E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (October 2007)
60 slides from E.on's roadshow presentation, Oct 10, 2007
Slide 1: Scandinavia Roadshow
Scandinavia Roadshow October 10 – 11, 2007
Slide 2: 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 3: 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 4: 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 Optimized group Bundling of all trading activities, responsibilities for fossil set-up new build and new renewables across the E.ON Group in three separate, centralized units Updated investment Mainly
Slide 5: EUR 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 6: 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 7: Generation investments assessed on different scenarios and portfolio considerations
Generation investments assessed on basis of different scenarios and portfolio considerations Different scenarios reproduce uncertainties Uncertain development of fuel and carbon prices as well as political constraints result in broad bandwidth of input parameter Uncertainties require diversification
Slide 8: E.ON's scenarios for the European power market (1)
E.ON‘s scenarios for the European power market (1) 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 prices mid
Slide 9: E.ON's scenarios for the European power market (2)
E.ON‘s scenarios for the European power market (2) Base Price Range Germany (nominal) Key drivers for wholesale market prices y Carbon price and method of allocation y Fuel prices y Structure of existing power plant fleet €/MWh y Capacity margin and economic growth y Cost and efficiency of new power
Slide 10: Platform in Europe and North America for growth in renewables
Solid platform established in Europe and North America for further growth in renewables Europe North America y Operational portfolio of 637 MW y Operational Portfolio of 214 MW y Development portfolio of approx. 2.6 GW y Development portfolio of approx. 2.0 GW y Country coverage: Denmark, Sweden, y
Slide 11: 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 PL 159 Investment (E.ON's share) ~ € 1.7 bn PL 262 y Purchase price $ 892.5 mn y Development capex Skarv-Idun ~ $ 1,400
Slide 12: Entering the Russian power market through OGK-4 acquisition
E.ON will enter the attractive Russian power market through the envisaged acquisition of the majority in OGK-4 Overview OGK-4 Transaction structure Equity investment (70%) Purchase price: USD 5.7 bn ≙ EUR 4.1 bn2 Shareholder structure (post transaction) OGK Generation assets 70% E.ON, 23 % RAO UES,
Slide 13: 10 until 10: adjusted EBIT increase of 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 14: Active capital structure management with single A 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 15: Target capital structure to be achieved 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 16: EUR 7 billion share buyback
€ 7 billion share buyback will help achieve target capital structure by end 2008 y Based on the June 26th, 2007, stock price of € 120 per share, E.ON would have to acquire approximately 58 million shares by the end of 2008. Depending on the development of the share price, the effective number can be
Slide 17: 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 18: 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 19: Our vision: the world's leading power and gas company
Our vision: “E.ON - the world´s leading power and gas company“
Slide 20: Back-up Charts
Back-up Charts
Slide 21: One of the world's leading energy companies with strong market presence
E.ON is one of the world’s leading energy companies with a strong market presence in Europe and the U.S.-Midwest US Midwest -Kentucky E.ON market positions1,2 #1 in power generation Nordic #1 in power/gas retail #4 in power generation #3 in power/gas retail United Kingdom Russia #2 in power generati
Slide 22: 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 Planned capacity additions1 Value enhancing generation growth in GW E.ON’s objectives: Nordic 7.3 8.5 UK y Rapidly integrate Endesa assets/Viesgo and 10.5 12.5 strengthen acquired positions CE W
Slide 23: New fossil-fired power plants under construction
7 new fossil-fired power plants already under construction under construction Trimble County 2 Oskarshamn (upgrade) planned 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 24: Bundling responsibilities for fossil new build
E.ON will bundle the responsibilities for fossil new build to guarantee best technical solutions and highest efficiency New unit fossil new build Drivers for value creation Realization of new build for all Convoy approach for new build (e.g. 1,050 MW hard fossil plants in Europe coal convoy Datteln,
Slide 25: 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 26: 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 27: 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 28: Endesa assets/Viesgo generation positions in new markets
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 29: 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 30: 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 31: 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 32: Steps into OGK-4 through several transaction elements
Steps into OGK-4 through several transaction elements 1 OGK-4 - Capital Increase 23% USD 1.8 bn 2 RAO sale of OGK-4 shares 47% USD 3.9 bn E.ON Purchase Price 70% USD 5.7 bn ≙ € 4.1 bn1 3 Mandatory Offer up to 7% USD 0.7 bn E.ON commitment for OGK-4 investment program y 2,400 MW of new build capacity
Slide 33: OGK-4 as platform for growth in the Russian market
OGK-4 provides an excellent platform for further growth in the Russian market Dynamic market Attractive Assets y World’s 4th largest power market y High quality assets located in very and world’s largest heat market attractive regions y High demand growth: 5.0 % CAGR1 y Strong operational performanc
Slide 34: 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 35: Western Europe increasingly reliant on gas imports
Western Europe1 will increasingly rely on gas imports 675-730 in bcm 635-685 E.ON’s response to Europe’s 570-610 9% 22% Supply gap increasing reliance on gas 535 8% 11% imports2 7% 12% 10% Advanced projects3 11% 11% y Long-term gas import 9% 11% 11% Other non-EU imports contracts remain backbone 26%
Slide 36: Targeting more than 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 37: 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 38: Development of 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 a Se 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 39: LNG imports to broaden gas supply basis
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 40: Growth program utilizes balance sheet and lifts cash flow
Growth program will utilize E.ON’s balance sheet in the next 3 years and result in a step change for cash flow generation Cash generation from investment program after 2010 – schematic graph Cash flow from operations Cash flow after investments1 € 42 bn growth Investments investm. to yield > € 4 bn
Slide 41: 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 42: 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 July 2007 y UK forward prices appear to be driven 90 mainly by the UK natural gas and CO2 prices. 80 y Nordic forward prices appear to be driven mainly by the CO
Slide 43: Europe: coal and CO2 prices
Europe – Coal and CO2 prices ARA (Coal) – Last 12 months July 2007 Key Messages 90 y Coal market 80 Coal prices increased on the back of strong Pacific demand USD/t 70 and high freight rates. 60 y Freight rates 50 Freight rates remained high due 40 to high demand and continued 22.7.07 29.7.07 8.7.07
Slide 44: How much of E.ON's economic generation is hedged?
How much of E.ON’s economic generation is hedged? First Half 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% 30% 4
Slide 45: 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 46: Regulation of network charges: 2006 impact
Regulation of network charges in Germany – 2006 impact on adjusted EBIT and on non-operating earnings Recurrent impact on adjusted EBIT Impairment charges € in million 675 Lower Non-operating earnings 640 network 562 Adjusted EBIT 124 charges 123 Provisions for retroactive application 374 296 266 55
Slide 47: 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 48: 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 49: Outlook 2007 reconfirmed
Outlook 2007 reconfirmed Adjusted EBIT 5 – 10 % above 2006 level Central Europe Above 2006 level Pan-European Gas On par with 2006 level U.K. Broadly in line with 2006 level Nordic Significantly above 2006 level U.S. Midwest Below 2006 level Net income attributable to Higher than 2006 level sharehol
Slide 50: E.ON Group financial highlights
E.ON Group – Financial highlights1 First Half € in million 2007 2006 +/- % Sales 35,559 34,239 +4 Adjusted EBITDA 6,956 6,639 +5 Adjusted EBIT 5,426 5,089 +7 Net income attrib. to shareholders of E.ON AG 3,968 3,142 +26 Adjusted net income 3,087 2,833 +9 Cash provided by operating activities 4,759 2
Slide 51: Adjusted EBIT by market unit
E.ON Group – Adjusted EBIT by market unit First Half € in million 2007 2006 +/- % Central Europe 2,544 2,495 +2 Pan-European Gas 1,631 1,697 -4 U.K. 741 455 +63 Nordic 475 425 +12 U.S. Midwest 176 190 -7 Corporate Center -141 -173 - Adjusted EBIT 5,426 5,089 +7 50
Slide 52: Market units key financial figures 2006
Market units – Key financial figures 2006 € in million Sales1 Adjusted Adjuste d 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
Slide 53: Split of gross external debt
E.ON Group - Split of gross external debt1 as of June 30, 2007, € in billion Pan- Central Corporate European U.K. Nordic U.S. Midwest E.ON Group Europe Center Gas Bonds 0,0 0,0 0,3 0,7 0,7 7,2 8,9 Commercial Paper 0,0 0,0 0,0 0,2 0,0 1,0 1,2 Bank Loans / others 1,2 0,1 0,1 0,5 0,0 0,3 2,2 Gross Exte
Slide 54: 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 55: Commitment to single A flat / A2 target rating
E.ON commits itself to a Single A flat / A2 target rating (based on current rating agencies’ methodology) Reasoning Ratings of E.ON‘s Peers y For a leading power and gas Standard & Poor's Moody's company a solid rating is a “must” EdF AA- stable Aa1 stable y Increased leverage at a single A GdF AA-
Slide 56: Financial instruments of E.ON AG and finance subsidiaries
Financial instruments of E.ON AG and finance subsidiaries June 2007 Current Expectation Financial instrument Volume Utilization Financial instrument Volume Medium Term Note Program € 20 bn € 7.2 bn Medium Term Note Program € 30 bn USD bonds tbd EURO Commercial Paper Program € 10 bn € 1.0 bn EURO Com
Slide 57: Refinancing plans with access to all major markets
E.ON‘s refinancing plans – E.ON has access to all major markets Benchmark Bond Transactions (EUR, GBP and USD) Issuance in other selected currencies (e.g. CHF, EuroYen, SEK) Instrument and market mix Reverse Inquiry drawings under E.ON’s to diversify our investor MTN Program base and ensure demand C
Slide 58: Debt factor as core capital structure steering measure
E.ON uses the Debt factor as its core capital structure steering measure € in billion H1 2007 FY 2006 Liquid funds 7.9 6.2 Securities and funds (fixed assets) 6.9 7.1 Total financial assets 14.8 13.3 Total financial liabilities -14.3 -13.5 Net financial position 0.5 -0.1 Provisions for pensions, net
Slide 59: 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 60: Forward-looking statements
This document 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 or pe