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E.ON SE

Quarterly Report Aug 14, 2008

128_10-q_2008-08-14_0111af16-93e9-40bb-afa5-2d207a6b5748.pdf

Quarterly Report

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Interim Report II/2008

January February March April May June July August September October November December

2 E.ON Group Financial Highlights

E.ON Group Financial Highlights
January 1 – June 30 2008 2007 +/– %
Electricity sales1 307.2 billion kWh 241.1 billion kWh +66.12
Gas sales1 644.6 billion kWh 618.4 billion kWh +26.22
Sales €41,218 million €35,559 million +16
Adjusted EBITDA €7,363 million €6,956 million +6
Adjusted EBIT €5,760 million €5,426 million +6
Net income €3,103 million €4,320 million –28
Net income attributable to shareholders of E.ON AG €2,961 million €3,968 million –25
Adjusted net income €3,331 million €3,087 million +8
Economic investments €15,834 million €2,684 million +490
Cash provided by operating activities of continuing operations €4,830 million €4,759 million +1
Economic net debt (June 30 and December 31) –€39,667 million –€24,138 million –15,5292
Employees (June 30 and December 31) 89,718 87,815 +2
Earnings per share attributable to shareholders of E.ON AG €4.73 €6.02 –21
1Unconsolidated figures.
2Change in absolute terms.

Interim Report II/2008 3

January 1 – June 30, 2008

  • Adjusted EBIT up 6 percent
  • Full-year adjusted EBIT—and now also adjusted net income—expected to increase by 5 to 10 percent
  • Substantial portfolio of assets acquired, primarily in Italy, Spain, and France

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
  • Subsequent Events
  • Forecast
  • 22 Market Unit Highlights
  • 28 Condensed Consolidated Interim Financial Statements
  • Review Report
  • Consolidated Statements of Income
  • Consolidated Balance Sheets
  • Statements of Recognized Income and Expenses
  • Consolidated Statements of Cash Flows
  • Notes
  • Declaration of the Board of Management
  • 47 Financial Calendar

We can be very satisfied with E.ON's performance in the first half of 2008. E.ON increased sales by 16 percent, from last year's €35.6 billion to €41.2 billion, and adjusted EBIT by 6 percent, from €5.4 billion to €5.8 billion. Adjusted net income rose by 8 percent to €3.3 billion. We continue to expect E.ON's full-year adjusted EBIT to surpass the high prior-year level and to increase by 5 to 10 percent.

The dominant theme of the second quarter of 2008 was the further internationalization of our business. In late June, we acquired power plants and other assets—primarily in Italy, Spain, and France—under our agreement with Enel and Acciona. This one transaction significantly strengthened our presence in Europe. We acquired a total of about 10.7 gigawatts of generating capacity in three key European markets, expanding our existing capacity by about 20 percent. The transaction improves our market position in attractive European markets and creates a strong platform for profitable growth. It also gives E.ON a European presence that no other energy company can match, with activities in about 30 European countries. Our primary objective going forward will be to rapidly integrate our acquisitions into E.ON.

Two new combined-cycle gas turbines at Surgut power station, located in the Siberian region of Russia, demonstrate what we mean by rapidly expanding our market presence. Construction of the turbines began in July 2008. When completed, they'll increase Surgut's capacity by 800 megawatts ("MW") to 5,600 MW. We're investing a total of €800 million in the expansion, which will also make Surgut one of the world's largest heat production plants. The project is part of our roughly €2 billion investment program to add generating capacity in Russia. By 2011, the program will increase our capacity in this fast-growing electricity market from 8,630 MW to more than 11,000 MW.

We're making good progress expanding our renewables operations. In late April 2008, E.ON was chosen to build Rødsand II, a 207 MW wind farm to be sited off the Danish coast. Investments for Rødsand II will total about €500 million. In July, we joined with DONG Energy, a Danish energy provider, to acquire Shell's stake in London Array, which at 1,000 MW is the world's largest offshore wind farm project. With high wind speeds and shallow water, both the Danish and U.K. sites are very well suited for large-scale offshore wind farms. The experience we gather with Rødsand and London Array will benefit our projects in the North Sea and Baltic Sea.

We're also making progress implementing our financial strategy. In April, we issued a \$3 billion bond in the American capital market. Just a few days later, we issued a €2.5 billion bond in Europe and followed it in May with a €1 billion bond aimed mainly at small and medium-sized institutional investors in Europe. In connection with our investment program and share buyback program, E.ON is, as planned, taking on more debt. We'll reach our target debt factor of three some time this year. With these measures and the stock split we conducted in early August, we've made your investment in E.ON even more attractive.

As you can see, we continue to work hard to attain our objectives. Going forward, we'll continue to take action to promote competition, supply security, and climate protection in Europe's energy market. To do this, we need the public's trust, particularly at a time when people are increasingly concerned about high energy prices. That's why I'm actively seeking a dialog with policymakers and the public. The purpose is to reach a consensus on key energy issues like the energy mix of the future, the role of coal within this mix, renewables and nuclear energy, and ways to enhance energy efficiency. I'm convinced that if our society can agree on which path to take towards our energy future, we'll succeed in achieving a balance between climate protection, resource conservation, and economic growth. E.ON is ready to do its part.

Sincerely yours,

Dr. Wulf H. Bernotat

E.ON Stock1

In a sharply declining stock market, E.ON stock (including the dividend) finished the first half of 2008 below its year-end closing price for 2007 (–9 percent). However, E.ON stock again outperformed the rest of the market, with the DAX index of Germany's top blue chips (–20 percent), the EURO STOXX 50 European index (–22 percent), and the European utility industry as measured by the STOXX Utilities index (–15 percent) all posting larger declines.

The stock-exchange trading volume of E.ON stock declined by about 6 percent year on year to €65.7 billion, making E.ON the DAX's fifth most-traded stock. With a weighting of 10.41 percent, E.ON stock was again the highest-weighted stock in the DAX.

In the United States, E.ON stock is traded in the form of American Depositary Receipts ("ADRs"). Since being delisted from the New York Stock Exchange on September 7, 2007, E.ON ADRs now trade on the over-the-counter market. Following the stock split on August 4, 2008, the conversion ratio between E.ON ADRs and E.ON stock is one to one. Before the stock split, the ratio was three to one.

In the first half of 2008, we continued the €7 billion share buyback program begun in 2007. We repurchased about 11 million shares of E.ON stock with an aggregate market value of approximately €1.4 billion and sold put options on 3.5 million shares.

On August 4, 2008, we conducted a three-for-one stock split for E.ON stock and simultaneously converted E.ON stock from bearer shares to registered shares. The stock split divided by

E.ON Stock
June 30,
2008
Dec. 28,
2007
Shares outstanding (millions) 621 632
Closing price (€) 128.15 145.59
Market capitalization (€ in billions)1 79.6 92.0
1Based on shares outstanding.
Performance and Trading Volume
January 1 – June 30 2008 2007
High (€)1 152.80 124.29
Low (€)1 117.26 96.05
Trading volume2
Millions of shares 508.2 651.5
€ in billions 65.7 70.3
1Xetra.
2Source: Bloomberg (all German stock exchanges).

three the price of E.ON stock at the time of the split, as well as any future per-share dividend. The split is intended to make E.ON stock more attractive. The purpose of the conversion from bearer shares to registered shares is to support direct communications with our shareholders and our ability to custom-tailor our investor relations.

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

6 Interim Group Management Report

Business and Operating Environment

New Organizational Structure

In 2008, our market unit structure of 2007 (Central Europe, Pan-European Gas, U.K., Nordic, and U.S. Midwest) has been supplemented by three geographically segmented market units (Russia, Italy, and Spain) and two functionally segmented market units (Climate & Renewables and Energy Trading).

At the start of 2008, we centralized all our European trading activities in power, gas, coal, oil, and CO2 emission allowances. The Energy Trading market unit, whose lead company is E.ON Energy Trading AG, combines the E.ON Group's European trading activities, enabling it to seize new opportunities created by the ongoing integration of European energy markets. It aims to achieve a leading market position in the international energy trading business.

We also combined our renewables operations (with the exception of hydroelectricity) and our climate-protection operations and plan to expand this business globally. We acquired a majority stake in OGK-4, a Russian power producer, in October 2007. Pursuant to the agreement we concluded with Enel and Acciona in April 2007, we acquired a substantial portfolio of assets in late June 2008, with operations primarily in Italy, Spain, and France.

Among the new market units, only Energy Trading will be disclosed as a separate reporting segment in the 2008 financial year. We have changed E.ON's organizational structure considerably, particularly through the centralization of our European trading operations. We therefore will not show prior-year figures for Energy Trading. We have not adjusted the prior-year figures of the market units affected by the organizational changes. Consequently, a segmented comparison with prioryear figures would have limited informational value. Our other new market units are combined in the Corporate Center/ New Markets segment. During the course of the year, we will decide on the future form of our segment reporting based on the new market units' respective business development, volume, and significance.

Energy Price Developments

European power and natural gas markets were driven by three main factors in the first half of 2008:

  • international commodity prices, especially oil, coal, and carbon prices
  • relatively mild weather
  • the hydrological balance in the Nordic region.

Prices on most European power and natural gas markets have been trending upward as they track rising commodity prices worldwide, especially coal and oil. It is uncertain at this time whether prices will remain at these higher levels.

Continual increases in coal and oil prices sent German power prices to new highs. The price for baseload electricity in Germany finished June at €88 per megawatt-hour, a record high, before falling back below €80 per megawatt-hour in July.

Nordic power prices were also influenced by rising fuel prices, although the increase was moderated by the hydrological balance, which remained above normal in both the first and second quarters of 2008, despite weather-driven fluctuations. After moving sideways in the first quarter, Nordic power prices increased to about €68 per megawatt-hour in the second quarter driven by rising fuel prices.

U.K. power prices tracked coal, natural gas, and carbon prices. After a slight drop at the beginning of the year, they recovered again and rose to a new all-time high. Power prices in the United States increased slightly in line with natural gas prices.

Power and Gas Sales

On an unconsolidated basis, the E.ON Group increased its power sales volume from 241.1 billion kWh in the first half of 2007 to 307.2 billion kWh in the first half of 2008. Central Europe sold 24.8 billion kWh more electricity, and U.K. sold 8.6 billion kWh more. These increases are attributable to the fact that effective January 1, 2008, electricity that Central Europe and U.K. sell to the Energy Trading and Italy market units is recorded as external sales volume, whereas in the prior year it was intrasegment sales volume. OGK-4, our Russian power producer, was mainly responsible for the 35.7 billion kWh of electricity sold in the Corporate Center/New Markets segment. Nordic sold 2.9 billion kWh less electricity due primarily to a decline in sales volume to business customers resulting from increasing competitive pressure. U.S. Midwest sold 17.6 billion kWh of electricity, nearly as much as in the prior-year period.

Natural gas sales volume rose by 26.2 billion kWh year on year, from 618.4 billion kWh to 644.6 billion kWh, mainly due to lower temperatures in Europe compared with the prior-year period, enabling Pan-European Gas to sell 35.4 billion kWh more natural gas. Cold weather in the first quarter of 2008 was responsible for the 0.3 billion kWh increase in gas sales recorded by U.S. Midwest. Together, Central Europe, U.K., and Nordic sold 29.5 billion kWh less natural gas, mainly due to the changes in the E.ON Group's organizational structure. The Italy market unit is responsible for the 20 billion kWh shown under Corporate Center/New Markets.

8 Interim Group Management Report

Earnings Situation

Sales 16 Percent Higher

In the first half of 2008, the E.ON Group increased its sales by about €5.7 billion compared with the prior-year figure.

Sales
January 1 – June 30
€ in millions
2008 2007 +/– %
Central Europe 20,080 16,603 +21
Pan-European Gas 13,679 11,724 +17
U.K. 5,778 6,717 –14
Nordic 2,088 1,774 +18
U.S. Midwest 873 912 –4
Energy Trading 14,655
Corporate Center/New Markets –15,935 –2,171
Total 41,218 35,559 +16

Central Europe grew sales by about €3.5 billion compared with the year-earlier period. Central Europe West Non-regulated increased sales by just over €2.5 billion. About €1.6 billion of the increase resulted from the transfer of trading, renewables, and Italian operations to the E.ON Group's new market units. Under the old organizational structure, these were intrasegment sales and consequently netted out. The remaining increase resulted from positive price effects and the passthrough of higher fuel costs at E.ON-managed power plants. Sales at Central Europe West Regulated increased by about €210 million to €6.2 billion. There was a price-driven increase in electricity network sales due to the passthrough of the costs of more green electricity being delivered onto our networks in Germany pursuant to the Renewable Energy Law. The increase in electricity network sales was moderated by regulatory effects. There was a volume-driven increase in gas network sales. Central Europe East's sales rose by about €430 million to €2.5 billion. Higher electricity prices in Hungary and the Czech Republic constituted the key factor. Sales recorded under Other/Consolidation declined by about €320 million to –€553 million, mainly as a result of the changes in Central Europe's organizational structure.

Pan-European Gas increased sales by 17 percent to €13,679 million (prior year: €11,724 million). Sales at Up-/Midstream were up 23 percent to €11,000 million from €8,971 million a year ago, with the midstream and the upstream businesses both contributing to the increase. Midstream sales rose on a weatherdriven increase in volume and on energy price movements,

effects that were partially mitigated by competitive pressure on sales prices. The expansion of production and higher energy prices were responsible for the increase in upstream sales. Downstream sales rose by €76 million, or 2 percent, from €3,056 million in the prior-year period to €3,132 million this year. The main positive factor was a volume- and price-driven increase in sales at E.ON Földgáz Trade. The main negative factor was the transfer of Thüga Italia's operations to the Italy market unit.

U.K.'s sales in reporting currency were impacted significantly by the appreciation of the euro. Sales decreased by €939 million in the first six months of 2008 compared with the prior year. Sales at the non-regulated business fell by €928 million to €5,548 million, primarily due to these currency movements (€827 million) and to the transfer of the trading and renewables activities to the Energy Trading and Climate & Renewables market units. Sales at the regulated business declined by €38 million to €402 million, primarily due to currency movements.

Nordic's sales increased by €314 million, or 18 percent, compared with the prior year. Sales in the non-regulated business increased by €244 million to €1,792 million, primarily as a result of rising market-based transfer prices between Energy Trading and Nordic's generation business. Sales in the regulated business increased by €24 million to €389 million due to higher network tariffs on local grids mainly based on increased cost recovery for line losses in 2007.

U.S. Midwest's sales in the first six months of 2008 were lower compared with last year primarily due to the stronger euro. Sales in U.S. dollars were higher largely due to increased fuel and gas cost recoveries from customers.

Energy Trading recorded sales of €14.7 billion in the first half of 2008. Sales from proprietary trading are shown net, along with the associated cost of materials, in the Consolidated Statements of Income.

The figure recorded under Corporate Center/New Markets reflects, in particular, the intragroup offsetting of sales between our European market units and Energy Trading. Sales at the Climate & Renewables, Italy, and Russia market units were €184 million, €1,190 million, and €484 million, respectively.

9

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

Own work capitalized increased by 23 percent, or €41 million, to €220 million (prior year: €179 million).

Other operating income increased by 57 percent to €6,136 million (prior year: €3,914 million). Income from exchange-rate differences of €3,139 million (prior year: €1,340 million) and gains on derivative financial instruments of €1,890 million (prior year: €901 million) were the main positive factors. Gains on the disposal of securities and shareholdings amounted to €546 million (prior year: €1,129 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 €5,120 million to €30,856 million (prior year: €25,736 million), mainly due to higher commodity costs and increased business volume.

Personnel costs increased slightly, rising by €123 million to €2,442 million in the first half of 2008. The increase results mainly from the inclusion of the Russia and Climate & Renewables market units.

Depreciation, amortization, and impairment charges of €1,601 million were above the prior-year figure of €1,510 million. The increase is principally attributable to higher deprecation and amortization at Russia and Climate & Renewables, which were not included in our Consolidated Financial Statements in the first half of 2007.

Other operating expenses rose by 81 percent, or €3,726 million, to €8,303 million (prior year: €4,577 million). This is mainly attributable to higher realized losses on currency differences of €2,842 million (prior year: €1,404 million) and to higher losses on derivative financial instruments of €2,830 million (prior year: €642 million).

Income from companies accounted for under the equity method was €452 million compared with €475 million in the year-earlier period. The 5-percent decline resulted principally from lower equity earnings at Pan-European Gas.

Adjusted EBIT up 6 Percent

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 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 on page 44). Adjusted EBIT for the first half of 2008 was €334 million higher than the prior-year figure.

Adjusted EBIT
January 1 – June 30
€ in millions
2008 2007 +/– %
Central Europe 2,713 2,544 +7
Pan-European Gas 1,679 1,631 +3
U.K. 563 741 –24
Nordic 517 475 +9
U.S. Midwest 150 176 –15
Energy Trading 99
Corporate Center/New Markets 39 –141
Total 5,760 5,426 +6

Central Europe's adjusted EBIT surpassed the prior-year figure by €169 million. Central Europe West Non-regulated increased its adjusted EBIT by €220 million to €2,059 million. Higher price effects and positive effects from the E.ON Group's new organizational structure were partially mitigated by the substantial adverse effects of the shutdowns at Krümmel and Brunsbüttel nuclear power stations (which have been offline since July 2007) and higher fuel and electricity procurement costs. Adjusted EBIT at Central Europe West Regulated declined by €89 million to €460 million. The negative effects of regulation were only partially counteracted by weather-driven increases in volume in the natural gas network and by lower other expenditures. Central Europe East's adjusted EBIT rose by €34 million year on year to €208 million. Positive price effects in Hungary were a key factor. Adjusted EBIT recorded under Other/Consolidation was on par with the prior-year figure.

10 Interim Group Management Report

Pan-European Gas's adjusted EBIT rose by €48 million, or 3 percent, to €1,679 million. Up-/Midstream's adjusted EBIT contributed to the improvement, increasing by 8 percent, from €1,097 million to €1,189 million. Midstream's adjusted EBIT declined despite a weather-driven increase in sales volume and higher earnings from storage valuations. Gas procurement costs rose significantly due to the indexing of gas prices to heating oil prices. This adversely affected midstream's adjusted EBIT because procurement prices reflect changes in heating oil prices faster than sales prices do. Competitive pressure on sales prices was another negative factor. In addition, price factors prevented us from recording earnings on portfolio optimization between Continental European and U.K. gas markets, as was done in the prior-year period. By contrast, upstream's adjusted EBIT was higher year on year, mainly because of higher energy prices and increased production of oil and natural gas. The increase in gas production is primarily attributable to the fact that Njord field started production in December 2007. Downstream Shareholdings' adjusted EBIT fell by €35 million, or 7 percent, from €522 million to €487 million. The main negative factors were lower equity earnings at E.ON Ruhrgas International, the transfer of Thüga Italia to the Italy market unit, and the absence of income from disposals recorded in the year-earlier period. Higher earnings at the E.ON Földgáz Group did not fully offset these negative effects.

U.K. delivered an adjusted EBIT of €563 million in the first six months of 2008, of which €230 million (prior year: €266 million) was in the regulated business and €370 million (prior year: €535 million) in the non-regulated business. Adjusted EBIT at the regulated business was stable in local currency and consistent with the prior year. Adjusted EBIT at the non-regulated business decreased by €165 million to €370 million. The key features were currency effects (€55 million) and lower retail margins (€168 million), offset by improvements at the generation business. Adjusted EBIT of –€37 million recorded under Other/Conso lidation was €23 million higher, mainly as a result of the transfer of the trading business.

Nordic's adjusted EBIT increased by €42 million year on year to €517 million. Adjusted EBIT at the non-regulated business increased by €16 million to €394 million. It was positively impacted by rising market-based transfer prices between Energy Trading and Nordic's generation business, partly offset by a decrease in available generation volumes, mainly

due to lower hydro production. The retail business performed in line with last year, whereas the heat business reported a lower result due to the absence of a book gain on an asset sale recorded last year and to slightly higher production costs in the first six months of 2008. Adjusted EBIT at the regulated business amounted to €118 million and was above the prioryear level (€113 million) due to higher network tariffs and a favorable tariff mix. These effects were partly offset by higher costs for line loss and increased depreciation following Nordic's substantial investment program for its power distribution business.

U.S. Midwest's adjusted EBIT decreased by 15 percent compared with 2007 primarily due to the strong euro. In U.S. dollars, adjusted EBIT was in line with the prior year.

Energy Trading recorded an adjusted EBIT of €99 million, of which €42 million is attributable to the optimization segment. The substantial improvement from the first-quarter figure reflects anticipated seasonal fluctuation. In the winter, Energy Trading procures electricity from E.ON generation companies at the higher market prices typical of this season, whereas sales prices are based on yearly products with an average price. Earnings will improve during the course of the year when procurement prices are lower. The proprietary trading segment posted an adjusted EBIT of €57 million.

Adjusted EBIT shown under Corporate Center/New Markets amounted to €39 million. Adjusted EBIT at the Climate & Renewables, Italy, and Russia market units was €29 million, €75 million, and –€37 million, respectively.

Net Income Lower

Net income attributable to shareholders of E.ON AG of €3 billion and corresponding earnings per share of €4.73 were down by 25 percent and 21 percent, respectively.

Net Income
January 1 – June 30
€ in millions 2008 2007 +/– %
Adjusted EBIT 5,760 5,426 +6
Adjusted interest expense (net) –811 –460
Net book gains 266 963
Restructuring and cost-manage
ment expenses –167
Other non-operating earnings –922 –174
Income/loss from continuing
operations before income taxes 4,126 5,755 –28
Income taxes –903 –1,342
Income/loss from continuing
operations 3,223 4,413 –27
Income/loss from discontinued
operations, net –120 –93
Net income 3,103 4,320 –28
Shareholders of E.ON AG 2,961 3,968 –25
Minority interests 142 352 –60

Compared with the prior-year figure, adjusted interest expense (net) declined by €351 million, due mainly to the development of our net financial position.

Adjusted Interest Expense (Net)
January 1 – June 30
€ in millions
2008 2007
Interest expense shown in
Consolidated Statements of Income
–832 –467
Interest income (–)/expense (+)
not affecting net income
21 7
Total –811 –460

Net book gains in the first half of 2008 were €697 million below the prior-year level. As in the first half of 2007, net book gains were generated primarily from the sale of securities at Central Europe.

In the first six months of 2008, restructuring and cost-management expenses arose in connection with various restructuring and integration projects. There were no restructuring and cost-management expenses in the year-earlier period.

Other non-operating earnings primarily reflect a negative effect from the marking to market of derivatives (–€809 million) used to protect our operating business from fluctuations in prices. At June 30, 2007, the marking to market of derivatives resulted in a positive effect in the amount of €245 million. The prior-year figure was adversely affected by costs relating to the plan to acquire Endesa and to a storm in Sweden.

Income/loss from continuing operations before income taxes declined substantially relative to the prior-year figure, primarily due to the effects of the marking to market of derivatives and to lower net book gains.

Our continuing operations recorded a tax expense of €0.9 billion in the first half of 2008. This represents a tax rate of 22 percent compared with 23 percent in the prior-year period.

As in the prior year, income/loss from discontinued operations, net, consists of Western Kentucky Energy, which is held for sale. Pursuant to IFRS, its results are reported separately in the Consolidated Statements of Income (see commentary on page 38).

The change in minority interests is mainly attributable to effects relating to our agreement with Statkraft. After the details of the agreement were worked out in late June 2008, a significantly larger number of derivatives had to be marked to market on the balance-sheet date. Substantial electricity price movements resulted in negative effects that also impacted, on a prorated basis, minority interests.

12 Interim Group Management Report

Adjusted Net Income 8 Percent Higher

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, incomes 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
2008 2007 +/– %
Net income attributable to
shareholders of E.ON AG
2,961 3,968 –25
Net book gains –266 –963
Restructuring and cost
management expenses
167
Other non-operating earnings 922 174
Taxes and minority interests
on non-operating earnings
–554 –57
Special tax effects –19 –128
Income/loss from discontinued
operations, net 120 93
Total 3,331 3,087 +8

Financial Condition

Investments Significantly Higher

We continued to make progress implementing our extensive investment program which totals €63 billion for the period 2007–2010. We invested €9.7 billion more in the first half of 2008 than in the same period last year. We invested €3,343 million in property, plant, and equipment and intangible assets compared with €2,552 million a year ago. Share investments totaled €9,019 million versus €132 million in the prior year.

In the calculation of the economic investments, the figure shown for debt acquired relates almost entirely to the portfolio of assets acquired under our agreement with Enel and Acciona.

Investments
January 1 – June 30
€ in millions
2008 2007 +/– %
Central Europe 1,033 1,047 –1
Pan-European Gas 547 1,174 –53
U.K. 474 624 –24
Nordic 459 398 +15
U.S. Midwest 312 307 +2
Energy Trading 2
Corporate Center/New Markets 9,535 –866
Total 12,362 2,684 +361
Economic Investments
January 1 – June 30
€ in millions 2008 2007
Cash-effective investments 12,362 2,684
Debt acquired 3,464
Asset swaps 8
Total 15,834 2,684

Central Europe invested €14 million less in the first half of 2008 than in the prior-year period. Investments in property, plant, and equipment and intangible assets of €931 million were about on par with the prior-year figure (€943 million). Central Europe invested €502 million in power generation assets and €349 million in network assets. Share investments were €102 million (prior year: €104 million) and related primarily to the acquisition of shares in SOTEC, a waste incineration company.

Pan-European Gas invested €547 million. Of this figure, €410 million (prior year: €288 million) went towards property, plant, and equipment and intangible assets, mainly towards gas

infrastructure and the development of the exploration business. Share investments of €137 million related mainly to capital increases at Nord Stream AG, an associated company. The high prior-year figure of €886 million mainly reflects the acquisition of Contigas Deutsche Energie-AG from the Central Europe market unit.

U.K.'s investments in the first half of 2008 were €474 million, of which €440 million relates to property, plant, and equipment and €34 million to share investments. Investments were €150 million lower than in the prior year primarily due to the transfer of renewables operations to the Climate & Renewables market unit. Investments in the regulated business increased in line with the allowance granted under the five-year regulation review.

At €459 million, Nordic invested about €61 million more in the first six months of 2008 than in the prior-year period. Nordic invested €446 million (prior year: €393 million) in intangible assets and property, plant, and equipment to maintain and expand existing production plants and to upgrade and modernize the distribution network. Share investments totaled €13 million compared with €5 million in the first six months of 2007.

U.S. Midwest's investments increased by €5 million compared with the prior year primarily due to higher spending for the new baseload unit under construction at the Trimble County plant. This unit is expected to enter service in 2010.

Investments recorded under Corporate Center/New Markets are mainly attributable to the acquisition of an extensive portfolio of assets from Enel and Acciona with operations mainly in Italy, Spain, and France. Climate & Renewables invested €576 million (mainly in wind-power projects), Italy €414 million (mainly in operations transferred from other market units), and Russia €367 million (mainly to acquire a further 3.4 percent of OGK-4).

Cash Flow and Financial Condition

E.ON presents its financial condition using, among other financial measures, cash provided by operating activities of continuing operations (refer also to the Consolidated Statements of Cash Flows on page 33) and economic net debt.

The E.ON Group's cash provided by operating activities in the first six months of 2008 was 1 percent higher than in the prior-year period.

Cash Provided by Operating
Activities of Continuing Operations
January 1 – June 30
€ in millions 2008 2007 +/–
Central Europe 2,495 1,787 +708
Pan-European Gas 1,369 2,119 –750
U.K. 1,049 655 +394
Nordic 622 550 +72
U.S. Midwest 194 121 +73
Energy Trading –781 –781
Corporate Center/New Markets –118 –473 +355
Cash provided by operating
activities of continuing
operations
4,830 4,759 +71
Maintenance investments 650 853 –203
Growth and replacement
investments, acquisitions, other
11,712 1,831 +9,881
Cash-effective effects
from disposals
243 609 –366

Central Europe's cash provided by operating activities increased further compared with the prior-year level, mainly because of a higher cash-effective electricity margin, improvements in working capital (which are partially attributable to an increase in liabilities, particularly to Energy Trading), and a lower contribution to the Contractual Trust Arrangement than in the prior-year period. It was adversely affected by the shutdowns at Krümmel and Brunsbüttel nuclear power stations, higher cash outflows for electricity procurement and fuel, and the regulation of network charges.

14 Interim Group Management Report

Pan-European Gas's cash provided by operating activities declined significantly compared with the prior-year period. There were negative effects at E.ON Ruhrgas, primarily from gas storage usage. In the first half of 2007, price factors led to storage facilities being used at high capacity, whereas in the current-year period storage usage was significantly lower. Other negative factors included lower cash flow from E.ON Földgáz's gas business and non-recurring effects relating to the acquisition of the E.ON Földgáz companies. These negative effects were only partially offset by upstream's positive performance.

U.K.'s cash provided by operating activities was significantly higher year on year. One significant factor was reduced carbon payments (€103 million) compared with the prior year. The remainder was primarily driven by the retail business, reflecting increased prices from February 2008 and improvements in operational efficiency combined with the timing of commodity purchases from the trading business.

Nordic's cash provided by operating activities followed Nordic's favorable operating development. Additionally, it increased on the back of lower storm-related costs and lower tax payments. The positive effects were partly offset by an increase in working capital.

Cash provided by operating activities at U.S. Midwest was higher mainly due to pension contributions made in 2007.

Energy Trading recorded –€781 million in cash provided by operating activities. Because of Energy Trading's central position in the E.ON Group's energy procurement and sales operations, its cash flow is considerably affected by intragroup settlement processes. The high negative figure is mostly attributable to time lags in these processes.

The Corporate Center/New Markets segment's cash provided by operating activities was considerably above the prior-year level, due mainly to higher intragroup tax offsets at the Corporate Center and the inclusion of the Russia and Climate & Renewables market units. Higher interest payments constituted the main negative factor.

Cash provided by investing activities in the first half of 2008 was –€10,993 million (prior year: €231 million) and reflected the acquisition of an extensive portfolio of assets as part of our agreement with Enel and Acciona. The operations acquired are mainly in Italy, Spain, and France.

Cash provided by financing activities of €5,657 million (prior year: –€1,535 million) was positive and was primarily due to the issuance of new bonds. Additional share repurchases and E.ON AG's dividend payout were negative factors.

Net financial position equals the difference between our total financial liabilities and our total liquid funds and non-current securities. Our net financial position of –€23,618 million was €16,124 million below the figure reported as of December 31, 2007 (–€7,494 million). The main reason for the change in our net financial position was the acquisition of an extensive portfolio of assets from Enel and Acciona. Other negative factors included higher investments in property, plant, and equipment as well as E.ON AG's dividend payout and cash outflow for the share buyback program. Strong cash flow from operating activities was a positive factor. The factors that led to the reduction in our net financial position also led to the significant increase in our economic net debt.

Economic Net Debt
€ in millions June 30,
2008
Dec. 31,
2007
Liquid funds 5,739 7,075
Non-current securities 5,165 6,895
Total liquid funds and non-current
securities
10,904 13,970
Financial liabilities to banks and third
parties –32,276 –19,357
Financial liabilities to group companies –2,246 –2,107
Total financial liabilities –34,522 –21,464
Net financial position –23,618 –7,494
Provisions for pensions –2,402 –2,890
Asset retirement obligations –14,934 –15,034
Less prepayments to Swedish nuclear
fund 1,287 1,280
Total –39,667 –24,138

Asset Situation

Non-current assets as of June 30, 2008, rose by 13 percent compared with the figure at year end 2007, mainly due to the acquisition and inclusion, for the first time, of operations from the portfolio of assets acquired under our agreement with Enel and Acciona.

Current assets increased by 46 percent compared with year end 2007. The main factors were higher receivables from derivative transactions as of the balance-sheet date (which were offset by liabilities from derivative transactions of the same magnitude) and higher current assets resulting from the inclusion of operations acquired in the first half of 2008 under our agreement with Enel and Acciona.

Our equity ratio was about 8 percentage points below the figure of 40 percent recorded at year end 2007, in parti cular because our total assets increased by 21 percent. This is because our acquisition of a portfolio of assets from Enel and Acciona was in part debt financed, because the dividend payout in the second quarter of 2008 reduced our equity, and because we continued our share buyback program.

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 44 percent (year end 2007: 52 percent).
  • Non-current assets are covered by long-term capital at 92 percent (year end 2007: 102 percent).
Consolidated Assets, Liabilities, and Equity
June 30, Dec. 31,
€ in millions 2008 % 2007 %
Non-current assets 119,546 72 105,804 77
Current assets 46,032 28 31,490 23
Total assets 165,578 100 137,294 100
Equity 52,745 32 55,130 40
Non-current liabilities 57,773 35 52,402 38
Current liabilities 55,060 33 29,762 22
Total equity and liabilities 165,578 100 137,294 100

16 Interim Group Management Report

Employees

As of June 30, 2008, the E.ON Group had 89,718 employees worldwide, about 2 percent more than at year end 2007. E.ON also had 2,059 apprentices and 284 board members and managing directors.

As of the same date, 53,885 employees, or 60 percent of all staff, were working outside Germany, essentially unchanged from year end 2007.

Employees1
June 30, Dec. 31,
2008 2007 +/– %
Central Europe 42,436 44,051 –4
Pan-European Gas 10,233 12,214 –16
U.K. 17,669 16,786 +5
Nordic 6,187 5,804 +7
U.S. Midwest 3,062 2,977 +3
Energy Trading 816
Corporate Center/
New Markets2 9,315 5,983 +56
Total 89,718 87,815 +2
Discontinued operations3 475 474

1Figures do not include apprentices, managing directors, or board members. 2 Includes the Russia, Italy, and Climate & Renewables market units and E.ON IS. Excludes employees from the acquisition of Endesa operations. 3Consists of WKE.

E.ON's new organizational structure is responsible for most of the changes in employee numbers at the market units. Energy Trading combines the group's European trading operations. Central Europe and Pan-European Gas's operations in Italy were transferred to the Italy market unit. The same applies to the new Climate & Renewables market unit which manages our renewables business. The latter two market units are shown under Corporate Center/New Markets. The acquisition of

operations in late June under our agreement with Enel and Acciona added about 3,500 employees, mainly in Italy, Spain, and France. Because the acquisition was so close to the end of the reporting period, these employees will not be included in our workforce figures until the third quarter.

The transfer of operations to the new market units was solely responsible for reducing Central Europe's workforce by 1,615 employees. Central Europe added about 1,100 employees due to acquisitions of waste-incineration and power and gas utility assets in Germany and to the hiring of former apprentices who had completed their training.

The number of employees at Pan-European Gas declined due mainly to efficiency-enhancement measures at E.ON Gaz Distributie in Romania. The transfer of 350 employees to a nonconsolidated E.ON company also contributed to the reduction.

Despite the above-mentioned restructuring, U.K.'s workforce increased by about 5 percent due to an increase in business at Energy Services.

The hiring of seasonal staff for the summer months increased the workforce at Nordic, while the construction of Trimble County 2 generating unit increased the workforce at U.S. Midwest.

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 addition, our energy business in and outside Germany faces increasingly intense competition which could reduce our margins. 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 pursue systematic risk management. The key elements of our risk management are, in addition to binding groupwide guidelines and groupwide reporting system, the use of quantitative key figures, the limitation of risks, and the strict separation of functions between departments. To limit commodity price risks, we 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. 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 operating activities and use of derivative financial instruments expose E.ON to credit default risks. We use a groupwide credit risk management system to systematically monitor the creditworthiness of our business partners and regularly calculate our credit default risk. We review our business partners' credit ratings by means of existing criteria for creditworthiness.

Furthermore, there are potential risks due to possible changes in the value of short-term and long-term securities. These risks are managed by appropriate asset management. 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. This strategy depends in part on our ability to successfully identify and acquire, on acceptable terms, companies that enhance our energy business. We have comprehensive processes and control mechanisms in place to

manage the potential risks associated with acquisitions and investments. These processes and control mechanisms include, in addition to the relevant company guidelines and manuals, comprehensive due diligence, legally binding contracts, a multi-stage approvals process, and shareholding and project controlling. Comprehensive post-acquisition integration projects also contribute to successful integration.

Technologically complex production facilities are involved in the production and distribution of energy. Our German or international electricity operations 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.

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

  • systematic employee training, advanced training, and qualification programs
  • further refinement 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.

18 Interim Group Management Report

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 alleged price-fixing agreements and anticompetitive practices. There are also lawsuits pending against E.ON AG and U.S. subsidiaries in connection with the disposal of VEBA Electronics in 2000. E.ON Ruhrgas is a party to a number of different arbitration proceedings. These include proceedings in connection with gas delivery contracts entered into with GasTerra B.V. 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.

Increasing competition in the natural gas market and increasing trading volumes at notional trading points and gas exchanges could result in risks for natural gas purchased under long-term take-or-pay contracts. On the other hand, these contracts between producers and importers are subject to periodic adjustments to current market forces.

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

• In December 2007, Germany enacted amendments to its law against restraints on competition that will lead to a considerable broadening of antitrust oversight in Germany's electricity and natural gas markets. The amendments took effect on January 1, 2008. On February 29, 2008, the German Federal Cartel Office ("FCO") instituted anticompetitive practices proceedings against six E.ON Energie regional distribution companies pursuant to Section 29 of the amended law (and Section 19, Paragraph 1) for allegedly excessive prices for gas supplied to customers with a standard load profile.

  • As part of an anticompetitive practices case, the FCO is investigating the treatment of CO2 emission allowances as a cost factor in the price of electricity. In discussions with the FCO, an agreement was reached under which the FCO would drop its case in return for the auctioning of generating capacity and, possibly, the sale of a stake in a power station. We are currently trying to reach an acceptable solution with the FCO in the context of the agreement we reached with the European Commission.
  • The European Commission carried out investigations at the premises of several energy companies in Europe, including E.ON AG and some of its affiliates, in May and December 2006. These were followed by requests for information regarding a number of regulatory and energymarket-related issues of E.ON Energie and E.ON Ruhrgas. The two companies have responded to these requests. On July 18, 2007, the Commission initiated formal antitrust proceedings against E.ON Ruhrgas and Gaz de France for alleged infringements of Article 81 of the European Community Treaty. In its Statement of Objections dated June 10, 2008, the Commission alleges that the two companies agreed not to sell natural gas in the other's home market to a significant extent and thus to have illegally divided the market between them. E.ON Ruhrgas will respond to the Commission and defend itself against the Commission's accusations. In connection with the investigations in the electricity sector, E.ON has proposed to the Commission that it divest its transmission system and a certain amount of generating capacity. After conducting a market test, the Commission will make a legally binding decision and not continue any antitrust proceedings relating to the electricity sector.

  • E.ON Ruhrgas filed a complaint with the State Superior Court in Düsseldorf against the FCO's decision of January 13, 2006, relating to long-term gas supply contracts; the complaint related mainly to the competitive injunction contained in the FCO's order. The court dismissed this complaint on October 4, 2007. E.ON Ruhrgas has appealed the court's decision to the Federal Supreme Court of Justice, Germany's highest appellate court for civil and criminal cases.

  • In September 2007, the European Commission published draft versions of a third package of energy legislation designed to establish a competitive, non-discriminatory, and transparent EU internal energy market. E.ON expressly supports these objectives. In our view, however, some of the proposed measures and mechanisms will not serve to promote competition or the development of crossborder regional markets. In particular, this applies to regulatory oversight over power and gas trading and to the ownership unbundling of electricity and gas transmission systems.
  • Incentive regulation, which replaces the current cost-based, rate-of-return model for network charges, is scheduled to start on January 1, 2009. We cannot at this time reliably assess its effects because the individual efficiency targets and major parameters (such as the exact design of the investment budgets) have not yet been determined.
  • Currently, E.ON Gastransport's network charges are market based. We cannot rule out the possibility that the Federal Network Agency will rule against market-based network charges during the course of 2008. In this case, E.ON Gastransport would have to apply for cost-based network charges and would be migrated to the incentive system effective January 1, 2010.

  • In late May 2008, the German Federal Network Agency completed the process of establishing the rules for a new balancing regime for the German natural gas sector, resulting in many changes. The new rules create numerous risks for all market participants due to the short implementation period and the possibility of insufficient data provision from network operators to market participants.

  • At the request of the Federal Association of New Energy Suppliers (known by its German abbreviation, "bne") and LichtBlick, the German Federal Network Agency has instituted regulatory proceedings against Germany's four transmission system operators ("TSOs"), including E.ON Netz. Lichtblick and the bne are demanding that the agency require the four TSOs to jointly net out their balancing zones and to disgorge any additional earnings that have been received by the suppliers of balancing energy. There appears to be no legal basis for this demand.
  • Legal uncertainty surrounding the implementation of national allocation plans in certain EU member states could result in some installations in the energy industry affected by emission-allowance trading having difficulties with the allocation of CO2 emission allowances.
  • In January 2008, the European Commission presented a package of legislative proposals on the implementation of EU climate-protection targets, the continuation of emission-allowance trading, carbon storage, and support for renewable-source electricity. The environmentally motivated reorganization of Europe's energy supply system will affect energy companies but also create new lines of business.

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

20 Interim Group Management Report

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.

E.ON Ruhrgas currently obtains approximately 26 percent 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 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 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. Our European energy operations could also be negatively affected

by a summer with higher-than-average temperatures to the extent our plants would be required to reduce or shut down operations due to a reduction in the availability of cooling water. We expect seasonal and weather-related fluctuations in sales and results of operations to continue.

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 E.ON Group's risk situation did not change substantially compared with year end 2007.

Subsequent Events

In late July 2008, E.ON finalized the agreement it reached last year with Statkraft. Under the agreement, E.ON acquires Statkraft's 44.6-percent stake in E.ON Sverige and a hydroelectric plant in Sweden for a total of about €4.5 billion. In return, Statkraft acquires about €2.2 billion in E.ON stock as well as power plants with an aggregate value of €2.3 billion in Sweden, Germany, and the United Kingdom. Subject to antitrust approval, E.ON and Statkraft intend to complete the asset swap at the end of this year.

Forecast

Earnings

In 2008, we have made substantial changes to our organizational structure, in particular the centralization of our European trading operations. Consequently, a segmented comparison with prior-year figures would have limited informational value. Therefore, for 2008 we will issue earnings forecasts for the E.ON Group only, not for our individual market units.

For 2008, we continue to expect the E.ON Group's adjusted EBIT to again surpass the high prior-year figure and to increase by 5 to 10 percent. In addition to acquisitions, improvements in our electricity business will be the main earnings driver.

We also expect adjusted net income for 2008 to surpass the prior-year figure by 5 to 10 percent.

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. Similarly, periods of exceptionally hot weather in the summer months can create opportunities for our U.S. Midwest market unit to meet the greater demand for electricity resulting from increased air conditioning use.

22 Market Unit Highlights

Central Europe

Power and Gas Sales

Central Europe's power sales increased by 24.8 billion kWh to 184.6 billion kWh due mainly to the transfer of some operations to the E.ON Group's new market units.

Power and Gas Sales
January 1 – June 30
Billion kWh 2008 2007 +/– %
Residential and small
commercial 23.8 24.2 –2
Industrial and large commercial 33.4 41.4 –19
Sales partners 127.4 94.2 +35
Power sales1 184.6 159.8 +16
Residential and small
commercial 25.4 24.1 +5
Industrial and large commercial 26.5 31.8 –17
Sales partners 13.7 16.4 –16
Gas sales 65.6 72.3 –9
1Excludes trading activities.

The transfer of gas operations to new E.ON Group market units was the main reason for the 6.7 billion kWh decline in gas sales volume. Adjusted for these effects, gas sales declined by 0.7 billion kWh compared with the prior year.

Power Generation and Procurement

Central Europe utilized its flexible mix of generation assets to meet about 35 percent of its electricity requirements compared with 41 percent in the prior-year period. The increased procurement from outside sources and the corresponding decline in owned generation are predominantly attributable to the E.ON Group's new organizational structure. Procurement from outside sources also includes procurement from the new Energy Trading market unit.

Power Generation and Procurement1
January 1 – June 30
Billion kWh
2008 2007 +/– %
Owned generation 66.6 67.8 –2
Purchases
from jointly owned power
124.8 99.0 +26
plants 2.2 5.9 –63
from outside sources 122.6 93.1 +32
Power procured 191.4 166.8 +15
Station use, line loss,
pumped-storage hydro
–6.8 –7.0
Power sales 184.6 159.8 +16
1Excludes trading activities.
Financial Highlights by Business
Central Europe West Other/
January 1 – June 30 Non-regulated Regulated Central Europe East Consolidation Central Europe
€ in millions 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Sales1 11,971 9,457 6,200 5,987 2,462 2,030 –553 –871 20,080 16,603
Adjusted EBITDA 2,263 2,073 792 883 324 288 23 36 3,402 3,280
Adjusted EBIT 2,059 1,839 460 549 208 174 –14 –18 2,713 2,544
1Trading activities are recognized net.

Pan-European Gas

Market Development

Temperatures in Germany in the first half of 2008 averaged 1.2 degrees Centigrade below the prior-year figures. This was the main reason why natural gas consumption in Germany rose by about 9.5 percent to 520 billion kWh.

Gas Sales

E.ON Ruhrgas sold 152 billion kWh of natural gas in the second quarter of 2008, 16 percent more than a year ago. Gas sales for the entire first half rose by 10 to 380 billion kWh, with 39 percent going to regional gas companies, 24 percent to municipal utilities, 12 percent to industrial customers, and 25 percent to customers outside Germany.

Gas Sales by Period1
January 1 – June 30
Billion kWh 2008 2007 +/– %
January 1 – March 31 227.4 213.4 +7
April 64.6 48.0 +35
May 43.5 44.3 –2
June 44.2 38.8 +14
April 1 – June 30 152.3 131.1 +16
Total 379.7 344.5 +10
1Gas sales of E.ON Ruhrgas AG.

Higher sales volume in Germany resulted mainly from weatherdriven increases in deliveries to power stations, industrial customers, and municipal utilities. Deliveries to regional gas companies were slightly lower. E.ON Ruhrgas increased sales volume outside Germany by 15 percent. Its existing supply contract with a Danish regional utility was increased by 2.5 billion kWh per year and extended by five years to the end of 2014. It concluded a new contract to supply about 3.7 billion kWh of gas per year to Gas Intensive, an Italian industrial association. Deliveries under the five-year contract begin on October 1, 2008.

Gas Release Program ("GRP")

On May 7, 2008, E.ON Ruhrgas held the sixth auction of natural gas from its long-term import contracts. Seven bidders were awarded a total of about 33 billion kWh of natural gas. The contracts awarded in the Internet-based auction have a three-year term. During the course of the GRP, E.ON Ruhrgas offered a total 200 billion kWh of the natural gas from its long-term import contracts, thus fulfilling this requirement of the ministerial approval of E.ON's acquisition of Ruhrgas.

Downstream Shareholdings' Gas Sales Volume

The majority-owned shareholdings at Downstream Shareholdings sold 105.6 billion kWh of natural gas, about the same as the prior-year figure (105.4 billion kWh). The absence of the sales volume from Thüga Italia's operations, which were transferred to the Italy market unit, was offset by volume growth at E.ON Földgáz Trade.

Upstream Production Higher

Gas production from E.ON Ruhrgas's stakes in gas fields rose to 746 million cubic meters, nearly double the prior-year figure. The increase is primarily attributable to the start of production in Njord field in December 2007. Johnson and Caister fields also contributed to the increase. Liquid production for the first half of 2008 was also above the prior-year figure, rising by 0.2 million barrels. Njord and Merganser fields were mainly responsible for the increase.

Upstream Production
January 1 – June 30 2008 2007 +/– %
Liquids/oil (million barrels) 2.9 2.7 +7
Gas (million standard
cubic meters)
746 376 +98
Hydrocarbons (million barrels
of oil equivalent)
7.6 5.1 +49
Financial Highlights by Business
Downstream Other/
January 1 – June 30 Up-/Midstream Shareholdings Consolidation Pan-European Gas
€ in millions 2008 2007 2008 2007 2008 2007 2008 2007
Sales 11,000 8,971 3,132 3,056 –453 –303 13,679 11,724
Adjusted EBITDA 1,385 1,287 554 602 2 12 1,941 1,901
Adjusted EBIT 1,189 1,097 487 522 3 12 1,679 1,631

24 Market Unit Highlights

U.K.

Market Development

Electricity consumption in England, Wales, and Scotland was 174 billion kWh for the first six months of 2008, 3 billion kWh higher than in the equivalent period in 2007. The increase in demand was mainly due to the impact of colder temperatures in the first three months of the year; second-quarter demand in 2008 was in line with that of 2007. Gas consumption for the first six months of 2008 was 598 billion kWh compared with 574 billion kWh in 2007. The increase is attributable to a weatherdriven increase in heating demand and slightly higher demand from gas-fired power stations.

Power and Gas Sales

Sales of power to residential and small and medium enterprise ("SME") customers declined due to lower customer numbers and changing customer behavior as a result of climate-change awareness. Sales to industrial and commercial ("I&C") electricity customers increased due to portfolio changes. Sales of gas to residential and SME customers increased slightly due to a return to near-normal weather in contrast to the mild conditions in 2007. Sales to I&C gas customers declined due to reductions in consumption caused by price sensitivity and energy-efficiency measures.

Sales by Customer Segment1
January 1 – June 30
Billion kWh
2008 2007 +/– %
Residential and SME 16.8 17.7 –5
I&C 9.7 9.2 +5
Energy Trading/other 21.4 12.4 +73
Power sales 47.9 39.3 +22
Residential and SME 31.7 31.3 +1
I&C 11.9 12.6 –6
Energy Trading/other 19.2 41.6 –54
Gas sales 62.8 85.5 –27
1Excludes trading activities.

Power Generation and Procurement

New rules governing the generation of fossil-fired power stations came into effect in 2008 (the Large Combustion Plant Directive). This has caused a shift in generation away from coal towards natural gas.

Power Generation and Procurement1
January 1 – June 30
Billion kWh
2008 2007 +/– %
Owned generation 21.0 22.1 –5
Purchases
from jointly owned power
26.9 17.3 +55
plants 0.4 0.7 –43
from E.ON Energy Trading 26.5 16.6 +60
Power procured 47.9 39.4 +22
Station use, line loss,
pumped-storage hydro –0.1
Power sales 47.9 39.3 +22

1Excludes non-merchant CHP and non-wholly owned plants.

Attributable gas-fired generating capacity increased by 16 MW from the figure for June 2007 because a compressor was upgraded at Enfield power station.

The reduction in the percentage of generation from coal (and the increase in the percentage of generation from gas) reflects the impact of the Large Combustion Plant Directive.

Financial Highlights by Business
Regulated Non-regulated Other/
January 1 – June 30 Business Business Consolidation U.K.
€ in millions 2008 2007 2008 2007 2008 2007 2008 2007
Sales 402 440 5,548 6,476 –172 –199 5,778 6,717
Adjusted EBITDA 298 333 548 729 –39 –58 807 1,004
Adjusted EBIT 230 266 370 535 –37 –60 563 741

25

Nordic

Market Development

The Nordic region consumed about 204 billion kWh of electricity during the first six months of 2008, in line with the prior year.

Power Sales

Nordic sold 2.9 billion kWh less electricity than in the first six months of 2007 mainly due to increased competition in the commercial segment and decreased net sales to Energy Trading and the market.

Power Sales
January 1 – June 30
Billion kWh
2008 2007 +/– %
Residential 3.4 3.4
Commercial 5.3 6.3 –16
Sales partners 4.0 4.1 –2
Energy Trading/other (net) 8.7 10.51 –17
Total 21.4 24.3 –12
1Includes net sales to Nord Pool.

Power Generation and Procurement

Nordic's owned generation decreased by 1.1 billion kWh relative to the prior year. Hydropower production was below last year's figure as a consequence of high reservoir inflow during the first six months of 2007. Nuclear power production was slightly below the prior year; both the first half of 2008 and 2007 were affected by unplanned stoppages and prolonged outages. Power purchases declined, primarily because of the transfer of trading activities to Energy Trading.

Power Generation and Procurement
January 1 – June 30
Billion kWh
2008 2007 +/– %
Owned generation 16.3 17.4 –6
Purchases1
from jointly owned power
6.2 8.1 –23
plants 5.2 5.1 +2
from outside sources 1.0 3.0 –67
Power procured 22.5 25.5 –12
Station use, line loss,
pumped-storage hydro –1.1 –1.2
Power sales 21.4 24.3 –12

1The 2008 figure excludes purchases from Energy Trading.

Gas and Heat Sales

Gas sales and heat sales were in line with the prior-year figure. Mild weather affected both years negatively.

Gas and Heat Sales
January 1 – June 30
Billion kWh
2008 2007 +/– %
Gas sales 2.4 2.5 –4
Heat sales 4.3 4.2 +2
2007
1,774
646
475

26 Market Unit Highlights

U.S. Midwest

Market Development

Electricity consumption in the Midwestern United States increased by approximately 1 percent in the first six months of 2008, as compared with the same period in 2007, due to colder-than-normal weather in the first quarter.

Power and Gas Sales

Regulated utility retail power sales were slightly lower for the first six months of 2008 compared with the same period in 2007 due to reduced industrial demand.

Gas sales increased in 2008 compared with 2007, primarily due to colder weather in the first quarter.

Sales by Customer Segment
January 1 – June 30
Billion kWh
2008 2007 +/– %
Retail customers 16.5 16.8 –2
Off-system sales 1.1 0.9 +22
Power sales 17.6 17.7 –1
Retail customers 8.2 7.8 +5
Off-system sales 0.3 0.4 –25
Gas sales 8.5 8.2 +4

Power Generation and Procurement

U.S. Midwest generation for the first six months of 2008 was consistent with the same period in 2007.

Power Generation and Procurement
January 1 – June 30
Billion kWh
2008 2007 +/– %
Owned generation 17.1 17.2 –1
Purchases 1.4 1.5 –7
Power procured 18.5 18.7 –1
Station use, line loss –0.9 –1.0
Power sales 17.6 17.7 –1

U.S. Midwest's attributable generating capacity was unchanged from 2007.

Coal-fired power plants accounted for 98 percent of U.S. Midwest's owned generation for the first six months of 2008, while gas-fired and hydro generating assets accounted for the remaining 2 percent.

Financial Highlights by Business
January 1 – June 30 Regulated Business Non-regulated
Business/Other
U.S. Midwest
€ in millions 2008 2007 2008 2007 2008 2007
Sales 852 888 21 24 873 912
Adjusted EBITDA 224 254 –3 221 254
Adjusted EBIT 155 178 –5 –2 150 176

Energy Trading

Business Operations

We have managed our European trading operations centrally from Düsseldorf since the start of 2008 and expect most of the positions in the organization to be centralized by the end of the year. E.ON Energy Trading AG brings together our riskmanagement activities for power, gas, coal, oil, and CO2 allowances. The new market unit operates across Europe's liquid energy markets and is responsible for managing the E.ON Group's commodity position in these markets. It also conducts both optimization (fuel procurement, generation fleet and gas portfolio management, and sales procurement) and proprietary trading. Transactions between Energy Trading and our other market units are settled at market-based transfer prices. Proprietary trading, which is conducted in accordance with our risk management systems and trading limits, involves intentionally exploiting changes in market prices and risk positions.

Legal Integration

We will carry out a series of integration measures in 2008 in order to legally merge the trading activities of the Central Europe, Pan-European Gas, U.K., and Nordic market units into E.ON Energy Trading AG. As part of this process, in the first half of 2008, E.ON Energy Trading AG transferred its key account sales operations to E.ON Energy Sales GmbH, which will remain in the Central Europe market unit. E.ON Kraft werke GmbH's international coal trading business was transferred to E.ON Energy Trading effective January 1, 2008. The trading operations of E.ON Benelux B.V. were transferred to E.ON Energy Trading effective April 1, 2008. Plans call for those of Pan-European Gas, U.K., and Nordic to be transferred during the course of the year. In addition to the legal integration process, we continue to intend to transform E.ON Energy Trading AG into a European stock corporation (SE) in 2008 to reflect the international scope of its operations.

Commercial Integration

Although the legal integration process is not completed, all European trading operations that will be combined into E.ON Energy Trading AG have been managed centrally since January 1, 2008. This applies to transactions with external trading partners and to all intragroup transactions between Energy Trading und Central Europe, Pan-European Gas, U.K., and Nordic. Consequently, Energy Trading's executive team has been responsible for E.ON's entire European energy trading business since January 1, 2008.

Trading Volume

To execute its procurement and sales mission for the E.ON Group, Energy Trading traded the following financial and physical quantities in the first half of 2008:

Trading Volume
January 1 – June 30 2008
Power sales 197.74 billion kWh
Power purchases 193.35 billion kWh
Gas sales 205.64 billion kWh
Gas purchases 193.21 billion kWh
CO2 allowance sales 29.52 million metric tons
CO2 allowance purchases 28.76 million metric tons
Oil sales 12.31 million metric tons
Oil purchases 11.42 million metric tons
Coal sales 24.60 million metric tons
Coal purchases 32.76 million metric tons
Financial Highlights by Business
January 1 – June 30 Proprietary Trading Optimization Energy Trading
€ in millions 2008 2007 2008 2007 2008 2007
Sales1 78 14,577 14,655
Adjusted EBITDA 57 43 100
Adjusted EBIT 57 42 99
1Proprietary trading activities are recognized net.

28 Review Report

To E.ON AG, Düsseldorf

We have reviewed the Condensed Consolidated Interim Financial Statements—comprising the balance sheet, income statement, condensed cash flow statement, statement of recognised income and expense and selected explanatory notes—and the Interim Group Management Report of E.ON AG, Düsseldorf, for the period from January 1 to June 30, 2008, 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 12, 2008

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 2008 2007 2008 2007
Sales including electricity and energy taxes 18,865 14,970 42,376 36,659
Electricity and energy taxes –486 –481 –1,158 –1,100
Sales (14) 18,379 14,489 41,218 35,559
Changes in inventories (finished goods and work in progress) 10 41 26 66
Own work capitalized 132 126 220 179
Other operating income 2,977 943 6,136 3,914
Cost of materials –13,694 –10,231 –30,856 –25,736
Personnel costs –1,287 –1,210 –2,442 –2,319
Depreciation, amortization and impairment charges –798 –748 –1,601 –1,510
Other operating expenses –4,715 –2,242 –8,303 –4,577
Income/Loss (–) from companies accounted for under the equity method 219 215 452 475
Income/Loss (–) from continuing operations before financial results
and income taxes
1,223 1,383 4,850 6,051
Financial results
Income from equity investments
Income from other securities, interest and similar income
Interest and similar expenses
(7) –302
106
322
–730
–20
166
286
–472
–724
108
541
–1,373
–296
171
468
–935
Income taxes –110 –315 –903 –1,342
Income/Loss (–) from continuing operations 811 1,048 3,223 4,413
Income/Loss (–) from discontinued operations, net (5) –55 –20 –120 –93
Net income
Attributable to shareholders of E.ON AG
Attributable to minority interests
756
882
–126
1,028
901
127
3,103
2,961
142
4,320
3,968
352
in €
Earnings per share
(attributable to shareholders of E.ON AG)—basic and diluted
(8)
from continuing operations 1.52 1.40 4.92 6.16
from discontinued operations –0.09 –0.03 –0.19 –0.14
from net income 1.43 1.37 4.73 6.02

30 Condensed Consolidated Interim Financial Statements

E.ON AG and Subsidiaries Consolidated Balance Sheets—Assets
June 30, Dec. 31,
€ in millions Notes 2008 2007
Goodwill 23,648 16,761
Intangible assets 4,926 4,284
Property, plant and equipment 55,367 48,552
Companies accounted for under the equity method (9) 8,547 8,411
Other financial assets (9) 19,335 21,478
Equity investments 14,170 14,583
Non-current securities 5,165 6,895
Financial receivables and other financial assets 2,698 2,449
Operating receivables and other operating assets 1,058 680
Income tax assets 2,137 2,034
Deferred tax assets 1,830 1,155
Non-current assets 119,546 105,804
Inventories 4,560 3,811
Financial receivables and other financial assets 2,146 1,515
Trade receivables and other operating assets 30,719 17,973
Income tax assets 1,186 539
Liquid funds 5,739 7,075
Securities and fixed-term deposits 2,908 3,888
Restricted cash 455 300
Cash and cash equivalents 2,376 2,887
Assets held for sale (5) 1,682 577
Current assets 46,032 31,490
Total assets 165,578 137,294
E.ON AG and Subsidiaries Consolidated Balance Sheets—Equity and Liabilities
€ in millions Notes June 30,
2008
Dec. 31,
2007
Capital stock 1,734 1,734
Additional paid-in capital 11,825 11,825
Retained earnings 27,526 26,828
Accumulated other comprehensive income 9,301 10,656
Treasury shares (10) –1,985 –616
Reclassification related to put options on treasury shares (10) –1,420 –1,053
Equity attributable to shareholders of E.ON AG 46,981 49,374
Minority interests (before reclassification) 6,346 6,281
Reclassification related to put options –582 –525
Minority interests 5,764 5,756
Equity 52,745 55,130
Financial liabilities 19,962 15,915
Operating liabilities 6,500 5,432
Income taxes 2,367 2,537
Provisions for pensions and similar obligations (12) 2,402 2,890
June 30, Dec. 31,
€ in millions Notes 2008 2007
Capital stock 1,734 1,734
Additional paid-in capital 11,825 11,825
Retained earnings 27,526 26,828
Accumulated other comprehensive income 9,301 10,656
Treasury shares (10) –1,985 –616
Reclassification related to put options on treasury shares (10) –1,420 –1,053
Equity attributable to shareholders of E.ON AG 46,981 49,374
Minority interests (before reclassification) 6,346 6,281
Reclassification related to put options –582 –525
Minority interests 5,764 5,756
Equity 52,745 55,130
Financial liabilities 19,962 15,915
Operating liabilities 6,500 5,432
Income taxes 2,367 2,537
Provisions for pensions and similar obligations (12) 2,402 2,890
Miscellaneous provisions 18,250 18,073
Deferred tax liabilities 8,292 7,555
Non-current liabilities 57,773 52,402
Financial liabilities 14,560 5,549
Trade payables and other operating liabilities 33,132 18,254
Income taxes 2,337 1,354
Miscellaneous provisions 4,202 3,992
Liabilities associated with assets held for sale (5) 829 613
Current liabilities 55,060 29,762
Total equity and liabilities 165,578 137,294

32 Condensed Consolidated Interim Financial Statements

E.ON AG and Subsidiaries Consolidated Statements of Recognized Income and Expenses
January 1 – June 30
€ in millions 2008 2007
Net income 3,103 4,320
Cash flow hedges –213 103
Unrealized changes –85 –106
Reclassification adjustments recognized in income –128 209
Available-for-sale securities –1,220 –2,185
Unrealized changes –854 –1,307
Reclassification adjustments recognized in income –366 –878
Currency translation adjustments –47 –69
Unrealized changes –47 –96
Reclassification adjustments recognized in income 0 27
Changes in actuarial gains/losses of defined benefit pension plans and similar obligations 621 1,113
Income taxes –98 –211
Total income and expenses recognized directly in equity –957 –1,249
Total recognized income and expenses (total comprehensive income) 2,146 3,071
Attributable to shareholders of E.ON AG 1,983 2,728
Attributable to minority interests 163 343
E.ON AG and Subsidiaries Consolidated Statements of Cash Flows
January 1 – June 30
€ in millions
2008 2007
Net income 3,103 4,320
Income from discontinued operations, net 120 93
Depreciation, amortization and impairment of intangible assets and of property, plant and equipment 1,601 1,510
Changes in provisions 195 –117
Changes in deferred taxes –80 –56
Other non-cash income and expenses 73 189
Gain/Loss on disposal of intangible assets and property, plant and equipment,
equity investments and securities (>3 months)
–334 –1,082
Changes in operating assets and liabilities and in income taxes 152 –98
Cash provided by operating activities of continuing operations (operating cash flow) 4,830 4,759
Proceeds from disposal of 243 609
Intangible assets and property, plant and equipment 79 145
Equity investments 164 464
Purchase of investments in
Intangible assets and property, plant and equipment
–12,362
–3,343
–2,684
–2,552
Equity investments –9,019 –132
Changes in securities and fixed-term deposits 1,223 2,142
Changes in restricted cash –97 164
Cash used for investing activities of continuing operations –10,993 231
Payments received/made from changes in capital 24 13
Payments for treasury shares, net –1,369 –36
Premiums received for put options on treasury shares 22 0
Cash dividends paid to shareholders of E.ON AG –2,560 –2,210
Cash dividends paid to minority shareholders –365 –223
Changes of financial liabilities 9,905 921
Cash provided by (used for) financing activities of continuing operations 5,657 –1,535
Net increase (decrease) in cash and cash equivalents from continuing operations –506 3,455
Cash provided by operating activities of discontinued operations 5 8
Cash used for investing activities of discontinued operations –5 –8
Cash provided by financing activities of discontinued operations 0 0
Net increase (decrease) in cash and cash equivalents from discontinued operations 0 0
Effect of foreign exchange rates on cash and cash equivalents –5 2
Cash and cash equivalents at the beginning of the year 2,887 1,154
Cash and cash equivalents at the end of the quarter 2,376 4,611

34 Notes to the Condensed Consolidated Interim Financial Statements

Statement of Changes in Equity
Accumulated other comprehensive income
Currency
Additional Retained translation Available-for Cash flow
€ in millions Capital stock paid-in capital earnings adjustments sale securities hedges
Balance as of January 1, 2007 1,799 11,760 24,350 632 10,491 –90
Changes in scope of consolidation
Treasury shares repurchased/sold
Capital increase
Capital decrease
Dividends paid –2,210
Other changes
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
4,609
3,968
–64 –1,897 80
obligations 641
Other comprehensive income –64 –1,897 80
Balance as of June 30, 2007 1,799 11,760 26,749 568 8,594 –10
Balance as of January 1, 2008 1,734 11,825 26,828 –318 11,081 –107
Changes in scope of consolidation
Treasury shares repurchased/sold
Capital increase
Capital decrease
Dividends paid –2,560
Other changes
Share additions –80
Net additions/disposals from
the reclassification related to
put options
Total comprehensive income
Net income
3,338
2,961
–71 –1,098 –186
Changes in actuarial gains/
losses of defined benefit
pension plans and similar
obligations 377
Other comprehensive income –71 –1,098 –186
Balance as of June 30, 2008 1,734 11,825 27,526 –389 9,983 –293
Treasury shares Put options on
treasury shares
Equity
attributable
to shareholders
of E.ON AG
Minority
interests (before
reclassification)
Reclassification
related to
put options
Minority interests Total
–230 0 48,712 4,994 –2,461 2,533 51,245
–36 –36 –36
85 85 85
–63 –63 –63
–2,210 –228 –228 –2,438
–15 –15 –15
7 7 7
2,728 343 343 3,071
3,968 352 352 4,320
641
–1,881
46
–55
46
–55
687
–1,936
–266 0 49,194 5,116 –2,454 2,662 51,856
–616 –1,053 49,374 6,281 –525 5,756 55,130
245 245 245
–1,369 –1,369 –1,369
63 63 63
–5 –5 –5
–2,560 –401 –401 –2,961
–80 –80
–367 –367 –57 –57 –424
1,983 163 163 2,146
2,961 142 142 3,103
377 40 40 417
–1,355 –19 –19 –1,374
–1,985 –1,420 46,981 6,346 –582 5,764 52,745

36 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. E.ON's segment reporting in accordance with International Financial Reporting Standard ("IFRS") 8, "Operating Segments" ("IFRS 8"), follows the Group's internal organization and reporting structure:

  • The Central Europe market unit, led by E.ON Energie AG ("E.ON Energie"), Munich, Germany, operates E.ON's integrated electricity business and the downstream gas business in Central Europe.
  • Pan-European Gas is responsible for the upstream and midstream gas business. Moreover, this market unit holds predominantly minority shareholdings in the downstream gas business. This market unit is led by E.ON Ruhrgas AG ("E.ON Ruhrgas"), Essen, Germany.
  • The U.K. market unit encompasses the integrated 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 E.ON Nordic AB ("E.ON Nordic"), Malmö, Sweden, focuses on the integrated energy business in Northern Europe. It operates through the integrated energy company E.ON Sverige AB ("E.ON Sverige"), Malmö, Sweden.
  • The U.S. Midwest market unit, led by E.ON U.S. LLC ("E.ON U.S."), Louisville, Kentucky, USA, is primarily active in the regulated energy market in the U.S. state of Kentucky.
  • The Energy Trading market unit, which is led by E.ON Energy Trading AG ("E.ON Energy Trading"), Düsseldorf, Germany, began operations on January 1, 2008. By centralizing trading activities formerly managed by the Central Europe, Pan-European Gas, Nordic, and U.K. market units, Energy Trading combines E.ON's European trading activities for electricity, gas, coal, oil, and CO2 allowances.
  • Corporate Center/New Markets contains those interests held directly by E.ON AG ("E.ON" or the "Company"), E.ON AG itself, consolidation effects at the Group level, and the activities of the new Climate & Renewables,

Italy, and Russia market units. These market units began operations on January 1, 2008. In addition, this segment includes for the first time as of June 30, 2008 the consolidated operations, acquired in the wake of the agreement between Enel S.p.A. ("Enel"), Rome, Italy and Acciona, S.A. ("Acciona"), Madrid, Spain on the one hand and Endesa, S.A. ("Endesa"), Madrid, Spain on the other hand.

Note 14 provides additional information about the market units.

(2) Summary of Significant Accounting Policies

The Interim Report for the six months ended June 30, 2008, 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"). In addition, E.ON has opted for the voluntary early adoption of IFRS 8. IFRIC 12, "Service Concession Arrangements" ("IFRIC 12"), was supposed to be applied beginning on January 1, 2008. E.ON has not adopted IFRIC 12 because this interpretation has not yet been transferred into European law. If IFRIC 12 is endorsed by the EU in the future, its initial application will not have a material impact on E.ON's Consolidated Financial Statements.

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 2007 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 to 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, 2007, which provide the basis for this Interim Report.

Unlike the previous year, contributions to the operating income from certain derivative instruments will be reported on a netted basis. The comparative figures will be adjusted accordingly.

37

(3) Newly Adopted Standards and Interpretations

IFRIC 11, "IFRS 2—Group and Treasury Share Transactions"

IFRIC 11, "IFRS 2—Group and Treasury Share Transactions" ("IFRIC 11"), addresses how to apply IFRS 2 to share-based payment arrangements in which an entity's own equity instruments or equity instruments of another company in the same group are granted. IFRIC 11 requires share-based compensation systems in which a company receives goods or services as consideration for its own equity instruments to be accounted for as equity-settled share-based payment transactions. IFRIC 11 further provides guidance on how share-based compensation systems in which a parent company's equity instruments are granted should be accounted for at a member of a group of companies. IFRIC 11 is to be applied for fiscal years beginning on or after March 1, 2007. The adoption of IFRIC 11 had no effect 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, 2007
153 438 591
Additions 8 52 60
Disposals/Mergers –4 –8 –12
Consolidated companies
as of June 30, 2008
157 482 639

The scope of consolidation has changed mainly due to the acquisition of the Endesa Europa/Viesgo activities.

In addition, 190 companies were accounted for under the equity method as of June 30, 2008 (December 31, 2007: 185).

(5) Acquisitions, Disposals and Discontinued Operations

Acquisitions in 2008

Endesa Europa/Viesgo

In the context of the bidding contest between Enel/Acciona and E.ON for the Spanish Endesa group in April 2007, E.ON, in return for withdrawing its cash takeover offer seeking to acquire a majority interest in Endesa, secured for itself a substantial number of strategic holdings, mostly in Italy, Spain and France, for a purchase price of €8.6 billion in cash. Upon completion of the takeover of Endesa by Enel/Acciona on June 26, 2008, all of the shares of the following companies were acquired from Enel:

  • Electra de Viesgo Distribución S.L., Santander, Spain
  • Enel Viesgo Generación S.L., Santander, Spain
  • Enel Viesgo Servicios S.L., Santander, Spain

and all of the shares of Endesa Europa S.L. ("Endesa Europa"), Madrid, Spain, were acquired simultaneously from Endesa.

Viesgo's operations encompass a total of 1,500 MW in conventional power generation capacities at a number of different sites in Spain; additional projects with a capacity of 2,000 MW are currently under construction. Viesgo supplies electric power to about 650,000 customers in the Spanish provinces of Cantabria and Asturias. In the context of the transaction between E.ON and Enel/Acciona, Endesa also sold to Viesgo two further power plants in Spain with an approx imate combined capacity of 1,000 MW, which means that Viesgo will have a total power generation capacity of about 4,500 MW in the Spanish market.

Endesa Europa operates power generation capacities of about 7,000 MW and 2,500 MW, respectively, through subsidiaries in Italy and France. Additional power generation assets are held in Poland and in Turkey. The interest in Endesa Italia S.p.A. ("Endesa Italia"), Rome, Italy, acquired via Endesa Europa is 80 percent, and the interest in Société Nationale d'Electricité et de Thermique, S.A. ("SNET France"), Paris, France, is 65 percent.

An agreement had already been reached in June 2008 with the 20 percent minority shareholder of Endesa Italia, A2A S.p.A. ("A2A"), Milan, Italy, to acquire that minority interest primarily in return for internally-owned power generation capacities in Italy valued at approximately €1.5 billion. The understanding on the approximately 1,500 MW in power generation capacities to be transferred was reached in July 2008; the legal transfer of the minority interest and of the power generation capacities is to take place in the fourth quarter of 2008. However, the full 100 percent of Endesa Italia must still be included in the consolidated financial statements effective June 30, 2008.

38 Notes to the Condensed Consolidated Interim Financial Statements

Major Balance Sheet Line Items —Endesa Europa/Viesgo Activities
€ in millions Carrying amounts
before initial
recognition
Purchase price
allocation
Carrying amounts
at initial
recognition
Intangible assets 477 477
Property, plant and equipment 6,754 6,754
Other assets 2,655 2,655
Total assets 9,886 0 9,886
Non-current liabilities 2,440 2,440
Current liabilities 4,587 4,587
Total liabilities 7,027 0 7,027
Net assets
Attributable to shareholders of E.ON AG
Attributable to minority interests
2,859
2,472
387
0 2,859
2,472
387
Acquisition cost paid in cash 8,607
Non-monetary consideration for minority interest 1,483
Goodwill (preliminary) 7,618 7,618

Initial recognition of the operations took place in the second quarter of 2008. In the first half of 2008, the Viesgo entities recorded revenues of €539 million and a loss of €5 million. During this period, Endesa Europa recorded revenues of €2,171 million and earnings of €197 million. A cash amount of €123.7 million was acquired. In the E.ON consolidated financial statements for the first half of 2008, due to the proximity of the acquisition date to the reporting date, no revenue or earnings contributions have been recognized, as these would be of little significance for the E.ON consolidated financial statements. Accordingly, only the assets and liabilities measured pursuant to the accounting policies that had been applied previously by the acquired companies have been recognized on the balance sheet. An adjustment to the E.ON Group's accounting policies could not be performed due to the proximity to the balance sheet date. Similarly, no purchase price allocation was carried out. The entire differential amount has therefore been reported as goodwill in these financial statements.

Discontinued Operations in 2008

WKE

Through Western Kentucky Energy Corp. ("WKE"), Henderson, Kentucky, USA, E.ON U.S. has a 25-year lease on and operates the generating facilities of Big Rivers Electric Corporation ("BREC"), a power generation cooperative in western Kentucky, and a coal-fired generating facility owned by the city of Henderson.

In March 2007, E.ON U.S. entered into a termination agreement with BREC to terminate the lease and the operational agreements for nine coal-fired power plants and one oil-fired electricity generating facility in western Kentucky, which were held through its wholly owned company WKE and its subsidiaries.

The closing of the agreement is subject to a number of conditions, including review and approval by various regulatory agencies and acquisition of certain consents by other interested parties. Subject to such contingencies, the parties are working on completing the termination transaction during 2008. WKE therefore continues to be classified as a discontinued operation, as in 2007.

The tables below provide selected financial information and major balance sheet line items from the discontinued WKE operations in the U.S. Midwest segment for the periods indicated:

Selected Financial Information—WKE
(Summary)
January 1 – June 30
€ in millions 2008 2007
Sales 95 99
Other income/(expenses), net –290 –239
Income from continuing operations
before income taxes and minority
interests –195 –140
Income taxes 75 54
Income from discontinued operations –120 –86
39
Major Balance Sheet Line Items—WKE
(Summary)
June 30, Dec. 31,
€ in millions 2008 2007
Intangible assets and property,
plant and equipment 197 202
Other assets 370 362
Total assets 567 564
Total liabilities 717 613

Disposals in 2008

Statkraft/E.ON Sverige

Based on the letter of intent signed in October 2007 concerning the virtually full acquisition from Statkraft AB ("Statkraft"), Oslo, Norway, of its 44.6 percent minority interest in E.ON Sverige in exchange for a variety of power plant units and shares of E.ON, the conditions for reporting as a disposal group the assets to be sold, and in particular the associated personnel related liabilities, were fulfilled in the second quarter of 2008. Disposal is planned for the end of December 2008. Recognition of expenses from write-downs to lower fair values was not necessary.

The net carrying amounts of the disposal groups are allocated to the Nordic (€997.4 million), U.K. (€3.8 million) and Central Europe (€1.9 million) market units.

Acquisitions in 2007

OGK-4

On October 12, 2007, E.ON acquired from the Russian government's energy holding company RAO UES a majority stake in the Russian power-plant company OAO OGK-4 ("OGK-4"), Surgut, Tyumenskaya Oblast, Russian Federation. After the acquisition of additional smaller tranches following the purchase of the majority stake, E.ON holds 72.7 percent of OGK-4 as of the balance sheet date. The total expense incurred for this acquisition, which includes a contractually agreed capital increase of €1.3 billion to finance the investment program planned for the coming years, was approximately €4.4 billion.

Under Russian capital-markets legislation, E.ON was required to make a public offer to purchase the remainder of the shares held by the minority shareholders of OGK-4, and this offer, at a price of 3.3503 rubles per share, was made public on November 15, 2007. The acceptance period ended on February 4, 2008. E.ON was thus able to acquire additional shares equivalent to approximately 3.4 percent of OGK-4 and increase its total ownership stake to 76.1 percent.

The initial recognition of the company in the E.ON Consolidated Financial Statements took place in the fourth quarter of 2007.

The purchase price allocation for OGK-4 is still preliminary as of June 30, 2008, primarily because effects from potential obligations remain to be evaluated. The main changes from year-end 2007 were minor changes to property, plant and equipment.

Major Balance Sheet Line Items—OGK-4
IFRS carrying Carrying amounts
amounts before Purchase price at initial
€ in millions initial recognition allocation recognition
Intangible assets 11 0 11
Property, plant and equipment 738 2,171 2,909
Other assets 1,497 5 1,502
Total assets 2,246 2,176 4,422
Non-current liabilities 210 519 729
Current liabilities 124 0 124
Total liabilities 334 519 853
Net assets 1,912 1,657 3,569
Attributable to shareholders of E.ON AG 1,390 –1,390 0
Attributable to minority interests 522 451 973
Total acquisition costs 4,350
Goodwill (preliminary) 1,754 1,754

40 Notes to the Condensed Consolidated Interim Financial Statements

ENERGI E2 Renovables Ibéricas

On August 13, 2007, E.ON Climate & Renewables GmbH acquired a 100-percent stake in ENERGI E2 Renovables Ibéricas S.L.U. ("E2-I"), Madrid, Spain. The purchase price totaled roughly €481 million. E2-I and its affiliated companies were fully consolidated as of August 31, 2007. The purchase price allocation will remain preliminary until certain technical issues are definitively clarified. There were no significant changes in the reporting period. Starting in the first quarter of 2008, the company operates as E.ON Renovables Iberia S.L.U.

Airtricity

On December 18, 2007, E.ON North America Holdings LLC acquired all the shares of Airtricity Inc., Chicago, Illinois, USA, and all the shares of Airtricity Holdings (Canada) Ltd., Toronto,

Ontario, Canada, for a purchase price of approximately €580 million. Because the date of consolidation was so close to the preparation of E.ON's Consolidated Financial Statements, the entire difference between the purchase price and Airtricity's equity was recorded as goodwill as of December 31, 2007. In the first quarter of 2008, fair value adjustments relating to intangible assets (€329 million) and to property, plant and equipment (€60 million) as well as deferred tax liabilities (€137 million) were recorded. These changes reduced goodwill by €252 million. The purchase price allocation will be preliminary until certain issues concerning non-current assets are finally clarified. Starting in the first quarter of 2008, these companies operate as E.ON Climate & Renewables North America Inc. and EC&R Canada Ltd., respectively.

Major Balance Sheet Line Items—E.ON Climate & Renewables (E2-I and Airtricity)
IFRS carrying Carrying amounts
amounts before Purchase price at initial
€ in millions initial recognition allocation recognition
Intangible assets and acquired goodwill 74 560 634
Property, plant and equipment 934 91 1,025
Other assets 202 218 420
Total assets 1,210 869 2,079
Non-current liabilities 335 280 615
Current liabilities 828 5 833
Total liabilities 1,163 285 1,448
Net assets 47 584 631
Attributable to shareholders of E.ON AG 43 –43 0
Attributable to minority interests 4 22 26
Total acquisition costs 1,061
Goodwill (preliminary) 456 456

(6) Research and Development Costs

The E.ON Group's research and development costs amounted to €19 million in the first six months of 2008 (first six months of 2007: €12 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 2008 2007 2008 2007
Income from companies in which equity investments are held 142 169 162 188
Write-down of share investments –36 –3 –54 –17
Income from equity investments 106 166 108 171
Income from other securities, interest and similar income 322 286 541 468
Interest and similar expenses –730 –472 –1,373 –935
Interest and similar expenses (net) –408 –186 –832 –467
Financial results –302 –20 –724 –296

(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 2008 2007 2008 2007
Income/Loss (–) from continuing operations 811 1,048 3,223 4,413
less: Minority interests 126 –127 –142 –352
Income/Loss (–) from continuing operations (attributable to shareholders of E.ON AG) 937 921 3,081 4,061
Income/Loss (–) from discontinued operations, net –55 –20 –120 –93
less: Minority interests 0 0 0 0
Income/Loss (–) from discontinued operations, net (attributable to
shareholders of E.ON AG)
–55 –20 –120 –93
Net income attributable to shareholders of E.ON AG 882 901 2,961 3,968
in 
Earnings per share (attributable to shareholders of E.ON AG)
from continuing operations 1.52 1.40 4.92 6.16
from discontinued operations –0.09 –0.03 –0.19 –0.14
from net income 1.43 1.37 4.73 6.02
Weighted-average number of shares outstanding (in millions) 624 659 627 659

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

42 Notes to the Condensed Consolidated Interim Financial Statements

(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 2008 2007
Companies accounted for under the
equity method 8,547 8,411
Equity investments 14,170 14,583
Equity investment in OAO Gazprom 12,561 13,061
Non-current securities 5,165 6,895
Total 27,882 29,889

(10) Treasury Shares

As of June 30, 2008, E.ON AG held 17,699,725 treasury shares (December 31, 2007: 6,905,024). The increase results from the share buyback program started on June 27, 2007. A further 28,472,194 shares of E.ON AG continue to be held by one of its subsidiaries. E.ON thus held 6.9 percent of its capital stock as treasury shares as of the balance sheet date.

The Company plans to buy back a total of approximately €7 billion of its stock under the share buyback program, half of it was already bought in 2007. The goals of the share buyback are to optimize E.ON's capital structure and to make E.ON stock more attractive.

In addition, E.ON entered into put option arrangements in the first half of 2008 for further 3,500,000 of its own shares under its share buyback program. Pursuant to IAS 32, the conditional purchase price obligations arising from the put options are recorded under liabilities after reclassification from a separate component of equity.

(11) Dividends Paid

At the Annual Shareholders Meeting on April 30, 2008, the shareholders voted to distribute a dividend of €4.10 for each dividend-paying ordinary share, a €0.75 increase from the dividend paid in 2007. The total dividend payout was €2,560 million.

(12) Provisions for Pensions and Similar Obligations

Pension provisions decreased compared to year-end 2007 primarily due to actuarial gains resulting mainly from higher discount rates.

Discount Rate
June 30, Dec. 31,
Percentages 2008 2007
Germany 6.25 5.50
U.K. 6.60 5.80
USA 7.10 6.65

The funded status, which is equal to the difference between 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 2008 2007
Defined benefit obligation 14,976 15,936
Fair value of plan assets –12,602 –13,056
Funded status 2,374 2,880
Unrecognized past service cost –3 –3
Net amount recognized
Thereof presented as operating
2,371 2,877
receivables
Thereof presented as provisions for
–31 –13
pensions and similar obligations 2,402 2,890

Taking into account the periodic additions and pension payments and the virtually offsetting exchange rate effects in the present value of all defined benefit obligations and in the plan assets, the funded status has decreased by comparison with year-end 2007 primarily due to net actuarial gains. This was partially offset by the integration of the Endesa Europa/Viesgo activities, which had an increasing effect on 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 2008 2007 2008 2007
Employer service cost 56 63 106 124
Interest cost 212 202 430 408
Expected return on plan assets –176 –183 –357 –369
Past service cost 5 1 7 3
Total 97 83 186 166

(13) Other Commitments

On August 7, 2008, the European Commission, in its anti-trust proceedings against E.ON Ruhrgas and Gaz de France concerning suspected market-sharing, transmitted its statement of objections. It is not possible at this time to estimate any possible fine by the Commission. In the event of the Commission ordering a fine, legal action can be taken.

In the first six months of 2008, commitments for various investments increased by approximately €2 billion over year-end 2007.

(14) Segment Information

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

  • The Central Europe market unit operates E.ON's integrated electricity business and downstream gas business in Central Europe.
  • Pan-European Gas is responsible for the European upstream and midstream gas business. Moreover, this market unit holds predominantly minority shareholdings in the downstream gas business.
  • The U.K. market unit encompasses the integrated energy business in the United Kingdom.
  • The Nordic market unit focuses on the integrated energy business in Northern Europe.
  • The U.S. Midwest market unit is primarily active in the regulated energy market in the U.S. state of Kentucky.

  • The Energy Trading market unit began operations on January 1, 2008. By centralizing trading activities formerly managed by the Central Europe, Pan-European Gas, Nordic, and U.K. market units, Energy Trading combines E.ON's European trading activities for electricity, gas, coal, oil, and CO2 allowances.

  • Corporate Center/New Markets contains those interests held directly by E.ON AG, E.ON AG itself, consolidation effects at the Group level, and the activities of the new Climate & Renewables, Italy, and Russia market units. These market units began operations on January 1, 2008. In addition, this segment includes for the first time as of June 30, 2008 the consolidated operations, acquired in the wake of the agreement with Enel/Acciona and Endesa.

E.ON's organizational structure has changed significantly in 2008, particularly through the centralization of European trading operations. Due to this fundamental change, the market units' prior-year figures were not adjusted. Consequently, a segmented comparison of current-year and prior-year figures has limited information value.

44 Notes to the Condensed Consolidated Interim Financial Statements

Under IFRS, E.ON is required to report under discontinued operations those operations of a reportable or operating segment, or of a component thereof, which either have been disposed of or are classified as held for sale. In the first six months of 2008 as well as in 2007, this applies to WKE, which is held for sale. Our results for the period ended June 30, 2008, and for the prior-year period do not include the results of our discontinued operations (see page 38).

Adjusted EBIT is used as the key figure 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, and other non-operating 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-operating 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 made, our financial information by business segment may differ from the corresponding IFRS figures.

Financial Information by Business Segment

January 1 – June 30 Central Europe
Pan-European Gas
U.K.
€ in millions 2008 2007 2008 2007 2008 2007
External sales 15,864 16,254 10,873 10,041 4,733 6,628
Intersegment sales 4,216 349 2,806 1,683 1,045 89
Sales 20,080 16,603 13,679 11,724 5,778 6,717
Adjusted EBITDA 3,402 3,280 1,941 1,901 807 1,004
Depreciation and amortization –682 –721 –259 –250 –244 –263
Impairments1 –7 –15 –3 –20
Adjusted EBIT
Earnings from companies accounted for under the
2,713 2,544 1,679 1,631 563 741
equity method1 148 133 286 307 –6 11
Cash provided by operating activities 2,495 1,787 1,369 2,119 1,049 655
Investments
Intangible assets and property, plant and equipment
Equity investments2
1,033
931
102
1,047
943
104
547
410
137
1,174
288
886
474
440
34
624
624
Total assets (June 30 and December 31)
Intangible assets (June 30 and December 31)
Property, plant
60,150
1,923
63,442
1,889
37,702
943
39,090
1,137
16,074
398
18,170
675
and equipment (June 30 and December 31)
Companies accounted for under
the equity method (June 30 and December 31)
18,339
2,018
18,375
2,134
6,661
5,712
6,746
5,602
6,793
7,506
2

1 Impairments 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, which under IFRS are included in income/loss (–) from companies accounted for under the equity method and financial results, respectively. In the first six months of 2008, differences result primarily from impairment charges recognized on non-current financial assets. 2 In addition to those accounted for using the equity method, acquisitions of equity investments also include acquisitions of fully consolidated companies and investments in

equity holdings that do not need to be consolidated.

The following table provides a reconciliation of adjusted EBIT to net income:

Net Income
January 1 – June 30
€ in millions 2008 2007
Adjusted EBIT 5,760 5,426
Adjusted interest income (net) –811 –460
Net book gains 266 963
Restructuring expenses –167 0
Other non-operating earnings –922 –174
Income/Loss (–) from continuing
operations before taxes
4,126 5,755
Income taxes –903 –1,342
Income/Loss (–) from continuing
operations
3,223 4,413
Income/Loss (–) from discontinued
operations, net
–120 –93
Net income
Attributable to shareholders of E.ON AG
Attributable to minority interests
3,103
2,961
142
4,320
3,968
352

Page 11 in the Interim Group Management Report contains an explanation of the reconciliation of adjusted EBIT to net income.

(15) Subsequent Events

On July 24, 2008, E.ON and Statkraft signed the agreement on the transfer of Statkraft's almost 44.6 percent minority interest in E.ON Sverige and a Swedish hydro power plant, valued €4.5 billion in total, in exchange for power generating capacity in Sweden, Germany and Britain with a value of approximately €2.3 billion and shares of E.ON with a value of approximately €2.2 billion. The transfers of the minority interest and of the consideration are to take place by the end of 2008.

Corporate Center/
Nordic U.S. Midwest Energy Trading New Markets E.ON Group
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
1,367 1,723 873 912 5,983 1,525 1 41,218 35,559
721 51 8,672 –17,460 –2,172
2,088 1,774 873 912 14,655 –15,935 –2,171 41,218 35,559
690 646 221 254 100 202 –129 7,363 6,956
–173 –170 –71 –78 –1 –166 –7 –1,596 –1,489
–1 3 –5 –7 –41
517 475 150 176 99 39 –141 5,760 5,426
6 5 10 13 8 6 452 475
622 550 194 121 –781 –118 –473 4,830 4,759
459 398 312 307 2 9,535 –866 12,362 2,684
446 393 312 307 2 802 –3 3,343 2,552
13 5 8,733 –863 9,019 132
14,081 11,759 7,783 8,130 24,551 5,237 –3,297 165,578 137,294
206 213 11 13 415 1,030 357 4,926 4,284
6,562 7,429 4,092 4,153 1 12,919 4,343 55,367 48,552
332 357 31 32 454 284 8,547 8,411

46 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 12, 2008

The Board of Management

Bernotat Dänzer-Vanotti

Feldmann

Financial Calendar

September 1, 2008 Capital Market Day
November 12, 2008 Interim Report: January – September 2008
March 10, 2009 Release of 2008 Annual Report
May 6, 2009 2009 Annual Shareholders Meeting
May 7, 2009 Dividend Payout
May 13, 2009 Interim Report: January – March 2009
August 12, 2009 Interim Report: January – June 2009
November 11, 2009 Interim Report: January – September 2009

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 +49 211-4579-542 [email protected] Creditor Relations T +49 211-4579-563 [email protected] Additional Information

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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