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E.ON SE

Quarterly Report Aug 13, 2010

128_10-q_2010-08-13_25fb2556-3a24-4e59-bceb-9309168e6ed6.pdf

Quarterly Report

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Interim Report II/2010

2010 January February March April May June July August September

October November December

2 E.ON Group Financial Highlights

E.ON Grou p Financial Highlights1
January 1 – June 30 2010 2009 +/- %
Electricity sales2 481.5 billion kWh 353.5 billion kWh +36
Gas sales2 761.9 billion kWh 568.6 billion kWh +34
Sales €44,304 million €41,520 million +7
Adjusted EBITDA €7,870 million €7,198 million +9
Adjusted EBIT €6,076 million €5,485 million +11
Net income €4,169 million €4,493 million -7
Net income attributable to shareholders of E.ON AG €3,911 million €4,307 million -9
Adjusted net income €3,255 million €3,301 million -1
Economic investments €3,818 million €4,081 million -6
Cash provided by operating activities of continuing operations €5,595 million 4,297 million +30
Economic net debt (June 30 and December 31) -€47,409 million -44,665 million -2,7443
Employees (June 30 and December 31) 86,352 85,108 +1
Earnings per share attributable to shareholders of E.ON AG €2.05 €2.26 -9
Weighted-average shares outstanding (in millions) 1,905 1,905

1Adjusted for discontinued operations (U.S. Midwest market unit).

2In late 2009, we deployed a new IT system across our company for gathering energy-related data and also modified our classification methods. We adjusted the figures for the first three quarters of 2009 accordingly.

3Change in absolute terms.

Glossary of Selected Financial Terms

Adjusted EBIT Adjusted earnings before interest and taxes. Adjusted EBIT, E.ON's key figure for purposes of internal management control and as an indicator of a business's long-term earnings power, is derived from income/loss from continuing operations before interest income and income taxes and is adjusted to exclude certain extraordinary items, mainly other income and expenses of a non-recurring or rare nature.

Adjusted EBITDA Adjusted earnings before interest, taxes, depreciation, and amortization.

Adjusted net income An earnings figure after interest income, incomes taxes, and minority interests that has been adjusted to exclude certain extraordinary effects. Along with effects from the marking to market of derivatives, the adjustments include book gains and book losses on disposals, restructuring expenses, and other non-operating income and expenses of a non-recurring or rare nature (after taxes and minority interests). Adjusted net income also excludes special tax effects and income/loss from discontinued operations, net.

Economic investments Cash-effective capital investments plus debt acquired and asset swaps.

Economic net debt Key figure that supplements net financial position with the fair value (net) of currency derivatives used for financing transactions (but excluding transactions relating to our operating business and asset management), with pension obligations, and with asset retirement obligations (less prepayments to the Swedish nuclear fund).

Interim Report II/2010 3

January 1 – June 30, 2010

  • Adjusted EBIT up 11 percent year on year
  • 2,800 MW of new, climate-friendly generating capacity enter service
  • 2010 forecast unchanged with adjusted EBIT expected up by 0 to 3 percent and adjusted net income at prior-year level

Contents

  • 4 Letter to Shareholders
  • 5 E.ON Stock
  • 6 Interim Group Management Report
  • Business and Operating Environment
  • Earnings Situation
  • Financial Condition
  • Asset Situation
  • Employees
  • Risk Situation
  • Forecast
  • 28 Review Report
  • 29 Condensed Consolidated Interim Financial Statements
  • Consolidated Statements of Income
  • Statements of Recognized Income and Expenses
  • Consolidated Balance Sheets
  • Consolidated Statements of Cash Flows
  • Statement of Changes in Equity
  • Notes
  • 45 Responsibility Statement
  • 46 Financial Calendar

We posted solid results for the first half of 2010. Our sales improved by 7 percent year on year to €44.3 billion. Adjusted EBIT, our main earnings figure, rose by 11 percent to €6.1 billion. Our good first half provides further support for our full-year forecast. We continue to expect our 2010 adjusted EBIT to increase slightly, by 0 to 3 percent, and our adjusted net income to be at the prior-year level.

We've benefited from the implementation of our clear strategy, which has three key components: we continually improve our performance in all areas of our company, we continually reassess which business areas and assets create value for E.ON and its shareholders, and we invest selectively in our operating business. PerformtoWin has enabled us to identify annual cost reductions and operating improvements totaling €1.5 billion by 2011, some of which we've already implemented. At the same time, the sale of E.ON U.S. and our minority stake in BKW of Switzerland further streamlines our portfolio, reduces our debt, and gives us flexibility for organic growth. Three new power plants (Irsching 5, Emile Huchet, and Scandale) and two new offshore wind farms (Robin Rigg and alpha ventus) entered service in the first half of 2010 alone, giving us a total of 2,800 megawatts of new, climate-friendly generating capacity.

This capacity is part of our investments to modernize the energy supply in Europe and Germany. In uncertain economic times, such investments will only remain possible in a stable energy-policy environment. I'd like to state clearly that as E.ON CEO I'm responsible for the company and its employees but also to you, our shareholders. That's why I'm engaged in a dialog with Germany's political leaders and why I make unmistakably clear our profound concerns about the current direction of Germany's energy policy.

The German federal government stated in its coalition agreement that it was committed to a "non-ideological, technologically neutral, and marked-oriented energy policy." It's time for the government to put these words into action. Because ten months after the government's statement—which we thought signaled a new, pragmatic beginning—Germany's future energy-policy course remains unclear. Important decisions need to be made, including a decision about the future of nuclear energy in Germany. I believe there's no doubt that in the medium term Germany can't forego zero-carbon, inexpensive nuclear power if it intends to continue to play a leadership role in Europe's climate-protection effort and if the economic recovery is to continue. The recent crisis made abundantly clear to what degree Germany's economic success depends on the competitiveness of its industry, for which a secure, economically priced energy supply is a decisive factor. Nuclear energy is a key component of this energy supply. In this context, we're quite willing to share the advantages of extending the operating lives of nuclear power stations as long as the state's share is reasonable in comparison with the additional revenues. But we also warn against the creation of additional financial burdens that would render the operation of nuclear power stations uneconomic and that could even result in urgently necessary investment funds not being available for the environmental transformation of the energy supply. I've made it unmistakably clear to policymakers that we consider such a course to be a mistake, both economically and environmentally.

We're in talks with political leaders about these important issues, issues that will help determine in which direction Germany develops in the coming years and decades. That's part of our responsibility and obligation to our stakeholders and shareholders. Throughout this process we always keep one thing firmly in view: making the right decisions so that E.ON will remain successful even in an increasingly difficult economic and policy environment.

Best wishes,

Dr. Johannes Teyssen

E.ON Stock

E.ON stock (factoring in the reinvestment of dividends) finished the first half of 2010 20 percent below its year-end closing price for 2009, thereby underperforming its peer index, the STOXX Utilities, which declined by 13 percent during the same period. The EURO STOXX 50 index was also lower (-11 percent).

In the first half of 2010, the stock-exchange trading volume of E.ON stock increased by 21 percent year on year to €35.4 billion. The number of shares traded was also higher, rising 7 percent.

Visit eon.com for the latest information about E.ON stock.

E.ON Stock
June 30, Dec. 30,
2010 2009
Shares outstanding (in millions) 1,905 1,905
Closing price () 22.18 29.23
Market capitalization ( in billions)1 42.3 55.7
1Based on shares outstanding.
Performance and Trading Volume
January 1 – June 30 2010 2009
High (€)1 29.36 30.47
Low (€)1 22.18 18.19
Trading volume2
Millions of shares 1,348.1 1,257.3
€ in billions 35.4 29.3
1Xetra.
2Source: Bloomberg (all German stock exchanges).

Business and Operating Environment

Corporate Structure and Operations

E.ON is one of the world's largest investor-owned energy companies. Our business extends along the entire value chain in power and gas and is segmented geographically or functionally into market units. The lead company of each market unit is responsible for integrating and coordinating operations across its target market. Business units manage day-to-day operations.

For reasons of materiality, we combine our Climate & Renewables, Russia, Italy, and Spain market units in a single reporting segment called New Markets.

Following the successful conclusion of sales negotiations for our U.S. Midwest market unit, pursuant to IFRS 5 this segment is classified as a discontinued operation effective the second quarter of 2010. We have therefore adjusted the relevant figures for 2010 and 2009 accordingly and no longer provide commentary on this market unit.

Central Europe

E.ON Energie is one of Europe's largest energy companies and has operations in many countries in Central Europe, including Germany, the Benelux states, France, Hungary, Slovakia, the Czech Republic, Bulgaria, and Romania. The Central Europe West Regulated and Non-regulated reporting units consist of the operation of conventional and nuclear power stations as well as renewable-source and waste-incineration power generation, electric transmission via high-voltage wires networks, regional distribution (electricity, gas, and heat), and electricity, gas, and heat sales. The Central Europe East reporting unit consists of our shareholdings in regional electric and gas distributors in this region.

Pan-European Gas

E.ON Ruhrgas is one of Europe's leading gas companies and one of the world's largest investor-owned gas importers. Its customers are regional and municipal energy companies as well as industrial enterprises in and outside Germany. The Regulated reporting unit consists of ownership interests in energy companies in European countries other than Germany (E.ON Ruhrgas International) and the regulated transport business. The Non-regulated reporting unit consists of the gas wholesale business, the exploration and production business, and the gas storage business. Thüga, which has minority ownership interests in municipal gas and electric utilities in Germany, was sold to a consortium of municipal utilities effective December 1, 2009. Other/Consolidation now therefore only includes consolidation effects.

U.K.

E.ON UK runs our energy business in the United Kingdom. The Regulated reporting unit consists of Central Networks, which operates an electricity distribution business in central England. The Non-regulated reporting unit includes the generation, retail, and energy-services businesses. The generation business covers activities including power generation, operation and maintenance of combined heat and power plants, and power station development and operation. The retail business encompasses the sale of electricity and gas services to residential, business, and industrial customers.

Nordic

E.ON Sverige manages our energy operations in Northern Europe. The Regulated reporting unit consists of power and gas distribution. The Non-regulated reporting unit consists mainly of power generation, heat production, sales (power, gas, and heat), and energy services.

Energy Trading

Energy Trading combines our risk-management activities, mainly for power, gas, coal, oil, and carbon allowances. These activities consist of Optimization and Proprietary Trading. Both are conducted in accordance with our risk-management systems as well as trading limits and can involve intentionally utilizing changes in market prices and risk positions. Energy Trading also includes the financial results of Italy-based E.ON Energy Trading S.p.A., whose operations it has managed centrally since January 1, 2009.

New Markets

E.ON Climate & Renewables is responsible for managing and expanding E.ON's global renewables operations (with the exception of large-scale hydroelectricity) and climate-protection projects.

E.ON Russia Power is responsible for the E.ON Group's electricity operations in Russia. Our Russian business focuses on the operation of thermal power stations in Central Russia, Ural, and Siberia, predominantly fast-growing, industrialized regions of the country.

E.ON Italia manages our power and gas business in Italy. Its operations consist of power generation, power and gas sales, and gas distribution.

E.ON España runs our integrated energy business in Spain.

Corporate Center

The Corporate Center segment consists of E.ON AG, Düsseldorf, and the ownership interests managed directly by E.ON AG. We also allocate consolidation effects at the Group level to this segment.

7

Energy Industry

According to figures from AGEB, an energy industry working group, the economic recovery and a very cold winter resulted in Germany consuming 5 percent more primary energy in the first half of 2010 than in the same period in 2009. Germany's natural-gas consumption rose by 14 percent due to increased demand from industry and significantly higher demand from power stations. Residential gas consumption was also higher due to colder weather.

Electricity consumption in England, Scotland, and Wales was 162 billion kWh in the first half of 2010 compared with 160 billion kWh in the first half of 2009. Gas consumption (excluding power stations) was 355 billion kWh, up from 334 billion kWh. The increases were largely due to very cold weather in January and February partially offset by continuing energy-efficiency improvements.

The Nordic region consumed 202 billion kWh of electricity, about 10 billion kWh more than in the prior-year period. Consumption in the first quarter was driven by very cold weather; the increase in the second quarter resulted mainly from a slight recovery in Finnish industrial demand. Net electricity imports to the Nordic region from surrounding countries were around 10 billion kWh, about 6 billion kWh higher than in the prior-year period. Net imports from Germany were 2.7 billion kWh (prior year: net exports of 2.2 billion kWh).

The Russian Federation generated 520 billion kWh of electricity, up 5.2 percent from the prior-year figure.

Italy consumed 158.5 billion kWh of electricity, an increase of 1.8 percent from the prior-year figure (1.9 percent if adjusted for differences in temperature and number of working days). Driven by the increase in consumption, domestic power production rose by 2.6 percent to 138.2 billion kWh. Italy's gas consumption rose by 10.6 percent year on year to 466.2 billion kWh; consumption was higher in all customer segments.

Peninsular electricity consumption in Spain was 129 billion kWh, 4.3 percent higher than in the prior-year period (3.6 percent higher if adjusted for differences in temperature and the number of working days). Retail gas consumption rose by 10.5 percent to 139 billion kWh.

Energy Prices

Four main factors drove electricity and natural gas markets in Europe and Russia in the first half of 2010:

  • international commodity prices (especially oil, natural gas, coal, and carbon allowance prices)
  • macroeconomic developments
  • the weather
  • the availability of hydroelectricity in Scandinavia and Russia.

After moving lower in the first quarter, prices for commodities and electricity (except for Brent crude oil and electricity in Russia) recovered during the second quarter.

After a decline in February, Brent crude rallied until April to roughly \$89 per barrel for next-month delivery but then fell sharply to below \$80 triggered by concerns about eurozone sovereign debt. Weak near-term fundamentals (high oil inventories and spare production capacity), disappointing economic data mainly in the United States (consumer confidence and unemployment), and lower interest from financial players kept oil prices under pressure throughout the second quarter. Supported by cold weather and higher gas prices, prices for API#2 coal in Europe began 2010 at around \$100 per metric ton for next-year delivery but retreated to around \$85 in February and March due to high coal stocks and weaker gas prices. New arbitrage flows (such as from Columbia to China) constituted another factor, resulting in a discount for European coal compared with the Asian and Pacific markets. Gas prices

rose sharply starting in late April, helping to push API#2 prices back above \$100 in June. The freight market was generally subdued due to vessel oversupply on the route from South Africa to Rotterdam. European gas prices, which in the first quarter had remained under pressure from global oversupply and a recession-driven decline in demand, rose steadily in the second quarter. The key drivers were stronger gas-topower demand, continued Norwegian supply outages, a tighter-than-expected LNG market, and low storage levels. Gas at European virtual trading points traded with a small discount to oil-indexed contracts for the coming winter season and no longer tracked U.S. gas prices.

German prices for baseload electricity for next-year delivery finished the first half at about €53 per MWh, roughly the same as at the start of the year. German electricity prices tracked coal and gas prices, declining to €45 in the first quarter and rising from April onwards. U.K. electricity prices moved in a similar pattern but rose more steeply, finishing June at €60, pushed up by a steady rise in gas prices. Nordic electricity prices were mainly influenced by a consistently low hydrological balance (the hydrological balance was 30 billion kWh below normal at the end of June) brought on by cold and dry weather in the first quarter. Nordic spot prices in the second quarter were mainly influenced by the weather, resulting in generally higher spot prices (as well as price spikes) and in higher prices for near-term forward products. Like prices in other European markets, Nordic prices for next-year delivery rose significantly and finished June at around €45.

Forward electricity prices in Spain and Italy moved in a pattern similar to prices in Northwestern Europe, although with lower (but improving) liquidity and less volatility, particularly in Spain. After declining to €40 per MWh in the first quarter, Spanish prices for next-year delivery rose to about €46 at the end of June. Italian prices rose (mainly in the second quarter) on higher gas and coal prices, finishing June at €72.

The December 2010 carbon contract under the European Emissions Trading Scheme traded at around €13 per metric ton during the first quarter. Following the release of verified 2009 emissions numbers, carbon prices rose even though 2009 emissions had declined by 11.2 percent. The policy debate (the possibility of tighter requirements starting in 2012), further delays in the passage of new EU regulations on auctioning, and higher commodity prices resulted in a new, higher trading range (between €15 and €16 per metric ton).

In the first half of 2010, demand for electricity in Russia rose by 5 percent year on year, supported by lower temperatures and signs of economic recovery. Hydro production improved slightly. In the second quarter, the weighted-average price of electricity was RUB 762 (around €19.80) per MWh in the Europe price zone and RUB 466 (around €12.10) in the Siberian price zone. The liberalization of the Russian electricity market remains on schedule. In July, the share of the market open to free pricing increased to 80 percent.

Power Procurement

The E.ON Group's owned generation rose by 3 percent, from 132.8 billion kWh in the first half of 2009 to 136.5 billion kWh in 2010. Power procured increased by 54 percent to 356.8 billion kWh.

The increase in Central Europe's owned generation is attributable to the commissioning of gas-fired generating units, particularly at sites in Germany (Irsching and Plattling) and France (Emile Huchet). The addition of these generating units for the first time more than offset the reduction in Central Europe's power capacity in line with E.ON's commitment to the European Commission.

U.K. generated 15.6 billion kWh of electricity at its own power plants in the first half of 2010, about 12 percent less than in the first half of 2009 (17.7 billion kWh). The reduction is mainly attributable to lower market spreads which made our U.K. fleet less economic to operate.

Nordic's owned generation increased by 3.1 billion kWh, mainly due to higher output from the new CHP unit in Malmö (+1.3 billion kWh) and from nuclear assets (+1.3 billion kWh). Hydro generation rose by 0.4 billion kWh.

The New Markets segment had owned generation of 42.3 billion kWh (prior year: 42.1 billion kWh). The breakdown is:

  • Climate & Renewables 3.8 billion kWh (2.5 billion kWh)
  • Russia 27.7 billion kWh (26.1 billion kWh)
  • Italy 6.2 billion kWh (8.1 billion kWh)
  • Spain 4.6 billion kWh (5.4 billion kWh).

Climate & Renewables' owned generation was 52 percent higher. Wind farms accounted for 97 percent of its owned generation, with biomass and micro-hydro facilities accounting for the rest.

Power Procurement1
Jan. 1 – June 30 Central Europe U.K. Nordic Energy Trading New Markets Consolidation E.ON Group
Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Owned
generation 65.0 62.5 15.6 17.7 13.6 10.5 42.3 42.1 136.5 132.8
Purchases 136.6 130.6 26.2 24.3 15.5 15.4 372.3 254.5 12.2 20.2 -206.0 -212.9 356.8 232.1
jointly owned
power plants 1.5 2.7 0.6 0.7 4.7 4.7 6.8 8.1
Energy Trading/
outside sources 135.1 127.9 25.6 23.6 10.8 10.7 372.3 254.5 12.2 20.2 -206.0 -212.9 350.0 224.0
Total 201.6 193.1 41.8 42.0 29.1 25.9 372.3 254.5 54.5 62.3 -206.0 -212.9 493.3 364.9
Station use, line
loss, etc. -6.4 -6.4 -2.0 -1.8 -1.0 -1.0 -2.4 -2.2 -11.8 -11.4
Power sales 195.2 186.7 39.8 40.2 28.1 24.9 372.3 254.5 52.1 60.1 -206.0 -212.9 481.5 353.5

1In late 2009, we deployed a new IT system across our company for gathering energy-related data and also modified our classification methods. We adjusted the figures for the first three quarters of 2009 accordingly.

Owned Generation by Energy Source
Central Europe U.K. Nordic New Markets E.ON Group
Billion Billion Billion Billion Billion
Jan. 1 – June 30, 2010 kWh % kWh % kWh % kWh % kWh %
Nuclear 28.6 44 7.0 52 35.6 26
Lignite 2.6 4 4.8 11 7.4 5
Hard coal 19.3 30 6.5 42 3.0 7 28.8 21
Natural gas, oil 9.2 14 9.1 58 1.8 13 28.7 68 48.8 36
Hydro 2.8 4 4.2 31 2.0 5 9.0 7
Wind 3.7 9 3.7 3
Other 2.5 4 0.6 4 0.1 3.2 2
Total 65.0 100 15.6 100 13.6 100 42.3 100 136.5 100

The Russia market unit generated 27.7 billion kWh (about 93 percent of its total needs of 29.7 billion kWh) at its own power stations and procured 2 billion kWh from outside sources.

The Italy market unit met 6.2 billion kWh, or 47 percent, of its total needs of 13.1 billion kWh from its own power plants. The prior-year figure includes 1.8 billion kWh of generation from assets carved out to A2A effective at the end of June 2009. Italy procured 6.1 billion kWh of power on the market. It purchased 0.8 billion kWh from E.ON Energy Trading S.p.A., mainly for sales activities.

The Spain market unit generated 63 percent of its total needs of 7.3 billion kWh with electricity from its own power plants. Owned generation declined by 0.8 billion kWh relative to the prior-year period; the decline was offset by an increase in power purchases.

Gas Procurement

E.ON Ruhrgas procured about 368.5 billion kWh of natural gas from producers in and outside Germany in the first half of 2010, about 28 percent more than in the prior-year period. The biggest suppliers were Russia (which accounted for 29 percent), Norway (27 percent), Germany (22 percent), and the Netherlands (16 percent).

Upstream Production
January 1 – June 30 2010 2009 +/- %
Liquids/oil (million barrels) 2.7 2.9 -9
Gas (million standard
cubic meters)
740 726 +2
Total (million barrels of oil
equivalent)
7.3 7.5 -3

Pan-European Gas's gas production in the North Sea rose by about 2 percent year on year to 740 million cubic meters, primarily due to output from Rita field, which recently entered production. Liquid and condensates production of 2.7 million barrels was slightly lower, mainly because of a natural production decline at older fields. In addition to its North Sea

production, Pan-European Gas had 2.9 billion cubic meters of production from Yuzhno Russkoye, which was acquired in late 2009 and is accounted for using the equity method. Pan-European Gas's own gas production thus increased by more than 400 percent relative to the prior-year period.

Trading Volume

To execute its optimization and risk-management mission for the E.ON Group, Energy Trading traded the following financial and physical quantities:

Trading Volume
January 1 – June 30 2010 2009
Power (billion kWh) 820 580
Gas (billion kWh) 951 691
Carbon allowances (million metric tons) 393 253
Oil (million metric tons) 51 16
Coal (million metric tons) 130 110

Power Sales

On a consolidated basis, the E.ON Group increased its power sales by 36 percent, from 353.5 billion kWh in the first half of 2009 to 481.5 billion kWh in 2010. We supplied 166.1 billion kWh (+6 percent) electricity to end-customers and resellers.

Central Europe's power sales rose mainly due to procurement rights from power stations outside Germany obtained through asset swaps in line with E.ON's commitment to the European Commission. In addition, the nascent economic recovery had a positive impact on demand from industrial customers.

U.K. sales to residential and small and medium-sized ("SME") customers increased by 2 percent. The increase in sales due to cold weather was largely offset by reduced customer numbers and energy-efficiency measures. Electricity sales to industrial and commercial ("I&C") customers rose significantly, largely as a result of successful sales rounds.

Nordic sold 3.2 billion kWh more electricity, mainly due to colder weather in 2010 and higher production volumes. Sales to retail customers, sales partners (including minority shareholders of nuclear power plants), and Energy Trading increased by 4.4 billion kWh, while sales to I&C customers declined by 1.2 billion kWh.

The New Markets segment sold 52.1 billion kWh (prior year: 60.1 billion kWh) of electricity. The breakdown is:

  • Climate & Renewables 4.4 billion kWh (3.1 billion kWh)
  • Russia 28.7 billion kWh (27.3 billion kWh)
  • Italy 12.8 billion kWh (23.1 billion kWh)
  • Spain 6.2 billion kWh (6.6 billion kWh).
Power Sales1
Jan. 1 – June 30 Central Europe U.K. Nordic Energy Trading New Markets Consolidation E.ON Group
Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Residential and
SME 24.0 24.2 14.4 14.1 4.5 3.1 3.6 2.4 46.5 43.8
I&C 38.5 35.9 9.2 7.8 5.6 6.8 5.4 6.5 58.7 57.0
Sales partners 56.3 51.6 3.2 2.9 1.4 1.0 60.9 55.5
Customer
segments 118.8 111.7 23.6 21.9 13.3 12.8 10.4 9.9 166.1 156.3
Wholesale market/
Energy Trading 76.4 75.0 16.2 18.3 14.8 12.1 372.3 254.5 41.7 50.2 -206.0 -212.9 315.4 197.2
Total 195.2 186.7 39.8 40.2 28.1 24.9 372.3 254.5 52.1 60.1 -206.0 -212.9 481.5 353.5

1In late 2009, we deployed a new IT system across our company for gathering energy-related data and also modified our classification methods. We adjusted the figures for the first three quarters of 2009 accordingly.

Climate & Renewables sold its power exclusively in non-regulated markets. Its power sales rose by 42 percent, mainly due to an increase in owned generation. Its prorated attributable generating capacity at the end of June 2010 was 3,192 MW compared with 2,385 MW at the end of June 2009 due to the commissioning of wind farms in the U.S. and U.K.

The Russia market unit sold 28.7 billion kWh on the wholesale market, about 5 percent more than in the prior-year period. The main factors were very cold temperatures in the first quarter of 2010 and higher output at Surgutskaya power station due to maintenance rescheduling.

Lower sales to Energy Trading and the carve-out of assets to A2A were the main reasons for the decline in Italy's power sales, which had the following breakdown by customer segment: 2.3 billion kWh to residential and SME customers, 3.4 billion kWh to I&C customers, 0.9 billion kWh to sales partners, 5.8 billion kWh to the wholesale market, and 0.4 billion kWh to E.ON Energy Trading S.p.A.

Spain's power sales declined by 0.4 billion kWh compared with the prior-year period, mainly due to lower sales to the wholesale market.

Gas Sales

On a consolidated basis, the E.ON Group's natural gas sales rose by 193.3 billion kWh relative to the prior-year figure.

Gas Sales1
January 1 – June 30
Billion kWh 2010 2009 +/- %
Regional/municipal gas
companies 224.1 197.5 +13
Industrial customers 50.4 33.5 +50
Outside Germany 90.1 68.0 +33
E.ON Ruhrgas AG sales 364.6 299.0 +22
Sales of other shareholdings 71.2 83.9 -15
Pan-European Gas internal sales -34.6 -25.5
Pan-European Gas sales 401.2 357.4 +12
thereof intragroup sales -124.3 -91.5
Other market units 485.0 302.7 +60
E.ON Group 761.9 568.6 +34
1In late 2009, we deployed a new IT system across our company for gathering

energy-related data and also modified our classification methods. We adjusted the figures for the first three quarters of 2009 accordingly.

The increase in Central Europe's gas sales volume is mainly attributable to the inclusion, effective January 1, 2010, of companies in the Central Europe East reporting unit.

Pan-European Gas sold 44 billion kWh, or about 12 percent, more natural gas than in the prior-year period. E.ON Ruhrgas sold about 66 billion kWh more gas. The volume increase had the following main drivers. Cold weather, particularly in the first quarter, had a positive impact on sales volume to resellers (regional gas companies and municipal utilities). In addition, the onset of economic recovery had a positive effect on gas demand from industrial customers that E.ON Ruhrgas supplies indirectly through resellers. Economic recovery also led to an increase in sales to industrial customers supplied directly by E.ON Ruhrgas. Higher sales to customers outside Germany accounted for about 22 billion kWh of E.ON Ruhrgas's total volume growth, with additional amounts being supplied mainly to customers in Sweden, Austria, and Switzerland. An increase in short-term trading with Energy Trading was a further positive factor. Gas sales of other shareholdings were lower primarily due to a competition-driven decline in sales volume at E.ON Földgáz Trade in Hungary and from the absence of sales by the Thüga Group, which was sold in the fourth quarter of 2009.

U.K.'s gas sales to residential and SME customers increased by 9 percent. Most of this was due to very cold weather in January and February 2010. The remainder of the change is explained by increased customer numbers partially offset by continuing energy-efficiency measures. Sales of gas to I&C customers declined significantly due to changes in the customer portfolio. This was slightly offset by the positive effect of the colder weather.

Nordic's gas sales were on the same level as in the prior year. Heat sales of 5.1 billion kWh were up 13 percent from the prioryear figure of 4.5 billion kWh, mainly due to colder weather.

Gas Sales (Excluding Pan-European Gas)1
Jan. 1 – June 30 Central Europe U.K. Nordic Energy Trading New Markets Consolidation E.ON Group
Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Residential and
SME 39.3 34.9 33.3 30.6 0.1 0.1 6.8 6.0 79.5 71.6
I&C 36.7 32.6 8.6 10.7 2.0 2.0 2.6 5.1 49.9 50.4
Sales partners 14.0 11.9 2.6 14.0 14.5
Customer
segments 90.0 79.4 41.9 41.3 2.1 2.1 9.4 13.7 143.4 136.5
Wholesale market/
Energy Trading 2.7 3.3 0.2 0.2 479.5 370.3 1.6 2.9 -142.4 -210.5 341.6 166.2
Total 92.7 82.7 41.9 41.3 2.3 2.3 479.5 370.3 11.0 16.6 -142.4 -210.5 485.0 302.7

1In late 2009, we deployed a new IT system across our company for gathering energy-related data and also modified our classification methods. We adjusted the figures for the first three quarters of 2009 accordingly.

In the New Markets segment, Italy sold a total of 11 billion kWh (prior year: 16.6 billion kWh) of natural gas: 6.8 billion kWh to residential customers and SME, 2.6 billion kWh to I&C customers and 1.6 billion kWh to the wholesale market. The decline mainly reflects a lower I&C customer base and the fact that gas sales to sales partners are zero in 2010.

Earnings Situation

Sales

Our first-half sales were up year on year, mainly because Energy Trading recorded higher external sales as a result of an increase in its optimization activities. Currency-translation effects and higher prices at Nordic also had a positive effect.

Sales
January 1 – June 30
€ in millions
2010 2009 +/- %
Central Europe 21,440 21,130 +1
Pan-European Gas 10,636 12,095 -12
U.K. 5,359 5,470 -2
Nordic 2,325 1,759 +32
Energy Trading 21,326 21,907 -3
New Markets 3,134 3,848 -19
Corporate Center -19,916 -24,689
Total 44,304 41,520 +7

Central Europe

Central Europe's sales rose by €0.3 billion relative to the prior-year period.

Sales
January 1 – June 30
€ in millions
2010 2009 +/- %
Central Europe West
Regulated
Non-regulated
19,611
5,833
13,778
20,212
6,087
14,125
-3
-4
-2
Central Europe East 2,979 2,778 +7
Other/Consolidation -1,150 -1,860 +38
Central Europe 21,440 21,130 +1

Central Europe West Regulated's sales were down by €0.3 billion. A primarily regulation-driven increase in network charges in the distribution network was not sufficient to offset the reduction in sales resulting from the disposal of our ultrahighvoltage transmission system in late February 2010.

Central Europe West Non-regulated's sales declined by €0.3 billion, primarily due to lower gas prices and to the disposal of power capacity in line with E.ON's commitment to the European Commission. These effects were partially offset by the additional marketing of electricity from procurement rights from nuclear power stations outside Germany obtained in these transactions and by the commissioning of new generating units.

Central Europe East's sales rose by €0.2 billion to €3 billion, mainly due to the addition of new gas companies in this reporting unit.

Sales reported under Other/Consolidation increased by €0.7 billion, primarily due to a reduction in intrasegment consolidation effects.

Pan-European Gas

Pan-European Gas's sales declined by 12 percent to €10.6 billion (prior year: €12.1 billion).

Sales
January 1 – June 30
€ in millions 2010 2009 +/- %
Regulated 2,235 2,812 -21
Non-regulated 9,559 10,098 -5
Other/Consolidation -1,158 -815 +42
Pan-European Gas 10,636 12,095 -12

Regulated's sales fell by €577 million, or 21 percent. Volume and price effects in particular reduced sales at E.ON Földgáz Trade. By contrast, the transport business posted higher sales due to an increase in sales of control and balancing energy; this effect was partially mitigated by a reduction in sales for transport services following the introduction of cost-based charges.

Non-regulated's sales declined by €539 million, or 5 percent. Despite higher sales volume, sales at the gas wholesale business were down considerably due to lower prices. Upstream sales were sharply higher owing in particular to the inclusion of Yuzhno Russkoye gas field. Upstream sales from fields in the North Sea rose on higher oil prices.

In the prior-year period, Other/Consolidation included the sales of Thüga, which was sold in late 2009.

U.K.

U.K.'s sales decreased by €111 million in reporting currency and by 5 percent in local currency.

Sales
January 1 – June 30
€ in millions 2010 2009 +/- %
Regulated 382 355 +8
Non-regulated 5,054 5,191 -3
Other/Consolidation -77 -76
U.K. 5,359 5,470 -2
£ in millions
Regulated 332 317 +5
Non-regulated 4,397 4,640 -5
Other/Consolidation -66 -67
U.K. 4,663 4,890 -5

Regulated's sales increased by €27 million to €382 million due to higher volumes, increased tariffs, and currency movements (+€10 million).

Non-regulated's sales fell by €137 million to €5,054 million; currency movements had a positive impact of €135 million. Sales in local currency were lower as a result of retail price reductions (which are partially offset by higher revenues relating to the colder weather in the first half of 2010) and lower generation revenues.

Nordic

Nordic's sales increased by €566 million, or 32 percent. In local currency, sales were up by 19 percent.

Sales
January 1 – June 30
€ in millions 2010 2009 +/- %
Regulated 478 365 +31
Non-regulated 1,828 1,378 +33
Other/Consolidation 19 16 +19
Nordic 2,325 1,759 +32
SEK in millions
Regulated 4,683 3,966 +18
Non-regulated 17,890 14,968 +20
Other/Consolidation 187 170 +10
Nordic 22,760 19,104 +19

Regulated's sales increased by €113 million to €478 million primarily due to higher average tariffs and positive currencytranslation effects.

Non-regulated's sales increased by €450 million mainly due to higher retail market prices, higher market-based transfer prices in the generation businesses, and positive currencytranslation effects.

Energy Trading

Energy Trading recorded sales of about €21 billion, down slightly from the prior-year figure due to lower market prices. Sales from proprietary trading are shown net, along with the associated cost of materials, in the Consolidated Statements of Income. This method resulted in the disclosure of negative sales.

Sales
January 1 – June 30
€ in millions
2010 2009 +/- %
Proprietary Trading -25 106
Optimization 21,351 21,801 -2
Energy Trading 21,326 21,907 -3

New Markets

Sales in this segment declined by 19 percent to €3.1 billion.

Sales
January 1 – June 30
€ in millions
2010 2009 +/- %
Climate & Renewables 282 215 +31
Russia
RUB in millions
630
25,034
450
19,841
+40
+26
Italy 1,654 2,613 -37
Spain 568 570
New Markets 3,134 3,848 -19

Climate & Renewables' sales increased by 31 percent. The main factors were a significant increase in installed capacity, predominantly in the United States, and a fully operational portfolio in Italy in the current-year period; these effects were mitigated by lower prices, particularly in Europe.

Russia's sales rose by 40 percent year on year due to higher electricity prices on the liberalized electricity market supported by signs of economic recovery and extremely cold temperatures in the first quarter of 2010. Higher output at Surgutskaya power station also had a positive impact on sales. The ruble's appreciation against the euro was another favorable factor.

Italy's sales declined due to lower sales volumes to Energy Trading. Another factor was that the prior-year figure included €137 million in sales from assets carved out to A2A at the end of June 2009.

Spain's sales were in line with the prior-year figure.

Corporate Center

The figure recorded under Corporate Center reflects, in particular, the intragroup offsetting of sales between our European market units and Energy Trading.

Development of Other Significant Line Items of the Consolidated Statements of Income

Own work capitalized increased by 38 percent, or €71 million, to €257 million (prior year: €186 million).

Other operating income declined by 41 percent to €8,567 million (prior year: €14,522 million). Lower income from exchangerate differences of €3,610 million (prior year: €5,987 million)

and on derivative financial instruments of €3,364 million (prior year: €6,296 million) were the main negative factors. In derivative financial instruments, there were significant effects from commodity derivatives in the prior-year period. These principally affected our coal, oil, and natural gas positions. Countervailing effects were recorded under other operating expenses. Gains on the disposal of securities, shareholdings, and fixed assets—primarily through the disposal of power capacity and our ultrahigh-voltage transmission system (transpower) in line with our commitment to the European Commission amounted to €1,054 million (prior year: €1,698 million). Miscellaneous other operating income consisted primarily of reductions of valuation allowances, rental and leasing income, the sale of scrap metal and materials, and compensation payments received for damages.

Costs of materials rose by €1,825 million to €33,532 million (prior year: €31,707 million), in particular due to an increase in business volume.

Personnel costs increased by €68 million to €2,603 million.

Depreciation charges rose by 5 percent to €1,797 million (prior year: €1,716 million), primarily because of higher depreciation on intangible assets. The purchase-price allocation following our acquisition of a stake in Yuzhno Russkoye, a gas field in Russia, resulted in favorable gas supply contracts being capitalized as intangible assets of the project company, ZAO Gazprom YRGM. The favorable gas contracts are being amortized like a gas production asset.

Other operating expenses declined by 43 percent, or €5,906 million, to €7,768 million (prior year: €13,674 million). This is mainly attributable to lower expenses relating to currency differences of €3,420 million (prior year: €6,135 million) and lower expenses relating to derivative financial instruments of €2,207 million (prior year: €4,572 million).

Income from companies accounted for under the equity method was €343 million compared with €594 million in the year-earlier period. The decline is primarily attributable to the absence of income from Thüga shareholdings that we sold in the fourth quarter of 2009.

Adjusted EBIT

Adjusted EBIT, E.ON's key figure for purposes of internal management control and as an indicator of a business's longterm earnings power, is derived from income/loss from continuing operations before interest and taxes and adjusted to exclude certain extraordinary items. The adjustments include book gains and losses on disposals and other non-operating income and expenses of a non-recurring or rare nature (see commentary in Note 13 to the Condensed Consolidated Interim Financial Statements).

Our adjusted EBIT in the first half of 2010 was €591 million above the prior-year figure despite the loss of earnings streams due to disposal of power capacity, the ultrahighvoltage transmission system, and Thüga shareholdings. The main drivers were:

  • higher sales volume, successful price negotiations, and the inclusion of Yuzhno Russkoye at Pan-European Gas
  • better retail margins, colder weather in the first quarter of 2010, and operating improvements at U.K.
  • higher sales volume and higher tariffs at Nordic
  • improved margins at Energy Trading
  • an increase in generating capacity at Climate & Renewables and wider margins at Russia and Spain.
Adjusted EBIT
January 1 – June 30
€ in millions
2010 2009 +/- %
Central Europe 2,493 2,795 -11
Pan-European Gas 1,257 1,073 +17
U.K. 663 238 +179
Nordic 474 341 +39
Energy Trading 826 520 +59
New Markets 429 538 -20
Corporate Center -66 -20
Total 6,076 5,485 +11

Central Europe

Central Europe's adjusted EBIT declined by €302 million.

Central Europe
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Central Europe West 2,680 3,212 2,128 2,674
Regulated 1,069 874 766 557
Non-regulated 1,611 2,338 1,362 2,117
Central Europe East 547 337 407 210
Other/Consolidation 27 10 -42 -89
Total 3,254 3,559 2,493 2,795

Central Europe West Regulated's adjusted EBIT was adversely affected by the disposal of our ultrahigh-voltage transmission system in late February 2010. This was more than offset, in particular by a regulation-driven increase in power and gas network charges. Adjusted EBIT rose by €209 million from the prior-year figure (€557 million).

Central Europe West Non-regulated's adjusted EBIT declined by €755 million. The absence of earnings streams due in part to the disposal of power capacity along with narrower margins in the gas business were not entirely offset by efficiency improvements and the commissioning of new generating units.

Central Europe East's adjusted EBIT rose by €197 million. The increase resulted from a positive earnings performance (primarily in Hungary), the inclusion of new gas companies, less adverse impact from the recession, and positive currencytranslation effects.

Adjusted EBIT recorded under Other/Consolidation increased to -€42 million, mainly due to the absence of adverse earnings effects recorded in the prior-year period in conjunction with the economic and financial crisis.

Pan-European Gas

Pan-European Gas's adjusted EBIT rose by €184 million, or 17 percent, to €1,257 million.

Pan-European Gas
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Regulated 386 529 317 455
Non-regulated 1,123 576 932 440
Other/Consolidation 7 198 8 178
Total 1,516 1,303 1,257 1,073

Regulated's adjusted EBIT declined by €138 million, or 30 percent, to €317 million. Earnings at the transport business were down, mainly due to the application of cost-based charges effective October 1, 2009, and to lower equity earnings from associated companies. E.ON Ruhrgas International's earnings were slightly higher, primarily because of improved earnings at E.ON Földgáz Trade. In the prior-year period, an increase in procurement prices resulting from higher oil prices and a weak Hungarian forint could not be fully passed through to sales markets. Furthermore, regulatory compensation payments in 2010 for losses in earlier periods had a positive impact on earnings. On the negative side, E.ON Ruhrgas International recorded lower equity earnings from associated companies.

Non-regulated's adjusted EBIT improved by €492 million. E.ON Ruhrgas's gas wholesale business and the upstream business contributed to the increase. The improved performance of E.ON Ruhrgas's gas wholesale business is mainly attributable to higher gas sales volume and to the positive impact of price negotiations in the prior year. In addition, the dividend on our Gazprom stake was higher than in the prior year. Upstream adjusted EBIT was higher, mainly due to the inclusion of Yuzhno Russkoye gas field and higher oil prices.

In the prior-year period, Other/Consolidation included the earnings of Thüga, which was sold in late 2009.

U.K.

U.K.'s adjusted EBIT increased by €425 million.

U.K.
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Regulated 286 264 222 203
Non-regulated 635 216 483 53
Other/Consolidation -39 -14 -42 -18
Total 882 466 663 238
£ in millions
Regulated 248 236 194 181
Non-regulated 552 193 420 47
Other/Consolidation -32 -12 -37 -15
Total 768 417 577 213

Regulated's adjusted EBIT increased by €19 million due to higher volumes and tariffs.

Non-regulated's adjusted EBIT increased by €430 million, predominantly due to significantly improved margins in the retail business compared with the exceptionally narrow margins of the prior-year period, efficiency improvements, and the impact of the colder weather. We do not expect the earnings increase to continue at this magnitude for the rest of the year due to rising wholesale prices and the customer price reduction in the first quarter.

Nordic

Nordic's adjusted EBIT in reporting currency increased by €133 million, or 39 percent. In local currency, it was up by 25 percent.

Nordic
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Regulated 230 176 166 121
Non-regulated 404 303 296 226
Other/Consolidation 26 8 12 -6
Total 660 487 474 341
SEK in millions
Regulated 2,249 1,914 1,626 1,315
Non-regulated 3,951 3,288 2,899 2,458
Other/Consolidation 260 87 112 -69
Total 6,460 5,289 4,637 3,704

Regulated's adjusted EBIT rose by €45 million, or 37 percent, due primarily to a weather-driven increase in sales volume and higher tariffs. Power distribution tariffs were increased effective January 1 to cover the higher costs of other system operators (particularly Svenska Kraftnät) and substantial investments in supply security. Currency-translation effects constituted another positive factor.

Non-regulated's adjusted EBIT increased by €70 million, or 31 percent, mainly due to higher production and higher marketbased transfer prices and volumes in the hydro business.

Energy Trading

Energy Trading recorded an adjusted EBIT of €826 million. Optimization, whose main purpose is to limit risks and optimize the deployment of the E.ON Group's generation and production assets, contributed €891 million, mainly due to higher margins in the power and gas portfolio. Proprietary Trading, which recorded a loss of €65 million, was adversely affected by a volatile and challenging market environment.

Energy Trading
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Proprietary Trading -64 75 -65 75
Optimization 894 450 891 445
Total 830 525 826 520

New Markets

Adjusted EBIT in this segment declined by 20 percent to €429 million.

New Markets
January 1 – June 30 Adjusted EBITDA Adjusted EBIT
€ in millions 2010 2009 2010 2009
Climate & Renewables 209 122 112 52
Russia 172 87 118 34
RUB in millions 6,842 3,833 4,706 1,511
Italy 239 524 121 394
Spain 135 104 78 58
Total 755 837 429 538

Climate & Renewables' adjusted EBIT was considerably higher, mainly due to a significant increase in installed generating capacity.

Russia's adjusted EBIT rose by €84 million, mainly due to an improved energy margin.

Italy posted an adjusted EBIT of €121 million. The decline is primarily attributable to a one-off effect in the prior year relating to the renegotiation of power contracts and to the carve-out of assets to A2A in June 2009.

Spain posted an adjusted EBIT of €78 million, of which €41 million came from its generation business and €34 million from its distribution-network business, respectively. Wider margins constituted the main positive factor in both businesses.

Net Income

Net income attributable to shareholders of E.ON AG of €3.9 billion and corresponding earnings per share of €2.05 were both down by 9 percent (prior year: €4.3 billion and €2.26).

Net Income
January 1 – June 30
€ in millions 2010 2009 +/- %
Adjusted EBIT 6,076 5,485 +11
Adjusted interest expense (net) -1,171 -1,025
Net book gains/losses 721 750
Restructuring and
cost-management expenses -233 -172
Other non-operating earnings 1,380 994
Income/Loss from continuing
operations before income taxes 6,773 6,032 +12
Income taxes -1,846 -1,493
Income/Loss from continuing
operations 4,927 4,539 +9
Income/Loss from discontinued
operations, net -758 -46
Net income 4,169 4,493 -7
Shareholders of E.ON AG 3,911 4,307 -9
Minority interests 258 186 +39

Compared with the prior-year figure, our adjusted interest expense (net) declined by €146 million to -€1.2 billion. The main factor was an increase in the interest expense on provisions.

Adjusted Interest Expense (Net)
January 1 – June 30
€ in millions
2010 2009
Interest expense shown in Consolidated
Statements of Income
-1,136 -1,072
Interest income (-)/expense (+) not
affecting net income
-35 47
Total -1,171 -1,025

Net book gains in the first half of 2010 were €29 million below the prior-year level. This is mainly attributable to the sale of power capacity in line with our commitment to the European Commission. The resulting book gains were higher in the first half of 2009 than in 2010. The current-year figure also includes the book gain on the sale of our ultrahigh-voltage transmission system (transpower).

Restructuring and cost-management expenses rose by about €61 million. As in the prior-year period, a significant portion of these expenses resulted from restructuring measures at our regional utilities in Germany and from the continued implementation of the changes to the E.ON Group's organizational structure decided on in 2008. In addition, our PerformtoWin project led to higher expenses than in the prior-year period.

Other non-operating earnings primarily reflect the marking to market of derivatives used to protect our operating business from price fluctuations. At June 30, 2010, the marking to market of derivatives resulted in a positive effect of about €1.4 billion compared with about €1.2 billion at June 30, 2009. In addition, we recorded lower writedowns on securities in the currentyear period.

Our continuing operations recorded a tax expense of €1.8 billion in the first half of 2010. Our effective tax rate was 27 percent compared with 25 percent in the prior-year period.

Following the successful conclusion of sales negotiations, income/loss from discontinued operations, net, consists mainly of our U.S. Midwest market unit. Pursuant to IFRS, its results are reported separately in the Consolidated Statements of Income (see Note 5 to the Consolidated Financial Statements). The high negative figure reflects an impairment charge of €0.9 billion on goodwill at the U.S. Midwest market unit in conjunction with the disposal of our U.S. power and gas business.

Adjusted Net Income

Net income reflects not only our operating performance but also special effects such as the marking to market of derivatives. Adjusted net income is an earnings figure after interest income, income taxes, and minority interests that has been adjusted to exclude certain special effects. In addition to the marking to market of derivatives, the adjustments include book gains and book losses on disposals, restructuring expenses, other non-operating income and expenses (after taxes and minority interests) of a special or rare nature. Adjusted net income also excludes income/loss from discontinued operations and from the cumulative effect of changes in IFRS principles (after taxes and minority interests), as well as special tax effects.

Adjusted Net Income
January 1 – June 30
€ in millions
2010 2009 +/- %
Net income attributable to
shareholders of E.ON AG
3,911 4,307 -9
Net book gains/losses -721 -750
Restructuring and
cost-management expenses
233 172
Other non-operating earnings -1,380 -994
Taxes and minority interests on
non-operating earnings
471 539
Special tax effects -17 -20
Income/Loss from discontinued
operations, net 758 47
Total 3,255 3,301 -1

Financial Condition

Cash-Effective and Economic Investments

Our cash-effective investments declined to €3.7 billion in the first half of 2010. We invested about €3.4 billion in property, plant, and equipment and in intangible assets (prior year: €3.6 billion). Share investments totaled €263 million versus €464 million in the prior-year period.

Cash-Effective Investments
January 1 – June 30
€ in millions
2010 2009 +/- %
Central Europe 1,463 1,339 +9
Pan-European Gas 468 903 -48
U.K. 429 413 +4
Nordic 293 660 -56
Energy Trading 5 13 -62
New Markets 963 958 +1
Corporate Center 48 -208
Total 3,669 4,078 -10

Our economic investments are equal to our cash-effective investments plus the value of debt acquired and asset swaps.

Economic Investments
January 1 – June 30
€ in millions
2010 2009
Cash-effective investments 3,669 4,078
Debt acquired
Asset swaps 149 3
Total 3,818 4,081

Central Europe invested €124 million more in the first half of 2010 than in the prior-year period. Investments in property, plant, and equipment and in intangible assets rose by €72 million to €1,352 million. Central Europe's investments included €917 million for power generation assets. The increase of €162 million relative to the prior-year period resulted primarily from higher expenditures for the Malzenice, Gönyü, and Maasvlakte power-plant projects. Investments in network assets of €335 million were €100 million lower, mainly due to the sale of the ultrahigh-voltage transmission system; investments for this voltage level were included for the entire prior year and reflected in particular connections for offshore wind farms. Share investments of €111 million were €52 million above the prior-year figure.

Pan-European Gas invested €468 million. Of this figure, €407 million (prior year: €564 million) went towards property, plant, and equipment and in intangible assets. It consisted mainly of investments in the exploration business and in gas infrastructure. Share investments of €61 million were lower than the high prior-year level (€339 million).

U.K. invested €429 million (prior year: €413 million) in property, plant, and equipment and intangible assets. U.K.'s expenditure mainly related to investments in its generation fleet (including the construction of Grain gas-fired CHP plant) and in its distribution network.

Nordic invested €367 million less than last year. It invested €290 million (prior year: €370 million) in intangible assets and property, plant, and equipment to maintain and expand existing production plants and to upgrade and modernize its distribution network. Share investments were €3 million (prior-year: €290 million). The high prior-year figure contains a compensation payment to Statkraft.

The New Markets segment invested €963 million (prior-year: €958 million). Climate & Renewables invested €491 million, less than in the prior-year period (€562 million). The decline is due to timing effects relating to large payments for U.S. projects in the first quarter of 2009. Russia invested €252 million (€170 million), mainly in its new-build program. Italy's investments of €51 million (€91 million) went mainly towards the retrofit of Terni hydroelectric station and the distribution grid. Spain's investments of €169 million (€135 million) mainly reflect expenditure on the CCGT under construction in Algeciras.

Cash Flow and Financial Condition

E.ON presents its financial condition using, among other financial measures, cash provided by operating activities of continuing operations and economic net debt.

Our cash provided by operating activities of continuing operations rose by 30 percent, from €4.3 billion in the prior-year period to €5.6 billion. The main positive factors were the significant increase in adjusted EBITDA and positive working capital effects at Central Europe and Energy Trading. In addition, our prior-year adjusted EBITDA included a number of nonrecurring non-cash-effective items, such as the renegotiation of power supply contracts at Italy. The main negative factors were effects from gas storage usage, less income from the sale of carbon allowances, and higher interest payments relating to the financing of our investment program.

Consolidate d Statements of Cash Flows
(Extract)
January 1 – June 30
€ in millions
2010 2009 +/-
Cash provided by operating
activities of continuing
operations
5,595 4,297 +1,298
Cash provided by (used for)
investing activities of
continuing operations
-2,690 -2,778 +88
Maintenance investments
Growth and replacement
investments, acquisitions,
-381 -434 +53
other
Cash-effective effects from
-3,288 -3,644 +356
disposals 1,121 1,068 +53
Cash provided by (used for)
financing activities of
continuing operations -5,733 -1,223 -4,510

Cash provided by investing activities of continuing operations amounted to -€2.7 billion in the first half of 2010 (prior year: -€2.8 billion). Compared with the prior-year period, positive effects came from lower investments in property, plant, and equipment and lower share investments. These were partially offset by an increase in restricted cash and cash equivalents.

Cash provided by financing activities of continuing operations of -€5.7 billion (prior year: -€1.2 billion) in the first half of 2010 primarily reflects the repayment of bonds and payments to minority shareholders. Net cash inflows from bonds had a slight positive effect in the prior-year period.

Our economic net debt at June 30, 2010, of -€47,409 million was €2,744 million higher than the figure at December 31, 2009 (-€44,665 million). Negative currency-translation effects, significant investments in property, plant, and equipment, and E.ON AG's dividend payout were the main reasons for the change. Our strong cash provided by operating activities had a positive effect.

The calculation of economic net debt includes the fair value (net) of currency derivatives used for financing transactions (but excluding transactions relating to our operating business and asset management) in order to also reflect the foreigncurrency effects of financial transactions which, for accounting reasons, would not be included in the components of net financial position.

Economic Net Debt
June 30, Dec. 31,
€ in millions 2010 2009
Liquid funds 3,411 6,116
Non-current securities 3,787 3,670
Total liquid funds and non-current
securities 7,198 9,786
Financial liabilities to banks and third
parties -35,104 -35,579
Financial liabilities resulting from
interests in associated companies and
other shareholdings -2,374 -2,198
Total financial liabilities -37,478 -37,777
Net financial position -30,280 -27,991
Fair value (net) of currency derivatives
used for financing transactions1 -32 -6
Provisions for pensions -3,254 -2,884
Asset retirement obligations -15,225 -15,050
Less prepayments to Swedish nuclear
fund 1,382 1,266
Economic net debt -47,409 -44,665

1Does not include transactions relating to our operating business or asset management.

E.ON did not issue new bonds in the first half of 2010.

Standard & Poor's ("S&P") long-term rating for E.ON is A; Moody's long-term rating for E.ON is A2. The short-term ratings are A-1 (S&P) and P-1 (Moody's). The ratings assigned by both agencies correspond to E.ON's target rating. Both Moody's and S&P confirmed their long-term and short-term ratings for E.ON, all with a stable outlook, in April and May 2010, respectively.

Asset Situation

Non-current assets as of June 30, 2010, declined by 2 percent compared with the figure at year-end 2009, mainly due to the reclassification of U.S. Midwest's assets as discontinued operations. Investments in property, plant, and equipment constituted the main countervailing factor.

Current assets rose by 9 percent from year-end 2009. The main factor was the reclassification of U.S. Midwest's non-current assets as discontinued operations. There was also an increase in current receivables. These factors were partially mitigated by a decrease in receivables from derivatives.

Our equity ratio of 29 percent is on par with the figure recorded at year-end 2009.

Non-current liabilities increased by about €1.4 billion, or 2 percent, to about €72 billion, primarily due to higher deferred taxes and additions to non-current provisions.

Current liabilities declined by 3 percent from year-end 2009, chiefly due to a decrease in derivative liabilities.

The following key figures underscore that the E.ON Group has a solid asset and capital structure:

  • Non-current assets are covered by equity at 41 percent (December 31, 2009: 39 percent).
  • Non-current assets are covered by long-term capital at 106 percent (December 31, 2009: 102 percent).

Additional information is contained in Notes 3 and 5 to the Condensed Consolidated Interim Financial Statements.

Consolidated Assets, Liabilities, and Equity
€ in millions June 30, 2010 % Dec. 31, 2009 %
Non-current assets 110,759 72 113,046 74
Current assets 43,275 28 39,568 26
Total assets 154,034 100 152,614 100
Equity 45,242 29 43,986 29
Non-current liabilities 72,182 47 70,775 46
Current liabilities 36,610 24 37,853 25
Total equity and liabilities 154,034 100 152,614 100

Employees

As of June 30, 2010, the E.ON Group had 86,352 employees worldwide, a slight increase of 1 percent compared with yearend 2009. E.ON also had 1,957 apprentices and 309 board members and managing directors.

As of the same date, 50,997 employees, or 59 percent of all staff, were working outside Germany, nearly unchanged from year-end 2009.

Central Europe gained employees due to the inclusion of new subsidiaries in the Central Europe East reporting unit. Its workforce in Germany shrank due to the sale of its ultrahighvoltage transmission system.

Employees1
June 30, Dec. 31,
2010 2009 +/- %
Central Europe 49,310 48,126 +2
Pan-European Gas 3,176 3,143 +1
U.K. 15,627 16,098 -3
Nordic 5,734 5,570 +3
Energy Trading 1,090 1,075 +1
New Markets 8,364 7,976 +5
Corporate Center2 3,051 3,120 -2
Total 86,352 85,108 +1
Discontinued operations3 3,141 3,119 +1

1Figures do not include board members, managing directors, or apprentices. 2Includes E.ON IT.

3U.S. Midwest market unit.

U.K.'s headcount declined by about 3 percent, mainly due to a divestment in the energy-services business.

The hiring of seasonal staff for the summer months increased Nordic's workforce by nearly 3 percent.

The inclusion of a new gas company at Spain was the main factor in the 5-percent increase in New Markets' workforce.

Risk Situation

In the normal course of business, we are subject to a number of risks that are inseparably linked to the operation of our businesses.

Our market units operate in an international market environment that is characterized by general risks relating to the business cycle. In connection with the current economic crisis, E.ON faces risks from declining demand, primarily from industrial and commercial customers who, increasingly, are cutting their production and may cut it further. This could result in us being unable to sell energy we have already procured. In addition, the entry of new suppliers into the market place along with more aggressive tactics by existing market participants has created a keener competitive environment for our electricity business in and outside Germany which could reduce our margins. E.ON Ruhrgas also faces risks associated with increased competitive pressure in the gas sector. Increasing competition in the natural gas market and increasing trading volumes at virtual trading points and gas exchanges could result in risks for natural gas purchased under long-term take-or-pay contracts. Other price risks result from the fact that gas procurement prices are predominantly indexed to oil prices whereas sales prices are increasingly guided by spotmarket prices. Generally, contracts between producers and importers are subject to adjustments to reflect the current market situation.

The demand for electric power and natural gas is seasonal, with our operations generally experiencing higher demand during the cold-weather months of October through March and lower demand during the warm-weather months of April through September. As a result of these seasonal patterns, our sales and results of operations are higher in the first and fourth quarters and lower in the second and third quarters. Sales and results of operations for all of our energy operations can be negatively affected by periods of unseasonably warm weather during the autumn and winter months. Our Nordic market unit also could be negatively affected by a lack of precipitation, which could lead to a decline in hydroelectric generation. We expect seasonal and weather-related fluctuations in sales and results of operations to continue.

We use a comprehensive sales management system and intensive customer management to minimize these risks.

The E.ON Group's business operations are exposed to commodity price risks. In order to limit our exposure to these risks, we conduct systematic risk management. The key elements of our risk management are, in addition to the above-mentioned binding Group-wide guidelines and Group-wide reporting system, the use of quantitative key figures, the limitation of

risks, and the strict separation of functions between departments. We also utilize derivative financial instruments that are commonly used in the marketplace. These instruments are transacted with financial institutions, brokers, power exchanges, and third parties whose creditworthiness we monitor on an ongoing basis. The creation of E.ON Energy Trading has enabled us to systematically combine and consistently manage price risks on Europe's liquid commodity markets. Proprietary commodity trading is conducted in accordance with detailed guidelines and within narrowly defined limits.

We also use systematic risk management to manage our interest-rate and currency risks. E.ON's use of derivative financial instruments and its operating activities expose E.ON to credit risks. We use a Group-wide credit risk management system to systematically monitor the creditworthiness of our business partners and regularly monitor our credit risk. Furthermore, there are potential risks due to possible changes in the value of current and non-current securities; we manage these risks by means of E.ON AG's asset management.

E.ON could face liquidity risks due to margin calls resulting from adverse price developments of derivative financial instruments.

A further risk could result from the European Commission's planned regulations for derivatives traded over the counter ("OTC"). The Commission is considering introducing mandatory clearing for energy OTC trades whose monetary value exceeds a certain amount. This would increase the margin requirements for such transactions, which could have a negative impact on our economic net debt. The Commission is not expected to complete draft regulations before the end of September 2010; as such, a final decision is not anticipated until some time in 2011.

Even E.ON is affected by the current financial environment. As mentioned above, production declines in cyclical industries due to the financial and economic crisis could, despite the largely non-cyclical nature of the energy industry, over time have a negative impact on our business. In addition, declining valuations and increased volatility could require us to write down the value of some of our financial assets. Furthermore, some of our business partners and end-customers could default on their payments to us. We are addressing this increase in credit default risk by stepping up our risk-management efforts, particularly with regard to financial institutions.

Thanks to its very good creditworthiness, E.ON has up to now had no trouble accessing debt markets. We carry out both short-term and long-term financial planning to monitor and manage liquidity risks.

Our business strategy involves acquisitions and investments in our core business as well as disposals. This strategy depends in part on our ability to successfully identify, acquire, and integrate companies that enhance our energy business on acceptable terms. We have comprehensive preventive measures

in place to manage the potential risks associated with acquisitions and investments. In addition to the relevant company guidelines and manuals, these include, to the degree possible, comprehensive due diligence, legally binding contracts, a multistage approvals process, and shareholding and/or project controlling. Comprehensive post-acquisition integration projects also contribute to successful integration. In the case of planned disposals, E.ON faces the non-assessable risk of disposals not taking place or being delayed and the risk that E.ON receives lower-than-anticipated disposal proceeds. In such projects, it is not possible at this time to determine the likelihood of these risks. If planned disposals do not take place or are significantly delayed, this would have a negative impact on the planned development of our debt factor.

Technologically complex production facilities are involved in the production and distribution of energy. Our electricity operations in and outside Germany could experience unanticipated operating or other problems, including severe weather, that lead to outages or power plant shutdowns. Operational failures or extended production stoppages of facilities or components of facilities could negatively impact our earnings.

We could be subject to environmental liabilities associated with our nuclear and conventional power operations that could materially and adversely affect our business. In addition, new or amended environmental laws and regulations may result in significant increases in our costs.

The following are among the comprehensive measures we take to address these risks:

  • systematic employee training, advanced training, and qualification programs
  • further refinement and optimization of our production procedures and technologies
  • regular facility and network maintenance and inspection
  • company guidelines as well as work and process instructions
  • quality management, control, and assurance
  • project, environmental, and deterioration management
  • crisis-prevention measures and emergency planning.

Should an accident occur despite the measures we take, we have a reasonable level of insurance coverage.

In addition, there are currently certain risks relating to legal proceedings resulting from the E.ON Group's operations. These in particular include legal actions and proceedings concerning price increases, alleged market-sharing agreements, and anticompetitive practices. The above-mentioned legal proceedings include legal actions to demand repayment of the increase differential in conjunction with court rulings that

price-adjustment clauses are invalid in the special-customer segment. In July 2010, the Federal Court of Justice issued a ruling against EWE AG pertaining to the validity of gas-price adjustments and the legal status of uncontested payments. At the present time, we cannot conclusively evaluate this ruling's possible consequences for E.ON Group companies.

On July 8, 2009, the European Commission fined E.ON Ruhrgas and E.ON (as joint debtor) €553 million for an alleged marketsharing agreement with GdF Suez. In September 2009, E.ON Ruhrgas and E.ON filed an appeal with the European Court of First Instance to have the ruling overturned. Filing an appeal does not suspend the fine, which was paid, by the deadline, in October 2009. We cannot rule out the possibility of subsequent lawsuits.

E.ON is building a hard-coal-fired power plant in Datteln, Germany. The plant is designed to have a net electric capacity of about 1,055 MW. The Münster Superior Administrative Court ("SAC") issued a decision on September 3, 2009, that declares void the City of Datteln's Development Plan (No. 105 E.ON Kraftwerk). The SAC criticized errors in judgment and, in particular, that the Development Plan did not sufficiently take into consideration binding rules contained in North Rhine-Westphalia's State Development Plan and State Development Program. On March 16, 2010, the Federal Administrative Court in Leipzig upheld the SAC's ruling, which is now legally binding. On March 17, 2010, the Datteln City Council passed a resolution to institute a new development plan process relating to the hard-coal-fired power plant in Datteln. In December 2009, the North Rhine-Westphalia state legislature eliminated from the State Development Program the priority formerly given to domestic energy sources in the state's energy production. In early February 2010, the North Rhine-Westphalia state cabinet took action to deal with the energy section of the new State Development Program. In general, these measures were designed to offer greater certainty with regard to planning for projects to build new power plants in North Rhine-Westphalia, including for our hard-coal-fired power plant in Datteln. If North Rhine-Westphalia's new minority government consisting of the SPD and Bündnis 90/the Green Party does not pursue these measures, the planning process can still be continued under the 1995 State Development Plan or, if necessary, by conducting proceedings to obtain permission to deviate from a planning objective. In view of these matters, however, we cannot rule out the possibility that the Datteln power plant will enter service at a later date (presumably in 2012) than originally planned.In principle, these types of risks attend our

other power and gas new-build projects. We strive to identify such risks early and to minimize them by monitoring planning and consents processes.

In early 2009, the German Federal Cartel Office ("FCO"), as part of a sector inquiry, sent a number of E.ON companies a demand for information regarding the capacity situation in Germany's gas transport pipeline system. The E.ON companies in question submitted their responses to the FCO. The sector inquiry was concluded on December 15, 2009, with the publication of a final report. The FCO's report did not announce any proceedings against E.ON companies.

In 2009 and 2010, the European Commission conducted an antitrust investigation of E.ON companies for alleged gascapacity hording. The Commission had expressed the suspicion that E.ON Ruhrgas, by booking long-term capacity in the gas transmission system of E.ON Gastransport ("EGT"), may have been preventing competitors from gaining access to gas supply markets and consequently may have violated laws against anticompetitive practices. In negotiations with the Commission in 2009, we reached an agreement in principle that the Commission would terminate the investigation by means of a commitment decision pursuant to Article 9, Council Regulation 1/2003, under which E.ON Ruhrgas would relinquish a portion of its long-term capacity bookings in EGT's system. On March 26, 2010, E.ON formally made these commitments which had been negotiated with the Commission. On May 4, 2010, the Commission issued a binding commitment decision and terminated its investigation.

There are also lawsuits pending against E.ON AG and U.S. subsidiaries in connection with the disposal of VEBA Electronics in 2000. In addition, court actions, governmental investigations, and proceedings, and other claims could be instituted or asserted in the future against companies of the E.ON Group. We attempt to minimize the risks of current and future legal proceedings by managing these proceedings appropriately and by designing appropriate contracts prior to agreements being concluded.

E.ON Ruhrgas currently obtains about one fourth of its total natural gas supply from Russia pursuant to long-term supply contracts with Gazprom. In addition, E.ON Ruhrgas currently obtains natural gas from five other supply countries, giving it one of the most diversified gas procurement portfolios in Europe. Certain past events in some Eastern European countries have heightened concerns in parts of Western Europe about the reliability of Russian gas supplies, even though Russia has always been a very reliable supplier. Economic or political instability or other disruptive events in any transit country through which Russian gas must pass before it reaches its final destination in Western Europe can have a material adverse effect on the supply of such gas, and all such events are completely outside E.ON Ruhrgas's control.

The political, legal, and regulatory environment in which the E.ON Group does business is also a source of external risks. Changes to this environment can lead to considerable uncertainty with regard to planning.

In its October 2009 coalition agreement, the German federal government agreed in principle to extend the operating lives of nuclear power plants ("NPPs") in Germany. We are prepared, on the basis of the coalition agreement, to work towards a joint solution for extending NPP operating lives. On June 7, 2010, the federal government passed a cabinet resolution for a tax on the nuclear energy industry. Its purpose is to generate €2.3 billion in tax revenues between now and 2014 to help consolidate the federal budget as part of the government's deficit-reduction plan. The draft law prepared by the Federal Finance Ministry calls for a nuclear fuel tax and defines the resulting tax revenues as a net gain for the federal budget. We currently estimate that this tax would cost the industry a total of more than €3 billion. We must assume that it would adversely impact our pretax earnings by about €1.3 to €1.5 billion annually. The introduction of a tax of this size would lead to a marked deterioration of E.ON's debt figures, which may result in significant reductions in our investments. It is unclear at this time whether the tax will be introduced independently of, or in parallel with, the extension of NPP operating lives. Depending on how some of the open issues in the energy plan and tax are resolved, individual NPPs could be rendered uneconomic. Industry companies are currently conducting intensive negotiations with the federal government to design an alternative solution that, in the industry's estimation, would not render individual NPPs uneconomic and would have less of an adverse impact on debt figures.

European regulatory agencies have been putting together recommendations for a legally binding set of rules on how gas transmission system operators ("TSOs") manage gas capacity and bottlenecks in their systems. The rules will apply to crossborder transfer points between member states and to transfer points between different gas TSOs within a single member state. Market participants had an opportunity to take part in an official consultation concerning the recommendations, which may create risks for existing supply contracts and for intraday flexibility. In parallel, the Federal Network Agency (known by its German acronym, "BNetzA") is planning to issue rules for capacity allocation procedures on gas transmission pipelines in Germany. These changes could affect our existing gas operations.

Draft amendments are currently under consideration for several German regulatory ordinances relating to gas network access and network charges for power and gas (the ordinances are

known by their German acronyms: GasNZV, StromNEV, GasNEV, and ARegV). It is anticipated that the federal cabinet will ratify these amendments in the third quarter of 2010. How these amendments affect gas network access and network revenues will depend to a large degree on how they are applied in practice. As established in its coalition agreement, the German federal government began the process of lifting the Gorleben moratorium. The study of Gorleben will now continue in a multistage, open-ended process. The Federal Ministry of the Environment does not expect the preparatory phase (which will determine whether Gorleben is suitable and end, if such a determination is made, with the drafting of new nuclear-energy legislation) to be completed before the end of the next legislative period.

In late 2009, the BNetzA instituted formal proceedings against all E.ON Energie regional distribution companies ("RDCs") in Germany that have implemented the new regional structure and against E.ON Energie for allegedly not complying with unbundling requirements. The BNetzA plans to treat the proceedings against E.ON Bayern and E.ON Energie as model-case proceedings and to suspend the proceedings against the other RDCs. E.ON Energie along with E.ON Bayern and E.ON edis (which is an RDC with minority municipal shareholders) have filed a detailed response to the formal proceedings initiated against them.

E.ON Gastransport's supraregional transport business will be migrated to incentive-based regulation in 2010. Prior to migration, the BNetzA will conduct a benchmarking of Germany's small and very heterogeneous group of supraregional gas TSOs. The preliminary individual efficiency factor was communicated to companies in late March 2010. A decision about the final efficiency factors is not expected before August or September. The individual efficiency factor will have an impact on the revenue cap. We cannot rule out the possibility of additional risks arising from the regulation of transport charges.

The Netherlands is currently drafting legislation that would require the country's TSOs to give preferential treatment to renewable-source electricity and define rules for managing any resulting bottlenecks. If the proposed legislation is enacted, it and the actual occurrence of bottlenecks could adversely affect our power stations in the Netherlands.

In August 2009, the European Commission, the European Parliament, and the member states approved the third internalmarket package. In addition to the complete legal unbundling of electricity and gas TSOs, the third internal-market package allows the establishment of an independent transmission operator ("ITO") or an independent system operator ("ISO"). The third legislative package will affect the entire value chain and will grant national and European regulatory agencies far-reaching new authority to intervene in markets. Risks result not only from the increased scope of intervention options, but

also from the legislation that the member states enact to transpose the third legislative package into national law, which could go beyond the guidelines of the electricity and gas directives. The two directives must be transposed into national law by March 2011. The member states began drafting such national laws earlier this year.

In addition, the European Commission, the European Parliament, and the Council passed the green legislative package whose purpose is to enable the EU to achieve its climate targets. By 2020, renewables are supposed to meet 20 percent of the EU's energy consumption, while greenhouse-gas emissions are to be reduced by 20 percent (and possibly by 30 percent) from 1990 levels. ETS emission allowances have so far been allocated at no cost. No-cost allocation will gradually be replaced by the auctioning of allowances. Starting in 2013, power producers will have to acquire all of their allowances through auctions. The number of allowances will be reduced each year. Industries not subject to the ETS will also have to reduce their emissions in accordance with national targets. A portion of the fuels for private users (heating, transport) must come from renewable sources. The EU will provide financial support for the development of carbon-capture-andstorage technology. The green package will have a profound impact on the future generation mix, network infrastructure, and market rules.

We try to manage these risks by engaging in an intensive and constructive dialog with government agencies and policymakers.

The operational and strategic management of the E.ON Group relies heavily on complex information technology. Our IT systems are maintained and optimized by qualified E.ON Group experts, outside experts, and a wide range of technological security measures. In addition, the E.ON Group has in place a range of technological and organizational measures to counter the risk of unauthorized access to data, the misuse of data, and data loss.

During the period under review, the risk situation of the E.ON Group's operating business deteriorated compared with yearend 2009. Sustained low price levels in commodity markets and a lasting and significant reduction in demand, particularly from industrial customers, continue to be the main factors that could have a substantial impact on the E.ON Group's earnings situation over the medium term. From today's perspective, however, we do not perceive any risks in the future that would threaten the existence of the E.ON Group or individual market units.

Forecast

Discontinued Operations

Following the successful conclusion of sales negotiations for our U.S. Midwest market unit, pursuant to IFRS 5 this segment is classified as a discontinued operation effective the second quarter of 2010. U.S. Midwest's results are therefore not shown in our adjusted EBIT or adjusted net income for the entire 2010 financial year; the 2009 figures were also adjusted.

Earnings

As in the prior year, the forecast for the E.ON Group's earnings development is subject to significant uncertainty due to the global financial and economic crisis. From today's perspective, it is difficult to predict the pace of economic recovery; in particular, the market environment of our gas business is adversely affected by overcapacity. Under our PerformtoWin program, we have already initiated a variety of measures to reduce our costs and improve our efficiency and productivity. Despite the portfolio changes completed in 2009, we therefore expect our 2010 adjusted EBIT to be 0 to 3 percent above the prioryear figure. We anticipate that 2010 adjusted net income will be in line with 2009. We expect to record slightly higher interest and tax expenditures. We stand by our dividend payout ratio of 50 to 60 percent of adjusted net income.

Our forecast by market unit:

We expect Central Europe's 2010 adjusted EBIT to be below the 2009 figure. Its underlying business will benefit from positive effects that include the commissioning of new generating units and a reduced impact from the recession. However, earnings will be adversely affected by the disposal of power capacity and the ultrahigh-voltage transmission system.

We anticipate that Pan-European Gas's 2010 adjusted EBIT will be below the 2009 figure. The absence of earnings streams from Thüga is the main negative factor. Another is cost-based regulation which will impact the gas transport business in Germany for the entire year. The positive earnings development in the gas wholesale business in the first half of the year will be largely counteracted by a competitiondriven narrowing of margins in the fourth quarter. These factors will be partially offset by higher upstream earnings due to the inclusion of Yuzhno Russkoye gas field for the entire year.

We expect U.K.'s 2010 adjusted EBIT to be higher than in 2009, due primarily to benefits from efficiency improvements. The key challenges are an increasingly competitive marketplace and the residual impact of the recession.

We expect Nordic's 2010 adjusted EBIT to surpass the 2009 figure. Nuclear outages for upgrades and modernization measures were the main negative factors in 2009, whereas 2010 earnings will benefit primarily from positive transferprice effects.

We expect Energy Trading's 2010 adjusted EBIT to be above the 2009 number, mainly due to the positive performance of optimization activities.

We anticipate that New Markets' 2010 adjusted EBIT will be below the prior-year figure. Italy's earnings will be adversely affected by the absence of a positive one-off effect recorded in 2009 and by the carve-out of significant generation activities to Italian energy utility A2A. We expect a positive contribution from Spain due to the optimization of power plants. Climate & Renewables will benefit from a significant increase in its generating capacity. Russia will benefit from the positive impact of ongoing market liberalization and from a capacity increase at Shaturskaya power station.

Opportunities

Positive developments in foreign-currency rates and market prices for commodities such as electricity, natural gas, coal, oil, and carbon dioxide can create opportunities for our operations. Periods of exceptionally cold weather—very low average temperatures or extreme daily lows—in the fall and winter months can create opportunities for us to meet higher demand for electricity and natural gas.

Opportunities will also be created in the years ahead by the establishment of the Agency for the Cooperation of Energy Regulators ("ACER"), whose independence from purely national considerations will enable it to do more to promote European market integration. This will lead to the harmonization of market structures, making it easier to enter, and achieve growth in, other markets.

In principle, the new German federal government's potential willingness to repeal the caps for NPP operating lives creates an opportunity for E.ON, depending on how the legislation is amended. The government's energy plan is expected to be finalized by fall 2010. Government experts are considering extending NPP operating lives by 4, 12, 20, or 28 years. At the same time, the relevant ministries are examining retrofitting requirements for NPPs.

In the period under review, our opportunities did not change significantly relative to those described in our 2009 Financial Report.

28 Review Report

To E.ON AG, Düsseldorf

We have reviewed the Condensed Consolidated Interim Financial Statements - comprising the balance sheet, income statement, statement of recognised income and expenses, condensed cash flow statement, statement of changes in equity and selected explanatory notes - and the Interim Group Management Report of E.ON AG, Düsseldorf, for the period from January 1 to June 30, 2010, which are part of the half-year financial report pursuant to § (Article) 37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation of the Condensed Consolidated Interim Financial Statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the Interim Group Management Report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company's Board of Managing Directors. Our responsibility is to issue a review report on the Condensed Consolidated Interim Financial Statements and on the Interim Group Management Report based on our review.

We conducted our review of the Condensed Consolidated Interim Financial Statements and the Interim Group Management Report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW) and additionally observed the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the Condensed Consolidated Interim Financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the

EU and that the Interim Group Management Report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion.

Based on our review, no matters have come to our attention that cause us to presume that the Condensed Consolidated Interim Financial Statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the Interim Group Management Report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.

Düsseldorf, August 10, 2010

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Dr. Norbert Vogelpoth Dr. Norbert Schwieters Wirtschaftsprüfer Wirtschaftsprüfer

(German Public Auditor) (German Public Auditor)

Condensed Consolidated Interim Financial Statements

E.ON AG and Subsidiaries Consolidated Statements of Income
April 1–June 30 January 1–June 30
€ in millions Notes 2010 2009 2010 2009
Sales including electricity and energy taxes 19,066 16,561 45,391 42,544
Electricity and energy taxes -446 -390 -1,087 -1,024
Sales (13) 18,620 16,171 44,304 41,520
Changes in inventories (finished goods and work in progress) 31 26 46 41
Own work capitalized 160 110 257 186
Other operating income 3,325 7,780 8,567 14,522
Cost of materials -13,864 -12,054 -33,532 -31,707
Personnel costs -1,302 -1,324 -2,603 -2,535
Depreciation, amortization and impairment charges (5) -901 -885 -1,797 -1,716
Other operating expenses -3,310 -7,135 -7,768 -13,674
Income/Loss (–) from companies accounted for under the equity
method
162 326 343 594
Income/Loss (–) from continuing operations before financial results and
income taxes
2,921 3,015 7,817 7,231
Financial results
Income from equity investments
Income from other securities, interest and similar income
Interest and similar expenses
(7) -513
93
185
-791
-433
18
231
-682
-1,044
92
309
-1,445
-1,199
-127
398
-1,470
Income taxes -725 -630 -1,846 -1,493
Income/Loss (–) from continuing operations 1,683 1,952 4,927 4,539
Income/Loss (–) from discontinued operations, net (5) 41 -56 -758 -46
Net income
Attributable to shareholders of E.ON AG
Attributable to minority interests
1,724
1,633
91
1,896
1,850
46
4,169
3,911
258
4,493
4,307
186
in €
Earnings per share
(attributable to shareholders of E.ON AG)—basic and diluted
(8)
from continuing operations 0.83 1.00 2.45 2.29
from discontinued operations 0.02 -0.03 -0.40 -0.03
from net income 0.85 0.97 2.05 2.26
E.ON AG and Subsidiaries Consolidated Statements of Recognized Income and Expenses
January 1–June 30
€ in millions 2010 2009
Net income 4.169 4.493
Cash flow hedges -68 153
Unrealized changes 142 41
Reclassification adjustments recognized in income -210 112
Available-for-sale securities -524 1,502
Unrealized changes -446 1,508
Reclassification adjustments recognized in income -78 -6
Currency translation adjustments 882 -563
Unrealized changes 1,101 202
Reclassification adjustments recognized in income -219 -765
Changes in actuarial gains/losses of defined benefit pension plans and similar obligations -700 -458
Companies accounted for under the equity method 46 12
Unrealized changes 46 12
Reclassification adjustments recognized in income
Income taxes 467 377
Total income and expenses recognized directly in equity 103 1,023
Total recognized income and expenses (total comprehensive income) 4,272 5,516
Attributable to shareholders of E.ON AG 3,913 5,355
Attributable to minority interests 359 161

30 Condensed Consolidated Interim Financial Statements

E.ON AG and Subsidiaries Consolidated Balance Sheets
€ in millions Notes June 30, 2010 Dec. 31, 2009
Assets
Goodwill 16,053 16,901
Intangible assets 8,770 8,665
Property, plant and equipment 59,346 60,327
Companies accounted for under the equity method (9) 6,558 7,342
Other financial assets (9) 8,837 9,131
Equity investments 5,050 5,461
Non-current securities 3,787 3,670
Financial receivables and other financial assets 3,089 2,652
Operating receivables and other operating assets 3,598 3,388
Income tax assets 1,588 1,549
Deferred tax assets 2,920 3,091
Non-current assets 110,759 113,046
Inventories 4,296 4,518
Financial receivables and other financial assets 1,751 1,729
Trade receivables and other operating assets 22,756 23,007
Income tax assets 2,774 1,925
Liquid funds 3,411 6,116
Securities and fixed-term deposits 1,550 1,722
Restricted cash and cash equivalents 414 184
Cash and cash equivalents 1,447 4,210
Assets held for sale (5) 8,287 2,273
Current assets 43,275 39,568
Total assets 154,034 152,614
Equity and Liabilities
Capital stock 2,001 2,001
Additional paid-in capital 13,747 13,747
Retained earnings 27,109 26,609
Accumulated other comprehensive income 1,989 1,552
Treasury shares (10) -3,530 -3,530
Equity attributable to shareholders of E.ON AG 41,316 40,379
Minority interests (before reclassification) 4,472 4,157
Reclassification related to put options -546 -550
Minority interests 3,926 3,607
Equity 45,242 43,986
Financial liabilities 31,156 30,657
Operating liabilities 7,814 7,773
Income taxes 3,027 3,124
Provisions for pensions and similar obligations (12) 3,254 2,884
Miscellaneous provisions 18,912 18,808
Deferred tax liabilities 8,019 7,529
Non-current liabilities 72,182 70,775
Financial liabilities 6,322 7,120
Trade payables and other operating liabilities 20,868 23,099
Income taxes 2,651 1,643
Miscellaneous provisions 4,783 4,715
Liabilities associated with assets held for sale (5) 1,986 1,276
Current liabilities 36,610 37,853
Total equity and liabilities 154,034 152,614
January 1–June 30
€ in millions
2010
2009
Net income
4,169
4,493
Income from discontinued operations, net
758
46
Depreciation, amortization and impairment of intangible assets and of property, plant and equipment
1,797
1,716
Changes in provisions
155
Changes in deferred taxes
787
Other non-cash income and expenses
358
Gain/Loss on disposal of intangible assets and property, plant and equipment,
equity investments and securities (>3 months)
-1,004
Changes in operating assets and liabilities and in income taxes
-1,425
Cash provided by operating activities of continuing operations (operating cash flow)
5,595
Cash provided by operating activities of discontinued operations
247
Cash provided by operating activities
5,842
Proceeds from disposal of
1,121
Intangible assets and property, plant and equipment
73
Equity investments
1,048
Purchase of investments in
-3,669
Intangible assets and property, plant and equipment
-3,406
-3,614
Equity investments
-263
-464
Changes in securities and fixed-term deposits
93
127
Changes in restricted cash and cash equivalents
-235
105
Cash used for investing activities of continuing operations
-2,690
-2,778
Cash used for investing activities of discontinued operations
-208
Cash used for investing activities
-2,898
Payments received/made from changes in capital
-350
Payments for treasury shares, net

Cash dividends paid to shareholders of E.ON AG
-2,858
Cash dividends paid to minority shareholders
-188
Changes of financial liabilities
-2,337
Cash used for financing activities of continuing operations
-5,733
Cash provided by (used for) financing activities of discontinued operations
10
Cash used for financing activities
-5,723
Net increase/decrease in cash and cash equivalents
-2,779
Effect of foreign exchange rates on cash and cash equivalents
24
Cash and cash equivalents at the beginning of the year
4,210
Cash and cash equivalents at the end of the quarter
1,455
less: Cash and cash equivalents of discontinued operations at the end of the quarter
8
Cash and cash equivalents of continuing operations at the end of the quarter
1,447
E.ON AG and Subsidiaries Consolidated Statements of Cash Flows
-1,000
677
394
-1,586
-443
4,297
240
4,537
1,068
128
940
-4,078
-296
-3,074
-1
-2,857
-260
1,895
-1,223
-1,223
240
14
3,671
3,925
18
3,907

32 Condensed Consolidated Interim Financial Statements

Statement of Changes in Equity
Accumulated other comprehensive income
€ in millions Capital stock Additional
paid-in capital
Retained
earnings
Currency
translation
adjustments
Available-for
sale securities
Cash flow
hedges
Balance as of January 1, 2009 2,001 13,741 22,181 -2,547 2,676 -19
Changes in scope of consolidation
Capital increase
Capital decrease
Dividends paid -2,857
Share additions 18
Net additions/disposals from
the reclassification related to
put options
Total comprehensive income
Net income
Changes in actuarial gains/
losses of defined benefit
pension plans and similar
3,949
4,307
-115 1,439 82
obligations -358
Other comprehensive income -115 1,439 82
Balance as of June 30, 2009 2,001 13,741 23,291 -2,662 4,115 63
Balance as of January 1, 2010 2,001 13,747 26,609 -2,005 3,511 46
Changes in scope of consolidation
Capital increase
Capital decrease
Dividends paid -2,858
Share additions -118
Net additions/disposals from
the reclassification related to
put options
Total comprehensive income
Net income
Changes in actuarial gains/
losses of defined benefit
3,476
3,911
1,041 -544 -60
pension plans and similar
obligations
Other comprehensive income
-435 1,041 -544 -60
Balance as of June 30, 2010 2,001 13,747 27,109 -964 2,967 -14
Treasury shares Equity
attributable
to shareholders
of E.ON AG
Minority
interests (before
reclassification)
Reclassification
related to
put options
Minority interests Total
-3,549 34,484 4,538 -578 3,960 38,444
4 4 4
11 11 11
-38 -38 -38
-2,857 -239 -239 -3,096
18 18
1 1 1
5,355 161 161 5,516
4,307 186 186 4,493
-358 11 11 -347
1,406 -36 -36 1,370
-3,549 37,000 4,437 -577 3,860 40,860
-3,530 40,379 4,157 -550 3,607 43,986
110
56
110
56
110
56
-39 -39 -39
-2,858 -171 -171 -3,029
-118 -118
4 4 4
3,913 359 359 4,272
3,911 258 258 4,169
-435
437
-36
137
-36
137
-471
574
-3,530 41,316 4,472 -546 3,926 45,242

34 Notes to the Condensed Consolidated Interim Financial Statements

(1) Basis of Presentation

Based in Germany, the E.ON Group ("E.ON" or the "Group") is an international group of companies with integrated electricity and gas operations. The E.ON Group's reportable segments are presented in line with the Group's internal organizational and reporting structure, as defined by International Financial Reporting Standard ("IFRS") 8, "Operating Segments" ("IFRS 8"):

  • The Central Europe market unit, led by E.ON Energie AG ("E.ON Energie"), Munich, Germany, operates E.ON's electricity business and the downstream gas business in Central Europe.
  • Pan-European Gas is responsible for the upstream and midstream gas business. This market unit additionally holds interests predominantly in energy businesses in Europe outside of Germany. It is led by E.ON Ruhrgas AG ("E.ON Ruhrgas"), Essen, Germany.
  • The U.K. market unit encompasses the energy business in the United Kingdom. This market unit is led by E.ON UK plc ("E.ON UK"), Coventry, U.K.
  • The Nordic market unit, which is led by the integrated energy company E.ON Sverige AB ("E.ON Sverige"), Malmö, Sweden, is concentrated on the energy business in Northern Europe.
  • The Energy Trading market unit, led by E.ON Energy Trading SE ("E.ON Energy Trading"), Düsseldorf, Germany, holds the E.ON Group's European trading activities for electricity, gas, coal, oil, and CO2 allowances.
  • All of the remaining operating segments have been combined in accordance with IFRS 8, and are reported as the "New Markets" segment. New Markets contains the activities of the Climate & Renewables, Italy, and Russia market units, as well as the Spain market unit.

Furthermore, Corporate Center/Consolidation contains E.ON AG itself ("E.ON" or the "Company"), the interests held directly by E.ON AG, as well as the consolidation effects that take place at Group level. Note 13 provides additional information about the segments.

The U.S. Midwest market unit has been classified as a discontinued operation since April 2010, and as such it is no longer reportable segment.

(2) Summary of Significant Accounting Policies

The Interim Report for the six months ended June 30, 2010, has been prepared in accordance with all IFRS and International Financial Reporting Interpretations Committee ("IFRIC") interpretations effective and adopted for use in the European Union ("EU").

With the exception of the new interpretation described in Note 3, this Interim Report was prepared using the accounting, valuation and consolidation policies used in the Consolidated Financial Statements for the 2009 financial year. In addition, income tax expense for the interim period is recognized based on the effective tax rate expected for the full financial year in accordance with IAS 34, "Interim Financial Reporting" ("IAS 34"). Taxes relating to certain special items are reflected in the quarter in which they occur.

This Interim Report prepared in accordance with IAS 34 is condensed compared with the scope applied of the Consolidated Financial Statements for the full year. For further information, including information about E.ON's risk management system, please refer to E.ON's Consolidated Financial Statements for the year ended December 31, 2009, which provide the basis for this Interim Report.

(3) Newly Adopted Standards and Interpretations

IFRS 3, "Business Combinations"

In January 2008, the IASB issued a revised version of IFRS 3 as part of its "Business Combinations II" project. The most significant changes from the previous version relate to the recognition and measurement of assets and liabilities acquired through a business combination, the measurement of noncontrolling interests, as well as to the calculation of goodwill and the presentation of transactions with variable purchase prices. The revised standard is to be applied for transactions taking place in fiscal years beginning on or after July 1, 2009. The standard has been transferred by the EU into European law. Given the option in the standard concerning the determination of goodwill, which may be exercised on an individual basis, E.ON is unable to make a general statement at this time on the future impact of IFRS 3 on its Consolidated Financial Statements.

IAS 27, "Consolidated and Separate Financial Statements"

As part of the same "Business Combinations II" project, the IASB also issued a revised version of IAS 27, "Consolidated and Separate Financial Statements" ("IAS 27"), which contains guidance on consolidation, in January 2008. In particular, this standard for the first time deals with transactions in which shares in a company (subsidiary) are bought or sold without resulting in a change of control. Additional significant changes from the previous version relate in particular to the recognition and measurement of the remaining investment in an entity

after a loss of control of what had been a subsidiary if the remaining investment has to be accounted for in accordance with IAS 28, "Investments in Associates" ("IAS 28"), or IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"), and to the recognition of losses attributable to minority interests. The amendments have been transferred into European law and their application is mandatory for fiscal years beginning on or after July 1, 2009. The amendments to IAS 27 may have transaction-related effects on the E.ON Consolidated Financial Statements that cannot be estimated at this time.

IFRIC 12, "Service Concession Arrangements" IFRIC 12, "Service Concession Arrangements" ("IFRIC 12"), was published in November 2006. The interpretation governs accounting for arrangements in which a public-sector insti tution grants contracts to private companies for the performance of public services. In performing these services, the private

company uses infrastructure that remains under the control of the public-sector institution. The private company is responsible for the construction, operation, and maintenance of the infrastructure. The interpretation has been transferred by the EU into European law and its application is thus mandatory for fiscal years beginning on or after March 29, 2009. The transitional provisions additionally require retrospective application to transactions that took place on or after July 1, 2009. In that context, E.ON has made corresponding reclassifications in the prior-year values shown in these financial statements, consisting primarily of approximately €0.4 billion reclassified from property, plant and equipment to intangible assets in the network operations in Romania.

IFRIC 18, "Transfers of Assets from Customers"

IFRIC 18, "Transfers of Assets from Customers" ("IFRIC 18"), was published in January 2009. IFRIC 18 applies in cases where an entity receives from its customers a non-cash asset, or the funds necessary for the production or acquisition of a non-cash asset, in order to then provide those customers with access to a network, a service or the delivery of goods. The interpretation has been transferred by the EU into European law and its application is thus mandatory, at the latest, for fiscal years beginning after October 31, 2009. There was no material impact on E.ON's Consolidated Financial Statements.

All of the other standards and interpretations whose application was mandatory for fiscal years beginning on or after January 1, 2010, also have no material impact on E.ON's Consolidated Financial Statements.

(4) Scope of Consolidation

The number of consolidated companies changed as follows during the reporting period:

Scope of Consolidation
Domestic Foreign Total
Consolidated companies
as of December 31, 2009
145 441 586
Additions 7 15 22
Disposals/Mergers 5 33 38
Consolidated companies
as of June 30, 2010
147 423 570

As of June 30, 2010, 121 companies were accounted for under the equity method (December 31, 2009: 131).

(5) Acquisitions, Disposals and Discontinued Operations

Discontinued Operations in 2010

U.S. Midwest

At the end of April 2010, E.ON and Pennsylvania Power & Light Corporation ("PPL"), Allentown, Pennsylvania, U.S., signed agreements on the sale of the power and gas business in the United States, bundled in the U.S. Midwest market unit. The agreed purchase price for the equity and for the assumption of certain liabilities is approximately \$7.6 billion (equivalent to approximately €6.2 billion as of June 30, 2010). We also transferred pension obligations in the amount of approximately \$0.5 billion. The increased probability of the intended sale taking place necessitated a reexamination of the measurement of the U.S. businesses, taking into account the expected proceeds on disposal. The result of this examination, taken together with the purchase price actually agreed, resulted in goodwill impairment of approximately €0.9 billion, which already had to be recognized in the first quarter of 2010. The U.S. Midwest market unit is being classified as a discontinued operation since April, because the criteria for such classification were not met until the disposal process took greater shape in April 2010. The agreed transaction is expected to close by the end of 2010.

36 Notes to the Condensed Consolidated Interim Financial Statements

The tables below provide selected financial information, including the 2010 goodwill impairment and subsequent effects from the settlement of existing contractual relationships of Western Kentucky Energy Corp. ("WKE"), Henderson, Kentucky, U.S., and major balance sheet line items from the discontinued operations of the entire U.S. Midwest segment. With respect to WKE we refer to the discussion in Note 4 of the 2009 Annual Report.

Major Balance Sheet Line Items—
U.S. Midwest (Summary)
€ in millions June 30, 2010
Intangible assets and property,
plant and equipment
6,796
Other assets 642
Total assets 7,438
Total liabilities 1,986
Selected Financial Information—
U.S. Midwest (Summary)
January 1–June 30
€ in millions
2010 2009
Sales 1,013 1,087
Other income/expenses, net -1,681 -1,169
Loss from continuing operations before
income taxes and minority interests
-668 -82
Income tax benefit -80 36
Loss from discontinued operations -748 -46

Disposal Groups and Assets Held for Sale in 2010

Europgas

As part of a series of portfolio optimizations, E.ON sought to sell its 50-percent stake in Europgas a.s., Prague, Czech Republic; accordingly, the holding is reported as an asset held for sale as of June 30, 2010. Currently accounted for in the Pan-European Gas market unit using the equity method, the holding has a carrying amount of approximately €0.2 billion. The transaction closed at the end of July 2010.

BKW

Also in the context of portfolio streamlining, E.ON is planning the disposal of its approximately 21-percent shareholding in BKW FMB Energie AG ("BKW"), Bern, Switzerland. In the planned disposal, a purchase price of just under €0.4 billion for a roughly 14-percent stake was agreed with BKW itself and with Groupe E SA, Fribourg, Switzerland. The carrying amount of all the shares currently accounted for in the Central Europe market unit using the equity method was approximately €0.6 billion; foreign exchange translation differences recognized in equity amounted to approximately €0.1 billion. As of June 30, 2010, the shareholding was reported as an asset held for sale. The transaction closed in July 2010. A material net

book gain was not realized. The remaining approximately 7 percent of the shares, on which BKW has a purchase option until September 2011, are carried at fair value.

Agreement with the European Commission

In December 2008, E.ON's commitment to the European Commission to sell a variety of generating capacity and the ultrahigh-voltage network in Germany took effect. The total of approximately 5 GW in capacity to be sold, including associated assets and liabilities, has been presented as a disposal group since the end of 2008. The net carrying amounts of the disposal group related exclusively to the Central Europe market unit and initially amounted to approximately €0.4 billion. The disposal of significant portions of the capacity to be sold took place in several transactions during 2009. The first quarter of 2010 saw the closing of the contract with Stadtwerke Hannover AG, Hanover, Germany, on the sale of a further 0.3 GW in capacity with a gain on disposal of approximately €0.2 billion. The disposal of the remaining 0.3 GW of generating capacity closed in April 2010.

In November 2009, an agreement was reached with TenneT B.V., Arnhem, The Netherlands, on the disposal of the German ultrahigh-voltage network. The ultrahigh-voltage network was therefore reclassified as a disposal group in the fourth quarter of 2009 with a net carrying amount of approximately €0.8 billion. Significant assets and liabilities included property, plant and equipment and current assets in the amount of €1.0 billion and €0.7 billion, respectively, along with liabilities and deferred taxes in the amount of €0.9 billion and €0.2 billion, respectively. The relevant entity also had financial obligations from investing activities in the amount of approximately €2 billion. The agreed transaction closed at the end of February 2010. The gain on disposal was €0.1 billion.

The commitment to the European Commission was thus fulfilled in its entirety in April 2010.

Acquisitions in 2009

Yuzhno-Russkoye

In October 2008, E.ON and OAO Gazprom ("Gazprom"), Moscow, Russian Federation, reached an understanding on E.ON acquiring an interest in the Yuzhno-Russkoye gas field in Siberia. As consideration for this ownership stake, E.ON delivered to Gazprom the Gazprom shares indirectly held by E.ON, which represent 2.93 percent of the equity of Gazprom and are valued at €2.3 billion, along with a small cash component. The interest in the gas field was purchased by acquiring 25 percent minus three of the shares of OAO Sever nefte gazprom, Krasnoselkup, Russian Federation, which holds the development license. This interest is accounted for as an associated company, using the equity method, and carried at a prorated acquisition cost of €0.2 billion. There were no significant effects based on the preliminary purchase price allocation for this acquisition. The gas attributable to E.ON's interest is marketed through

the project company ZAO Gazprom YRGM Development, Salekhard, Russian Federation, whose earnings are attributable to E.ON in the form of preferred stock. Given that the significant risks and rewards of ownership have been transferred,

this company had to be consolidated in full within the E.ON Group since October 2009.

The following data refer to ZAO Gazprom YRGM Development:

Major Balance Sheet Line Items—ZAO Gazprom YRGM Development
Carrying amounts
before initial
Purchase price Carrying amounts
at initial
€ in millions recognition allocation recognition
Intangible assets 2,564 2,564
Other assets 1 4 5
Total assets 1 2,568 2,569
Non-current liabilities 513 513
Total liabilities 0 513 513
Net assets 1 2,055 2,056
Attributable to shareholders of E.ON AG 2,055
Attributable to minority interests 1 1
Acquisition cost 2,193
Remaining goodwill (preliminary) 138 138

Significant assets in the purchase price allocation include favorable gas supply contracts, which account for the majority of the difference. Non-current liabilities consist exclusively of deferred taxes. The remaining difference at the project company, recognized as preliminary goodwill, is €138 million. The purchase price allocation is preliminary as of June 30, 2010, because the final evaluation of certain details remains outstanding.

Langerlo-Vilvoorde NV

In the course of implementing E.ON's commitment to the European Commission to dispose of a variety of generating capacity in Germany, an agreement was made with Electrabel SA/NV ("Electrabel"), Brussels, Belgium, on the economic exchange of a variety of power plant units and electricity supplies in Germany and Belgium.

In this context, E.ON acquired all of the shares of a power plant unit in Belgium, Langerlo-Vilvoorde NV, Vilvoorde, Belgium. The unit operates coal- and gas-fired power plants at the Langerlo and Vilvoorde locations. The acquisition of this unit closed at the beginning of November 2009 in exchange for the power plant units delivered to Electrabel. A small cash component has already been paid by E.ON.

Carrying amounts before initial consolidation are generally determined on the basis of IFRS. Reconciliation adjustments to the accounting policies applied in the E.ON Group are presented together with the adjustments from the purchase price allocation.

The purchase price allocation is preliminary as of June 30, 2010, because the final amount to be paid in cash is yet to be determined.

Major Balance Sheet Line Items—Langerlo-Vilvoorde NV
€ in millions Carrying amounts
before initial
recognition
Purchase price
allocation
Carrying amounts
at initial
recognition
Intangible assets 12 12
Property, plant and equipment 512 -122 390
Other assets 17 68 85
Total assets 529 -42 487
Non-current liabilities 16 4 20
Current liabilities 25 37 62
Total liabilities 41 41 82
Net assets 488 -83 405
Goodwill (preliminary) 71 71

38 Notes to the Condensed Consolidated Interim Financial Statements

Disposal Groups and Assets Held for Sale in 2009

Endesa Europa/Viesgo

As part of the acquisition of the Endesa Europa/Viesgo activities, an agreement was reached with A2A S.p.A. ("A2A"), Milan, Italy, the minority shareholder of E.ON Produzione S.p.A. ("E.ON Produzione"), Sassari, Italy, to acquire the minority interest primarily in return for company-owned generating capacity of the Italy market unit valued at approximately €1.4 billion. The disposal group was reported in the New Markets segment. The agreed transaction closed in July 2009. Accordingly, the assets and liabilities in question were sold in the third quarter of 2009.

Interest in OAO Gazprom

In October 2008, E.ON and Gazprom reached an understanding on E.ON acquiring an interest in the Yuzhno-Russkoye gas field in Siberia. As consideration for this ownership stake, Gazprom received the Gazprom shares indirectly held by E.ON, representing approximately one-half of the approximately 6 percent of the equity of Gazprom held by E.ON. The shares were reported as assets held for sale since October 2008. The relevant contracts were closed in October 2009. Upon disposal of the interest, fair-value adjustments accumulated in other comprehensive income were realized in income, which resulted in a book gain of €1.8 billion.

Thüga

In 2009, E.ON conducted negotiations on a sale of the Thüga group, which was held in the Pan-European Gas market unit, to a consortium of municipal acquirers (Integra/Kom9). The negotiations did not include the interests in GASAG Berliner Gaswerke Aktiengesellschaft, Berlin, Germany, in HEAG Südhessische Energie AG, Darmstadt, Germany, in Stadtwerke Duisburg Aktiengesellschaft, Duisburg, Germany, and in Stadtwerke Karlsruhe GmbH, Karlsruhe, Germany. Given the progress of the negotiations, the Thüga group has been reported as a disposal group since the third quarter of 2009. As of September 30, 2009, the major balance sheet items of the disposal group consisted of financial assets (approximately €2.0 billion) and non-current intangible assets (approximately €0.9 billion) and of provisions and liabilities (approximately €0.6 billion). Binding contracts on a purchase price of approximately €2.9 billion were signed with the acquirer consortium in October 2009. The transaction was completed in December 2009 and resulted in a gain on disposal of approximately €0.3 billion.

VKE Asset Restructuring

In 2009, an amount of €1.7 billion in employer contributions was paid into the existing Contractual Trust Arrangement (CTA) by certain German entities for the external financing of the existing defined benefit obligations. Collateral was transferred to Pensions abwicklungs trust e.V. (the trustee) through the exclusive and complete use of an institutional fund that until then had been a consolidated entity of the mutual insurance fund Versorgungs kasse Energie ("VKE"). The fair-value adjustments recognized in other comprehensive income were reclassified to income in the amount of €0.1 billion.

(6) Research and Development Costs

The E.ON Group's research and development costs amounted to €24 million in the first six months of 2010 (first six months of 2009: €20 million).

(7) Financial Results

The following table provides details of financial results for the periods indicated:

Financial Results
April 1–June 30 January 1–June 30
€ in millions 2010 2009 2010 2009
Income from companies in which equity investments are held 101 78 110 89
Impairment charges/reversals on other financial assets -8 -60 -18 -216
Income from equity investments 93 18 92 -127
Income from securities, interest
and similar income
185 231 309 398
Interest and similar expenses -791 -682 -1,445 -1,470
Interest and similar expenses (net) -606 -451 -1,136 -1,072
Financial results -513 -433 -1,044 -1,199

(8) Earnings per Share

The computation of earnings per share ("EPS") for the periods indicated is shown below:

Earnings per Share
April 1–June 30 January 1–June 30
€ in millions 2010 2009 2010 2009
Income/Loss (–) from continuing operations 1,683 1,952 4,927 4,539
less: Minority interests -91 -45 -258 -185
Income/Loss (–) from continuing operations (attributable to shareholders of E.ON AG) 1,592 1,907 4,669 4,354
Income/Loss (–) from discontinued operations, net 41 -56 -758 -46
less: Minority interests -1 -1
Net income attributable to shareholders of E.ON AG 1,633 1,850 3,911 4,307
in €
Earnings per share (attributable to shareholders of E.ON AG)
from continuing operations 0.83 1.00 2.45 2.29
from discontinued operations 0.02 -0.03 -0.40 -0.03
from net income 0.85 0.97 2.05 2.26
Weighted-average number of shares outstanding (in millions) 1,905 1,905 1,905 1,905

40 Notes to the Condensed Consolidated Interim Financial Statements

The computation of diluted EPS is identical to basic EPS, as E.ON AG has not issued any potentially dilutive common stock.

Note 10 provides additional information.

(9) Companies Accounted for under the Equity Method and Other Financial Assets

The following table shows the structure of financial assets:

Companies Accounted for under the
Equity Method and Other Financial Assets
June 30, Dec. 31,
€ in millions 2010 2009
Companies accounted for under the
equity method 6,558 7,342
Equity investments 5,050 5,461
Non-current securities 3,787 3,670
Total 15,395 16,473

(10) Treasury Shares

Pursuant to a resolution from the Annual Shareholders Meeting of May 6, 2010, the Company is authorized to purchase own shares until May 5, 2015. The shares purchased, combined with other treasury shares in the possession of the Company, or attributable to the Company pursuant to Sections 71a et seq. AktG, may at no time exceed 10 percent of its capital stock. The Board of Management was authorized at the aforementioned Annual Shareholders Meeting to cancel treasury shares without requiring a separate shareholder resolution for the cancellation or its implementation. The total number of outstanding shares as of June 30, 2010, was 1,905,457,105 (December 31, 2009: 1,905,456,817).

As of June 30, 2010, E.ON AG and one of its subsidiaries held a total of 95,542,895 treasury shares (December 31, 2009: 95,543,183) having a consolidated book value of €3,530 million (equivalent to 4.77 percent or €95,542,895 of the capital stock).

(11) Dividends Paid

At the Annual Shareholders Meeting on May 6, 2010, the shareholders voted to distribute a dividend of €1.50 for each dividendpaying ordinary share, unchanged from the previous dividend. The total dividend payout was €2,858 million.

(12) Provisions for Pensions and Similar Obligations

Provisions for pensions and similar obligations increased by €370 million over year-end 2009. The change is primarily due to net actuarial losses resulting mainly from lower discount rates. This increase is partially offset by a balance sheet reclassification of provisions for pensions and similar obligations of the U.S. Midwest market unit to the "Liabilities associated with assets held for sale" line item.

Discount Rate
June 30, Dec. 31,
Percentages 2010 2009
Germany 5.00 5.50
U.K. 5.40 5.70

The funded status, which is equal to the difference between the present value of the defined benefit obligation and the fair value of plan assets, is reconciled with the amounts recognized in the Consolidated Balance Sheets as shown in the following table:

Net Amount Recognized
June 30, Dec. 31,
€ in millions 2010 2009
Present value of all defined benefit
obligations 16,608 16,087
Fair value of plan assets -13,352 -13,205
Funded status 3,256 2,882
Unrecognized past service cost -8 -10
Net amount recognized 3,248 2,872
Thereof presented as operating
receivables -6 -12
Thereof presented as provisions for
pensions and similar obligations
3,254 2,884

Taking into account the periodic additions and pension payments in the present value of the defined benefit obligations and in the plan assets, the funded status has increased by €374 million over year-end 2009. While net actuarial losses and exchange-rate effects have the effect of increasing the funded status, the balance sheet reclassification to the "Liabilities associated with assets held for sale" line item of the present value of the defined benefit obligation and of the plan assets of the U.S. Midwest market unit has had an offsetting effect of reducing the funded status.

The net periodic pension cost for defined benefit plans is as follows:

Net Periodic Pension Cost for Defined Benefit Plans
April 1–June 30 January 1–June 30
€ in millions 2010 2009 2010 2009
Employer service cost 59 46 116 89
Interest cost 210 199 417 396
Expected return on plan assets -169 -142 -335 -282
Past service cost 2 4 4 7
Total 102 107 202 210

42 Notes to the Condensed Consolidated Interim Financial Statements

(13) Segment Information

The segment information of the E.ON Group is presented in line with the Company's internal organizational and reporting structure.

  • The Central Europe market unit focuses on E.ON's electricity business and downstream gas business in Central Europe.
  • Pan-European Gas is responsible for the upstream and midstream gas business. This market unit additionally holds interests predominantly in energy businesses in Europe outside of Germany.

  • The U.K. market unit encompasses the energy business in the United Kingdom.

  • The Nordic market unit is concentrated on the energy business in Northern Europe.
  • Energy Trading combines E.ON's European trading activities for electricity, gas, coal, oil and CO2 allowances.
  • All of the remaining operating segments have been combined in accordance with IFRS 8, and are reported as the "New Markets" segment. New Markets contains the activities of the Climate & Renewables, Italy, and Russia market units, as well as the Spain market unit.

Financial Information by Business Segment

January 1–June 30 Central Europe
Pan-European Gas
U.K.
€ in millions 2010 2009 2010 2009 2010 2009
External sales 17,689 17,354 7,681 9,024 4,433 4,018
Intersegment sales 3,751 3,776 2,955 3,071 926 1,452
Sales 21,440 21,130 10,636 12,095 5,359 5,470
Adjusted EBITDA 3,254 3,559 1,516 1,303 882 466
Depreciation and amortization -761 -759 -259 -208 -219 -228
Impairments (–)/Reversals (+)1 -5 -22
Adjusted EBIT
Earnings from companies accounted for under the
equity method1
2,493
136
2,795
141
1,257
211
1,073
442
663
-6
238
7
Operating cash flow 3,506 3,093 850 720 558 439
Investments
Intangible assets and property, plant and equipment
Equity investments2
1,463
1,352
111
1,339
1,280
59
468
407
61
903
564
339
429
429
413
413

1Impairments recognized in adjusted EBIT differ from the relevant amounts reported in accordance with IFRS due to impairments on companies accounted for under the equity method and impairments on other financial assets, and also due to impairments recognized in non-operating earnings. Under IFRS, impairments on companies accounted for under the equity method and impairments on other financial assets are included in income/loss (–) from companies accounted for under the equity method and financial results, respectively.

2In addition to those accounted for under the equity method, acquisitions of equity investments also include acquisitions of fully consolidated companies and investments in equity holdings that need not be consolidated.

Corporate Center/Consolidation contains E.ON AG itself, the interests held directly by E.ON AG, as well as the consolidation effects that take place at Group level.

Under IFRS, segments or material business units that have been sold or are held for sale must be reported as discontinued operations. For the first six months of 2010 and the 2009 fiscal year, this concerns the entire U.S. Midwest market unit, which is why that reporting unit is now, for the first time, no longer presented as an operating segment (see explanations in Note 5).

Corporate Center/
Nordic Energy Trading New Markets Consolidation E.ON Group
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
1,639 1,291 9,907 6,832 2,936 2,926 19 75 44,304 41,520
686 468 11,419 15,075 198 922 -19,935 -24,764
2,325 1,759 21,326 21,907 3,134 3,848 -19,916 -24,689 44,304 41,520
660 487 830 525 755 837 -27 21 7,870 7,198
-186 -146 -4 -3 -326 -299 -37 -42 -1,792 -1,685
-2 -2 1 -2 -28
474 341 826 520 429 538 -66 -20 6,076 5,485
15 8 3 2 1 366 594
343 245 1,129 495 353 402 -1,144 -1,097 5,595 4,297
293 660 5 13 963 958 48 -208 3,669 4,078
290 370 5 2 859 917 64 68 3,406 3,614
3 290 11 104 41 -16 -276 263 464

44 Notes to the Condensed Consolidated Interim Financial Statements

Adjusted EBIT is the key measure at E.ON for purposes of internal management control and as an indicator of a business's long-term earnings power. Adjusted EBIT is derived from income/loss before interest and taxes and adjusted to exclude certain special items. The adjustments include adjusted net interest income, net book gains, cost-management and restructuring expenses, goodwill impairments, as well as other nonoperating income and expenses.

Adjusted net interest income is calculated by taking the net interest income shown in the income statement and adjusting it using economic criteria and excluding certain special items, i.e., the portions of interest expense that are non-operating. Net book gains are equal to the sum of book gains and losses from disposals, which are included in other operating income and other operating expenses. Cost-management and restructuring expenses are non-recurring in nature. Other non-oper ating earnings encompass other non-operating income and expenses that are unique or rare in nature. Depending on the case, such income and expenses may affect different line items in the income statement. For example, effects from the marking to market of derivatives are included in other operating income and expenses, while impairment charges on property, plant and equipment are included in depreciation, amortization and impairments. Due to the adjustments, the key figures by segment may differ from the corresponding IFRS figures reported in the Consolidated Financial Statements.

The following table shows the reconciliation of adjusted EBIT to net income as reported in the IFRS Consolidated Financial Statements:

Net Income
January 1–June 30
€ in millions 2010 2009
Adjusted EBIT 6,076 5,485
Adjusted interest income (net) -1,171 -1,025
Net book gains/losses 721 750
Restructuring/Cost management
expenses -233 -172
Other non-operating earnings 1,380 994
Income/Loss (–) from continuing
operations before taxes
6,773 6,032
Income taxes -1,846 -1,493
Income/Loss (–) from continuing
operations
4,927 4,539
Income/Loss (–) from discontinued
operations, net
-758 -46
Net income
Attributable to
4,169 4,493
shareholders of E.ON AG 3,911 4,307
Attributable to minority interests 258 186

The goodwill impairment of €0.9 billion recognized at the U.S. Midwest market unit is included in net income/loss from discontinued operations.

Page 18 of the Interim Group Management Report provides a more detailed explanation of the reconciliation of adjusted EBIT to net income.

Responsibility Statement

To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the Interim Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Interim Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.

Düsseldorf, August 10, 2010

The Board of Management

Maubach

Schenck Stachelhaus

Financial Calendar

November 10, 2010 Interim Report: January – September 2010
March 9, 2011 Release of 2010 Annual Report
May 5, 2011 2011 Annual Shareholders Meeting
May 6, 2011 Dividend Payout
May 11, 2011 Interim Report: January – March 2011
August 10, 2011 Interim Report: January – June 2011
November 9, 2011 Interim Report: January – September 2011
Further information E.ON AG
E.ON-Platz 1
40479 Düsseldorf
Germany
T +49 211-4579-0
F +49 211-4579-501
[email protected]
www.eon.com
Media Relations
T +49 211-4579-453
[email protected]
Investor Relations
T +49 211-4579-549
[email protected]
Creditor Relations
T +49 211-4579-563
[email protected]

Only the German version of this Interim Report is legally binding.

This Interim Report may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management and other information currently available to E.ON. Various known and unknown risks, uncertainties, and other factors could lead to material differences between the actual future results, financial situation, development, or performance of the company and the estimates given here. E.ON AG does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to future events or developments.

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