E.ON 2011 Annual Report

2011 Annual Report E.ON 2011 AnnualReport E.ON Group Financial Highlights1 Financial Calendar € in millions 2011 2010 +/- % Electricity sales2 (billion kWh) 1,144.8 1,030.4 +11 Gas sales2 (billion kWh) 1,718.1 1,342.4 +28 Sales 112,954 92,863 +22 EBITDA3 9,293 13,346 -30 May 3, 2012 2012 Annual Shareholders Meeting EBIT3 5,438 9,454 -42 May 4, 2012 Dividend Payout Net loss/Net income -1,861 6,281 -130 Net loss/Net income attributable to shareholders of E.ON AG -2,219 5,853 -138 May 9, 2012 Interim Report: January – March 2012 Underlying net income3 2,501 4,882 -49 Investments 6,524 8,286 -21 August 13, 2012 Interim Report: January – June 2012 Cash provided by operating activities of continuing operations 6,610 10,614 -38 November 13, 2012 Interim Report: January – September 2012 Economic net debt (at year-end) -36,385 -37,701 +1,3164 Debt factor5 3.9 2.8 +1.14 Equity 39,613 45,585 -13 March 13, 2013 Release of the 2012 Annual Report Total assets 152,872 152,881 – 6 ROACE (in %) 8.4 14.4 -6.0 May 3, 2013 2013 Annual Shareholders Meeting Pretax cost of capital (%) 8.3 8.3 – After-tax cost of capital (%) 6.1 6.1 – May 6, 2013 Dividend Payout Value added 90 4,000 -98 May 8, 2013 Interim Report: January – March 2013 Employees (at year-end) 78,889 85,105 -7 Earnings per share7, 8 (€) -1.16 3.07 – August 13, 2013 Interim Report: January – June 2013 Equity per share7, 8 (€) 18.76 21.87 -14 November 13, 2013 Interim Report: January – September 2013 Dividend per share9 (€) 1.00 1.50 -33 Dividend payout 1,905 2,858 -33 Market capitalization8 (€ in billions) 31.8 43.7 -27 1Adjusted for discontinued operations. 2Includes trading sales volume. 3Adjusted for extraordinary effects (see Glossary). 4Change in absolute terms. 5Ratio of economic net debt and EBITDA. 6Change in percentage points. 7Attributable to shareholders of E.ON AG. 8Based on shares outstanding. 9For the respective financial year; the 2011 figure is management’s proposed dividend. CEO Letter Contents E.ON Stock Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations 2 CEO Letter 4 E.ON Stock 6 Combined Group Management Report 6 Corporate Profile and Operating Environment 24 Earnings Situation 36 Financial Condition 40 Asset Situation 41 E.ON AG’s Earnings, Financial, and Asset Situation 42 Corporate Sustainability 43 Employees 47 Technology and Innovation 50 Risk Report 60 Forecast 66 Consolidated Financial Statements 66 Independent Auditor’s Report 68 Consolidated Statements of Income 69 Consolidated Statements of Recognized Income and Expenses 70 Consolidated Balance Sheets 72 Consolidated Statements of Cash Flows 74 Statement of Changes in Equity 76 Notes 158 Declaration of the Board of Management 159 Disclosures on Companies in which Share Investments Are Held 174 Corporate Governance Report 174 Corporate Governance Declaration1 180 Compensation Report1 190 Supervisory Board and Board of Management 190 Report of the Supervisory Board 194 Members of the Supervisory Board 196 Disclosure of Takeover Barriers1 199 Internal Control System for the Accounting Process1 202 Explanatory Report of the Board of Management 203 Members of the Board of Management 204 Tables and Explanations 204 Summary of Financial Highlights 205 Glossary of Financial Terms 209 Financial Calendar 1Part of the Combined Group Management Report. 2 CEO Letter Despite a difficult business environment—weak energy demand and its adverse impact on capacity utilization, prices, and margins; keen competitive pressure in our gas wholesale business; and the early shutdown of a number of our nuclear power stations in Germany—in 2011 we were able to move forward with our strategy and, under our E.ON 2.0 program, to take the first important steps towards a significantly more efficient organizational setup. Our EBITDA reflects two main effects: a non-recurring adverse effect of €1.5 billion relating to the early shutdown of nuclear power stations in Germany and a loss in our gas wholesale business in the high three-digit million range. It was predominantly these factors that necessitated a correction in our earnings guidance at the time of our half-year interim report. Our full-year results are in line with this adjusted guidance. Our sales rose to €113 billion. Our 2011 EDITDA of €9.3 billion was 30 percent below the high prior-year figure, and our underlying net income was €2.5 billion. Nevertheless, we’ll recommend to the Annual Shareholders Meeting the payment of a cash dividend of €1 per share for the 2011 financial year. Furthermore, E.ON plans to pay a divided of €1.10 per share for the 2012 financial year and at least €1.10 for the 2013 financial year. To ensure that we continue to have the necessary earnings strength going forward, we’re systematically realigning our business for the future. We’re guided by the four key components of our strategy for cleaner & better energy: focus our business in Europe, enhance our performance by increasing our efficiency and improving our organizational setup, optimize our investment strategy, and achieve selective growth outside Europe. We made significant progress in all of these areas in 2011. We’re focusing our businesses in Europe and systematically seizing the opportunities created by the transformation of its energy system. A key focus of our growth in Europe is renewables, particularly offshore wind. In 2011, our pacesetting role earned us a Global Energy Award in the category Green Power Producer of the Year. Our strong growth will continue. Over the next five years, we plan to invest €7 billion to expand our renewables capacity. More than €2 billion of this figure is for the construction of three large offshore wind farms in the North Sea and Baltic Sea. Going forward, we intend to commission a new offshore wind farm every 18 months and at the same time further significantly reduce the costs of building and operating these assets. Together with careful site selection and planning, these cost reductions will ensure that our investments yield consistently attractive returns. Distributed generation also has the potential to play an important role in the energy world of the future. A team of experts drawn from across our company is currently designing a strategy for propelling E.ON’s growth in this area. The business environment for conventional generation, however, has deteriorated in most European markets. The economic situation is temporarily dampening the demand for power, resulting in markedly narrower margins and lower utilization factors for our conventional power stations. Primarily in our markets in Southern Europe but also in the Benelux countries and Central Europe, we currently face overcapacity, low power prices, and narrower margins, particularly in power generation. This made it necessary for us to record impairment charges totaling approximately €3 billion on our businesses in 2011. We’re responding by taking steps to further optimize our conventional generation portfolio. We’re reducing costs, enhancing our assets’ ability to be dispatched more flexibly where possible, and looking into shutting down facilities temporarily or permanently where necessary. We’re also responding to a dramatically altered market environment in our gas business. The extraction of new, unconventional reserves has massively altered the global gas market, and, at least for now, is resulting in oversupply and is putting our business under enormous pressure. From an organizational perspective, the separation of our gas-supply, gas-storage, and LNG businesses from our trading business no longer offers any advantages. We’re going to combine these businesses, which will enable us to better realize synergy potential by, for example, taking an integrated approach to marketing our assets and contracts and by having a consistent market presence. As for our long-term gas supply contracts, we’ve made further progress in adjusting them to reflect new market realities. In 2011, we negotiated more favorable terms for about 40 percent of our long-term contracted gas offtake. We continue to expect that we can bring all our long-term gas supply contracts to a competitive level by 2013. CEO Letter E.ON Stock 3 Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations Europe’s energy markets are consolidating. The growth opportunities are primarily elsewhere. We’re already very successful in two markets outside Europe: onshore wind in North America and conventional power generation in Russia. In North America, we’re building what is already our seventeenth wind farm, and our 2.2 gigawatts (“GW”) of installed capacity ranks us among the top-five wind-power players in the United States. In Russia, we commissioned three technologically advanced gas-fired generating units with a total capacity of 1.2 GW through year-end 2011, and all of them offer attractive returns on our investment. Many other parts of the world face the challenge of producing enough electricity to power their robust economic growth. Our intention to forge a strategic partnership with Brazil’s MPX represents our first step. Together, we plan to build roughly 20 GW of conventional and renewable-source generating capacity in this booming region. We’re currently also talking to potential partners in Turkey and India about opportunities for cooperation. We expect concrete results in the course of 2012. In view of the business challenges we face in Europe in the next several years, however, we need to adopt a different strategy for our growth investments. We need to create more value with less capital. This means, for example, that we’ll no longer necessarily be both operator and sole owner of wind farms.

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