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German Investment SeminarDr. Erhard Schipporeit, E.ON AG
January 15, 2002
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E.ON Group - Strategy
Expand to become a top global integrated energy service provider via focus and growth:
• Concentrate exclusively on core energy services business
• Pursue accretive acquisitions to cement leading position in Europe and to establish solid position worldwide
• Dispose of non-utility activities
• Continually cut costs and restructure throughout the Group
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Energy
E.ON Energie 100%
– Electricity
• Generation
• Trading
• Transmission/ distribution
• Supply
– Gas
– Water
Non-core activities
E.ON AG
E.ON Group – Focus on core business
OilVEBA Oel*100%ChemicalsDegussa 64.6%Real EstateViterra100%Other ActivitiesVIAG Telecom 100%E.ON Telecom 100%Stinnes 65.5%VAW aluminium* 100%
*Divestment initiated
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E.ON Group - Divestment of non-core assets ahead of plan€ in millions
77,872 19,455
42.5 - Divested1,320
1 Sales 1999 2 At E.ON consolidated sales
Orange Communications SA
Stake%
Sales2000
Proceeds(equity value)
Comments
71.84971
100100313245
9441,891
8361
3,4385,355
--
Divestment initiatedDivested
DivestedDivested
64.6 20,139 -
--
215
100 28,062 2,800
1,900300
3,800870
- Divested7,250
Listed companies
MEMCSchmalbach-LubecaGerresheimer Glas
Other companies
VAW aluminiumKlöckner & Co.E-PlusCablecomVIAG Interkom
Degussa
VEBA Oel
Stinnes 65.5 11,981 -
VEBA Electronics 100 3,9262 Divested1,000Viterra 100 1,300 -
Bouygues Telecom 17.5- -Connect Austria ONE 50.1- -
Put option with BP
Divested
Divested
Divested
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E.ON Group - Implementing E.ON‘s global growth strategy
• Establish premier supply business in Germany (eg. #1 - brand)• Participate in further privatization of municipalities• Increase stakes from minority to majority interests
Strengthen corebusiness inGermany
• Expand around Germany (eg. majority in Sydkraft)• Establish European-wide wholesale presence• Enter into non-contiguous markets (eg. UK through
Powergen)
Broad expansion inEurope
Growth outside Europe
• Acquire integrated utilities in North America (eg. LG&E)
• Selectively engage in South America
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E.ON Energie - Second-largest utility in Germany
Majority participations
Minority participations
Includes only participations > 25%=
SCHLESWAGSCHLESWAG
TEAGTEAG
SCHLESWAGSCHLESWAG
e.dise.disAvaconAvacon
PESAGPESAGEAMEAM
EWEEWE
E.ON Bayern
E.ON Bayern
EMREMR
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Participation%
Municipal utilitiesStadtwerke GermersheimStadtwerke StadeStadtwerke ChemnitzGemeindewerke AnsbachGemeindewerke HaßlochStadtwerke HomburgStadtwerke Villingen SchwenningenStadtwerke PforzheimEnergieversorgung HildesheimWasser- und Energieversorgung SalzgitterStadtwerke EnnigerlohStadtwerke GrünstadtStadtwerke KirchheimbolandenStadtwerke Braunlage
Salesmill €
2520154025252535132440212020
5064
4008240
1258550
16090243017
7
Number of customers
10,00023,000
176,00025,00010,00025,00033,00075,00064,00029,00013,50025,500
8,3004,300
E.ON Energie - Acquisitions of Municipalities (Examples)
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E.ON Energie - Strong market share in gas distribution in Germany2000 (pro forma)
Turnover(mill €)
1,594
Sales volume(bn kWh)
72.5
•The leading local distribution company in Germany*
•Further participations in Italy, Austria, Czech, Hungary, Latvia,Sweden, Netherlands and Poland (co-operation)
•German gas market: € 20 bnEuropean gas market: € 60 bn
Thüga
Thüga
Gelsenwasser
E.ON Bayern
SCHLESWAG
AVACONEWE
Thüga
Thüga
Heingas
Gelsenwasser
E.ON Bayern
SCHLESWAG
AVACONEWE
*Including minority participations = 20%>
EWE
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In Germany‘s gas market, E.ON needs to make up ground in the import and long-distance delivery segments
GENERATION
TRANSMISSIONDISTRIBUTION SUPPLYELECTRIC
TY
IMPORTLONG-
DISTANCELOCAL SUPPLYGAS
* Includes shareholdings greater than 20 %
Source: E.ON
Market position*ExcellentGoodWeak
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59.8%
10.1%
Through Gelsenberg (total stake: 25.5%) E.ON can obtain a substantial interest in Ruhrgas
E.ON
Ruhrgas
Bergemann Gelsenberg Brigitta
Schubert Other
100.0%0.2%
25.0% 15.0% 0.2%
ThyssenKrupp
RWE
Mannesmann
52.5%
13.5%
23.6%
50.0%
50.0%
Shell
ExxonMobil
3.1%
30.0%
Gelsenberg
Preussag
ExxonMobil
17.7%
49.2%
RAG
Pooling agreement
Gelsenberg0.1%
58.2% 41.8%
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Geographically, Ruhrgas activities outside Germany fit E.ON‘s strategy very well
E.ON‘s gas interests
Ruhrgas shareholdings
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Thüga participationsT
REWAG
N-ERGIE
swb
T
TT
TT
T
T
Turnover(mill €)
217
Sales volume(mill m3)
259
•15% market share in Germany*
•Broad experience in drinking and sewage water
•German water market: € 25 bnEuropean water market: € 80 bn
*Including minority participations = 20%>
E.ON Energie - Largest privately-owned water operator in Germany2000 (pro forma)
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subsidiarysubsidiaryshareholdingshareholding
co-operationco-operationco-operation
RAO "Gazprom"
Eesti Energia
Jantarenergo
RAO "EES Rossii"
Poland (9 Distribution Comp., PSE and PGNiG)
Latvenergo RAO "Gazprom"
Eesti Energia
Jantarenergo
RAO "EES Rossii"
Poland (9 Distribution Comp., PSE and PGNiG)
Latvenergo RAO "Gazprom"
Eesti Energia
Jantarenergo
RAO "EES Rossii"
Poland (9 Distribution Comp., PSE and PGNiG)
Latvenergo
BKW
E.ON Italia
Watt
E.ON Bohemia
Lenenergo
E.ON Polska
Viking Cable
RAGE.ON Hungária
E.ON Benelux
Polenergia
Baltic Cable
Sydkraft
E.ONScandinavia
Electra Italia
Lietuvos Energija
Latvijas Gaze
EV3 I/S
BKW
E.ON Italia
Watt
E.ON Bohemia
Lenenergo
E.ON Polska
Viking CableGraninge
RAGE.ON Hungária
E.ON Benelux
Polenergia
Baltic Cable
Sydkraft
E.ONScandinavia
Electra Italia
Lietuvos Energija
Latvijas Gaze
EV3 I/S
E.ON Energie - Strong international expansion
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The UK - A key European market
• Third largest European electricity market (~ 300 TWh sales)
• Leading country in energy liberalization
• Value creating opportunities exist for
– flexible portfolio generators
– experienced asset backed traders
– efficient operators of distribution assets
– innovative retailers with strong nationwide brand
• Scope for further synergistic consolidation
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Powergen: UK excellence
• Integrated trading strategy• Leading market player
• World-class, flexible and diversified generation portfolio
• Efficient distribution assets
Retail • Targeted marketing strategy with strong brand• More than 3 million customer accounts - and
growing
Trading
Assets
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The US - World‘s largest power market
• Larger than total European electricity market
• Offers higher growth and return potential than Europe
• Integrated utility as the accepted business model
• Value creation opportunities from introducing European best practices
• Further opportunities arising from
– fragmented nature of the market
– market liberalization
– convergence of gas and electricity
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Midwest an attractive region within the US power market
ECAR
MAIN
New York
Philadelphia
Frankfort
Detroit
ChicagoMAAC
(1) MAIN = Mid-America Interconnected Network; ECAR = East Central Area Reliability Coordination Agreement; MAAC = Mid-Atlantic Area Council(2) Including Illinois, Indiana, Kentucky, Maryland, Michigan, Missouri, New Jersey, Ohio, Pennsylvania, West Virginia and Wisconsin
North American Electricity Pools(1)
• Midwest(2) with around 30% of US electricity demand
• Crossroads of major energy flows, well interconnected and with good fuel supply options
• Heavily industrialized region
• Consolidation opportunities in a fragmented market
• Positive regulatory environment
LG&E
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LG&E: US excellence
• Reliable, low cost generation assets• Opportunities for off-system sales at attractive rates
(1) USA, 1999 National and Midwest, 2000 Midwest.
Regulation
Distribution
Generation
• Favourable regulatory environment– incentive based rate plan– pass-through of fuel costs– recovery of environmental costs
• Top quartile regional efficiency ranking in distribution - and improving
• High service levels and customer satisfaction• (#1 JD Power survey1))
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Divestment of non-core activities
ASTA Medica-GroupAWD PharmaOnkologieHealthcare/RXZentarisGerman Remedies (27.7%)
dmc2
PhenolchemieDegussa DentalAgro ChemicalsMetallurgical ChemicalsGelatinSaltTFL (50% JV with Ciba SC)KWH (51% Degussa)Textile AdditivesOther (Zeolites, DMT, Oxo-C3)Degussa Bank
Total
Sales 2000
0.80.10.20.5------
2.51.20.50.20.30.20.2---------0.5---
approx. 6.5
Chemicals - Systematic focus on specialty chemicals€ in billions Diveste
dComments
Enterprise value
0.050.53
1.200.420.58
n.a.n.a.n.a.n.a.n.a.
approx. 2.8
Sold to Pliva Group (Croatia)Sold to Baxter International Group (USA)
Sold to OM Group Inc. (USA)
Sold to Ineos Plc. (GB)Sold to Dentsply International Inc. (USA)
1st step: Reduction in share from 64% to 49%
Sold to Schroder Ventures
Sold to Allied Resource Corporation (USA)
Zeolites partly sold to FMC (USA)
Sold to Calida (India)
1st step: Joint venture with Pechiney
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realized1993 - 2000
planned2001 - 2003
1,490
340
876
-
2,706
1,020
60
380
50
1,510
realized1993 - 1999
realized2000
1,060
308
796*
-
2,164
430
32
80
-
542
E.ON Group - Cost Management€ in millions
Electricity
Oil
Chemicals
Holding
Total
*Only Degussa-Hüls,without SKW Trostberg and Goldschmidt
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+/- %2001
E.ON Group - Internal Operating ProfitNine Months€ in millions
Energy
Chemicals
Oil
Real Estate
Telecommunications
Distribution/Logistics
Stinnes
Klöckner
VEBA Electronics
Aluminum
E.ON AG/Other/Consolidation
Total
Pro forma2000
1,335
431
294
109
-100
236
180
56
0
229
324
2,858
1,255
516
226
53
-670
400
153
89
158
180
-117
1,843
+6
-16
+30
+106
+85
-41
+18
-37
-
+27
-
+55
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Group internal operating profitNet book gainsCost management and restructuring expensesOther non-operating earningsForeign E&P taxes
Results from ordinary business activitiesIncome taxesMinority interests
Results from ongoing operationsResults from discontinued operationsEarnings from first-time application of SFAS 133
Group net income
Earnings per share (in €)- from ongoing operations- from discontinued operations
1,8434,570-116264365
6,926-2,994
-338
3,594-50
3,589
4.94-0.01
+/- %2001E.ON Group - ResultsNine Months€ in millions
Pro forma2000
2,858193
-174-188337
3,026-926-245
1,855-827
-2
1,026
2.74-1.22
+55-96-50
--8
-56+69+28
-48--
-71
-45-
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E.ON Group - Outlook 2001
• Full year Group internal operating profit to markedly surpass previous year‘s number
- Energy: Slightly above prior-year figure
– Chemicals: Distinctly below previous year‘s number
– Oil: On par with prior year‘s solid results
– Real Estate, Telecommunications, Stinnes, VAW aluminium:
Earnings improvements
• Results from ordinary business activities significantly below the 2000
figure.
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E.ON AGBack up charts
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Standard-rate customers
(households)
Medium-sized special rate
customers (manufacturing)
Large industrial customers
(manufacturing)
Largest customers
Grid access fee: This covers
the grid operator’s costs for
providing the grid and system
services, for meter reading
and for billing.
ca. 13.0 Pf/kWh ca. 6.5 Pf/kWh ca. 3.0 Pf/kWh ca. 1.0 Pf/kWh
Protective measures for CHP 0.45 Pf/kWh 0.45 Pf/kWh 0.45 Pf/kWh 0.45 Pf/kWh
Concession fee Maximum rate: 2.60 Pf/kWh
(communities under 25,000)
to 4.69 Pf/kWh
(communities over 500,000)
Maximum rate: 0.22 Pf/kWh none none
Electricity tax 3.0 Pf/kWh 0.6 Pf/kWh 0.6 Pf/kWh 0.6 Pf/kWh
VAT from 3.05 to 3.38 Pf/kWh
(depending on size of
concession fee)
1.24 Pf/kWh 0.65 Pf/kWh 0.33 Pf/kWh
Total point of connection fee 22.10 to 24.52 Pf/kWh 9.01 Pf/kWh 4.70 Pf/kWh 2.38 Pf/kWh
New agreement for electricity transmission – Examples for point of connection fees for customers, January 2001
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E.ON Energie - Reduction of installed generation capacity (1) (2001-2003)Shutdowns 2,279 MW Realized
- Offleben C 280 MW- Rauxel 2 164 MW- Westerholt 1 138 MW- Westerholt 2 138 MW- Stade 630 MW- Arzberg 5 104 MW- Arzberg 7 121 MW- Schwandorf D 292 MW- Franken II B1 206 MW 206 MW
- Franken II B2 206 MW 206 MWCold reserve 1,333 MW - Staudinger 2 249 MW 249 MW
- Pleinting 2 402 MW 402 MW
- Emden 4 430 MW 430 MW - Arzberg 6 252 MWReduction 3,612 MW
- Staudinger 1 (winter only) 249 MWTotal reduction of installed capacity 3,861 MW
1,493MW
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Realized
Total reduction of installed capacity 3,861 MW1,493 MW
Shutdown of assets currently in cold reserve 293 MW- Aschaffenburg 21 150 MW
150 MW- Aschaffenburg 31 143 MW
143 MW
Continuation of cold reserve 755 MW- Irsching 1 151 MW- Irsching 2 312 MW- Pleinting 1 292 MW
Total reduction 4,909 MW1,786 MW
E.ON Energie - Reduction of installed generation capacity (2) (2001-2003)