E.ON Posts Solid Results, Improves Outlook

E.ON Group

In the first half of 2006 the E.ON Group continued its positive earnings development. E.ON grew sales by 31 percent year on year to €36,915 million (prior year: €28,174 million) and adjusted EBIT1 by 13 percent to €4,836 million (€4,271 million). As anticipated, net income (after taxes and minority interests) of €2,827 million was below the high prior-year figure.

Consolidation effects and volume growth key positive factors

The Central Europe market unit increased adjusted EBIT by 5 percent to €2,454 million (€2,337 million). The Pan-European Gas market unit grew adjusted EBIT by 82 percent to €1,458 million (€803 million).

The improvement in adjusted EBIT at Central Europe and Pan- European Gas is mainly attributable to power and gas price developments, the inclusion of newly consolidated companies in Bulgaria, Hungary, Romania, and the United Kingdom, and higher power and gas sales volumes.

Central Europe's adjusted EBIT was negatively impacted by provisions created to address the expected consequences of the government regulation of network charges in Germany. Nordic's adjusted EBIT of €428 million was at the prior-year level (€428 million). By contrast, the U.K. market unit's adjusted EBIT declined by 26 percent to €451 million (€613 million) due to CO2 certificate costs and higher procurement costs. Thanks to U.K.'s positive performance in the second quarter, the decline was significantly smaller than for the period ended March 31, 2006.

The main factors in the 5 percent decline in U.S. Midwest's adjusted EBIT from €173 million to €165 million were the costs associated with the participation in the Midwest Independent Transmission System Operator, introduced on April 1, 2005, as well as lower retail sales volumes due to significantly milder temperatures.

Earnings forecast raised

In view of its continued positive earnings performance, E.ON has raised its earnings forecast for full year 2006. E.ON now expects its adjusted EBIT to surpass the high prior-year level. However, E.ON will not repeat the extraordinarily high net income figure posted in 2005, which resulted in particular from the book gains on its successful Viterra and Ruhrgas Industries disposals.

E.ON achieves important strategic objectives

E.ON CEO Wulf H. Bernotat said: "Our half-year results demonstrate that we continue to work hard to achieve our growth objectives and further enhance E.ON's value." The acquisition of Endesa, a Spanish energy utility, would create further growth opportunities.

The EU Commission issued an unconditional antitrust approval of the transaction in late April. On July 27, Spain's Comisión Nacional de Energía (CNE) also approved the transaction but attached far-reaching conditions. Because E.ON sees no justification for the CNE's conditions, it filed an appeal against them with Spain's Ministry of Industry. E.ON remains strongly committed to this transaction and confident that it will bring it to a successful conclusion.

In addition to Endesa, E.ON continues to systematically pursue other strategic objectives. In July E.ON concluded a framework agreement with Gazprom to exchange assets in gas production and in gas trading, gas sales, and the electricity business. Under the agreement, E.ON is to acquire a 25 percent stake (minus one share) in Yushno Russkoye in Siberia, one of the world's largest natural gas fields. In return, Gazprom is to acquire minority stakes in two E.ON gas companies in Hungary and in E.ON Hungária, a regional power and gas distributor.

Natural gas production at Yushno Russkoye is expected to begin next year. In view of the increasing demand for natural gas, E.ON is again making an important contribution towards enhancing Europe's security of supply for the long term.