E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (July 2006)
51 slides from E.on's roadshow presentation, Jul 4, 2006
Slide 1: Delivering Performance through Profitable Growth – Stockholm Roadshow
“Delivering Performance through Profitable Growth“ Stockholm Roadshow Sal. Oppenheim/SEB Enskilda July 4, 2006
Slide 2: Successful development since E.ON's creation
Successful development since E.ON’s creation 2000-2003 2003-2005 since 2005 Transformation into a Integration Growth in the Focused Energy Company and Performance Energy Business 7,333 Adjusted EBIT1 in million € 6,787 5,707 4,258 3,352 2001 2002 2003 2004 2005 1) Non-GAAP financial measure; reconci
Slide 3: Value creation through focus on performance improvement
Value creation through focus on performance improvement 12.1% 12% 11.5% 9.6% 9.9% 10% 9.2% 8% ROCE1 6% Cost of Capital 4% 2% 0% 2001 2002 2003 2004 2005 1) Non-GAAP financial measure; derivation see Annual Report 2005, p. 38-39, and prior annual reports as far as available. 3
Slide 4: Operational improvement in the energy business
Operational improvement in the energy business in million € 1 billion € • Operational improvement of 40 933 1bn€1 through: 302 - Operational excellence (e.g. best practice transfer in generation, trading and retail, interface optimization in overhead) 340 - Integration synergies (e.g. TXU, E.ON Ruhr
Slide 5: E.ON's proven management philosophy
E.ON’s proven management philosophy y Integration of the acquired business a priority Performance y Continued drive for better performance across all markets & Integration y Standardized processes across businesses, maximizing efficiency y Strengthen the integrated power and gas business in existing
Slide 6: We focus on our current five core markets with strong positions in power and gas
We focus on our current five core markets with strong positions in power and gas1 U.S.-Midwest Kentucky: No. 1 in power generation U.K. with 47 % of total 95 TWh. No. 2 in power generation with No. 1 in power/gas retail with 10% of total 400 TWh. 44 % of total 2.8m cust. No. 2 in power/gas retail wi
Slide 7: Energy market environment in Europe is changing
Energy market environment in Europe is changing Rapidly changing Significant capital investment needed in competitive landscape Europe during next 15 years y Privatizations (GdF, EdF) y 250 - 300 GW of new generation capacity needed in Europe y Consolidation in progress (Suez/Electrabel, EdF/Edison)
Slide 8: The combined Pan-European presence will provide new value creation opportunities
The combined Pan-European presence will provide new value creation opportunities and is in line with EU vision European markets emerging EU Vision: One European market Priority Axes identified by the EC TENS Program for power transmission strengthening Regional power markets Nordic market European g
Slide 9: Significant growth steps since 2003
Significant growth steps since 2003 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 Consolidation of Czech downstream Acquisition of Midla
Slide 10: The investment plan focuses more on selective organic growth
The investment plan focuses more on selective organic growth Investment plan 2006-08 in bn € Split of Investments 2006-08 Fixed Assets 18.6 Growth 2.3 • Power generation1 € 3.6 bn 16.3 • Power transmission and distribution € 1.3 bn • Gas transmission, distribution and storage € 1.6 bn • Other € 0.7
Slide 11: 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 year (returns, growth, regulation, after acquisition country risk) • Returns exceeding cost
Slide 12: Extend vertically integrated gas business in UK and Nordic markets
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 - ZeebruggeHub Aachen So
Slide 13: E.ON continues to solidify its integrated position in Eastern Europe
E.ON continues to solidify its integrated position in Eastern Europe E.ON involvements in power E.ON involvements in gas Czech Rep. Czech Rep. PP VCP SMP ECR ECD JCP* ECE JMP Slovakia Slovakia ZSE SPP ETI E.ON Földgaz Trade EED Moldova E.ON Foldgaz Storage EDE Hungary KÖGÁZ Hungary E.ON Gaz Romania
Slide 14: In Italy E.ON is pursuing opportunities in both power and gas
In Italy E.ON is pursuing opportunities 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 • Building 800 MW CCGT power plant in significant scale in operations Livorno F
Slide 15: E.ON's equity gas strategy: Strengthen and diversify supply position
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 will have an equity gas position of up to 5%1) business • E.ON Ruhrgas gas sup
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: North European Gas Pipeline (NEGP)
North European Gas Pipeline (NEGP) a • New import pipeline to secure Se Main transmission routes from Russia to Europe Sea ra ts a supply of Germany and other K n Yamal NEGP a re Stockmann North West European countries Kharasavey B existing Bovanenko with Russian gas (length Yamburg offshore: 1,200
Slide 18: 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 19: E.ON is planning its 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 20: Approval of current network charges in Germany
Approval of current network charges in Germany y Network charges have to be approved ex-ante by BNetzA y Currently intensive discussions between network operators and BNetzA y Differing interpretations of new rules, with BNetzA unduly disadvantaging network operators y Biased interpretation could po
Slide 21: BNetzA concept for incentive regulation in Germany
BNetzA concept for incentive regulation in Germany y Start expected in 2008 y Revenue reduction down to average cost level of comparable network operators immediately at the start of incentive regulation y Complete reduction of any remaining inefficiencies within 6-8 years y Revenue cap adjusted on
Slide 22: E.ON Group - Emissions trading 2005-2007
E.ON Group - Emissions trading 2005-2007 In total, the E.ON Group received CO2 allowances under the European Trading System of about 77.4 Mt CO2/a in 2005 – 2007. y E.ON Energie objected to some of the allocations for its installations, but in general received the expected amount of allowances in Ge
Slide 23: Cornerstones of German NAP draft for 2008-2012
Cornerstones of German NAP draft for 2008 - 2012 Ministry of Environment presented NAP Draft for public discussion delivered to EU Commission on June 30, 2006 General reservation: NAP is provisional, final determination of all figures will be made in the new emission trading law – Zuteilungsgesetz 2
Slide 24: Returning value to E.ON shareholders
Returning value to E.ON shareholders +17% 2.75 € y Special dividend of € 4.25 per +17.5% 2.35 € share (€ 2.8 billion) paid in May +14.3% 2006 to return the value of our +9.4% 2.00 € Degussa stake to our share- +18.5% 1.75 € holders. 1.60 € 1.35 € y Commitment to achieving a payout ratio of 50% to 60
Slide 25: Financial highlights
Financial highlights First Quarter 2006 in million € 2006 20051 +/- % Sales 21,532 15,769 +37 Adjusted EBITDA2 3,252 3,061 +6 Adjusted EBIT3 2,534 2,390 +6 Consolidated net income 1,718 1,459 +18 Cash provided by operating activities 1,942 1,661 +17 Free cash flow4 1,320 1,251 +6 Net financial posit
Slide 26: Adjusted EBIT by market unit
Adjusted EBIT by market unit First Quarter 2006 in million € 2006 20051 +/- % Central Europe 1,413 1,281 +10 Pan-European Gas 733 467 +57 U.K. 38 268 -86 Nordic 300 287 +5 U.S. Midwest 92 100 -8 Corporate Center -95 -41 - Core Energy Business 2,481 2,362 +5 Other Activities2 53 28 +89 Adjusted EBIT3
Slide 27: Outlook 2006
Outlook 2006 Expected adjusted Group EBIT To be slighty above the high level of 2005 Expected adjusted EBIT by Market Units: Central Europe To be slightly above 2005 level Pan-European Gas To exceed 2005 level U.K. To be significantly higher than 2005 level Nordic To be below 2005 figure U.S. Midwes
Slide 28: 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 29: Back-up Charts
Back-up Charts
Slide 30: E.ON Group – Transformation into a pure energy group almost completed
E.ON Group – Transformation into a pure energy group almost completed1) 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 Gerreshei
Slide 31: Development of electricity prices on selected markets
Development of electricity prices on selected markets EEX, UK, Nord Pool, French and US Forward prices Cal 2007 Key drivers Last 12 Months May 2006 y Mainland Europe, Nordic and UK forward 90 prices appear to be driven mainly by CO2 prices. 80 y Nordic forwards appear to be additionally influenced b
Slide 32: Strong increase of power prices since January 2005
Strong increase of power prices since January 2005 Forward Price Development (Front Year Base) 90 France UK 80 Netherlands Germany 70 Scandinavia 60 EUR/MWh 50 40 30 Source: EST-TA 20 10.1.03 10.5.03 10.9.03 10.1.04 10.5.04 10.9.04 10.1.05 10.5.05 10.9.05 10.1.06 10.5.06 32
Slide 33: Europe – Coal- and CO2-prices
Europe – Coal- and CO2-prices Coal, ARA – Last 12 months May 2006 Key Messages 90 USD/t • Coal –Production problems due to heavy 80 rainfalls in South Africa and Colombia were of little influence for the physical European coal market, which was well covered during May. 70 High dark spreads, however,
Slide 34: Coal, CO2 and German power prices
Coal, CO2 and German power prices 70 30 28 65 26 EUR/t (coal), EUR/MWh (power) 24 60 22 EUR/t (CO2) 20 55 18 16 50 14 12 45 10 1.4.06 4.4.06 7.4.06 10.4.06 13.4.06 16.4.06 19.4.06 22.4.06 25.4.06 28.4.06 1.5.06 4.5.06 7.5.06 Coal API#2 Yr 2007 EEX Base Yr 2007 CO2 (current year) 34
Slide 35: 2005 CO2 emissions – Unexpected long position
2005 CO2 emissions – Unexpected long position in million t of CO2 Country Allocation Emissions 2005 CO2 position Germany 495 473.7 +21.3 Only Austria, UK, Spain, Ireland UK 209.4 242.4 -33.0 and Slovenia reported less EU Netherlands 86.4 80.4 +6.0 allowances than CO2 emissions in Spain 162.1 181.1 -
Slide 36: Increased investment in power generation 2006-2008
Increased investment in power generation 2006-2008 Major planned power plants Market Unit - Power plant Type Capacity Total investment Investment Expected start of Country (MW) 2006-2008 operation Central Europe Germany Datteln 4 Hardcoal 1100 € 1 bn € 684 mn 2011 Germany Irsching 4/5 CCGT 530/800 a
Slide 37: Plans to create new capacity of 2,000 MW by 2012
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 38: 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 39: Development of gas and oil prices in E.ON's core markets
Development of gas and oil prices in E.ON’s core markets UK Gas, Front Month (EUR/MWh) Bunde Gas, Front Month (EUR/MWh) German import price (EUR/MWh) US Gas, Front Month (EUR/MWh) Brent Oil, Front Month (USD/bbl) 55 65 45 55 EUR/MWh USD/bbl 35 45 25 35 15 25 5 15 Jan. Apr. Jul. Oct. Jan. Apr. Jul. O
Slide 40: 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 41: 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 42: Germany - Only grid access fees are regulated
Germany - Only grid access fees are regulated 2006 (assumed consumption for a household: 3,500 kWh/a) Average price for households1: 19.46 ct/kWh CHP & Renewables Act 1,03 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 are regulated 2.68 ct/kW
Slide 43: State burden on power prices
State burden on power prices 2005 (assumed consumption: 3,500 kWh/a) Average price for households 18.66 13.33 9.26 (in ct/kWh) State burden ~40 % ~40 % 5% Production/Grid/Sales ~60 % 62 % 95 % Germany Sweden UK Sources: Germany: VDEW; Sweden, UK: Eurostat (2005). 43
Slide 44: Natural gas prices in Germany – High tax burden
Natural gas prices in Germany – High tax burden of 25 percent Average price for households1: 5.08 ct/kWh Import/Production, Transportation, Distribution 75 % 3.80 ct/kWh h kW c t/ 0. 7 Wh VAT c t/ k 13 % 0. 55 Eco taxes 0.03 ct/kWh Concession fees 11 % 1% 1 Related to an average price for a fully su
Slide 45: E.ON Group – Financial highlights
E.ON Group – Financial highlights in million € 2005 20041 +/- % Sales 56,399 46,742 +21 Adjusted EBITDA2 10,272 9,741 +5 Adjusted EBIT2 7,333 6,787 +8 Consolidated net income 7,407 4,339 +71 Capital employed 60,398 59,063 +2 ROCE (in %)3 12.1 11.5 +0.64 Cost of capital (in %) 9.0 9.0 - Cash provided
Slide 46: Market units – Key financial figures 2005
Market units – Key financial figures1 2005 in million € Oper. Sales Adjusted Adjusted Capital ROCE Pre-tax Cash- Value EBITDA EBIT Employed (%) CoC (%) flow Added Central Europe 24,295 5,284 3,930 17,969 21.9 9.0 3,020 2,318 Pan-European Gas 17,914 1,939 1,536 13,355 11.5 8.2 1,999 441 U.K. 10,176 1
Slide 47: E.ON Group - Split of gross external debt
E.ON Group - Split of gross external debt1 as of March 31, 2006, in billion € Pan- Central U.S. Corporate E.ON European U.K. Nordic Europe Midwest Center Group Gas Bonds 0.0 0.0 0.5 0.4 1.0 7.2 9.1 Commercial Paper 0.0 0.0 0.0 0.3 0.0 1.8 2.1 Bank Loans / others 1.5 0.7 0.2 0.5 0.0 0.2 3.1 Gross Ext
Slide 48: E.ON Group - Strong financial profile
E.ON Group - Strong financial profile 2005 20046 Adj. EBITDA1 45.9 x 16.9 x Net interest2 Adj. EBITDA1 n/a 178 % Net financial position3 Net financial position3 n/a 0.9 years Cash provided by operating activities Gross external debt4 20% 33% Total Capital5 1) Non-GAAP financial measure; reconciliati
Slide 49: E.ON's Ratings compared to its peer group
E.ON‘s Ratings compared to its peer group As of May 2, 2006 • Moody‘s (Aa3, „review for possible downgrade“) Aa1 EdF Aa1 stable, AA- n.o. -Moody’s has placed its Aa3 credit rating of E.ON AG on GdF Aa1 stable, AA - stable review for a possible downgrade, following the Aa2 announcement by E.ON that i
Slide 50: Market unit ratings within the E.ON Group
Market unit ratings within the E.ON Group as of March 31, 2006 E.ON AG/ E.ON International Finance B.V. Aa3 rev. down. / AA- watch neg. E.ON Energie AG E.ON Nordic Holding E.ON Ruhrgas AG E.ON UK Holding E.ON US Invest- Company Ltd. ment Corp. Aa3 rev. down. E.ON Sverige AB Powergen Ltd. E.ON U.S. L
Slide 51: This presentation does not constitute an invitation to sell or an offer to buy
This presentation do not constitute an invitation to sell or an offer to buy any securities or a solicitation of any vote or approval. Endesa investors and security holders are urged to read the tender offer prospectus from E.ON regarding the proposed tender offer for Endesa when it becomes availabl