E.

ON UK: Our Business Model
Dr. Paul Golby, Chief Executive, E.ON UK
E.ON Capital Market Day UK
June 29, 2005

Topics for today
1

2

3

Introduction to E.ON UK – What we have achieved

Key political and market challenges

Responding to the challenge

1

E.ON UK forms a major part of E.ON’s strategy to be the world’s
leading power and gas company
U.S.-Midwest

Kentucky: No. 1 in power generation
with 47 %MAIN
of total 95 TWh.
No. 1 in power/gas retail with
42 % of total 2.8m cust.

U.K.

No. 2 in power generation with
11% of total 350 TWh.
No. 2 in power/gas retail with 18%
of total 49m customers.
No. 2 in elec. distribution with 17%
of total 28m customer connections.

Nordic

No. 4 in power generation with 7 %
of total 390 TWh.
No. 3 in power/gas retail with 9 %
of total 14m cust.

Pan-European Gas

No. 3 in gas supply in
a total market of 4,600 TWh.

Central Europe

No. 2 in power generation with 13 %
of total 1050 TWh.
No.1 in power/gas retail with 20 %
of total ~ 120m cust.

2

E.ON UK contributed over 1 billion Euro to E.ON’s overall 2004
operating result
Adjusted EBIT by market unit
in million €
2004

20031)

Central Europe
Pan-European Gas
U.K.
Nordic
U.S. Midwest
Corporate Center
Core Energy Business
Other Activities3)
Adjusted EBIT4)

2,979
1,4632)
610
546
317
-319
5,596
632
6,228

1)
2)
3)
4)
5)
6)

3,602
1,428
1,017
701
349
-314
6,783
578
7,361

E.ON UK – Key financial figures
in million €
2004
Sales
Adjusted EBITDA5)
Adjusted EBIT
Cashflow6)

8,490
1,592
1,017
633

Pro forma figures according to the new market unit structure; adjusted for discontinued operations.
E.ON Ruhrgas for the period February 1 - December 31, 2003.
This segment consists of Viterra and Degussa; the latter has been accounted for using the equity method since February 1, 2003.
Non-GAAP financial measure; reconciliation to consolidated net income see Annual Report, p. 25 .
Non-GAAP financial measure; reconciliation to consolidated net income see Annual Report, p. 25 and p. 158.
Cash provided by operating activities.

2003
7,923
1,036
610
315

3

E.ON UK – Transformation into a focused, leading and balanced
company
Powergen before 2002

E.ON UK now

• UK based electricity company with operations
in the US (LG&E) and Asia Pacific

• Transformed into a leading power and gas
company focused on the UK

• Long generation position in the UK gave high
exposure to wholesale prices

• Focus and growth strategy: €4.2bn of
acquisitions since 2002

• Under-scaled electricity supply and
distribution business make this work make it
work

• Through TXU, E.ON balanced its generation
portfolio and created a leading UK retailer
with almost 9 million accounts
• With Midlands, E.ON UK became the number
two in UK electricity distribution

• E.ON acquired Powergen in mid 2002 setting
the corner stone for today’s U.K. Market Unit

• E.ON UK is now a leading UK integrated
power and gas player
4

E.ON UK now: a top 2 position in each of our markets
E.ON UK

Energy Wholesale

Central Networks

• Commodity trading
(Coal, Oil, Gas, Power, Carbon)

• Electricity, Gas and Home Energy
Services
• 2nd largest retailer
• 8.8 million accounts

• 2nd largest power distribution
business
• Providing power to 4.8 million
customer connections across the
Midlands

• 2nd largest generator
• Risk Management

8

England and Wales 2004
Metered Generation (TWh)

60

Retail

Million Connections

8

50

20

20,000

15,000
15

6

6

Residential and SME
Million Accounts

Electricity
Gas

40

10
10,000

4

4

30

5,000
5

20

2

2

10

E.ON

SSE

RWE

EDF

SP

Centrica

EdF

CN

CE UK

Source: Company information; Datamonitor Market Share Monitor, Nov 2004.

SP

SSE

WPD

UU

SP

Ed
F

SS
E

RW
E

0

BE

E.O
N

0

0

Ce
nt
ric
a

0,000
0

5

Optimizing an integrated value chain at E.ON UK

Energy Wholesale

Distribution

Retail

Generation

Trading

Risk Management

6

The energy industry particularly in the UK faces a number
of challenges
Increasing global energy demand and rising prices
Managing the UK’s transition to a net gas importer
Investing to replace ageing assets
CO2 is a major issue – threat or opportunity?
Industry and Government need to work together to deliver solutions
7

Oil and gas prices have risen significantly over the last year
leading to high and volatile electricity prices
Oil
Ÿ Oil markets remain volatile with price
levels causing world wide concerns

60
50
40
30
Jul-04

Gas
Ÿ Winter 2006 prices 75% higher than
one year ago

75
50

Ÿ Winter 2006 prices 55% higher than
one year ago

Oct-04

Jan-05

Apr-05

Jul-05

NBP Gas Winter 06
p/therm

25
Jul-04

Electricity

Brent Crude Rolling Front Month
$/barrel

60
40

Oct-04

Jan-05

Apr-05

Jul-05

Winter 06 Baseload
£/MWh

20
Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

8

The UK has become a net gas importer, which will result in
a period of higher and more volatile prices
Gas infrastructure built

• For 30 years, plentiful North Sea oil and

Potential new import
infrastructure

gas have cushioned Britain - this is
now quickly changing
• The UK is now a net importer of gas
• Into the future, the UK will increasingly

UK

have to rely on Russian and Norwegian

NL
B
F

D

pipeline gas together with LNG

9

The UK also has a major challenge to replace ageing coal
and nuclear plant
UK Generation Plant Closure by fuel

• A significant portion of current UK generation

GW

28

capacity is set to close by 2015

24

• The bulk of the UK nuclear fleet will close -

20

a 12% loss of current market capacity.

16

• A significant number of coal plant also set

12

to close - a 22% loss of current market

8

capacity

4

• When - and with what - will this capacity be

0
2005-07

Nuclear

2008-15

2016-20

Coal & Oil

replaced?
10

These challenges are in addition to the Government’s
target to reduce CO2 emissions by 60% by 2050
Carbon emissions per annum
Billion tons of carbon pa (global)

14

7

1950

Business as usual

1 wedge
avoids 1
billion tons of
Carbon
emissions pa
by 2054

2004

The UK is not on track to achieve the
targeted reductions due to
Ÿ increasing coal burn in the short
term

Stabilisation at
current levels

Ÿ nuclear closures in the longer
term

2054

Source: R. Socolow et al., „Solving The Climate Problem“,
Environment, Volume 46, December 2004, 8-19.
11

Key Challenges Energy Wholesale
Market Environment

Optimizing now

Shaping the future

Ÿ Volatile and increasing commodity prices

Ÿ Make money, control costs, manage risks – fit for
purpose hedging strategy

Ÿ Creating options for growth

12

Key Challenges Retail

Cost management

Ÿ Market leading and scalable systems

Rising wholesale
costs

Ÿ Focusing on profitability per customer

Growing Value

Ÿ Integrated optimization strategy

13

Key Challenges Central Networks
Achieve leading
performance

Ÿ Continuing to outperform

Innovative
Investments

Ÿ Energy Services business

Regulatory
Environment

Ÿ Setting the DR5 agenda
14

Strategic direction – Our response to these challenges
Invest in
flexible and lower carbon
intensity generation
including renewables

Delivery against DR4
framework - Shape new
regulatory framework

Working with government
to shape UK Energy Policy

Working with
E.ON Ruhrgas to optimize
gas supply position
(LNG, storage, pipelines)

Maximizing customer value
in Retail
Build the E.ON Brand in the UK
15

Summary
We…
• …have transformed E.ON UK in the last 3 years into a leading integrated UK
power and gas company – a perfect example of E.ON’s strategic market
approach
• …have delivered on our promises
• …are excellently positioned to tackle these challenges & create further
shareholder value

16

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 or
performance of the company and the estimates given here. These factors include those discussed in our
public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission
(including our Annual Report on Form 20-F). The company assumes no liability whatsoever to update these
forward-looking statements or to conform them to future events or developments.
E.ON prepares its consolidated financial statements in accordance with generally accepted accounting
principles in the United States (“U.S. GAAP”). This presentation may contain references to certain financial
measures (including forward looking measures) that are not calculated in accordance with U.S. GAAP and are
therefore considered “Non-GAAP financial measures” within the meaning of the U.S. federal securities laws.
E.ON presents a reconciliation of these Non-GAAP financial Measures to the most comparable US-GAAP
measure or target, either in this presentation or on the website under www.eon.com. Management believes
that the Non-GAAP financial measures used by E.ON, when considered in conjunction with (but not in lieu of)
other measures that are computed in U.S. GAAP, enhance an understanding of E.ON’s results of operations. A
number of these Non-GAAP financial measures are also commonly used by securities analysts, credit rating
agencies and investors to evaluate and compare the periodic and future operating performance and value of
E.ON and other companies with which E.ON competes. These Non-GAAP financial measures should not be
considered in isolation as a measure of E.ON’s profitability or liquidity, and should be considered in addition
to, rather than as a substitute for, net income, cash provided by operating activities and the other income or
cash flow data prepared in accordance with U.S. GAAP. The Non-GAAP financial measures used by E.ON may
differ from, and not be comparable to, similarly-titled measures used by other companies
17