2014 Annual Report E.ON 2014 AnnualReport 1 E.ON Group Financial Highlights Financial Calendar € in millions 2014 2013 +/- % Attributable generating capacity (MW) 58,871 61,090 -4 – thereof renewables (MW) 10,472 10,885 -4 Fully consolidated generating capacity (MW) 60,151 62,809 -4 – thereof renewables (MW) 9,768 10,414 -6 May 7, 2015 2015 Annual Shareholders Meeting Owned generation (billion kWh) 215.2 245.2 -12 May 7, 2015 Interim Report: January – March 2015 – thereof renewables (billion kWh) 29.3 30.8 -5 Carbon emissions from power and heat production (million metric tons) 95.7 114.3 -16 August 12, 2015 Interim Report: January – June 2015 Specific carbon emissions (million metric tons/MWh) 0.43 0.45 -4 Electricity sales (billion kWh) 735.9 696.9 +6 November 11, 2015 Interim Report: January – September 2015 Gas sales (billion kWh) 1,161.0 1,219.3 -5 Sales 111,556 119,688 -7 EBITDA2 8,337 9,191 -9 March 9, 2016 Release of the 2015 Annual Report EBIT2 4,664 5,624 -17 May 11, 2016 Interim Report: January – March 2016 Net loss/Net income -3,130 2,459 – Net loss/Net income attributable to shareholders of E.ON SE -3,160 2,091 – June 8, 2016 2016 Annual Shareholders Meeting Underlying net income2 1,612 2,126 -24 Investments 4,633 7,992 -42 August 10, 2016 Interim Report: January – June 2016 Expenditures on technology and innovation (including software) 30 42 -29 November 9, 2016 Interim Report: January – September 2016 Cash provided by operating activities of continuing operations 6,253 6,260 – Economic net debt (at year-end) 33,394 32,218 +4 Debt factor4 4.0 3.5 +0.53 Equity 26,713 36,638 -27 Total assets 125,690 132,330 -5 ROACE (%) 8.5 9.2 -0.85 Pretax cost of capital (%) 7.4 7.5 -0.15 After-tax cost of capital (%) 5.4 5.5 -0.15 Value added 609 1,031 -41 Employees (at year-end) 58,503 61,327 -5 – Percentage of female employees 28.8 28.6 +0.25 – Percentage of female executives and senior managers 15.8 14.0 +1.85 – Average turnover rate (%) 3.3 3.5 -0.25 – Average age 43 43 – – TRIF (E.ON employees) 2.0 2.6 -0.65 Earnings per share6, 7 (€) -1.64 1.10 – Equity per share6, 7 (€) 12.72 17.68 -28 Dividend per share8 (€) 0.50 0.60 -17 Dividend payout 966 1,145 -16 Market capitalization7 (€ in billions) 27.4 25.6 +7 1Adjusted for discontinued operations. 2Adjusted for extraordinary effects (see Glossary). 3Change in absolute terms. 4Ratio of economic net debt and EBITDA. 5Change in percentage points. 6Attributable to shareholders of E.ON SE. 7Based on shares outstanding. 8For the respective financial year; the 2014 figure represents management’s dividend proposal. CEO Letter Contents Report of the Supervisory Board E.ON Stock Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Supervisory Board and Board of Management Tables and Explanations 2 CEO Letter 4 Report of the Supervisory Board 10 E.ON Stock 12 Strategy and Objectives 16 Combined Group Management Report 16 Corporate Profile 16 Business Model 18 Management System 19 Technology and Innovation 22 Business Report 22 Macroeconomic and Industry Environment 28 Business Performance 33 Earnings Situation 41 Financial Situation 45 Asset Situation 46 E.ON SE’s Earnings, Financial, and Asset Situation 47 Financial and Non-financial Performance Indicators 47 – ROACE and Value Added 48 – Corporate Sustainability 51 – Employees 56 Subsequent Events Report 56 Forecast Report 60 Risk Report 69 Opportunity Report 70 Internal Control System for the Accounting Process 72 Disclosures Regarding Takeovers 75 Corporate Governance Report 75 Corporate Governance Declaration 81 Compensation Report 96 Consolidated Financial Statements 96 Independent Auditor’s Report 98 Consolidated Statements of Income 99 Consolidated Statements of Recognized Income and Expenses 100 Consolidated Balance Sheets 102 Consolidated Statements of Cash Flows 104 Statement of Changes in Equity 106 Notes 202 Declaration of the Board of Management 203 List of Shareholdings 216 Supervisory Board and Board of Management 216 Members of the Supervisory Board 218 Members of the Board of Management 219 Tables and Explanations 219 Explanatory Report of the Board of Management 220 Summary of Financial Highlights/Installed Capacity/Sales Volume 224 Glossary of Financial Terms 229 Financial Calendar 2 CEO Letter Last November 30 the E.ON Supervisory Board approved the Board of Management’s proposal for a new corporate strategy. This strategy is founded on our assessment that over the past few years two energy worlds have emerged: a conventional and a new energy world. They’re not separate. On the contrary, they depend on one another. But they place completely different demands on energy companies. The new energy world is about customer orientation, efficient and increasingly smart grids, renewables, distributed generation, and technical innovations. The conventional energy world, by contrast, requires expertise and cost efficiency in conventional power stations and global energy trading. We’re determined to do our best in both energy worlds by creating two companies that will focus on meeting their respective challenges. The future E.ON will strive to be a leading provider of innovative energy solutions for customers. Alongside it we’ll spin off a New Company that will play a leading role in shaping the conventional power and gas businesses. Our company has—to an outstanding degree—the capabilities and market access needed in both worlds. The new energy world is characterized by speed, agility, digitalization, technical innovations, and increasingly individual cus- tomer expectations. This world is just beginning to emerge. It will become more dynamic and diverse than we can imagine today. It will ask a lot of companies and their employees and it will grow rapidly. Going forward, E.ON wants to offer the kind of superior energy products and services that will make us the partner of choice for municipal, public, industrial, commercial, and residential customers. We also intend to operate technologically advanced smart distribution networks that will support grid-enabled energy products that make customers’ lives easier. And our success at developing and delivering renewables projects has already given us an advantage over many competitors, an advantage we intend to systematically extend in our target regions in Europe and elsewhere. But tomorrow’s energy world will still need a stable and secure supply as well as access to global markets for commodities and energy products. The New Company will play a key role in ensuring supply security and in providing backup for the transfor- mation of energy systems in Europe. With more than 50 GW of installed capacity, the New Company will be a leading power producer in Europe and Russia and also one of the largest operators of technologically advanced gas-fired power plants. A strong natural gas portfolio—which encompasses the exploration and production business, gas transport pipelines to Europe, long- term gas procurement contracts, and substantial storage capacity in Germany and other countries—will make the New Company one of the biggest players in the natural gas business as well. It’s a matter of self-interest for European countries whose economies are based on value-adding industries to ensure that these kinds of structures and assets will continue to be able to serve as a reliable foundation for a modern energy supply system. Two energy worlds, two companies. What’s obvious on closer examination actually surprised a lot of people when we announced it at the end of last year. But it also met with a generally positive response. We were praised for our “bold action” and our “revolutionary new business model.” Some see us as pioneers. We intend to live up to this praise. This year we’ll make the prepa- rations to spin off the New Company, which, just like the future E.ON, will be publicly listed. The new E.ON will focus entirely on the building blocks of the new energy world: renewables, energy networks, and customer solutions. We’ll spin off our con- ventional generation, global energy trading, and exploration and production businesses to form an independent company with a new name. This means that starting next year you, our shareholders, will own stock in both the new E.ON and the New Company. We’re firmly convinced that each of these two sharply focused companies will have excellent prospects for the future in their respective businesses. CEO Letter Report of the Supervisory Board 3 E.ON Stock Strategy and Objectives Combined Group Management Report Consolidated Financial Statements Supervisory Board and Board of Management Tables and Explanations The E.ON Board of Management and Supervisory Board didn’t take this decision lightly. Over the course of several months, we held extensive discussions with people inside and outside our company. This resulted in a systematic strategy-design process that drew on experience and suggestions from within E.ON and from outside. In the end, we were convinced that we need to take early, decisive action and that creating one company to focus on the new world of individualized customer solutions and another company to focus on the conventional world of big energy systems is the only way to have prospects of a strong position in both. This new setup will enable both companies to seize their respective strategic opportunities, win over investors, grow, secure jobs, and create value. It will also open up new opportunities for your investment. While plotting our course for the future we didn’t lose sight of our operating business. Despite a difficult environment in many of our markets and despite the sharp drop in oil prices in the second half of the year, we posted generally solid results and were able to achieve our earnings targets.