German Corporate Conference
„Business Focus as Value Driver“
Dr. Erhard Schipporeit, E.ON AG
February 28, 2002
Page 1
E.ON‘s value drivers to become a top global integrated
energy service provider:
•
Focus on core business Energy – Electricity, Gas and Water
•
Divest all non-utility assets: Continue optimizing value
•
Invest proceeds into core business: Growth markets, especially in the
United States, but not at any price
•
Optimize cost of capital: Leverage the balance sheet and share buy-back
•
Improve returns vs. cost of capital in the Energy business: Best practice
and value enhancing acquisitions at home and abroad
Page 2
E.ON Group – Focus company
E.ON AG
Energy
E.ON Energie
– Electricity
• Generation
• Trading
• Transmission/
distribution
• Supply
– Gas
– Water
*Divestment initiated
Non-core activities
100%
Oil
VEBA Oel*
49%
Chemicals
Degussa
64.6%
Real Estate
Viterra
100%
Other Activities
Stinnes
Connect Austria
Bouygues Telecom
65.5%
50.1%
17.5%
Page 3
E.ON Group – Divest all non-utility assets ahead of plan
€ in millions
Stake
%
Listed companies
Degussa
Stinnes
MEMC
Schmalbach-Lubeca
Gerresheimer Glas
Other companies
VEBA Oel
Viterra
VEBA Electronics
VAW aluminium
Klöckner & Co.
E-Plus
Cablecom
VIAG Interkom
Orange Communications SA
Bouygues Telecom
Connect Austria ONE
1
Sales 1999
2
At E.ON consolidated sales
Sales
2000
Proceeds
Comments
(equity value)
64.6
65.5
71.8
49
71
20,139
11,981
944
1,891
8361
215
100
100
100
100
100
31
32
45
42.5
17.5
50.1
28,062
1,300
3,9262
3,438
5,355
77,872
2,800
1,000
1,900
300
3,800
870
7,250
1,320
19,455
Divested
Divestment initiated
Divested
Put option with BP
Divested
Divested
Divested
Divested
Divested
Divested
Divested
Page 4
E.ON Group - Implementing E.ON‘s global growth strategy
Growth outside Europe
Broad expansion in
Europe
Strengthen core
business in
Germany
• Acquire integrated utilities in North America (eg. LG&E)
• Selectively engage in South America
• Expand around Germany (eg. majority in Sydkraft)
• Establish European-wide wholesale presence
• Enter into non-contiguous markets (eg. UK through Powergen)
• Establish premier supply business in Germany (eg. #1 - brand)
• Participate in further privatization of municipalities
• Increase stakes from minority to majority interests
Page 5
E.ON Energie - Second-largest utility in Germany
SCHLESWAG
EWE
EMR
PESAG
EAM
e.dis
Avacon
TEAG
E.ON Bayern
E.ON Bayern
Majority participations
Minority participations
Includes only participations => 25%
Page 6
E.ON Energie - Acquisitions of Municipalities (Examples)
Participation
%
Municipal utilities
Stadtwerke Germersheim
Stadtwerke Stade
Stadtwerke Chemnitz
Gemeindewerke Ansbach
Gemeindewerke Haßloch
Stadtwerke Homburg
Stadtwerke Villingen Schwenningen
Stadtwerke Pforzheim
Energieversorgung Hildesheim
Wasser- und Energieversorgung Salzgitter
Stadtwerke Ennigerloh
Stadtwerke Grünstadt
Stadtwerke Kirchheimbolanden
Stadtwerke Braunlage
25
20
15
40
25
25
25
35
13
24
40
21
20
20
Sales
mill €
Number of customers
50
64
400
82
40
125
85
50
160
90
24
30
17
7
10,000
23,000
176,000
25,000
10,000
25,000
33,000
75,000
64,000
29,000
13,500
25,500
8,300
4,300
Page 7
E.ON Energie - Strong market share in gas distribution in Germany
2000 (pro forma)
SCHLESWAG
Heingas EWE
EWE
Turnover
(mill €)
Sales volume
(bn kWh)
1,594
72.5
AVACON
• The leading local distribution
company in Germany*
Gelsenwasser
Thüga
E.ON Bayern
• Further participations in Italy,
Austria, Czech, Hungary, Latvia,
Sweden, Netherlands and
Poland (co-operation)
Thüga
*Including minority participations => 20%
• German gas market:
European gas market:
€ 20 bn
€ 60 bn
Page 8
In Germany‘s gas market, E.ON needs to make up ground in the
import and long-distance delivery segments
GAS
ELECTRICITY
IMPORT
GENERATION
* Includes shareholdings greater than 20 %
LONGDISTANCE
TRANSMISSIO
N
LOCAL
DISTRIBUTIO
N
SUPPLY
SUPPLY
Market position*
Excellent
Good
Weak
Source: E.ON
Page 9
Geographically, Ruhrgas activities outside Germany fit E.ON‘s
strategy very well
E.ON‘s gas interests
Ruhrgas shareholdings
Page 10
E.ON Energie - Largest privately-owned water operator in Germany
2000 (pro forma)
swb
Turnover
(mill €)
Sales volume
(mill m3)
217
259
T
T
• 15% market share in Germany*
T
T
N-ERGIE
• Broad experience in drinking
and sewage water
REWAG
• German water market:
European water market:
T
T
T
€ 25 bn
€ 80 bn
T Thüga participations
*Including minority participations => 20%
Page 11
E.ON Group - Implementing E.ON‘s global growth strategy
Growth outside Europe
Broad expansion in
Europe
Strengthen core
business in
Germany
• Acquire integrated utilities in North America (eg. LG&E)
• Selectively engage in South America
• Expand around Germany (eg. majority in Sydkraft)
• Establish European-wide wholesale presence
• Enter into non-contiguous markets (eg. UK through Powergen)
• Establish premier supply business in Germany (eg. #1 - brand)
• Participate in further privatization of municipalities
• Increase stakes from minority to majority interests
Page 12
E.ON Energie - Strong international expansion
Graninge
Lenenergo
Viking Cable
E.ON Latvijas Eesti Energia
RAO "EES Rossii"
Scandinavia Gaze
Latvenergo
RAO "Gazprom"
EV3 I/S
Sydkraft
Lietuvos Energija
Baltic
Cable
Jantarenergo
E.ON Benelux
E.ON Polska Poland (9 Distribution Comp., PSE and PGNiG)
Polenergia
E.ON Bohemia
BKW
Electra
Italia
Watt
RAG
E.ON Hungária
E.ON Italia
shareholding
subsidiary
co-operation
Page 13
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
Page 14
Powergen: UK excellence
Assets
• World-class, flexible and diversified generation portfolio
• Efficient distribution assets
Trading
• Integrated trading strategy
• Leading market player
Retail
• Targeted marketing strategy with strong brand
• More than 3 million customer accounts - and growing
Page 15
E.ON Group - Implementing E.ON‘s global growth strategy
Growth outside Europe
Broad expansion in
Europe
Strengthen core
business in
Germany
• Acquire integrated utilities in North America (eg. LG&E)
• Selectively engage in South America
• Expand around Germany (eg. majority in Sydkraft)
• Establish European-wide wholesale presence
• Enter into non-contiguous markets (eg. UK through Powergen)
• Establish premier supply business in Germany (eg. #1 - brand)
• Participate in further privatization of municipalities
• Increase stakes from minority to majority interests
Page 16
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
Page 17
Midwest an attractive region within the US power market
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
MAIN
Detroit
New York
Chicago
MAAC
ECAR
Philadelphia
• Heavily industrialized region
• Consolidation opportunities in a
fragmented market
LG&E
Frankfort
• Positive regulatory environment
(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
Page 18
LG&E: US excellence
Generation
• Reliable, low cost generation assets
• Opportunities for off-system sales at attractive rates
Distribution
• Top quartile regional efficiency ranking in distribution - and improving
• High service levels and customer satisfaction
• (#1 JD Power survey1))
Regulation
• Favourable regulatory environment
– incentive based rate plan
– pass-through of fuel costs
– recovery of environmental costs
(1) USA, 1999 National and Midwest, 2000 Midwest.
Page 19
E.ON Group – Investment and Return criteria
• Invest in growth markets, but not at any price
• 1–2% above the cost of capital
• Earnings enhancing pre-goodwill in the first full year of
consolidation
Page 20
E.ON Group financial goals – Optimize cost of capital
• Leveraging the balance sheet to finance growth
• Share buy-back program
Page 21
E.ON Group – Improve returns in the core business
Energy
• Best practice through benchmarking
• Reduction of installed capacities
• “Margins before volume” approach
• Market prices vs. cost of generation
Page 22
E.ON Group - Cost Management
€ in millions
realized
1993 - 1999
realized
2000
realized
1993 - 2000
planned
2001 - 2003
1,060
430
1,490
1,020
Oil
308
32
340
60
Chemicals
796*
80
876
380
-
-
-
50
2,164
542
2,706
1,510
Electricity
Holding
Total
*Only Degussa-Hüls,without SKW Trostberg and Goldschmidt
Page 23
E.ON Energie - Reduction of installed generation capacity
(2001-2003)
Planned
Shutdowns
2,279 MW
Cold reserve
1,333 MW
Staudinger 1 (winter only)
Total reduction of installed capacity
Realized
249 MW
3,861 MW
1,493 MW
Shutdown of assets currently in cold reserve
293 MW
293 MW
Continuation of cold reserve
755 MW
Total reduction
4,909 MW
1,786 MW
Page 24
E.ON: A leading global powerhouse
• Focused utility business
• Global leadership position in power
• Poised for future growth in US and Europe, but not at
any price
• Best-in-class skills across value chain
• High quality international management team
• Continue to improve returns in our core business
Energy
Page 25
German Corporate Conference
„Business Focus as Value Driver“
Dr. Erhard Schipporeit, E.ON AG
February 28, 2002
Page 26