Sales 28,408 24,588 +16 Adjusted EBITDA2 5,677 5,315 +7 Adjusted EBIT 3 4,297 4,022 +7 Net income 3,026 2,815 +7 Cash provided by operating activities 2,859 2,729 +5 Free cash flow4 1,808 1,687 +7 Net financial position5 -3,3
Slide 29: Adjusted EBIT by market unit
E.ON Group – Adjusted EBIT by market unit First half in million € 2005 20041 +/- % Central Europe 2,337 2,159 +8 Pan-European Gas 803 870 -8 U.K. 613 520 +18 Nordic 447 393 +14 U.S. Midwest 180 168 +7 Corporate Center -150 -170 - Core Energy Business 4,230 3,940 +7 Other Activities2 67 82 -18 Adjust
Slide 30: Outlook 2005
E.ON Group - Outlook 2005 Expected adjusted Group EBIT Slightly above last year’s record level Expected adjusted EBIT by Market Units: Central Europe To be above last year’s level Pan-European Gas To be slightly below last year’s level U.K. To be slightly above last year’s level Nordic To be on par
Slide 31: Our vision: the world's leading power and gas company
Our vision: “E.ON - the world´s leading power and gas company“
Slide 32: Back-up Charts
Back-up Charts
Slide 33: Central Europe – Electricity Wholesale Prices
Central Europe – Electricity Wholesale Prices EEX Germany– Last 12 months July 2005 Key Drivers 70 • Still high coal prices • High and volatile carbon prices 60 EUR/MWh 50 40 30 Legend base future for year+1 (2005/2006) base future for year+2 (2006/2007) • base spot (average of last 12 months) 20 ba
Slide 34: UK – Electricity Wholesale Prices
UK – Electricity Wholesale Prices Base load, OTC – Last 12 months July 2005 Key Drivers 70 • High and volatile gas forward prices and 65 carbon prices 60 55 GBP/MWh 50 45 40 35 Legend 30 peak forwards for year+1 (2005/2006) peak forwards for year+2 (2006/2007) 25 base forwards for year+1 (2005/2006)
Slide 35: Nordic – Electricity Wholesale
Nordic – Electricity Wholesale Base load, Nordpool – Last 12 months July 2005 Key Drivers 40 -30 • High and volatile carbon prices TWh • Influence of EEX • Hydro availability above normal levels 35 -20 • On May 31st, the 600 MW nuclear power station Barsebäck 2 was permanently disconnected from the
Slide 36: Europe – Coal and CO2 Prices
Europe – Coal- and CO2-Prices Coal, ARA – Last 12 months July 2005 Key Drivers 90 • Coal – Compared to April decrease of Coal prices 80 due reduced freight rates USD/t 70 60 50 40 CO2-Price-Index (Cal 05) – Last 12 months July 2005 30 30 25 25 20 20 • CO2 – Continuing high oil and gas prices EUR/t 1
Slide 37: Power prices approach investment break-even corridor
With increasing necessity to build new power plants, the power prices will approach and fluctuate within the investment break-even corridor German power forward prices (next-year deliveries) in €/MWh 55 Position taking Climate and Peak 50 of new commodity Avg. full cost new power competitors Enron p
Slide 38: New capacity of 2,000 MW by 2012 plus further 3,000 MW
In addition to our plans to create new capacity of 2,000 MW by 2012, a further 3,000 MW can be made available within a very short timeframe New capacity and flexibility through Option 2 boosting capacity, lifetime extensions Demothballing of power plants for power plants & demothballing Capacity Inc
Slide 39: Gas price adjustment
Gas price adjustment Oil indexation • Main competitors of natural gas are gas oil and fuel oil. • Long-term contracts need an automatic indexation. • Oil indexation secures competitive gas prices. • Example for oil indexation : - Price adjustment every 3 months; 1.1./1.4./1.7./1.10. - Reference peri
Slide 40: German gas import prices follow oil prices
German gas import prices follow the development of oil prices EUR/hl ct/kWh 50 2.00 Key drivers 45 • German gas import prices follow 40 oil price development (e.g. of 1.50 gas oil) with a time-lag 35 • In general gas prices for final 30 customers are following the same trend, however with a 25 1.00
Slide 41: Power – Regulation a key component of E.ON's business
Power – Regulation a key component of E.ON´s business E.ON´s Target Markets Generation Transmission Distribution Supply/Retail Central Europe: • Germany UR R1) R1) UR2) • Netherlands UR - - - • Czech Republic UR - R R/UR3) • Hungary UR - R R/UR3) • Slovakia - - R R/UR3) UK UR - R UR US (Kentucky) R
Slide 42: German energy law came into force in July
German energy law came into force in July • Establishment of a federal regulator supported by regulators on the state-level with ex-ante powers. • Cost regulation for existing investment partly based on current cost accounting; for new investments historic cost accounting. • Exemption from cost regu
Slide 43: Germany – Current status on network charges regulation
Germany – Current status on network charges regulation • Gas transmission: exemption from cost regulation accepted if grid-to-grid competition in transmission can be proved. • Gas distribution and electricity: calculation of allowed costs largely identical. • Cost of Capital: Return on equity 6.5% r
Slide 44: Germany - Only grid access fees to be regulated
Germany - Only grid access fees to be regulated 2004 (assumed consumption for a household: 3,500 kWh/a) Average price for households1: 17.96 ct/kWh CHP & Renewables Act 0.79 ct/kWh Eco tax 2.05 ct/kWh Grid access fees3 Concession fee 2 6.18 ct/kWh 1.79 ct/kWh VAT Only grid fees will be regulated 2.4
Slide 45: State burden on power prices
State burden on power prices 2004 (assumed consumption: 3,500 kWh/a) Average price for households 17.96 14.43 8.96 (in ct/kWh) State burden 40 % 38 % 5% Production/Grid/Sales 60 % 62 % 95 % Germany Sweden UK 45 Sources: Germany: VDEW; Sweden, UK: Eurostat (2004).
Slide 46: European grid fees comparison
European grid fees comparison 2003 80 Low Voltage1 70 Mid Voltage1 70 High Voltage2 Average grid fees in €/MWh 60 60 55 52 50 50 45 45 38 40 35 35 34 30 28 30 26 24 23 21 17 20 15 16 16 15 15 15 13 13 13 10,5 10 9 7 7,5 10 5,5 5,5 6,5 5 4 3 3,5 2 0 UK ly ain en e d y d ay ark um l Ita ia ga an nc la
Slide 47: E.ON is actively preparing for incentive regulation
E.ON is actively preparing for incentive regulation • Incentive regulation attempts to give incentives for productivity increases • German Regulator to develop concept for incentive regulation by mid 2006 • E.ON’s proposed model for power networks and gas-distribution networks encourages operators t
Slide 48: The Pro+ Model: schematic overview
The “Pro+”Model: schematic overview Incentive system with balanced mechanisms Capital costs Opex Revenue cap Revenue cap Incentive based on Incentive based on individual mechanism average productivity mechanism investment allowances improvement 48
Slide 49: E.ON's Pro+ model
E.ON’s “Pro+” model • Strong incentives to increase productivity • Complete transfer of average productivity increase to customers via accordingly reduced prices • Appropriate planning reliability and investment incentives to deliver adequate network quality and security • ”Pro+” model can be applie
Slide 50: German NAP (Act of August 25, 2004)
German NAP (Act of August 25, 2004) Free grandfathering based on historic 2000 - 2002 emissions Power + Industry sector 2000-02: 505 Mt CO2/a Total allocation proposed for 2005-07: 503 Mt CO2/a (- 0.4%) Total allocation proposed for 2008-12: 495 Mt CO2/a (- 2.0%) New entrants Reserve of 9 Mt CO2/a t
Slide 51: Effects of the NAP on E.ON Energie
Effects of the NAP on E.ON Energie • Overall, E.ON accepts the compromise, but objected the allocation for a few installations mainly because the authority didn’t follow our application or because of miscalculation of allowances • Total impact on E.ON Energie depends mainly on developments in the hi
Slide 52: Effects of emission trading on E.ON Group
Effects of emission trading on E.ON Group E.ON Energie objected to some of the allocations for its installations, but in general received the expected amount of allowances in Germany and Benelux (total allocation: 54 Mt CO2/a). E.ON Ruhrgas is satisfied with its allocation and received certi ficates
Slide 53: Reconciliation of pension provisions under the CTA structure
E.ON Group – Reconciliation of pension provisions under the CTA structure in billion € 15.9 6.4 Plan Assets UK, US Pension Obligations 0.91 8.6 0.82 7.8 2.4 Other adjustments Pension provisions Non CTA3 pension provisions Pension provisions 5.4 Changes in CTA4 31.12.2004 30.06.2005 1) Includes actua
Slide 54: Market units – Key financial figures 2004
Market units – Key financial figures 2004 in million € Sales Adjusted Adjusted Capital ROCE Pre-tax Cash- EBITDA1 EBIT1 Employed (%) CoC (%)2 flow3 Central Europe 20,752 4,908 3,602 16,938 21.3 9.0 2,938 Pan-European Gas 14,426 1,900 1,428 15,251 9.4 8.2 1,016 U.K. 8,490 1,592 1,017 11,446 8.9 9.2 6
Slide 55: Strong financial profile
E.ON Group - Strong financial profile 2004 2003 Adj. EBITDA1 16.0 x 14.8 x Net interest2 Adj. EBITDA1 192 % 120 % Net financial position3 Net financial position3 0.9 years 1.4 years Cash provided by operating activities Gross external debt4 33% 36% Total Capital 5 1) Non-GAAP financial measure; reco
Slide 56: Commitment to defend at least a strong single-A rating
Commitment to defend at least a strong single-”A” rating • When considering an optimum leverage structure, E.ON seeks to balance an efficient cost of capital with financial flexibility for profitable-growth opportunities • Based on our understanding of the rating agencies’ methods we regard the foll
Slide 57: Strong rating
E.ON Group - Strong rating Moody‘s (Aa3, „stable outlook“) • E.ON’s A1 Rating upgraded to Aa3 on April 30, 2004 • The rating reflects E.ON’s improving credit protection measurements and reduced debt, its more narrowly defined medium-term plan and investment discipline, its good underlying core opera
Slide 58: One of the strongest ratings within the peer group
E.ON Group - One of the Strongest Ratings Within the Peer Group As of July 27, 2005 June 2005: GdF Aa1 stable, AA - stable EdF Aa1 stable, AA- n.o. Aa1 Change in Moody‘s methology for companies with state support leads to upgrade by two notches Aa2 for EDF and GDF. Scottish & Southern Aa3 stable, A+
Slide 59: Market unit ratings within the E.ON Group
Market unit ratings within the E.ON Group as of June 30, 2005 E.ON AG/ E.ON International Finance B.V. Aa3 stable / AA- negative E.ON UK Holding E.ON US Invest- E.ON Energie AG E.ON Nordic Holding E.ON Ruhrgas AG Company Ltd. ment Corp. Aa3 stable Sydkraft AB Powergen Ltd. LG&E Energy LLC A stable A
Slide 60: Split of gross external debt
E.ON Group - Split of gross external debt1 As of December 31, 2004, in billion € Central Pan- U.S. Corporate E.ON European U.K. Nordic Viterra Europe Midwest Center Group Gas Bonds 0.0 0.0 0.5 0.5 0.9 7.2 0.0 9.1 Commercial paper 0.0 0.0 0.0 0.2 0.0 3.4 0.0 3.6 Bank loans/others 1.3 0.4 0.2 0.7 0.0
Slide 61: This presentation may contain forward-looking statements based on current assumptions and forecasts made by
This presentation may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development o