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German Corporate Conference „Business Focus as Value Driver“ Dr. Erhard Schipporeit, E.ON AG

German Corporate Conference „Business Focus as Value Driver“ Dr. Erhard Schipporeit, E.ON AG February 28, 2002. E.ON ‘ s value drivers to become a top global integrated energy service provider:. Focus on core business Energy – Electricity, Gas and Water

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German Corporate Conference „Business Focus as Value Driver“ Dr. Erhard Schipporeit, E.ON AG

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  1. German Corporate Conference „Business Focus as Value Driver“ Dr. Erhard Schipporeit, E.ON AG February 28, 2002

  2. 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

  3. E.ON AG E.ON Group – Focus company Energy Non-core activities Oil E.ON Energie100% • Electricity • Generation • Trading • Transmission/ distribution • Supply • Gas • Water VEBA Oel* 49% Chemicals Degussa 64.6% Real Estate Viterra 100% Other Activities Stinnes 65.5% Connect Austria 50.1% Bouygues Telecom 17.5% *Divestment initiated

  4. Divested 7,250 - E.ON Group – Divest all non-utility assets ahead of plan€ in millions Stake % Sales 2000 Proceeds (equityvalue) Comments Listed companies Degussa 64.6 20,139 - - Stinnes 65.5 11,981 MEMC 71.8 944 - Divested Divestment initiated Schmalbach-Lubeca 49 1,891 - Divested Gerresheimer Glas 71 8361 215 Other companies VEBA Oel 100 28,062 2,800 Put option with BP - Viterra 100 1,300 VEBA Electronics 100 3,9262 Divested 1,000 VAW aluminium 3,438 100 1,900 Divested 300 100 Klöckner & Co. 5,355 Divested 3,800 Divested 31 - E-Plus Divested 870 - Cablecom 32 45 VIAG Interkom 42.5 Orange Communications SA Divested 1,320 - - 17.5 - Bouygues Telecom - - 50.1 Connect Austria ONE 77,872 19,455 1 Sales 1999 2 At E.ON consolidated sales

  5. E.ON Group - Implementing E.ON‘s global growth strategy • Acquire integrated utilities in North America (eg. LG&E) • Selectively engage in South America Growth outside Europe Broad expansion in Europe • Expand around Germany (eg. majority in Sydkraft) • Establish European-wide wholesale presence • Enter into non-contiguous markets (eg. UK through Powergen) Strengthen core business in Germany • Establish premier supply business in Germany (eg. #1 - brand) • Participate in further privatization of municipalities • Increase stakes from minority to majority interests

  6. E.ON Energie - Second-largest utility in Germany SCHLESWAG SCHLESWAG SCHLESWAG SCHLESWAG EWE EWE e.dis e.dis Avacon Avacon EMR EMR PESAG PESAG EAM EAM TEAG TEAG E.ON Bayern Majority participations E.ON Bayern Minority participations Includes only participations > 25% =

  7. E.ON Energie - Acquisitions of Municipalities (Examples) Participation % Sales mill € Number of customers 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 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

  8. Turnover (mill €) Sales volume (bn kWh) 1,594 72.5 > *Including minority participations = 20% E.ON Energie - Strong market share in gas distribution in Germany2000 (pro forma) SCHLESWAG SCHLESWAG EWE Heingas EWE EWE AVACON AVACON • 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 Gelsenwasser Gelsenwasser Thüga Thüga E.ON Bayern E.ON Bayern Thüga Thüga

  9. In Germany‘s gas market, E.ON needs to make up ground in the import and long-distance delivery segments IMPORT LONG-DISTANCE LOCAL SUPPLY GAS GENERATION TRANSMISSION DISTRIBUTION SUPPLY ELECTRICITY Market position* Excellent Good Weak * Includes shareholdings greater than 20 % Source: E.ON

  10. Geographically, Ruhrgas activities outside Germany fit E.ON‘s strategy very well E.ON‘s gas interests Ruhrgas shareholdings

  11. Turnover (mill €) Sales volume (mill m3) 217 259 swb T T T N-ERGIE T T REWAG T T Thüga participations T > *Including minority participations = 20% E.ON Energie - Largest privately-owned water operator in Germany2000 (pro forma) • 15% market share in Germany* • Broad experience in drinking and sewage water • German water market: € 25 bnEuropean water market: € 80 bn

  12. E.ON Group - Implementing E.ON‘s global growth strategy • Acquire integrated utilities in North America (eg. LG&E) • Selectively engage in South America Growth outside Europe Broad expansion in Europe • Expand around Germany (eg. majority in Sydkraft) • Establish European-wide wholesale presence • Enter into non-contiguous markets (eg. UK through Powergen) Strengthen core business in Germany • Establish premier supply business in Germany (eg. #1 - brand) • Participate in further privatization of municipalities • Increase stakes from minority to majority interests

  13. Graninge Lenenergo Lenenergo Viking Cable Viking Cable Eesti Energia Eesti Energia E.ON Latvijas Eesti Energia E.ON Latvijas RAO "EES Rossii" RAO "EES Rossii" RAO "EES Rossii" Scandinavia Scandinavia Gaze Gaze Latvenergo Latvenergo Latvenergo RAO "Gazprom" RAO "Gazprom" EV3 I/S RAO "Gazprom" EV3 I/S Sydkraft Sydkraft Lietuvos Energija Lietuvos Energija Baltic Baltic Cable Jantarenergo Cable Jantarenergo Jantarenergo E.ON Benelux E.ON Benelux Poland (9 Distribution Comp., PSE and PGNiG) Poland (9 Distribution Comp., PSE and PGNiG) Poland (9 Distribution Comp., PSE and PGNiG) E.ON Polska E.ON Polska Polenergia Polenergia E.ON Bohemia E.ON Bohemia BKW BKW RAG RAG Watt Watt E.ON Hungária E.ON Hungária Electra Electra E.ON Italia E.ON Italia Italia Italia shareholding shareholding subsidiary subsidiary co-operation co-operation co-operation E.ON Energie - Strong international expansion

  14. 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

  15. 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

  16. E.ON Group - Implementing E.ON‘s global growth strategy • Acquire integrated utilities in North America (eg. LG&E) • Selectively engage in South America Growth outside Europe Broad expansion in Europe • Expand around Germany (eg. majority in Sydkraft) • Establish European-wide wholesale presence • Enter into non-contiguous markets (eg. UK through Powergen) Strengthen core business in Germany • Establish premier supply business in Germany (eg. #1 - brand) • Participate in further privatization of municipalities • Increase stakes from minority to majority interests

  17. 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

  18. 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 • Heavily industrialized region • Consolidation opportunities in a fragmented market • Positive regulatory environment MAIN Detroit New York Chicago MAAC Philadelphia ECAR LG&E Frankfort (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

  19. 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)) • Favourable regulatory environment • incentive based rate plan • pass-through of fuel costs • recovery of environmental costs Regulation (1) USA, 1999 National and Midwest, 2000 Midwest.

  20. 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

  21. E.ON Group financial goals – Optimize cost of capital • Leveraging the balance sheet to finance growth • Share buy-back program

  22. 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

  23. E.ON Group - Cost Management€ in millions realized 1993 - 1999 realized 2000 realized 1993 - 2000 planned 2001 - 2003 Electricity Oil Chemicals Holding Total 1,060 308 796* - 2,164 430 32 80 - 542 1,490 340 876 - 2,706 1,020 60 380 50 1,510 *Only Degussa-Hüls,without SKW Trostberg and Goldschmidt

  24. E.ON Energie - Reduction of installed generation capacity (2001-2003) Planned Realized Shutdowns 2,279 MW Cold reserve 1,333 MW Staudinger 1 (winter only) 249 MW Total reduction of installed capacity 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

  25. 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

  26. German Corporate Conference „Business Focus as Value Driver“ Dr. Erhard Schipporeit, E.ON AG February 28, 2002

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