E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (December 2007)
59 slides from E.on's roadshow presentation, Dec 18, 2007
Slide 1: E.ON – At the vanguard of European integration
E.ON – At the vanguard of European integration Munich-Roadshow December 18, 2007
Slide 2: E.ON is one of the world's leading energy companies
E.ON is one of the world’s leading energy companies with a strong market presence in Europe and the U.S.-Midwest E.ON market positions US Midwest -Kentucky Renewables # 1 in power generation # 1 in power/gas retail # 7 wind generator Nordic #4 in power generation #3 in power/gas retail United Kingdo
Slide 3: Opportunities in more integrated European markets outweigh the challenges
For E.ON opportunities in more integrated European markets outweigh the challenges Challenges yCommodity business: yStrong competition yVolatility of prices and commodity cycles yGas market transition towards more Opportunities traded markets yLeverage of E.ON’s leading capabilities, processes yLeve
Slide 4: E.ON positioned to benefit from European market integration
Being a truly European company, E.ON holds an excellent position to benefit from European market integration Ongoing EU market integration E.ON’s well-diversified EU position Example: y Over 60 GW installed generation regional power markets capacity (after acquisition of Endesa Nordic Market assets/
Slide 5: Strategic direction for short- and long-term value-enhancing development
E.ON has specified the strategic direction for its short- and long-term value-enhancing development Bundling of all trading activities, responsibilities for fossil Optimized group new build and new renewables across the E.ON Group in set-up three separate, centralized units Updated investment Mainly
Slide 6: €60 bn investment plan well under way
E.ON's € 60 bn investment plan is well under way with more than 70 % in organic growth Investment initiated between 2007 – 2010 (bn €) ~ 60 ~ 10 Acquisition of Endesa assets/Viesgo Organic growth generation 4 new plants under construction € 1.5 bn ~ 12 € 42 bn excl. renewables for Energi E2 Renovabl
Slide 7: Growing generation position across Europe by ~50% until 2010
E.ON will grow its generation position across Europe by ~ 50 % until 2010 with superior value proposition European generation capacity to grow from 46 GW to 70 GW1 Nordic y New build program to deliver superior value 7.3 8.5 proposition: IRR > 100 bp above WACC UK 10.5 12.5 y Business case robust un
Slide 8: 7 new fossil-fired power plants already under construction
7 new fossil-fired power plants already under construction under construction planned Trimble County 2 Oskarshamn (upgrade) U.S. Midwest Coal 750 MW Nuclear 430 MW Start 2010 Start 2008/12 Malmö 50+ coal Gas CHP 440 MW Coal 400 MW Start 2009 Start >2014 Grain Datteln 4 Gas CHP 1200 MW Coal 1100 MW S
Slide 9: E.ON's scenarios for the European power generation market
E.ON‘s scenarios for the European power generation market Green world Global growth Highest carbon reduction target and High global economic growth rates; very high share of renewables; high efforts in fuel prices; high growth in electricity demand; saving energy; very high carbon prices; carbon pri
Slide 10: Expected economics of different generation technologies under market scenarios
Expected economics of different generation technologies under different market scenarios Coal CCGT Nuclear Renewables Stepwise Auctioning ++ + ++ + Global Gas Markets - ++ = = Global Growth ++ -- ++ = Green World ++ with CCS = ++ ++ 9
Slide 11: Qualitative comparison of long term new entry costs for baseload
Qualitative comparison of long term new entry costs for baseload (7,500h/a) Low cost case High cost case 60 - 70 €/MWh 50 - 60 €/MWh 40 - 50 €/MWh 35 - 45 €/MWh CO2 Fuel Costs Fixed Costs Invest Costs Hard Coal CCGT Hard Coal CCGT It is uncertain which generation technology will be most competitive
Slide 12: Renewables have to play a vital role in meeting energy demand
Renewables have to play a vital role to meet a global primary energy demand increase of at least 50% by 2030 Energy consumption /bn toe Supply / 19 20% of energy consumption Oil production /bn toe 17 6 demand 15 from renewables by 2020 13 balance 11 4 9 22 states with 7 5 2 Renewable Portfolio 1990
Slide 13: Ambition to expand renewables business
E.ON‘s ambition to expand its renewables business ~10 ~4 Installed capacity (GW) Airtricity NA 2.0 1.0 Nordic 1.0 0.1 0.3 U.K. 2007 2010 2007 2010 0.5 Capacity (GW) Production (TWh) 0.2 CE 0.2 0.2 y E.ON is the 7th largest wind generator with 1.1 GW of France E2-RI 0.1 renewables capacity by end 200
Slide 14: E.ON targets >10 bcm p.a. in gas upstream
E.ON targets > 10 bcm p.a. in gas upstream E.ON’s gas production growth Strengthening of E.ON’s upstream in bcm p.a. and supply position Target: > 10 bcm p.a. E.ON’s objectives: y Extend gas production to > 10 bcm p.a. ~6 y Strengthen the successful partnership ~3 with our largest gas supplier Gazpr
Slide 15: Germany attractive location for gas storages
Germany is an attractive location for gas storages due to its geological conditions and centralized position Gas storage rationale 500 km radius 2 bcm y Management of higher seasonal 3 bcm 1 bcm demand (winter vs. summer) 5 bcm 2 bcm 20 bcm y Guarantee of supply security 1 bcm 3 bcm 2 bcm 4 bcm y Co
Slide 16: Investing in storage and strategic infrastructure
E.ON will invest into storage and strategic infrastructure to contribute to a secure and diversified EU gas supply Storage working gas capacity: Invest in storage and strategic E.ON Ruhrgas North West Europe1 networks in bcm p.a. >4 E.ON’s objectives: y Extend gas storage capacity to secure 2.5–4.5
Slide 17: Etzel 3 gas storage facility
Etzel 3 gas storage facility is key to fullfill our target of doubling working gas capacity in NW Europe until 2015 Flensburg y Optimal positioning for Norwegian as Krummhörn Hamburg well as future LNG and Nord Stream Etzel Emden supplies Empelde Berlin y Up to 2.8 bcm addition to current 5.2 Epe Ha
Slide 18: Entering the Russian power market via OGK-4
E.ON is entering the attractive Russian power market through the acquisition of a majority in OGK-4 Overview OGK-4 Transaction structure Equity investment Purchase price: € 4.3 bn for 72.7% OGK Generation assets Shareholder structure 72.7% E.ON, 23% RAO UES, 4.3% others2 Key figures 2006 y Installed
Slide 19: Focusing on integration after recent acquisitions
After recent acquisitions, we are now focusing on integration Corporate Center MU MU MU MU MU MU MU MU MU E.ON MU Spain Italy Russia Central Pan-Eur. UK Nordic US- Energy Climate Europe Gas Midwest Trading & Renew. Bundled Bundled Viesgo/ Combined OGK-4 for for all Endesa E.ON/ existing E.ON Assets
Slide 20: "10 until 10": adjusted EBIT up 10% p.a.
“10 until 10”: E.ON will increase its adjusted EBIT by 10 % p.a. on average until 2010 Adjusted EBIT target 2007 – 2010 in € bn Average growth of 10 % p.a. 1.0 12.4 y € 0.7 bn from operational 1.7 effects are included, mainly 1.3 Operational from higher margins due to improvement 8.4 New higher whol
Slide 21: Target capital structure by end of 2008
Target capital structure shall be achieved by end of 2008 Investment program Cash returns to shareholders ~30 bn € investments planned Regular dividend will be until end of 2008 supplemented by share buyback of 7 bn € E.ON’s Debt factor 3.0x 1.9x Target: 1.5x Debt factor of 3x by 2008 2004 2005 2006
Slide 22: €7 billion share buyback
€ 7 billion share buyback will help achieve target capital structure by end 2008 y Based on a stock price of € 139 per share1 for the remainder of the program, E.ON would have to acquire approximately 53 million shares by the end of 2008. Depending on the development of the share price, the effectiv
Slide 23: Future dividend to grow double-digit
E.ON’s future dividend to grow double-digit Since 2003: on average 19% increase y Confirmation of a payout ratio of 50-60% of adjusted net income. The 2006 ordinary dividend of € 3.35 per share corresponds to 4.25 +22% a payout ratio of 50%. +17% 3.35 +18% 2.75 2.35 y Dividend growth should be betwe
Slide 24: Commitment for creating short- and long-term value
Commitment for creating short- and long term value y Excellent positioned to benefit from European market integration in the power and gas business y Investments in organic and external growth, especially in attractive neighboring markets y Adjusted EBIT to increase by 10% p.a. on average, increasin
Slide 25: Our vision: the world's leading power and gas company
Our vision: “E.ON - the world´s leading power and gas company“
Slide 26: Back-up Charts
Back-up Charts
Slide 27: Most internationally diversified generation portfolio
E.ON has the most internationally diversified generation portfolio providing an excellent platform for organic growth Adjusted E.ON generation capacity by country1,2 Netherlands (2%) France Others (1%) y Diversified country portfolio Spain 3% offers optimized risk balance 7% Italy 7% 35% Germany y I
Slide 28: Bundling all European trading units
To maximize value from cross-market and cross-commodity optimization, E.ON will bundle all European trading units New unit energy trading1 Drivers for value creation Single market access and bundled y Bundled competencies and market know- optimization and market information how with improved speed t
Slide 29: Acquisition of Endesa assets/Viesgo
With acquisition of Endesa assets/Viesgo, E.ON will gain good quality generation positions in new European markets France Italy 65% share in SNET (Endesa) Endesa Italia y 2.5 GW coal-fired generation to be y 7 GW diversified generation extended through new CCGT and (whereof at least 70% E.ON) wind b
Slide 30: Estimated schedule of agreement between E.ON and Enel/Acciona
Estimated schedule of agreement between E.ON and Enel/Acciona Offer of Agreement between E.ON Enel/Acciona for Endesa and Enel/Acciona CNMV approval Jul 24th, 2007 EU clearance Aug 2nd, 2007 CNE approval Filing in Sep 2007 EGM Endesa Sep 25th, 2007 Close acceptance period Oct 1st, 2007 Effective con
Slide 31: Acquisition of Energi E2 Renovables Ibéricas
Acquisition of 100% of Energi E2 Renovables Ibéricas Assets acquired y Existing portfolio 260 MW y Development portfolio 560 MW 240 MW of which already under construction 90 MW in operation + Investment € 1.3 bn 505 MW y Purchase price € 722 mn in development y Development capex ~ € 0.6 bn Excellent
Slide 32: Acquisition of Airtricity North America
E.ON acquires wind energy company Airtricity North America for $ 1.4 bn Transaction overview Overview of Airtricity wind assets Equity value $ 820 m Operating assets 214 MW Net debt $ 553 m Total development pipeline ~ 2,000 MW Total purchase price $ 1,373 m y under construction and operating by Q1
Slide 33: Western Europe increasingly reliant on gas imports
Western Europe1 will increasingly rely on gas imports in bcm 675-730 635-685 E.ON’s response to Europe’s 570-610 9% 21% Supply gap increasing reliance on gas 525 8% 12% imports2 10% 12% 6% Advanced projects3 8% y Long-term gas import 11% 9% 11% Other non-EU imports 12% contracts remain backbone 7% A
Slide 34: Acquisition of 28% of Skarv-Idun area in Norway
Acquisition of 28% of Skarv-Idun area in Norway License interests transferred to E.ON: y 28% of unitized Skarv-Idun fields PL 212B y 40% of PL1 159 and 25% of PL 212, 212B and 262 Investment (E.ON's share) ~ € 1.7 bn PL 159 PL 262 y Purchase price $ 892.5 mn y Development capex Skarv-Idun ~ $ 1,400
Slide 35: Europe's gas import infrastructure
E.ON contributes to the necessary development of Europe’s gas import infrastructure Yushno Russkoje a y Estimated start of production 2008. Gas field Se a y Proven reserves of 7002 bcm or at least 25 years. Production Existing transit pipeline n t s S e a ar K e Yamal of approx. 25 bcm p.a. (equival
Slide 36: LNG imports in line with E.ON's strategy
LNG imports in line with E.ON‘s strategy to broaden the basis for gas supplies Existing LNG terminal Wilhelmshaven LNG terminal under construction • Capacity planned 10 bcm/a LNG terminal planned • Investment (100%) estimated at around € 0.7 bn • Commissioning expected for 2010 or 2011 Krk • Allianc
Slide 37: Russia – Growth opportunities in power generation
Russia – Growth opportunities in power generation Potential regions: Urals/ Characteristics for the regions: North West Central Volga Western Siberia y Privatization of generation planned 2007/08 y Strong industrialization and profound growth perspectives in power demand y Lack of generation and agi
Slide 38: OGK-4: flexible asset portfolio of ~8.6 GW
OGK-4: Attractive, flexible asset portfolio of ~ 8.6 GW capacity with a committed investment program of additional 2.4 GW Shaturskaya GRES Yaivinskaya GRES Surgutskaya GRES-2 • Moscow territory (Central) • Perm territory (Volga) • Tyumen territory (Volga) • Capacity: 1,100 MW • Capacity: 600 MW • Ca
Slide 39: Turkey – Opportunities arising from privatization
Turkey – Opportunities arising from privatization Bulgary Market size 3 Black Sea 600 Greece 1 2 Georgia TWh 2005 13 Armenia 2025 Istanbul 400 Ankara Iran 200 Ägäis Iraq 0 Syria D F I E TR PL CZ RO HU Mediterranean Sea Expected opportunities Potential sale of private stake New build requirements 100
Slide 40: 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 41: Development of electricity prices in selected markets
Development of electricity prices in selected markets EEX, UK, Nord Pool, French and US Forward prices Cal 2008 Key drivers Last 12 Months October 2007 y UK forward prices appear to be driven 90 mainly by the UK natural gas, coal and CO2 prices. 80 y Nordic forward prices appear to be driven mainly
Slide 42: Europe – Coal and CO2 prices
Europe – Coal and CO2 prices ARA (Coal) – Last 12 months October 2007 Key Messages 120 y Coal market 110 Coal prices have reached all time 100 high levels due to high demand USD/t 90 from Asia and delivery problems in Russia. 80 y Freight rates 70 Freight rates have reached all 60 time high levels h
Slide 43: How much of E.ON's economic generation is hedged?
How much of E.ON’s economic generation is hedged? First Nine Months 2007 Central Europe United Kingdom 2007 2007 2008 2008 2009 2009 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Nordic United States*) 2007 2007 2008 2008 2009 2009 *) including WKE 0% 10% 20
Slide 44: Regulation of network charges in Germany
Regulation of network charges in Germany E.ON Hanse y Regulatory Return on Equity for pre-2005 asset E.ON edis base: 6.5% real post trade tax for electricity networks, and 7.8% for gas distribution E.ON Westfalen E.ON Avacon networks Weser E.ON Mitte E.ON Thüringer y Regulatory Return on Equity for
Slide 45: Network regulation in Germany: approval process status
Network regulation in Germany: current status of approval process y Second round of network charges approvals process for 2008 is currently under way (electricity & gas distribution) y Results will be the basis for incentive regulation starting in 2009 y It is becoming apparent that the Federal Netw
Slide 46: Core components of forthcoming incentive regulation
Regulation of network charges in Germany – Core components of forthcoming incentive regulation y Start 01.01.2009 on basis of 2nd network tariff authorization (cost base 2006) y Revenue adjustment on the basis of individual and sectoral efficiency targets on controllable costs: - Reduction of indivi
Slide 47: CO2 emissions allowances for 2008-12 trading period
E.ON will be allocated around 55 mt1 of CO2 emissions allowances for the 2008-12 trading period in mn tons CO2 85.2 In 2006, E.ON emitted 85 mn tons of CO2 in the EU. 26.9 ~ 55 CO2 allocation for the 2008-12 8.4 16 trading period estimated at 55 mn 19.9 tons. 6.3 14 28.6 LT capacity contracts transf
Slide 48: Outlook 2007
Outlook 2007 Adjusted EBIT 5 – 10 % above 2006 level Central Europe Significantly above 2006 level Pan-European Gas Above 2006 level U.K. Significantly below 2006 level Nordic Significantly above 2006 level U.S. Midwest Significantly below 2006 level Higher than 2006 level, Adjusted net income in li
Slide 49: E.ON Group – Financial highlights
E.ON Group – Financial highlights1 First Nine Months € in million 2007 2006 +/- % Sales 49,413 46,285 +7 Adjusted EBITDA 9,435 8,879 +6 Adjusted EBIT 7,146 6,361 +12 Net income attrib. to shareholders of E.ON AG 5,318 3,137 +70 Adjusted net income 4,213 3,442 +22 Cash provided by operating activitie
Slide 50: E.ON Group – Adjusted EBIT by market unit
E.ON Group – Adjusted EBIT by market unit First Nine Months € in million 2007 2006 +/- % Central Europe 3,487 3,317 +5 Pan-European Gas 2,021 1,838 +10 U.K. 989 715 +38 Nordic 594 432 +38 U.S. Midwest 292 310 -6 Corporate Center -237 -251 - Adjusted EBIT 7,146 6,361 +12 49
Slide 51: Market units – Key financial figures 2006
Market units – Key financial figures 2006 € in million Sales1 Adjusted Adjusted Capital ROCE2,3 Cost of Value Operating EBITDA1 EBIT1 Employed2,3 (%) Capital2,3 (%) Added2,3 Cash Flow1 Central Europe 27,197 5,747 4,235 19,295 21.6 9.0 2,431 3,802 Pan-European Gas 22,947 3,092 2,347 15,547 13.5 8.2 8
Slide 52: Future cost of capital will slightly increase
Taking into account the target capital structure E.ON‘s future cost of capital will slightly increase Annual Δ Update Report - %-pts. - 05/2007 2004-2006 Risk-free interest rate 5.1% -0.8% 4.3% Market premium 5.0% -1.0% 4.0% Beta factor (unlevered) 0.39 0.24 0.63 Beta factor (levered) 0.70 0.15 0.85
Slide 53: E.ON Group - Split of gross external debt
E.ON Group - Split of gross external debt as of September 30, 2007, € in billion Pan- Central Corporate European U.K. Nordic U.S. Midwest E.ON Group Europe Center Gas Bonds 0 0 0.3 0.7 0.7 7.1 8.8 Commercial Paper 0 0 0 0.1 0 4.0 4.1 Bank Loans / others 1.1 0.2 0.1 0.5 0 0.2 2.1 Gross External Debt
Slide 54: Financial instruments of E.ON AG and finance subsidiaries
Financial instruments of E.ON AG and finance subsidiaries September 2007 Current Expectation Financial instrument Volume Utilization Financial instrument Volume Medium Term Note Program € 20 bn € 7.1 bn Medium Term Note Program € 30 bn USD bonds (Rule 144A) tbd EURO Commercial Paper Program € 10 bn
Slide 55: E.ON's funding plans
E.ON‘s funding plans – E.ON has access to all major markets Benchmark Bond Transactions (EUR, GBP and USD) Broad mix of markets, currencies, instruments and Issuance in other selected currencies maturities (e.g. CHF, EuroYen, SEK) y Diversification of investor Reverse Inquiry drawings under E.ON’s b
Slide 56: Capital structure managed to single A flat / A2 target rating
E.ON‘s capital structure will be managed actively following our commitment to a single A flat / A2 target rating Debt factor Consequence considerably y Higher cash returns to shareholders below 3x y However, value creating investments are prioritized 3x y In line with target capital structure ( A /
Slide 57: Debt factor as core capital structure steering measure
E.ON uses the Debt factor as its core capital structure steering measure € in billion 30.09.2007 FY 2006 Liquid funds 8.7 6.2 Securities and funds (fixed assets) 7.0 7.1 Total financial assets 15.7 13.3 Total financial liabilities -17.0 -13.5 Net financial position -1.3 -0.1 Provisions for pensions,
Slide 58: Debt factor of 3x in line with rating agency requirements
A debt factor of 3x is in line with the requirements of the rating agencies for an A flat / A2 rating Setting the target leverage: simplified example1 Net debt 3,000 / Debt factor 3x EBITDA 1,000 Depreciation 300 Funds from operations (FFO) 666 Interest expense 153 + FFO / Net debt 22% Taxes 181 Ran
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 and other information currently available to E.ON. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual