E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (March 2004)
39 slides from E.on's roadshow presentation, Mar 22, 2004
Slide 1: Driving Home Performance
“Driving Home Performance” Presentation by Dr. Wulf H. Bernotat, CEO Frankfurt-Roadshow March 22, 2004
Slide 2: Agenda
Agenda I. Strategic Achievements in 2003 II. E.ON Group Challenges Ÿ Create value from power-gas convergence Ÿ Strengthen core markets Ÿ Develop new markets Ÿ Electricity and Gas Regulation Ÿ CO2 Emissions Trading III. Financial Performance IV. Outlook & Summary 2
Slide 3: Strategic achievements in 2003 (1)
Strategic achievements in 2003 (1) • Strengthened European gas market position through acquisition of Ruhrgas, Germany’s and one of Europe’s largest gas companies • Completed “on.top” project to review strategic, structural and performance objectives • Confirmed strategy – integrated business model
Slide 4: Strategic achievements in 2003 (2)
Strategic achievements in 2003 (2) • Successfully divested non-core assets as well as compulsory divestments from Ruhrgas acquisition amounting to more than 4.6bn Euros • Selective expansion in existing core markets through the following transactions: • Majority shareholdings in JME and JCE in the C
Slide 5: Agenda
Agenda I. Strategic Achievements in 2003 II. E.ON Group Challenges Ÿ Create value from power-gas convergence Ÿ Strengthen core markets Ÿ Develop new markets Ÿ Electricity and Gas Regulation Ÿ CO2 Emissions Trading III. Financial Performance IV. Outlook & Summary 5
Slide 6: E.ON is committed to an integrated power-gas business model
E.ON is committed to an integrated power-gas business model Integrated power and gas business E.ON’s Market Unit structure Power Gas Power Gas Central Europe, Nordic, UK, US-Midwest Generation Production Integrated power and downstream gas businesses Trans- Supply/ Gives opportunity to extract value
Slide 7: Integration provides numerous opportunities to create value
Integration provides numerous opportunities to create value Pan-European gas • Improve leverage vs. gas producers – E.ON Group has Key Opportunities large gas customer supply base Nordic • Enhanced supply options for Sydkraft • Joint approach in infrastructure development UK • Ruhrgas gives enhanced
Slide 8: Germany –Power and gas convergence will offer potential opportunities for further synergies
Germany –Power and gas convergence will offer potential opportunities for further synergies • Downstream synergies • Midstream optimization • Small scale optimization in infrastructure 8
Slide 9: Midstream convergence gives opportunity for power-gas arbitrage
Midstream convergence gives opportunity for power-gas arbitrage Expected growth in Gas-fired generation … … leads to value chain convergence TWh 417 2020 • Developments differ from one country to 2010 319 2000 another 274 271 • Uncertainties due to power demand, price of 224 electricity and investme
Slide 10: Downstream convergence gives opportunity to extract cost synergies
Downstream convergence gives opportunity to extract cost synergies Number of dual fuel customers, e.g. UK European downstream integration benefits +2% 10.3 3 • Exploit operational synergies in No. of 10.12 customers +23.2% distribution and retail in m1 +22.4% 8.2 • Manage cross-commodity sales 6.7 a
Slide 11: Opportunity to extend vertically integrated gas business in UK and Nordic markets
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 - NBP Bacton Northern Route Emden Legend London Bunde NWE Hub Existing pipeline, 80 bar Zeebrugge Hub - Aachen Southern Route è Fl
Slide 12: Mid term investment plan reflects our aim to strengthen the integrated business model
Mid term investment plan reflects our aim to strengthen the integrated business model in core markets Investment plan 2004-06 in bn € Strategic directions of investments • Strengthen current position to better Gas – manage supply on European level strengthen 8.7 5.1 • Increase downstream involvement
Slide 13: New European markets offer potential in power and gas
New European markets offer potential in power and gas Expanding in new European markets Rationale § E.ON has strong position in core North European markets – focus is on enhancing integrated position § Limited opportunities to expand Eastern Europe westwards • Russia - strategy and options under eva
Slide 14: Future external growth subject to rigorous acquisition criteria
Future external growth subject to rigorous acquisition criteria Strategic Criteria Financial Criteria • Market attractiveness • Earnings enhancing in the first full (returns, growth, regulation, country risk) year after acquisition. • Target attractiveness • Returns exceeding cost of capital (asset
Slide 15: Relevance of Regulation to E.ON's Business Areas
Relevance of Regulation to E.ON's Business Areas Electricity Markets Generation Transmission Distribution Supply/Retail Germany UR R 1) R 1) UR 2) UK UR -- R UR Nordic UR -- R UR Gas Markets Production Transmission Storage Distribution Supply/Retail Germany -- R 1) UR R 1) UR UK UR -- -- -- UR Nordi
Slide 16: German electricity and gas regulation on track
German electricity and gas regulation on track Current status: Draft law published by Ministry of Economics and Labor (BMWA): • Equal importance will be placed on competition and security of supply • Pricing method is to enable investment required to ensure viability of networks • Electricity: Assoc
Slide 17: E.ON well positioned to respond to the challenges of CO2 Emissions Trading
E.ON well positioned to respond to the challenges of CO2 Emissions Trading Germany - E.ON Energie‘s power generation portfolio characterized by low emissions - Various abatement potentials in a diversified portfolio - Excellent position for increasing gas-share UK - Powergen‘s balanced generation po
Slide 18: Agenda
Agenda I. Strategic Achievements in 2003 II. E.ON Group Challenges Ÿ Create value from power-gas convergence Ÿ Strengthen core markets Ÿ Develop new markets Ÿ Electricity and Gas Regulation Ÿ CO2 Emissions Trading III. Financial Performance IV. Outlook & Summary 18
Slide 19: Commitment to ambitious financial targets and at least a strong single “A” rating
Commitment to ambitious financial targets and at least a strong single “A” rating ROCE 1 in % Free cash flow in bn € Dividend per share in € 9.5% Cumulated defined ‘03e-'06e 21.0 11.5 > 10 % CAGR capital cost > 10.5 benchmark (2002) 9.3 1.75 9.5 2002 2006e Cash provided Fixed Free cash 2002 2006e by
Slide 20: Delivered strong financial performance in 2003
Delivered strong financial performance in 2003 in billion € 2003 20021 +/- % EBIT2 6.2 4.6 +34 Internal operating profit3 4.6 3.8 +20 Net Income 4.6 2.8 + 67 Free cash flow4 2.9 0.4 +612 ROCE (in %) 5 9.9 9.2 +0.76 Proposed dividend per share € 2.007 € 1.75 8 +14 Total dividend amount 1.3 1.1 + 15 1
Slide 21: Well on track to achieve our Adjusted EBIT targets by 2006e
Well on track to achieve our Adjusted EBIT targets by 2006e Objective 2006e Levers for Adjusted EBIT improvement in bn € Adjusted 1 • Contribution from acquired companies (Powergen, Ruhrgas) EBIT • Organic growth 6.7 3 6.2 + 20 % • Operational improvement of < 1bn € 4 through 0.62 - Operational exce
Slide 22: Strong commitment to rewarding shareholders year on year
Strong commitment to rewarding shareholders year on year in € Dividend per share 2.00 1.60 1.75 1.35 1.25 0.97 1.07 1.07 0.77 0.87 0.66 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20031) VEBA: 1993 – 1999 E.ON: 2000 – 2003 1) Proposal subject to the approval at the AGM 22
Slide 23: Agenda
Agenda I. Strategic Achievements in 2003 II. E.ON Group Challenges Ÿ Create value from power-gas convergence Ÿ Strengthen core markets Ÿ Develop new markets Ÿ Electricity and Gas Regulation Ÿ CO2 Emissions Trading III. Financial Performance IV. Outlook & Summary 23
Slide 24: E.ON Group - Outlook 2004
E.ON Group - Outlook 2004 Group EBIT: Expected to surpass record result of 2003 EBIT by Market Units: Central Europe Expected to rise above last year’s level Pan-European Gas Expected to remain below last year’s extraordinarily high level UK Expected to markedly improve Nordic Expected to report a n
Slide 25: Summary
Summary • E.ON - the world’s largest investor owned energy utility company • Strong balance sheet and one of the best ratings in the utility industry • Focused approach to strategic development and delivering performance • Clear commitment to ambitious performance targets 2003-2006 • Delivery agains
Slide 26: New Energy
New Energy
Slide 27: Back-up Charts
Back-up Charts
Slide 28: Electricity - basic factors that shape wholesale prices
Electricity - basic factors that shape wholesale prices Forwardmarket year ahead, Baseload 60 50 40 €/MWh 30 20 10 0 01.01.2002 01.04.2002 01.07.2002 01.10.2002 01.01.2003 01.04.2003 01.07.2003 01.10.2003 01.01.2004 Germany UK Nordic • Price increase of raw materials; such as coal, oil and gas • Cap
Slide 29: Gas - Non-competitive factors for Ruhrgas
Gas - Non-competitive factors for Ruhrgas • Temperature • Oil price • General economic development • Energy taxation Mean annual temperature Peak temperature Oil price (Brent) [ °C ] [ °C ] [ US-$/bbl ] 12 2 40 0 35 11 -2 30 10 -4 25 9 -6 20 -8 8 15 -10 7 -12 10 6 -14 5 1963 2003 1963 2003 1978 2003
Slide 30: Ruhrgas Sales by Sectors
Ruhrgas Sales by Sectors Ruhrgas Sales Region 52 % 18 in Germany Regional Customers Distributors Kiel Kiel 26 % approx 80 Local Emden Emden Hamburg Hamburg Utilities Bremen Bremen approx approx Customers Berlin Berlin 1,100 1,800 Osnabrück Osnabrück Hannover Hannover Frankfurt /Oder /Oder Münster Mü
Slide 31: Main Elements of Import Contracts
Main Elements of Import Contracts Duration Duration •• between between 15 15 and and 25 25 years years •• mainly mainly “base “base load” load” (with (with low low flexibility) flexibility) Flexibility Flexibility •• in in some some cases cases “structured “structured volumes” volumes” Delivery Deli
Slide 32: Long-term Contracts Remain Backbone of European Gas Supplies
Long-term Contracts Remain Backbone of European Gas Supplies Billion m3 560 500 Considerable investment required 400 Imports to develop new gas fields and 240 370 437 to launch new infrastructure projects bringing more distant supplies to West European markets 160 130 123 Domestic 2002 2010 2020 Gas
Slide 33: The EU Directive: CO2 Emissions Trading Scheme
The EU Directive: CO2 Emissions Trading Scheme •Europe’s Kyoto commitment: -8% Greenhouse Gas (GHG) Emissions in 2008-2012 vs. 1990 (already –2.3%) •Germany’s EU commitment: -21% lower GHG emissions in 2008-2012 vs. 1990 (already –19%) •UK’s EU commitment: -12.5% lower GHG emissions in 2008-2012 vs.
Slide 34: Market Units – Preliminary Key Financial Figures 2003
Market Units – Preliminary Key Financial Figures 2003 Pro forma figures (unaudited) in million € Sales Adjusted Adjusted Capital ROCE Cashflow1 EBITDA3 EBIT Employed 3 (%) Central Europe 19,254 4,471 2,979 17,037 17.5 4,077 Pan-European Gas6 12,973 1,889 1,463 13,847 10.6 1,027 UK 7,923 1,036 610 8,
Slide 35: Market Units – Pre-tax Cost of Capital
Market Units – Pre-tax Cost of Capital as of January 1st, 2004 in % Central Europe 9.0 Pan-European Gas 8.2 UK 9.2 Nordic 9.0 US-Midwest 8.0 Viterra 7.3 Degussa 9.61 E.ON Group 9.0 1) Due to equity consolidation, the cost of capital for Degussa equals the cost of equity after taxes 35
Slide 36: E.ON Group – Improvement of Net Financial Position
E.ON Group – Improvement of Net Financial Position1 in billion € 0 +5.5 -9.2 -7.9 -12.5 -1.2 +9.0 -1.62 +2.1 Net financial Divestments/ Cash provided Investments Consolidation Dividends Other effects Net financial position as of deconsolidations by operating of acquisitions position as of Dec. 31, 2
Slide 37: Update on E.ON-Rating
Update on E.ON-Rating Moody‘s (A1, „review for possible upgrade“) - E.ON’s A1 Rating placed on review for possible upgrade on March 2, 2004 - The action follows the release of our more narrowly defined medium-term plan in December and subsequent discussion with the E.ON-Management. - Moody’s will be
Slide 38: E.ON Group - Financial Policy
E.ON Group - Financial Policy • Centralization of Group funding in order to maximize financing efficiency and minimize structural subordination issues. • Over time, all subsidiary debt will be refinanced at the level of E.ON AG (except in cases of regulatory constraints and economic disadvantage, e.
Slide 39: Forward-looking statements disclaimer
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