2011 Annual Report - OTCIQ.com

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.