E.ON SE · XETR:EOAN
E.ON — 8th German Corporate Conference, Deutsche Bank 2005
52 slides from E.ON's conference presentation, May 31, 2005
Slide 1: Delivering Profitable Growth and Performance
„Delivering Profitable Growth and Performance“ Presentation by Dr. Wulf Bernotat, CEO, E.ON AG 8th German Corporate Conference Deutsche Bank May 31, 2005
Slide 2: 2006 major on.top targets achieved or even surpassed ahead of schedule
2006 major ‘’on.top’’ targets achieved or even surpassed ahead of schedule 2004 was an excellent year for E.ON Ÿ Adjusted EBIT of the energy business of at least 6.7 billion Euros achieved two years ahead of schedule Ÿ Achieved operational improvements of 590 million Euros out of the target of 1 bil
Slide 3: E.ON Group – Financial performance further improved
E.ON Group – Financial performance further improved First quarter in million € 2005 2004 +/- % Sales 16,418 14,622 +12 Adjusted EBITDA1 3,243 3,024 +7 Adjusted EBIT2 2,515 2,345 +7 Consolidated net income 1,459 1,455 - Cash provided by operating activities 1,724 1,090 +58 Free cash flow3 1,279 627 +
Slide 4: Operational improvement in the energy business
Operational improvement in the energy business – A continuing group-wide process to create further value in million € • Operational improvement of 1bn€1 through: ON.TOP operational improvement - Operational excellence (e.g. program of 1 billion € best practice transfer in (2003 – 2006) generation, t
Slide 5: 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 6: 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 7: 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 London Bunde NWE Hub Zeebrugge Hub - Aachen Southern Route • Construction of the BBL Pipeline f
Slide 8: Expansion into potential new markets
Expansion into potential new markets Rationale Russia • Southern and Eastern Europe as Ÿ MoU with Gazprom attractive potential new markets for 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 9: E.ON continues to extend its strong integrated position in Eastern Europe
E.ON continues to extend its strong integrated position in Eastern Europe Czech Rep. E.ON involvements in power E.ON involvements in gas Czech Rep. Czech Rep. PP ZCP STP VCP ECR ECD SMP JCP JMP ECE Slovakia Slovakia ZSE SPP EDD FOGÁZ ETI Moldova Hungary EDE Hungary KÖGÁZ1 Distrigaz North MOL DDGÁZ2
Slide 10: In Italy E.ON pursues growth activities in both 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 11: 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% Indigenousproduction Provisional data for 200
Slide 12: E.ON's gas supply position to be strengthened through equity gas and 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 20101 which gives E.ON opportunity to: L
Slide 13: E.ON has identified various 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 Infrastructure Joint construction of th
Slide 14: Gas production in Russia: Yushno Russkoje
Gas production in Russia: Yushno Russkoje • Estimated start of Yushno- Russkoje production 2008 • Proven reserves of 700 1 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 15: North European Gas Pipeline
North European Gas Pipeline Tampere • Start of operations expected between 2010 and 2012 N O R W AY FINLAND Kollsnes • Planned investment (100%) Helsinki St. Petersburg Oslo Gävle Gryazovets Kårstø Volkhov from Vyborg to Greifswald € S WEDEN Stavanger Valdai 2.0 – 2.4 bn Stockholm Tallin Yaroslavl h
Slide 16: Russian energy market is of significant size and offers growth opportunities
Russian energy market is of significant size and offers attractive opportunities for growth POWER DEMAND GAS CONSUMPTION 4 4.0 630 in billion MWh in billion m3 405 11.0 0,9 0.9 0,6 0.6 0.5 0,5 96 87 0.40,4 76 71 43 US Japan Russia Germany France UK US Russia UK Germany Japan Italy France • The gover
Slide 17: The investment plan reflects our selective approach towards future investments
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 18: All external growth opportunities are subject to strict 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 (returns, growth, regulation, year after acquisition country risk) • Returns exceeding cost
Slide 19: 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 focuses not only on minimizing its cost of capital but also on maintaining its balance sheet strength and rating in order to ensure future financial flexibility with ready market access at
Slide 20: Returning value to shareholders
Returning value to shareholders Proposal to pay an ordinary dividend of 2.35 Euros per share for 2004 • Representing a 17.5% year-on-year increase, thus keeping our ‘’on.top’’ commitment to double-digit dividend growth to 2006 • Reinforcing our position as a leading dividend payer amongst DAX- liste
Slide 21: E.ON Group – Dividend increase of 74% since 2000
E.ON Group – Dividend increase of 74% since 2000 +17.5% Dividend per share +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. 21
Slide 22: E.ON Group - Outlook 2005
E.ON Group - Outlook 2005 E.ON Group To be slightly above last year’s record level MU Central Europe To be above last year’s level Expected MU Pan-European Gas To be slightly higher than last year’s level adjusted EBIT To be similar to the last year’s level in local MU U.K. currency terms MU Nordic
Slide 23: Summary
Summary • E.ON - the world’s largest investor owned utility company • Focused approach to strategic development and delivering performance • Strong balance sheet and one of the best ratings in the utility industry • Clear commitment to performance targets and total shareholders returns 23
Slide 24: Our vision: E.ON - the world's leading power and gas company
Our vision: „E.ON - the world´s leading power and gas company“
Slide 25: Back-up Charts
Back-up Charts
Slide 26: Central Europe – Electricity wholesale prices
Central Europe – Electricity wholesale prices EEX Germany– Last 12 months April 2005 60 60 Key drivers • High coal and increasing 50 50 gas and oil prices • High carbon prices 40 40 EUR/MWh 30 30 20 20 Legend base future for year+1 (2005/2006) base future for year+2 (2006/2007) base spot (average of
Slide 27: U.K. – Electricity wholesale prices
U.K. – Electricity wholesale prices Base load, OTC – Last 12 months April 2005 45 Key drivers • Increasing gas forward prices 40 gas due to higher oil prices • High carbon prices 35 GBP/MWh 30 25 Legend 20 base forwards for year+1 (2005/2006)* base forwards for year+2 (2006/2007)* base spot (average
Slide 28: Nordic – Electricity wholesale prices
Nordic – Electricity wholesale prices Base load, Nordpool – Last 12 months April 2005 35 -40 Key drivers TWh • Level of available hydro energy below normal (due to less than 30 -20 normal precipitation) • High carbon and fossil fuel prices EUR/MWh 25 0 20 20 Legend forwards for year+1 (2005/2006) fo
Slide 29: Europe – Coal- and CO2-prices
Europe – Coal- and CO2-prices Coal, ARA – Last 12 months April 2005 90 90 90 Key drivers coal 80 80 80 • Still high due to international 70 70 70 demand for coal and freight 60 60 60 rates 50 50 50 • European stockpiles continue 40 40 40 to be on high level 30 30 30 CO2-Price-Index (Cal 05) – Last 1
Slide 30: Power prices will approach the 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 Climate and Peak 50 taking of new commodity Avg. full cost new power competitors Enron
Slide 31: New capacity of 2,000 MW by 2012, further 3,000 MW available
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 32: E.ON Ruhrgas - Main elements of import contracts
E.ON Ruhrgas - 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
Slide 33: E.ON Ruhrgas - Features of long-term contracts
E.ON Ruhrgas - Features of long-term contracts • Balanced risk sharing model Producers Importers • Long-term supply commitment of producers Price Risk Volume Risk • Take-or-pay commitment of Long-term Take-or-pay importers supply commitment • Pricing based on fair market value commitment (interfuel
Slide 34: 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 35: E.ON Ruhrgas - Sales by sectors
E.ON Ruhrgas - Sales by sectors E.ON Ruhrgas Sales Region 52% 18 Regional in Germany Customers Distributors 26% approx. 80 Local Utilities approx approx Customers 1,100 1,800 10% approx. 180 Industrial Customers Customers Contracts 12% 11 Points of supply Sales abroad Break Down of Natural Gas Sales
Slide 36: German gas import prices follow the development of 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 40 follow oil price development 1.50 (e.g. of gas oil) with a time- 35 lag 30 • In general gas prices for final customers are following the 25 1.00 same trend, however with a
Slide 37: Natural gas supply and temperatures, January 2005
Natural gas supply and temperatures, January 2005 3,200 9.0 3,100 8.0 Natural gas supply/day 3,000 Average temperature throughout the day 7.0 2,900 6.0 2,800 5.0 In million kWh/d 2,700 4.0 Degree Celsius 2,600 3.0 2,500 2.0 2,400 1.0 2,300 0.0 2,200 -1.0 2,100 -2.0 2,000 -3.0 1,900 -4.0 1 2 3 4 5 6
Slide 38: 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 39: Germany - Framework of energy regulation
Germany - Framework of energy regulation • Establishment of federal regulator with ex-ante and ex-post powers • Cost regulation based on mix of current cost accounting model and historic cost accounting model • Exemption from cost regulation for gas transmission grid Details • Incentive regulation t
Slide 40: Germany - Current status on grid fee regulation electricity/gas
Germany - Current status on grid fee regulation electricity/gas Gas transmission: exemption from cost regulation accepted if competition in transmission can be proved Gas distribution and electricity: calculation of allowed costs largely identical ð Corporate tax allowance to be fully included with
Slide 41: 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 Sales tax 2.48 ct/kWh Grid access fees3 Concession fee2 6.18 ct/kWh 1.79 ct/kWh Eco tax Only grid fees will be regulated 2.05 ct/kWh CHP & Renewables Ac
Slide 42: 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 (long price in ct/kWh) State burden 40 % 38 % 5% Production/Grid/Sales 60 % 62 % 95 % Germany Sweden UK Sources: Germany: VDEW; Sweden , UK: Eurostat (2004). 42
Slide 43: 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 20 16 17 16 15 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 ly UK ain ay e en ia d ark d um l Ita y nc ga lan s
Slide 44: German NAP (Act of August 25, 2004)
German NAP (Act of August 25, 2004) Free grand fathering 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
Slide 45: 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 to a very 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 the development o
Slide 46: 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. • E.ON Ruhrgas is generally satisfied with its small short position but remains in discussions with th
Slide 47: E.ON Group – Financial highlights
E.ON Group – Financial highlights in million € 2004 20031 +/- % Sales 49,103 46,427 +6 Adjusted EBITDA 2 10,520 9,458 +11 Adjusted EBIT2 7,361 6,228 +18 Consolidated net income 4,339 4,647 -7 Capital employed3 64,987 62,684 +4 ROCE (in %)4 11.3 9.9 +1.45 Cost of capital (in %)4 9.0 9.5 -0.55 Cash pr
Slide 48: Market units – Key financial figures 2004
Market units – Key financial figures 2004 in million € Sales Adjusted Adjusted Capital ROCE Pre-tax Cash- EBITDA 1 EBIT Employed (%) 1 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.
Slide 49: E.ON Group - Strong financial profile
E.ON Group - Strong financial profile 2004 2003 Adj. EBITDA1 Net interest 2 16.0 x 14.8 x Adj. EBITDA1 192 % 120 % Net financial position 3 Net financial position 3 0.9 years 1.4 years Cash provided by operating activities Gross external debt4 33% 36% Total Capital 5 1) Non-GAAP financial measure; r
Slide 50: E.ON Group - 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 51: E.ON Group - 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 52: 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
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