2011 Annual Report - OTCIQ.com

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8 Corporate Profile and Operating Environment Strategy Cleaner & better energy—in and outside Europe—is the guiding theme of the new strategic course we announced in November 2010. E.ON will transform itself from a primarily European energy utility into a global, specialized provider of energy solutions. Our new course states a clear commitment on our part and provides answers not only to current challenges but also to long-term megatrends in the European and global energy world. By making cleaner & better energy our guiding theme, we are not setting targets for E.ON or for policymakers but rather stating our commitment to improving the world of energy wherever we operate. We purposely chose “clean” and not “green.” And we purposely chose the comparative form because this is not about defining absolute metrics or uniform targets for all parts of the world but rather about continual improvement processes. In this sense, our products and services are cleaner if they substantially improve energy quality in terms of environmental protection and efficiency. Our energy is better when our performance and the way we deploy technologies are significantly better than our competitors, thereby enabling us to design superior products and services for our customers. Though the market environment in Europe became even more difficult for us in 2011, we remain firmly convinced that this strategy prepares us well for the future. We believe that the European energy system’s trend towards renewables will continue. And we believe that in many markets outside Europe the demand for energy will continue to increase, fueled by steady population growth and rising living standards. In all our markets, however, we will only achieve lasting success if we focus on what we do better than others and if our superior performance enables us to offer products and services at competitive terms. E.ON’s transformation will not happen overnight. Nevertheless, we already made noteworthy progress in executing our strategy in many areas during 2011. This is all the more remarkable because we continue to face a challenging market environment in Europe. Power and gas markets remain oversupplied, and government regulation and intervention continue to increase. In addition, our business is affected by Germany’s decision to transform its energy system and to accelerate the phaseout of nuclear energy as well as by new recessionary fears stemming from Europe’s debt crisis. It is also affected by technological developments, such as the significant decrease in the manufacturing costs of equipment for renewable-source power generation. Our strategy focuses on achieving clear competitive advantages and offering efficient, environmentally friendly energy solutions in and outside Europe. The transformation of our company will benefit our employees, customers, and investors alike. Strategic Focus Areas Everywhere we operate we have a single objective: we want energy to be cleaner and better. Even in economically difficult times, we are convinced that affordability, security of supply, and climate protection can be mutually compatible elements of a successful business strategy. In the years ahead, we will adjust E.ON’s business portfolio in line with our strategy, thereby propelling E.ON’s transformation. Our main focus will be on expanding our operations in renewables, generation outside Europe, and decentralized energy solutions. These are the areas in which we see significant market opportunities and can capitalize on our capabilities. We will therefore direct our new growth investments at these businesses. In Europe, we will sharpen the focus of our current position. To achieve this, we will concentrate on activities in which we can leverage our expertise as well as cross-border and cross-business synergies of scale and scope into attractive returns. To propel E.ON’s transformation and to increase our financial flexibility, we plan to divest €15 billion worth of businesses by the end of 2013. By the end of 2011, we had already made approximately €9.2 billion of divestments. Another key focus area will be performance and competitiveness, which are decisive success factors in an increasingly demanding market environment. We will therefore not only make our organizational setup and processes significantly more efficient but also further enhance our operating performance. This will enable us to achieve sustained cost savings and to react more swiftly to market changes.
How will we achieve all this? The four key components of our strategy provide answers: Europe Focused and synergetic positioning Investment Less capital, more value Performance Effi cient and effective organization Outside Europe Targeted expansion cleaner & better energy Europe Europe is and will remain our home market and the main focus of our business operations. But we will sharpen the focus of our businesses in Europe and, in light of the difficult market environment, systematically assess their competitiveness and optimize them where necessary. The transformation of Europe’s energy system offers us attractive growth opportunities which we intend to seize. Electricity offers so many distinct advantages as an energy source that the electrification of daily life—at our homes and businesses, in industry and transportation—is nowhere near to complete. Examples include electric heat pumps and electric vehicles. With these factors in mind, we have set the following course for our businesses in Europe: A key focus of our growth in Europe is renewables, primarily onshore and offshore wind but also solar and biomass. At the end of 2011, we had almost 2 GW of installed capacity in these technologies in Europe, 17 percent more than at the end of 2010. In 2011, our successful development of offshore wind projects earned us the coveted Global Energy Award in the category Green Power Producer of the Year. In the years ahead, E.ON will continue to rapidly expand its renewable capacity on an industrial scale. In doing so, we strive to further reduce the specific costs of renewables relative to conventional technologies, helping to make renewables increasingly competitive. Over the next five years, we plan to invest at least €7 billion in renewables worldwide, a large portion of which will be in Europe. Focusing exclusively on the best locations and partners will ensure that our projects yield attractive returns. CEO Letter E.ON Stock Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations Alongside renewables, competitive conventional generation assets will remain an important part of E.ON’s business in Europe. Flexible, conventional generating capacity ideally supplements the steadily increasing proportion of renewables and ensures a reliable power supply even on cloudy, windless days. However, the conventional power generation business in Europe is facing substantial margin pressure due to the massive, publicly supported expansion of renewables and due to overcapacity in the wake of the economic crisis. In the years ahead, E.ON will therefore focus on optimizing its existing conventional generation portfolio to enhance its competitiveness. This includes shutting down about 6 GW of installed capacity over the next three years for technical and regulatory reasons. In addition, we are investigating, on a case-by-case basis, the shutdown of unprofitable power stations. At the same time, we plan to invest selectively in flexible and climatefriendly generating capacity, such as new pumped-storage hydro stations. Due to the gradual phaseout of nuclear energy in Germany by 2022, we expect to achieve our emissions target—to halve, by 2020, our European generation portfolio’s specific carbon emissions from a 1990 baseline—five years later. This development is consistent with the EU’s ambitious targets, published at the end of 2011 in the European Energy Roadmap 2050, which also call for a 50-percent cut in specific carbon emissions in the power sector by 2025. We intend to enhance the competitiveness of our sales business by making our organizational setup and processes even more efficient and by offering innovative power, gas, and heat products. In Germany, for example, we already offer certified green power tariffs. We aim to selectively expand our decentralized energy business and have accordingly made it a strategic development focus. Innovative customer solutions that we already offer in this area or are currently developing 9
Page 1 and 2: 2011 Annual Report
Page 3 and 4: Contents 2 CEO Letter 4 E.ON Stock
Page 5 and 6: Europe’s energy markets are conso
Page 7 and 8: Dividend At the 2012 Annual Shareho
Page 9: Global Units We manage all our oper
Page 13 and 14: Top performance requires efficient
Page 15 and 16: The Energy Roadmap 2050 adopts a sc
Page 17 and 18: Macroeconomic Environment In 2011,
Page 19 and 20: Energy Prices Four main factors dro
Page 21 and 22: Attributable Generating Capacity Th
Page 23 and 24: The Russia unit generated about 94
Page 25 and 26: Gas Sales On a consolidated basis,
Page 27 and 28: Sales Our sales rose by 22 percent
Page 29 and 30: Sales at the UK regional unit decli
Page 31 and 32: E.ON generates a significant portio
Page 33 and 34: Distribution Networks’ EBITDA dec
Page 35 and 36: and coal-fired power stations. Of t
Page 37 and 38: Analyzing Value Creation by Means o
Page 39 and 40: Cash Flow and Financial Position E.
Page 41 and 42: In addition to our DIP, we have a
Page 43 and 44: E.ON AG’s Earnings, Financial, an
Page 45 and 46: Employees HR Strategy The knowledge
Page 47 and 48: Workforce Figures At year-end 2011,
Page 49 and 50: Technology and Innovation In 2011,
Page 51 and 52: The ERC was founded in 2006. Its mi
Page 53 and 54: Risk Management and Insurance E.ON
Page 55 and 56: Strategic Risks Our business strate
Page 57 and 58: E.ON is building a hard-coal-fired
Page 59 and 60: waste.” The draft legislation men
Page 61 and 62:
In 2012, Sweden will introduce a ne
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Due to lower commodity prices and u
Page 65 and 66:
We anticipate Renewables’ earning
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Opportunities We conduct a bottom-u
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Audit Opinion According to § 322 A
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CEO Letter E.ON Stock Combined Grou
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Additional information on the State
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Business Combinations Business comb
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Newly created goodwill is allocated
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Subsequent costs arising, for examp
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Instruments commonly used are forei
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future exercise price. This amount
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Contingent liabilities are possible
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(2) New Standards and Interpretatio
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and joint operations. The provision
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The amended standard also contains
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Russian Federation. The proceeds fr
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The gains on the disposal of invest
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The decrease in tax expense by €3
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Of the deferred taxes reported, a t
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Stock Appreciation Rights of E.ON A
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The fees for financial statement au
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Of this total, an amount of €160
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(15) Companies Accounted for under
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The individual impaired receivables
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(20) Additional Paid-in Capital As
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Description of the Benefit Obligati
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Description of Plan Assets Defined
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Taking into account periodic additi
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(25) Miscellaneous Provisions The f
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Advance payments made to other wast
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At year-end 2011, the following EIF
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Construction grants of €2,857 mil
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In Sweden, owners of nuclear facili
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Competition in the gas market and i
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Pursuant to the information availab
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The fair value of shareholdings in
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The following two tables illustrate
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Risk Management Principles The pres
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A sensitivity analysis was performe
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Virtually all of the investments in
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Under IAS 24, compensation paid to
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Net book gains in 2011 decreased by
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(34) Compensation of Supervisory Bo
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Notes (36) List of Shareholdings Pu
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In addition to the Company’s peri
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The Supervisory Board has establish
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and the Consolidated Financial Stat
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Compensation of the Members of the
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The Supervisory Board, at its discr
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the E.ON Group’s ROCE and prior-y
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Compensation of the Members of the
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The remaining other compensation of
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In addition, the Board of Managemen
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We examined the Board of Management
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Klaus Dieter Raschke Chairman of th
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At the Board of Management’s disc
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Further information about financial
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Assessment After companies have doc
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Glossary of Financial Terms Actuari
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Prepayments and accrued income Line
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Financial Calendar May 3, 2012 2012
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