E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (April 2005)
59 slides from E.on's roadshow presentation, Apr 4, 2005
Slide 1: Delivering Profitable Growth and Performance – Frankfurt Roadshow
„Delivering Profitable Growth and Performance“ Frankfurt Roadshow Citigroup April 4, 2005
Slide 2: 2006 major on.top targets achieved or 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: Operational improvement in the energy business
Operational improvement in the energy business – A continuing group-wide process to create further value in million € • Operational improvements of 1bn€1 on.top operational improvement through: program of 1 billion € (2003 – 2006) • Operational excellence (e.g. best practice transfer in generation,
Slide 4: Past results are the basis for future development
The results achieved in the past are the basis for our development in the future Overall We will maintain the overall direction set by “on.top“ direction Ÿ Continue to deliver performance unchanged Ÿ Maintain focus on core European and US markets Ÿ Retain strict financial investment criteria Enhance
Slide 5: Our vision: the world's leading power and gas company
Our vision: „E.ON - the world´s leading power and gas company“ • Choosing our markets carefully, and only competing in those markets where our core capabilities can be applied • Creating leading positions in all of our chosen markets • Creating an integrated power and gas business in all of our chos
Slide 6: Where we expect growth to come from
Where we expect growth to come from . . . . . . core existing markets . . . and potential new markets
Slide 7: Five key principles about sustainable market success
E.ON has five key principles about sustainable market success Being present in generation/upstream, midstream and downstream Vertical activities will be the long -term winning business model for energy integration utilities Since convergence of the markets create economies of scope, strong Convergen
Slide 8: Core principles drive clear strategic direction and business model
Core principles drive clear strategic direction and business model 1. Integrated power & gas business 2. Clear geographic focus Ÿ Pursue a clear focus on integrated power Ÿ In existing market units, maintain and and gas with leading market positions extend leading position and performance over the l
Slide 9: Market unit structure makes best use of integrated principle
E.ON’s market unit structure makes best use of the integrated principle Integrated power and gas business E.ON’s market unit structure Power Gas Central Europe, Nordic, UK, US-Midwest Power Gas Integrated power and downstream gas businesses Generation Production Gives opportunity to extract value fr
Slide 10: 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 - NBP Bacton Northern Route Emden London Bunde NWE Hub ZeebruggeHub - Aachen Southern Route • Construction of the BBL Pipeline fr
Slide 11: 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. 1 in gas supply Central Eur
Slide 12: 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 generation
Slide 13: 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 Selective equity production and import regimes within gas in North Sea and Europe strengthen partnership with Gazprom • Increased opening of European gas markets Participate in
Slide 14: 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 15: 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 Acquire/build additional high availability of nuclear power but volatility generation capacity will remain high and may be rei
Slide 16: 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 17: 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 (Distrigaz North, Electrica Moldova) Italy Ÿ Gas downstream (Thüga Itali
Slide 18: Extending 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 SMP ECR ECD JCP ECE JMP Slovakia Slovakia ZSE SPP EDD FOGÁZ ETI Moldova1 Hungary EDE Hungary KÖGÁZ2 Distrigaz North MOL DDGÁZ2
Slide 19: Growth activities in Italy 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 20: We care about our customers: security of supply
We care about our customers . . . . . . security of supply
Slide 21: Strengthening gas supply 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 • Diversify gas supply portfolio through position in the North Sea long-term LNG-supply contracts and share in re-gasifica
Slide 22: 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 23: Western Europe increasingly relies on gas imports
Since Western Europe will increasingly rely on gas imports Russia will remain of high importance as supplier 660-715 bcm 585-625 bcm 6% 30% Supply gap 507 bcm 11% 4% Advanced projects 11% 10% 9% Other non-EU imports1 24% 21% 8% Algeria 15% 21% Russia 14% 5% 8% 8% 10% Norway Other EU imports 33% Neth
Slide 24: Gas production in Russia: Yushno Russkoje
Gas production in Russia: Yushno Russkoje • Estimated start of Yushno- Russkoje production 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 25: North European Gas Pipeline
North European Gas Pipeline Tampere • Start of operations expected Kollsnes NORWAY FINLAND between 2010 and 2012 • Planned investment (100%) Helsinki St. Petersburg Oslo Gävle Gryazovets Kårstø Volkhov Stavanger S WEDEN Valdai from Vyborg to Greifswald € Tallin 2.0 – 2.4 bn Stockholm Yaroslavl hts E
Slide 26: We care about our shareholders
We care about our shareholders . . . . . . value enhancing investments … and increasing returns
Slide 27: Investment plan reflects selective approach to 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 28: External growth 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 29: Commitment to defend 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 streng th and rating in order to ensure future financial flexibility with ready market access a
Slide 30: 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 31: 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 1 Since 2000 double-digit growth rate on average: increase of 14.9% p.a. 31 1 Proposal subject to the approval at t h e AGM
Slide 32: E.ON Group – Outlook 2005
E.ON Group - Outlook 2005 E.ON Group Slightly above last year’s record level MU Central Europe To be slightly above last year’s level Expected MU Pan-European Gas To be higher than last year’s level adjusted EBIT To be similar to the last year’s level, excluding MU UK impact of divested Asian Asset
Slide 33: Our vision: the world's leading power and gas company
Our vision: „E.ON - the world´s leading power and gas company“
Slide 34: Back-up Charts
Back-up Charts
Slide 35: E.ON Group – Financial highlights
E.ON Group – Financial highlights in million € 2004 20031 +/- % Sales 49,103 46,427 +6 Adjusted EBITDA2 10,520 9,458 +11 Adjusted EBIT2 7,361 6,228 +18 Consolidated net income 4,339 4,647 -7 Capital employed 3 64,987 62,684 +4 ROCE (in %)4 11.3 9.9 +1.45 Cost of capital (in %)4 9.0 9.5 -0.5 5 Cash p
Slide 36: Market units – Key financial figures 2004
Market units – Key financial figures 2004 in million € Sales Adjusted Adjusted Capital ROCE Pre-tax Cash- 1 1 EBIT Employed (%) CoC (%) 2 flow3 EBITDA 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 37: Central Europe – Electricity wholesale prices
Central Europe – Electricity wholesale prices EEX Germany– Last 12 months February 2005 60 60 Key drivers €/MWh • High coal prices 50 50 • Costs of Emissions-Trading 40 40 30 30 20 20Legend Base future for year+1 (2005/2006) Base future for year+2 (2006/2007) • Base spot (average of last 12 months)
Slide 38: U.K. – Electricity wholesale prices
U.K. – Electricity wholesale prices Base load, OTC – Last 12 months February 2005 40 40 Key drivers GBP/ MWh • High gas prices due tight 35 35 supply demand balance • Costs of Emissions-Trading • Uncertainty in the market 30 30 regarding the Emissions Trading Scheme 25 25 20 20 Legend base forwards
Slide 39: Nordic – Electricity wholesale prices
Nordic – Electricity wholesale prices Base load, Nordpool – Last 12 months February 2005 35 -40 Key drivers €/ MWh TWh • Increased level of available -30 Hydro energy 30 • High overall nuclear production -20 in Sweden 25 -10 0 20 Legend 10 Forwards for year+1 (2004/2005) Forwards for year+2 (2005/20
Slide 40: Price developments of international steam coal forwards
Price developments of international steam coal forwards Coal, CIF ARA – Last 12 months February 2005 90 90 Key drivers $/t 80 80 • Higher international demand for coal 70 70 • Increase in freight rates due to high demand for raw materials 60 60 50 50 40 40 30 30 1.3.04 1.5.04 1.2.05 15.2.05 1.1.05 8
Slide 41: Power prices to 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 Climate and Peak 50 taking of new commodity Avg. full cost new power competitors Enron
Slide 42: 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 43: 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 44: 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 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 45: 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 46: 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 47: Framework of energy regulation in Germany
Framework of energy regulation in Germany • Establishment of Federal Regulator with ex-ante and ex-post powers • Cost regulation based on current cost accounting model • New entry/exit access regime for gas Details • Exemption from cost regulation for gas transmission grid still under • Incentive ba
Slide 48: Current status on grid fee regulation electricity/gas
Current status on grid fee regulation electricity/gas • Gas transmission network: exemption from cost regulation accepted if competition can be proved • Cost-oriented fees for electricity and gas largely synchronous: ð Corporate tax to be included with implementation of incentive regulation ð Nettin
Slide 49: Grid access fees only to be regulated in Germany
Grid access fees only to be regulated in Germany 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 fee 2 6.18 ct/kWh 1.79 ct/kWh Eco tax Only grid fees will be regulated 2.05 ct/kWh CHP & Renewables
Slide 50: 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). 50
Slide 51: 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 en ain d ay um e y ia ark l d Ita ga an lan s
Slide 52: Network access system for gas – new entry/exit model
Network access system for gas – Change to new entry /exit model Distance-related model Entry/exit model Entry Exit • Individual entry/exit systems for each network operator • Capacity check on transmission route • Individual entry and exit tariffs • Separate booking and marketing of entry/exit • Cap
Slide 53: German NAP proposal
German NAP proposal (Act of May 28, 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
Slide 54: Effects of the NAP on E.ON Energie
Effects of the NAP on E.ON Energie • Overall, E.ON accepts the compromise, but reserves final judgment of the effects of the proposal until a thorough analysis is completed • Impact on E.ON Energie depends on the results of the application process, but may result in a maximum burden of approximately
Slide 55: Financing policy
Financing policy • E.ON aims to maximize financing efficiency and minimize structural subordination issues • General rules: External financings will be undertaken at the E.ON AG level or via finance subsidiaries under its guaranty and on-lent as needed within the Group. Generally, at market rates, f
Slide 56: E.ON Group – 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; rec
Slide 57: 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 58: 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 59: 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