German Investment Seminar Dr. Erhard Schipporeit, E.ON AG January 15, 2002 Page 1 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 Page 2 E.ON Group – Focus on core business E.ON AG Energy E.ON Energie – Electricity • Generation • Trading • Transmission/ distribution • Supply – Gas – Water *Divestment initiated Non-core activities 100% Oil VEBA Oel* 100% Chemicals Degussa 64.6% Real Estate Viterra 100% Other Activities VIAG Telecom E.ON Telecom Stinnes VAW aluminium* 100% 100% 65.5% 100% Page 3 E.ON Group - Divestment of non-core 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 ELECTRICTY 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 Through Gelsenberg (total stake: 25.5%) E.ON can obtain a substantial interest in Ruhrgas E.ON 0.2% 100.0% 0.1% 23.6% Gelsenberg Mannesmann 10.1% 13.5% RWE ThyssenKrupp 50.0% ExxonMobil RAG 50.0% Shell 52.5% Bergemann Gelsenberg 58.2% Brigitta 49.2% ExxonMobil 17.7% Preussag 3.1% Gelsenberg 30.0% 41.8% Schubert Pooling agreement 59.8% 25.0% 15.0% Other 0.2% Ruhrgas Page 10 Geographically, Ruhrgas activities outside Germany fit E.ON‘s strategy very well E.ON‘s gas interests Ruhrgas shareholdings Page 11 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 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 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 16 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 17 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 18 Chemicals - Systematic focus on specialty chemicals € in billions Divestment of non-core activities ASTA Medica-Group AWD Pharma Onkologie Healthcare/RX Zentaris German Remedies (27.7%) 2 dmc Phenolchemie Degussa Dental Agro Chemicals Metallurgical Chemicals Gelatin Salt TFL (50% JV with Ciba SC) KWH (51% Degussa) Textile Additives Other (Zeolites, DMT, Oxo-C3) Degussa Bank Total Sales 2000 0.8 0.1 0.2 0.5 ----2.5 1.2 0.5 0.2 0.3 0.2 0.2 ------0.5 --- approx. 6.5 Divested Enterprise value Comments 0.05 0.53 Sold to Pliva Group (Croatia) Sold to Baxter International Group (USA) 1.20 0.42 0.58 Sold to Calida (India) Sold to OM Group Inc. (USA) Sold to Ineos Plc. (GB) Sold to Dentsply International Inc. (USA) 1st step: Joint venture with Pechiney n.a. n.a. n.a. n.a. n.a. 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) approx. 2.8 Page 19 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 20 E.ON Group - Internal Operating Profit Nine Months € in millions 2001 Energy +/- % 1,335 Pro forma 2000 1,255 Chemicals 431 516 -16 Oil 294 226 +30 Real Estate 109 53 +106 Telecommunications -100 -670 +85 Distribution/Logistics 236 400 -41 Stinnes 180 153 +18 Klöckner 56 89 -37 0 158 - Aluminum 229 180 +27 E.ON AG/Other/Consolidation 324 -117 - 2,858 1,843 +55 VEBA Electronics Total +6 Page 21 E.ON Group - Results Group internal operating profit Net book gains Cost management and restructuring expenses Other non-operating earnings Foreign E&P taxes Results from ordinary business activities Income taxes Minority interests Results from ongoing operations Results from discontinued operations Earnings from first-time application of SFAS 133 Group net income 2,858 193 -174 -188 337 3,026 -926 -245 1,855 -827 -2 1,026 Pro forma 2000 1,843 4,570 -116 264 365 6,926 -2,994 -338 3,594 -5 0 3,589 Earnings per share (in €) - from ongoing operations - from discontinued operations 2.74 -1.22 4.94 -0.01 Nine Months € in millions 2001 +/- % -45 - +55 -96 -50 -8 -56 +69 +28 -48 -71 Page 22 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. Page 23 E.ON AG Back up charts Page 24 New agreement for electricity transmission – Examples for point of connection fees for customers, January 2001 Standard-rate customers (households) Medium-sized special rate customers (manufacturing) Large industrial customers (manufacturing) Largest customers Grid access fee: This covers ca. 13.0 Pf/ kWh the grid operator’s costs for providing the grid and system services, for meter reading and for billing. 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 Page 25 E.ON Energie - Reduction of installed generation capacity (1) (2001-2003) Shutdowns - Offleben C - Rauxel 2 - Westerholt 1 - Westerholt 2 - Stade - Arzberg 5 - Arzberg 7 - Schwandorf D - Franken II B1 - Franken II B2 Cold reserve - Staudinger 2 - Pleinting 2 - Emden 4 - Arzberg 6 Reduction - Staudinger 1 (winter only) Total reduction of installed capacity 2,279 MW 280 MW 164 MW 138 MW 138 MW 630 MW 104 MW 121 MW 292 MW 206 MW 206 MW Realized 206 MW 206 MW 1,333 MW 249 MW 402 MW 430 MW 252 MW 249 MW 402 MW 430 MW 3,612 MW 249 MW 3,861 MW 1,493MW Page 26 E.ON Energie - Reduction of installed generation capacity (2) (2001-2003) Realized Total reduction of installed capacity 3,861 MW Shutdown of assets currently in cold reserve - Aschaffenburg 21 150 MW - Aschaffenburg 31 143 MW 293 MW Continuation of cold reserve - Irsching 1 - Irsching 2 - Pleinting 1 755 MW Total reduction 1,493 MW 150 MW 143 MW 151 MW 312 MW 292 MW 4,909 MW 1,786 MW Page 27