E.on Se · XETR:EOAN
E.on — Non-Deal Roadshow (June 2004)
47 slides from E.on's roadshow presentation, Jun 23, 2004
Slide 1: “Driving Home Performance”
“Driving Home Performance” Presentation by Dr. Erhard Schipporeit, CFO, E.ON AG Scandinavian-Roadshow Dresdner Kleinwort Wasserstein June 23, 2004
Slide 2: Agenda
Agenda I. E.ON’s Focus on Power and Gas P.4 II. E.ON Group Challenges P.5-10 Ÿ Create value from power-gas convergence Ÿ Strengthen core markets III. Expanding in New European Markets P.11-14 IV. Investment and Financial Criteria P.15-16 V. Regulatory Issues P.17-18 Ÿ Electricity and Gas Regulation
Slide 3: Back-up Agenda
Back-up Agenda Electricity Prices P.27-29 Coal Prices P.30 Gas Pricing Factors P.31 Gas “Entry/Exit” Model P.32 Long-Term Gas Contracts P.33-35 Ruhrgas Sales by Sectors P.36 Ruhrgas Volume Development 2003 P.37 CO2 Emissions Trading P.38-41 UK Distribution Price Control P.42 Group Net Financial Posi
Slide 4: E.ON has strong positions in its five core markets
E.ON has strong positions in its five core markets Market positions – power and gas 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 t
Slide 5: E.ON is committed to an integrated power-gas business model
E.ON is committed to an integrated power-gas business model Integrated power and gas business E.ON’s Market Unit structure Power Gas Power Gas Central Europe, Nordic, UK, US-Midwest Generation Production Integrated power and downstream power & gas businesses Trans- Supply/ Gives opportunity to extra
Slide 6: Germany – Power and gas convergence will offer potential opportunities for further synergies
Germany – Power and gas convergence will offer potential opportunities for further synergies • Downstream synergies • E.ON Hanse • Avacon • Midstream optimization • Optimizing supply for regional distributors from Ruhrgas portfolio • Small scale optimization in infrastructure • Optimizing the interf
Slide 7: 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 8: Downstream convergence offers cost extracting synergies
Downstream convergence offers cost extracting synergies Number of dual fuel customers, e.g. UK European downstream integration benefits +4% 10.5 • Exploit operational synergies in No. of 10.12 customers +23.2% distribution and retail in m1,3 +22.4% 8.2 • Manage cross-commodity sales 6.7 activities +
Slide 9: 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 Zeebrugge Hub - Aachen Southern Route è Eq
Slide 10: E.ON’s well established presence in Eastern European markets
E.ON’s well established presence in Eastern European markets Poland Slovakia E.ON Total Market Czech Republic Power supplied (TWh) 7.2 21.1 Customers (millions) 1.0 2.3 Transmission system (km) 2,700 12,000 Germany JCE JME Generation capacity (MW) - 8,300 Slovakia Czech Republic2 E.ON Total Market A
Slide 11: 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 • Russia - strategy and options Italian r
Slide 12: Russian power and gas markets
Russian power and gas markets Key facts – Power (2002) Generation 890 TWh Net consumption 870 TWh Retail customers 50 m Key facts – Gas (2002) Annual production 600 bcm Annual consumption 400 bcm Gas customers 22 m Market Notes • Energy market to experience major changes in coming years. • Power: Re
Slide 13: Romanian gas market overview
Romanian gas market overview Romanian gas transportation system Key facts (2002) Annual gas production 13.6 bcm Annual gas consumption 17.1 bcm UKRAINE Distrigaz North Botosani Gas customers ~ 1.7 m Suceava Satu Mare SUCEAVA Lasi Baja Mare HUNGARY BAIA MARE BISTRITA VASLUI REP. MOLDOVA Bistrita Vasl
Slide 14: Bulgaria – Privatization of regional electricity suppliers
Bulgaria – Privatization of regional electricity suppliers Bulgarian EDC – 3 Packages Power Market (2002) 2 Consumption 25 TWh Export 6 TWh Retail Accounts ~4.5 m Varna Pleven Gorna Oryahovitza Market Development Stolichno • A 67 % shareholding in each of the Stara Zagora packages is being offered.
Slide 15: Mid-term investment plan reflects our aim to strengthen the integrated business model in core markets
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 16: Future external growth subject to rigorous acquisition criteria
Future external growth subject to rigorous acquisition 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 y
Slide 17: German electricity and gas regulation on track
German electricity and gas regulation on track Current status: Draft law published by Ministry of Economics and Labor (BMWA): • Equal importance will be placed on competition and security of supply • Pricing method to enable investments required to ensure viability of networks • Electricity: Associa
Slide 18: E.ON well positioned to respond to the challenges of CO2 Emissions Trading
E.ON well positioned to respond to the challenges of CO2 Emissions Trading Germany - E.ON Energie‘s power generation portfolio characterized by low emissions. Emissions were on average 330 g CO2/kWh in 2002 compared to a German average of 590 g CO2/kWh. - E.ON is confident that possible costs for CO
Slide 19: Commitment to ambitious financial targets and at least a strong single “A” rating
Commitment to ambitious financial targets and at least a strong single “A” rating 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
Slide 20: Well on track to achieve our Adjusted EBIT targets by 2006e
Well on track to achieve our Adjusted EBIT targets by 2006e Objective 2006e Levers for Adjusted EBIT improvement in bn € Adjusted 1 • Contribution from acquired companies (Powergen, Ruhrgas) EBIT • Organic growth 6.73 6.2 + 20 % • Operational improvement of 1bn € 4 through 0.62 - Operational excelle
Slide 21: E.ON Group – Strong improvement in financial performance
E.ON Group – Strong improvement in financial performance First Quarter in million € 2004 2003 +/- % Sales 14,622 13,713 +7 Adjusted EBITDA1 3,024 2,658 +14 Adjusted EBIT2 2,345 1,931 +21 Net income 1,455 986 +48 Cash provided by operating activities 1,090 1,051 +4 Free Cashflow3 627 595 +5 1) Non-GA
Slide 22: E.ON Group – Continuing growth in core business Energy
E.ON Group – Continuing growth in core business Energy First Quarter Adjusted EBIT in million € 2004 20031 +/- % Central Europe 1,179 1,082 +9 Pan-European Gas 416 3322 +25 UK 270 196 +38 Nordic 279 153 +82 US Midwest 93 63 +48 Corporate Center -8 -97 +92 Core Business Energy 2,229 1,729 +29 Other A
Slide 23: Strong commitment to increasingly rewarding shareholders annually
Strong commitment to increasingly rewarding shareholders annually 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 23
Slide 24: E.ON Group - Outlook 2004
E.ON Group - Outlook 2004 Adjusted Group EBIT: Expected to surpass record result of 2003 with a double-digit growth in core business energy Adjusted EBIT by Market Units: Central Europe Expected to rise above last year’s level Pan-European Gas Expected to remain below last year’s extraordinarily hig
Slide 25: 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 26: Back-up Charts
Back-up Charts
Slide 27: Trend in Wholesale Prices (1)
Trend in Wholesale Prices (1) Forwardmarket year ahead, Baseload 45 40 • Price increase of raw materials 35 such as coal, oil and gas 30 • Capacity shortage due to power station shut-downs 25 • Increased power €/MWh 20 demand/outages across Europe 15 • Uncertainty in the market regarding the Emissio
Slide 28: Trend in Wholesale Prices (2)
Trend in Wholesale Prices (2) Spotmarket Baseload 140 120 • Price increase of raw materials 100 such as coal, oil and gas • Capacity shortage due to 80 power station shut-downs €/MWh • Increased power 60 demand/outages across Europe 40 • Uncertainty in the market regarding the Emissions Trading Sche
Slide 29: Hydrology and Forwards NordPool
Hydrology and Forwards NordPool 25 300 20 290 15 280 10 270 5 260 0 250 -5 240 NOK/MWh -10 230 TWh -15 220 -20 210 -25 200 -30 190 -35 180 -40 170 -45 160 -50 150 10 20 30 40 50 10 20 30 40 50 10 20 30 40 50 2002 2003 2004 Week Hydrology (TWh) FWYR-04 (NOK/MWh) FWYR-05 (NOK/MWh) • Hydrological condi
Slide 30: 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 $/mt 75 75 70 70 65 65 60 60 55 55 50 50 45 38,24 45 long term 40 average 40 35 35 30 30 25 25 20 20 15 15 MCIS-Price NWE3 [$/mt] 6000 CIF ARA 10 10 TFS A
Slide 31: Gas - Non-competitive factors for Ruhrgas
Gas - Non-competitive factors for Ruhrgas • Temperature • Oil price • General economic development • Energy taxation Mean annual temperature Peak temperature Oil price (Brent) [ °C ] [ °C ] [ US-$/bbl ] 12 2 40 0 35 11 -2 30 10 -4 25 9 -6 20 -8 8 15 -10 7 -12 10 6 -14 5 1963 2003 1963 2003 1978 2003
Slide 32: Network Access System for Gas
Network Access System for Gas Point-to-Point Model Entry-Exit Model Entry Exit •„Route“ inquiry • Individual entry/exit systems for each network operator with individual tariffs • Capacity check of contract path • Distance-related fee • Separate booking of entry/exit capacities • Entry/exit capaciti
Slide 33: 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 34: 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 35: Long-term Contracts Remain Backbone of European Gas Supplies
Long-term Contracts Remain Backbone of European Gas Supplies • Considerable investment required 560 billion m3 to develop new gas fields and 500 400 to launch new infrastructure projects 370 437 Imports bringing more distant supplies to 240 West European markets 160 130 123 Domestic 2002 2010 2020 •
Slide 36: Ruhrgas Sales by Sectors
Ruhrgas Sales by Sectors 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 Münster Mü
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: 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 39: Conclusion and Effects of the NAP on E.ON Energie
Conclusion and 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 summe
Slide 40: Germany - Timetable 2004 and beyond
Germany - Timetable 2004 and beyond •On May 28 th the German Parliament (Bundestag) agreed on the basic principles of the German National Allocation Plan. •Germany’s federal government approved the free allocation of allowances. - Approval of NAP act in the lower chamber (Bundestag) May 28 - Discuss
Slide 41: CO2 Emissions Trading - United Kingdom
CO2 Emissions Trading - United Kingdom •In May 2004 UK government presented a revised draft of its NAP. The draft covers only provisions for the test phase 2005 – 2007. •UK seeks to deliver a national reduction target of 20 % CO2/a by 2010. Since its Kyoto target and its target of the EU burden shar
Slide 42: Powergen – Initial comments to OFGEM’s Distribution Price Control Framework Document
Powergen – Initial comments to OFGEM’s Distribution Price Control Framework Document (March 24, 2004) Powergen 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 reliabil
Slide 43: E.ON Group – Improvement of Net Financial Position
E.ON Group – Improvement of Net Financial Position1 in billion € 0 -7.9 -7.7 +1.1 -1.7 +1.5 +0.3 -0.9 -0.1 Net financial Divestments/ Cash provided Investments Consolidation Dividends Other effects Net financial position as of deconsolidations by operating of acquisitions position as of Dec. 31, 200
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: 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