Annual Report 2017 WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 E.ON Group Financial Highlights1 € in millions 2017 2016 +/- % Sales 37,965 38,173 -1 Adjusted EBITDA2 4,955 4,939 – – Regulated business 2,742 2,541 +8 – Quasi-regulated and long-term contracted business 828 842 -2 – Merchant business 1,385 1,556 -11 Adjusted EBIT2 3,074 3,112 -1 – Regulated business 1,677 1,482 +13 – Quasi-regulated and long-term contracted business 486 488 – – Merchant business 911 1,142 -20 Net income/loss 4,180 -16,007 – Net income/loss attributable to shareholders of E.ON SE 3,925 -8,450 – Adjusted net income2 1,427 904 +58 Investments 3,308 3,169 +4 Cash provided by operating activities of continuing operations -2,952 2,961 – Cash provided by operating activities of continuing operations before interest and taxes -2,235 3,974 – Economic net debt (at year-end) 19,248 26,320 -27 Debt factor3 3.9 5.3 -1.44 Equity 6,708 1,287 +421 Total assets 55,950 63,699 -12 ROCE (%) 10.6 10.4 +0,25 Pretax cost of capital (%) 6.4 5.8 +0,65 After-tax cost of capital (%) 4.7 4.0 +0,75 Value added 1,211 1,370 -12 Employees (at year-end) 42,699 43,138 -1 – Percentage of female employees 32 32 – – Percentage of female executives and senior managers 19.6 19.6 – – Average turnover rate (%) 4.6 5.3 -0.75 – Average age 42 42 – – TRIF6 (E.ON employees) 2.3 2.5 -8 Earnings per share7, 8 (€) 1.84 -4.33 – Equity per share7, 9 (€) 1.85 -0.54 – Dividend per share10 (€) 0.30 0.21 +43 Dividend payout 650 410 +59 Market capitalization9 (€ in billions) 19.6 13.1 +50 1The Uniper Group was deconsolidated effective December 31, 2016; it is shown in 2016 income statement as discontinued operation. 2Adjusted for non-operating effects (see Glossary). 3Ratio of economic net debt and adjusted EBITDA. 4Change in absolute terms. 5Change in percentage points. 6For E.ON employees; for a definition of TRIF, see the Employees chapter. 7Attributable to shareholders of E.ON SE. 8Based on shares outstanding (weighted average). 9Based on shares outstanding at year-end. 10For the respective financial year; the 2017 figure represents management’s dividend proposal. WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 CEO Letter Report of the Supervisory Board E.ON Stock Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Summary of Financial Highlights and Explanations Contents 4 CEO Letter 6 Report of the Supervisory Board 14 E.ON Stock 18 Strategy and Objectives 22 Combined Group Management Report 22 Corporate Profile 22 Business Model 23 Management System 24 Innovation 26 Business Report 26 Macroeconomic and Industry Environment 28 Earnings Situation 33 Financial Situation 37 Asset Situation 38 E.ON SE’s Earnings, Financial, and Asset Situation 40 Other Financial and Non-Financial Performance Indicators 40 – ROCE and Value Added 42 – Corporate Sustainability 43 – Employees 51 Forecast Report 54 Risk and Chances Report 62 Business Segments 70 Internal Control System for the Accounting Process 72 Disclosures Regarding Takeovers 75 Corporate Governance Report 75 Corporate Governance Declaration 84 Compensation Report 100 Consolidated Financial Statements 102 Independent Auditor’s Report 110 Consolidated Statements of Income 111 Consolidated Statements of Recognized Income and Expenses 112 Consolidated Balance Sheets 114 Consolidated Statements of Cash Flows 116 Statement of Changes in Equity 118 Notes 208 Declaration of the Management 209 List of Shareholdings 222 Members of the Supervisory Board 224 Members of the Management Board 228 Summary of Financial Highlights and Explanations 228 Explanatory Report of the Management Board 229 Summary of Financial Highlights 230 Glossary of Financial Terms 237 Financial Calendar WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 CEO Letter Report of the Supervisory Board WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 CEO Letter 4 Dear Shareholders, 2017 was a successful financial year. Our earnings were at the upper end of our forecast range, and we reduced our debt significantly and more than expected and strengthened our balance sheet. This enabled us to put the burdens of the past behind us faster than anticipated. From this position of strength we’re now embarking on E.ON’s largest growth initiative in more than ten years: we reached an agreement with RWE under which we’ll acquire innogy as part of an extensive asset swap. We’ll obtain RWE’s 76.8-percent stake in innogy und make a voluntary public offer to innogy’s other shareholders. In return, RWE will receive substantially all of E.ON and innogy’s renewables business as well as a 16.67-percent stake in E.ON by means of a capital increase against contribution in kind from existing authorized capital. In the future, the new E.ON will be the only European company to focus on smart grids and innovative customer solutions. One of the most creative transactions in the history of German industry will put E.ON in an even better position to tap the growth potential of the new energy world. And make E.ON even more attractive to you, our shareholders. Dr. Johannes Teyssen, We fully achieved our financial and balance-sheet targets for 2017. Our stable Chairman of the Management Board sales of €38 billion, our adjusted EBIT of €3.1 billion, and our significantly higher adjusted net income of €1.4 billion were all at the upper end of our forecast range. We substantially strengthened our balance sheet. Steadily, but much faster than planned, we reduced our economic net debt to just €19.5 billion, down by just over a quarter from roughly €26.3 billion at year-end 2016. In addition, in early July we made our payment, on time, into Germany’s public fund for financing nuclear- waste disposal. We therefore not only significantly reduced our debt. Since last year we’re also free of all future financial risks in conjunction with the intermediate and final storage of nuclear waste. Phoenix, our reorganization program, is nearing completion. It’s making our setup much closer to customers, reducing unnecessary bureaucracy, and enabling to us to achieve annual earnings improvements of €400 million from 2018 onward. WorldReginfo - 9441dee4-73d1-431f-b4ae-8b2817782330 CEO Letter Report of the Supervisory Board E.ON Stock 5 Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Summary of Financial Highlights and Explanations E.ON is now working closer to our customers, their needs, and their desires. Our very good operating results, our solid balance They’re at the center of everything we do. The first signs of success are sheet, and the positive developments in our core already apparent: after some declines in the first two quarters of the year, businesses weren’t self-evident. They’re the result especially in the United Kingdom and Germany, since mid-2017 our of our employees’ hard work in a continued chal- customer numbers have been rising again across all regions. Our reposi- lenging environment. The opportunities of the new tioned brand and a range of innovative products and solutions for all energy world will benefit not only our customers customer segments contributed to this success. and employees but also especially you, our share- holders. We expect our 2018 results to be stable Our solar and battery business in Germany grew by more than 200 percent and solid. We forecast that our adjusted EBIT will year on year, making us the country’s fastest-growing solar company. be between €2.8 and €3 billion and our adjusted In 2017 we launched E.ON SolarCloud, which enables our customers to net income between €1.3 and €1.5 billion. We will store their own solar output virtually and use it when they need it, with- propose to the Annual Shareholders Meeting that out the need for a battery storage system. In the future, our customers will E.ON pay out a fixed dividend for the 2017 and 2018 be able to sell their output directly to other people, like their neighbors or financial years: 30 cents for 2017 and 43 cents friends. Or give solar energy as a gift. for 2018, a year-on-year increase of 40 percent. This is my clear signal to you, our shareholders, that The development of our new e-mobility business has also been dynamic. we will be reliable, including during the implemen- This fast-growing market is lucrative for E.ON as well. It enables us to tation of the transaction. leverage our core competencies: using a reliable and intelligent network infrastructure as the backbone for innovative and digital products combined We’ve established a solid starting position from with first-class service. The future E.ON will be even better positioned to which to make even better use of the opportunities grow this business on a European scale. created by the green, distributed, and digital energy world. During the transaction phase, we intend to E.ON’s digital renewal is taking great strides forward. We’re redesigning further strengthen our core business and then take customer processes and systematically introducing digital products and a big step forward in growth by acquiring innogy services. We’re using digital technology to continue to upgrade our in mid 2019. Our aim will continue to be to opti- regional distribution networks to smart grids. In the future, our expertise mally tap the substantial opportunities of the new in this areas will be in even greater demand. This is because only smart energy world for our customers and for you, our distribution grids can effectively integrate electricity, heat, and mobility.