E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (August 2004)
47 slides from E.on's roadshow presentation, Aug 26, 2004
Slide 1: Driving Home Performance
“Driving Home Performance” Presentation by Dr. Wulf Bernotat, CEO, E.ON AG Cheuvreux Zurich/Geneva-Roadshow August 26-27, 2004
Slide 2: E.ON – Top Priorities
E.ON – Top Priorities • Integration and Performance are our main priorities • Realizing opportunities to take best possible advantage of the convergence of power and gas in Europe • Future business growth will come from: - existing core markets (Central Europe, Pan European Gas, UK, Nordic) - new po
Slide 3: Delivering performance is a key priority of our on.top program
Delivering performance is a key priority of our on.top program ROCE 1 in % Free cash flow in bn € Dividend per share in € 9.5% Cumulated defined ‘03e-'06e 21.0 11.5 > 10 % CAGR capital cost > 10.5 benchmark (2002) 9.3 1.75 9.5 2002 2006e Cash provided Fixed Free cash 2002 2006e by operating asset fl
Slide 4: Well on track to achieve Adjusted EBIT targets by 2006e
Well on track to achieve Adjusted EBIT targets by 2006e Objective 2006e Levers for Adjusted EBIT improvement in bn € Adjusted 1 • Contribution from acquired companies (E.ON UK, E.ON Ruhrgas) EBIT • Organic growth + 20 % 6.73 6.2 • Operational improvement of 1bn € 4 through 0.62 - Operational excelle
Slide 5: Strong Group performance continued through H1 2004
Strong Group performance continued through H1 2004 in million € 2004 20031 +/- % Central Europe 2,159 1,850 +17 Pan-European Gas 909 7572 +20 U.K. 520 366 +42 Nordic 393 269 +46 U.S. Midwest 168 115 +46 Corporate Center -168 -179 +6 Core Energy Business 3,981 3,178 +25 Other Activities3 227 305 -26
Slide 6: Consistently rewarding shareholders is our commitment
Consistently rewarding shareholders is our commitment in € Dividend per share 2.00 1.60 1.75 1.35 1.25 0.97 1.07 1.07 0.77 0.87 0.66 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 VEBA: 1993 – 1999 E.ON: 2000 – 2003 6
Slide 7: Where do we expect growth to come from
Where do we expect growth to come from . . . . . . core existing markets . . . potential new markets
Slide 8: E.ON's strong power and gas positions in five core markets
E.ON’s strong power and gas positions in five core markets US-Midwest UK Kentucky: No. 1 in power generation No. 2 in power generation with with 47 % of total 95 TWh MAIN No. 1 in power/gas retail with 11% of total 350 TWh No. 2 in power/gas retail with 18 % Nordic 42 % of total 2.8m cust. No. 4 in
Slide 9: Germany – Power and gas convergence offer potential synergies
Germany – Power and gas convergence offer potential synergies • Downstream synergies • E.ON Hanse • Avacon • Midstream optimization • Optimizing supply for regional distributors from the E.ON Ruhrgas portfolio • Small scale optimization in infrastructure • Optimizing the interface between regional d
Slide 10: Midstream convergence offers opportunities for power-gas arbitrage
Midstream convergence offers opportunities for power-gas arbitrage Expected growth in Gas-fired generation … … leads to value chain convergence TWh 417 2020 • Developments differ from one country to 2010 319 2000 another 274 271 • Uncertainties due to power demand, price of 224 electricity and inves
Slide 11: Opportunity to 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 - NBP Bacton Northern Route Legend Emden London Existing pipeline, Bunde NWE Hub 80 bar ZeebruggeHub - Aachen Southern Route è Equ
Slide 12: Eastern Europe provides additional opportunities for growth
Eastern Europe provides additional opportunities for growth Geographic scope Key issues Size ~300 TWh electricity demand ~650 TWh gas demand Privatization/Liberalization • Privatization is ongoing • Markets open up step by step – EU requirements determine the agenda • Regulatory frameworks are stabi
Slide 13: E.ON is well established in Eastern European power and gas markets
E.ON is well established in Eastern European power and gas markets Germany Power markets SCE E.ON in Hungary Czech Republic Poland JCE SME • Supplies electricity to over 2.5 million customers JME and gas to approximately T 260 customers ZSE Slovakia Ukraine Austria • Has a 45% share of the local ele
Slide 14: New European markets offer potential in power and gas
New European markets offer potential in power and gas Expanding in new European markets Rationale • E.ON has a strong position in core North European markets – focus is on enhancing integrated position Eastern Europe • E.ON - approximately 5% market share in • Bulgaria – winning bidder in Italian re
Slide 15: Bulgarian power and Romanian gas
Bulgarian power and Romanian gas E.ON winning bidder of the Northeastern Region Romanian gas transportation system UKRAINE Botosani Distrigaz North Suceava Satu Mare SUCEAVA Lasi Baja Mare HUNGARY BAIA BISTRITA VASLUI REP. MOLDOVA Gorna Varna MARE Zalan Bistrita MURES Piatra -Neamij Vaslui Pleven Or
Slide 16: Russian energy market is of significant size and offers attractive opportunities for growth
Russian energy market is of significant size and offers attractive opportunities for growth POWER DEMAND GAS CONSUMPTION in billion MWh in billion m3 3,9 590 388 0,8 0,6 0,5 94 96 0,4 65 40 US Russia Germany France UK US Russia Germany France UK Italy • The government as agreed to raise gas prices b
Slide 17: Russian economy has made significant economic improvements
Russian economy has made significant economic improvements REAL GDP GROWTH IN % CHANGES IN FIXED INVESTMENTS IN % 17.4 12.9 13.5 10 5.3 3 6.4 10 5 4.3 6.3 4.7 -5.3 -12 98 99 ´00 ´01 ´02 ´03 ´04 98 99 ´00 ´01 ´02 ´03 ´04 Source: E.ON, JPMorgan Source: Russian government statistics, E.ON, JPMorgan EXT
Slide 18: Western Europe will increasingly rely on gas imports
Western Europe will increasingly rely on gas imports billion m³ 525-560 480-500 4% 25% 5% Supply gap: 140 billion m3 400 11% 3% 4% Advanced projects 12% 12% 9% Others 17% 10% Algeria 18% 14% 16% Russia 14% 9% 5% 11% Norway 9% 1% 2% Netherlands 1% Denmark/U.K. 40% Indigenous production 26% 22% for do
Slide 19: E.ON / E.ON Ruhrgas and Gazprom complement each other
E.ON / E.ON Ruhrgas and Gazprom complement each other from a business and regional perspective Central / Eastern Europe / UK Russia E.ON Gazprom E.ON Gazprom Power Gas Power Gas Power Gas Power Gas Generation Production Generation Production Generation Production Generation Production Trans- Trans-
Slide 20: E.ON / Gazprom – Identified areas of cooperation
E.ON / Gazprom – Identified areas of cooperation Memorandum of Understanding – July 8, 2004 • Joint development of the gas field Yushno Russkoje (Western Siberia): - Estimated start of production 2008 - Proven reserves of at least 25 years - Production of approximately 25 bcm p.a. • Joint constructi
Slide 21: Gas production in Russia: Yushno Russkoje
Gas production in Russia: Yushno Russkoje Yushno- Russkoje • Estimated start of production 2008 • Proven reserves of 700 bcm or at least 25 years • Production of Tazovskoye approximately 25 bcm p.a. 21
Slide 22: North European Gas Pipeline
North European Gas Pipeline Tampere N O R W AY FINLAND Kollsnes Helsinki St. Petersburg Oslo Gävle Gryazovets Kårstø Volkhov S WEDEN Stavanger Stockholm Tallin Valdai Yaroslavl ts gh ESTONIA Li ern RUSSIA rth No Göteborg Torzhok Alborg Moscow Riga DENMARK LATVIA Kaergård Den Helder - Bacton Copenhag
Slide 23: Future external growth subject to rigorous investment criteria
Future external growth subject to rigorous investment criteria Strategic Criteria Financial Criteria • Market attractiveness • Earnings enhancing in the first full (returns, growth, regulation, country risk) year after acquisition. • Target attractiveness • Returns exceeding cost of capital three ye
Slide 24: Mid-term investment plan reflects our aim to strengthen the integrated business model
Mid-term investment plan reflects our aim to strengthen the integrated business model in core markets Investment plan 2004-06 in bn € Strategic directions of investments • Strengthen current position to better Gas – manage supply on European level strengthen 8.7 5.1 • Increase downstream involvement
Slide 25: E.ON Group - Outlook 2004
E.ON Group - Outlook 2004 Expected adjusted Group EBIT: Outlook revised upwards: Double digit increase in adjusted EBIT not only for the core business but for the entire Group Expected adjusted EBIT by Market Units: Central Europe To surpass last year’s level markedly To be nearly on par with last y
Slide 26: Summary
Summary • E.ON - the world’s largest investor owned energy utility company • Strong balance sheet and one of the best ratings in the utility industry • Focused approach to strategic development and delivering performance • Clear commitment to ambitious performance targets 2003-2006 • Delivery agains
Slide 27: Back-up Charts
Back-up Charts
Slide 28: Central Europe – Electricity Wholesale Prices
Central Europe – Electricity Wholesale Prices Base load, EEX – Last 12 months July 2004 60 60 • Price increase of raw materials €/MWh such as coal, oil and gas 50 50 • Capacity shortage due to power station shut-downs • Increased power 40 40 demand/outages across Europe • Uncertainty in the market 3
Slide 29: UK – Electricity Wholesale Prices
UK – Electricity Wholesale Prices Base load, OTC – Last 12 months July 2004 30 30 • Price increase of raw materials GBP/ such as coal, oil and gas MWh • Capacity shortage due to power station shut-downs 25 25 • Increased power demand/outages across Europe • Uncertainty in the market regarding the Em
Slide 30: Nordic – Electricity Wholesale Prices
Nordic – Electricity Wholesale Prices Base load, Nordpool – Last 12 months July 2004 350 -60% 350 NOK/ reservoir MWh level 300 300 -40% Legend base forwards for year+1 (2004/2005) 250 -20% 250 base forwards for year+2 (2005/2006) base spot (average over last 12 months) base spot (daily average of la
Slide 31: International Steamcoal - Price Developments and Forwards for 2005-2006
International Steamcoal - Price Developments and Forwards for 2005-2006 All Prices basis $/mt, 6.000kcal 1 (NAR2, CIF, ARA) As of May 7, 2004 $/t 75 $/mt 75 Hedge 70 70 2004 2005 65 65 Germany 100% 56% 60 60 UK 105% 91% 55 55 50 50 45 38,24 45 long term 40 40 average 35 35 E.ON sells electricity by
Slide 32: Main Elements of Import Contracts
Main Elements of Import Contracts Duration Duration •• between between 15 15 and and 25 25 years years •• mainly mainly “base “base load” load” (with (with low low flexibility) flexibility) Flexibility Flexibility •• in in some some cases cases “structured “structured volumes” volumes” Delivery Deli
Slide 33: Features of Long-term Contracts
Features of Long-term Contracts • Balanced risk sharing model Producers Importers • Long-term supply commitment of producers Price Risk Volume Risk • Take-or-pay commitment of importers Long-term Take-or-pay • Pricing based on fair market value supply commitment (interfuel competition) commitment •
Slide 34: Long-term Contracts Remain Backbone of European Gas Supplies
Long-term Contracts Remain Backbone of European Gas Supplies • Considerable investment required 560 billion m3 500 to develop new gas fields and 400 to launch new infrastructure projects 370 437 Imports bringing more distant supplies to 240 West European markets 160 130 123 Domestic • Examples: 2002
Slide 35: E.ON Ruhrgas Sales by Sectors
E.ON Ruhrgas Sales by Sectors E.ON Ruhrgas Sales Region 52 % 18 in Germany Regional Customers Distributors Kiel Kiel 26 % approx 80 Local Emden Emden Hamburg Hamburg Utilities Bremen Bremen approx approx Customers Berlin Berlin 1,100 1,800 Osnabrück Osnabrück Hannover Hannover Frankfurt /Oder /Oder
Slide 36: Gas Price Adjustment: Oil indexation
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 37: Gas Sendout: Gains and Losses 2002 Versus 2003
Gas Sendout: Gains and Losses 2002 Versus 2003 billion kWh Gas sendout 639 2003 Increase mainly due + 25.2 to temperatures Gas sendout 2002 612 Gains from - 6.8 + 9.1 competition Losses from competition 2002 2003 37
Slide 38: Electricity – Regulation a key component of E.ON's business
Electricity – 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 - - R R/UR3) • Hungary UR - R R/UR3) • Slovakia - - R R/UR3) UK UR - R UR US (Kentuck
Slide 39: Draft Energy Law passed by the German Cabinet
Draft Energy Law passed by the German Cabinet Current status: Draft law passed by the German Cabinet on July 28, 2004. The Bundesrat (Upper Chamber) will comment on the draft before it finally goes to the Bundestag (Lower Chamber): • Equal importance will be placed on competition and security of sup
Slide 40: German NAP-proposal (Act of May 28, 2004)
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 M
Slide 41: 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. • Actual allocation – and impact on E.ON – depends on the results of the application process beginning in summer, but may resu
Slide 42: E.ON UK – Initial proposals of OFGEM's Distribution Price Control Review
E.ON UK – Initial proposals of OFGEM’s Distribution Price Control Review (June 28, 2004) E.ON UK believes that DR4 should boost investment levels in networks to improve performance and cover additional future demands, including connection of renewable energy sources and higher reliability of supply.
Slide 43: E.ON Group Key Figures H1 2004
E.ON Group Key Figures H1 2004 in million € 2004 2003 +/- % Sales 25,594 24,099 +6 Adjusted EBITDA1 5,593 4,891 +14 Adjusted EBIT 2 4,208 3,483 +21 Net income 2,815 2,753 +2 Cash provided by operating activities 2,787 2,038 +37 Free Cashflow3 1,721 1,016 +69 1 Non-GAAP financial measure; reconciliat
Slide 44: Market Units – Preliminary Key Financial Figures 2003
Market Units – Preliminary Key Financial Figures 2003 Pro forma figures (unaudited) in million € Sales Adjusted Adjusted Capital ROCE Pre-tax Cash- EBITDA1 EBIT1 Employed (%) CoC (%) 2 flow3 Central Europe 19,254 4,471 2,979 17,037 17.5 9.0 4,077 Pan-European Gas 4 12,973 1,889 1,463 13,847 10.6 8.2
Slide 45: Update on E.ON-Rating
Update on E.ON-Rating Standard & Poor‘s (AA-, „stable outlook“) • AA- Rating confirmed on June 4, 2004, outlook improved from „negative“ to „stable“ • The rating reflects E.ON‘s strong vertically and horizontally integrated positions in the electricity and gas markets in Germany as well as Central E
Slide 46: E.ON Group - Financial Policy
E.ON Group - Financial Policy • Centralization of Group funding in order to maximize financing efficiency and minimize structural subordination issues. • Over time, all subsidiary debt will be refinanced at the level of E.ON AG (except in cases of regulatory constraints and economic disadvantage, e.
Slide 47: 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