E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (November 2005)
58 slides from E.on's roadshow presentation, Nov 18, 2005
Slide 1: Delivering Profitable Growth and Performance
“Delivering Profitable Growth and Performance“ Presentation by Dr. Wulf Bernotat, CEO UK Roadshow, Goldman Sachs November 17-18, 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 y New challenges within the y Implementation of ON.TOP y Earlier than expected earnings core busi
Slide 3: Significant growth steps since 2003 despite ambitious performance targets
E.ON Group - Significant growth steps since 2003 despite ambitious performance targets Small and medium size investments of more than € 7 bn Upstream-Projects in the North Sea, including Caledonia, Njord Construction of off-shore Acquisition of wind power Graninge Enfield gas-fired power station Con
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 € 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 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 y Continue to deliver performance direction y Maintain focus on core European markets unchanged y Stay in the USA, organic growth as a top priority y LNG as a possible opportunity to diver
Slide 6: Five core markets with strong positions in power and gas
We focus on five core markets with strong positions in power and gas U.S.-Midwest U.K. Kentucky: No. 1 in power generation No. 2 in power generation with with 47 % of total 95 TWh. 11% of total 350 TWh. No. 1 in power/gas retail with No. 2 in power/gas retail with 18% 42 % of total 2.8m cust. of tot
Slide 7: 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 8: 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 9: 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 10: 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 11: US-Midwest – Organic growth a priority
US-Midwest – Organic growth a priority but long-term external growth not ruled out 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 ex
Slide 12: Expanding geographic presence and upstream position
E.ON is expanding its geographic presence in European markets and developing it upstream position Upstream Rationale y North Sea y LNG Russia • Only moderate further growth opportunities in existing core y MoU with Gazprom European regions • Limited opportunities to expand westwards • Southern and E
Slide 13: 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 - Hunter Johnston Holford Ravenspurn Gas Minke - North Storage Orca Bacton NBP Northern Route Emden London Bunde NWE Hub - Zeebrug
Slide 14: 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 FŐGÁZ ETI Moldova Hungary EDE Hungary KÖGÁZ Distrigaz North MOL DDGÁZ2 Romania Roma
Slide 15: In Italy E.ON pursues growth 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 y 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 16: Western Europe will increasingly rely on gas imports
Western Europe will increasingly rely on gas imports bcm 675-730 570-610 26% supply gap 4% 515 13% 5% 4% advanced projects 10% 9% 11% other non-EU imports* 26% 8% Algeria 25% 13% 23% Russia 12% 6% 4% 9% 7% 9% Norway other internal EU trade Netherlands 31% 26% 17% indigenous production for domestic u
Slide 17: Equity gas strategy: Strengthen and diversify supply
E.ON’s equity gas strategy: Strengthen and diversify supply position Long term targets: • Build equity gas position of up to 15-20% High returns available in of the E.ON Ruhrgas supply portfolio upstream/unregulated • E.ON Ruhrgas gas supply 2004: ~56 bcm1 business Target regions: North Sea (UK, Nor
Slide 18: Acquisition of Caledonia assets in UK Southern gas basin
Acquistions of Caledonia assets in the UK Southern gas basin further strengthens equity gas position Acquisition of Caledonia: Provides access to … Nyhamna N y total gas reserves of ~14 bcm y equity gas production of up to Oslo ~2 bcm per year (plateau CMS pipeline system Stavanger production in 200
Slide 19: 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 20: 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 21: North European Gas Pipeline (NEGP)
North European Gas Pipeline (NEGP) Main transmission routes from Russia to Europe a Se NEGP ea a ra • New import pipeline to t s S K existing en Yamal secure supply of Germany ar Stockmann Kharasavey proposed or under construction and other North West B Bovanenko natural gas deposit Yamburg European
Slide 22: LNG – A possible opportunity to diversify gas supply
LNG – A possible opportunity to diversify gas supply to existing markets … which will lead to a rise of LNG supplies to Europe by 2020 Potential LNG options Natural Gas imports to EU 30 and share of LNG Strong projected growth in global LNG in 2004 in 2020* demand of 9.1% to 20101) which gives E.ON
Slide 23: First German LNG project in Wilhelmshaven
E.ON is planning its first German LNG project in Wilhelmshaven • Feasibility study to examine the technical and economic conditions for the construction of the first LNG terminal • Initial calculations estimate an investment of approx. € 500 million • Potential LNG supply sources for Europe are the
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 Sy
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: E.ON Group – Financial highlights
E.ON Group – Financial highlights Nine Months in million € 2005 20041 +/- % Sales 39,860 33,817 +18 Adjusted EBITDA2 7,685 7,169 +7 Adjusted EBIT3 5,524 5,185 +7 Net income 6,399 3,967 +61 Cash provided by operating activities 4,819 4,896 -2 Free cash flow4 2,888 3,244 -11 Net financial position5 3,
Slide 29: Adjusted EBIT by market unit
E.ON Group – Adjusted EBIT by market unit Nine Months in million € 2005 20041 +/- % Central Europe 2,945 2,703 +9 Pan-European Gas 1,125 1,113 +1 U.K. 715 720 -1 Nordic 600 489 +23 U.S. Midwest 278 275 +1 Corporate Center -260 -228 - Core Energy Business 5,403 5,072 +7 Other Activities2 121 113 +7 A
Slide 30: E.ON Group - Outlook 2005
E.ON Group - Outlook 2005 Expected adjusted Group EBIT To be 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 on par with last year’s level U.K. To be on par with last year’s level Nordic To be above last year’
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: Value enhancing Focus and Growth since 2000
E.ON Group – Value enhancing “Focus and Growth” since 20001) in billion € Acquisitions Transaction Closing Date Divestments Transaction Closing Date Volume Volume Powergen/LG&E 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.
Slide 34: Development of electricity prices on selected markets
Development of electricity prices on selected markets EEX, UK, Nord Pool, French and US Forward prices Cal 2006 Key drivers y UK forwards appear to be driven mainly by Last 12 Months September 2005 NBP gas prices 90 y Mainland Europe and Nordic forwards appear to be driven mainly by CO2 prices 80 y
Slide 35: Europe – Coal and CO2 prices
Europe – Coal- and CO2-prices Coal, ARA – Last 12 months September 2005 Key Driver USD/t 90 • Coal - Still on high levels. Decrease due to lower 80 freights and high supply level in Europe 70 60 50 40 CO2-Price-Index (Cal 05) – Last 12 months September 2005 EUR/t 30 30 • CO2- UK gas prices were seen
Slide 36: 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 37: E.ON Ruhrgas and European competitors
E.ON Ruhrgas and European competitors 837 Gas sendout 2004 493 (bn kWh) 362 32 % abroad 344 73 641 % 88 Centrica2) Gasunie Share of 267 56 home % Domestic market 554 100 % 89 167 % 730 Distrigas3) E.ON 230 Ruhrgas 500 97 % 791 Gaz de France1) 297 382 138 244 77 59 % 494 % Differences due to rounding
Slide 38: 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 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: Worldwide LNG flows set to increase substantially
Worldwide LNG flows set to increase substantially Supply-Demand-Balance: 2004 Demand (176 bcm) = Supply (176 bcm) 2015 Demand (460 bcm) >> Supply (370 bcm) 100 90 80 70 Atlantic Basin LNG Pacific Basin LNG 60 59 bcm in 2004 117 bcm in 2004 bcm 50 230 bcm in 2015 230 bcm in 2015 40 30 20 10 0 Trinida
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: R: Regulated UR: Unregulated • Germany UR R1) R1) UR2) - : No E.ON presence • Netherlands UR - - - • Czech Republic UR - R R/UR3) • Hungary UR - R R/UR3) • S
Slide 42: Germany – 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 43: Preparing for incentive regulation: Pro+ model
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 44: 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 44
Slide 45: 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 fee2 6.18 ct/kWh 1.79 ct/kWh VAT Only grid fees will be regulated 2.48
Slide 46: 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 46 Sources: Germany: VDEW; Sweden, UK: Eurostat (2004).
Slide 47: 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 7,5 10 5,5 7 5,5 6,5 5 3 3,5 4 2 0 ly ay n en d UK k ce nd l y ria um s ga an ar ai It
Slide 48: 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 49: 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 certificates
Slide 50: CO2 allowances for EU member states
CO2 allowances1) for EU member states CO2 allowances Share in EU Installations Member State Registry functional Kyoto target in m. tons allowances covered Austria 99.0 1.5 % 205 Yes -13%* 1) Source: European Union Belgium 188.8 2.9 % 363 No -7.5%* Czech Republic 292.8 4.4 % 435 No -8% Note: Figures
Slide 51: 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 52: 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 53: 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 Capital5 1) Non-GAAP financial measure; recon
Slide 54: 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 55: One of the strongest ratings within the peer group
E.ON Group – One of the strongest ratings within the peer group • Moody‘s (Aa3, „stable outlook“) As of October 5, 2005 - E.ON’s A1 Rating upgraded to Aa3 on April 30, 2004 Aa1 GdF Aa1 stable, EdF Aa1 AA - stable stable, - The rating reflects E.ON’s improving credit protection AA- n.o. measurements
Slide 56: Market unit ratings within the E.ON Group
Market unit ratings within the E.ON Group as of September 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 E.ON Sverige AB Powergen Ltd. LG&E Energy LLC A
Slide 57: 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 58: 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