Interim Report I/ 2004

E.ON Group Financial Highlights

E.ON Group Key Figures at a Glance

Non-GAAP financial measures: This report contains certain non-GAAP financial measures. Management believes that the non-GAAP financial measures used by E.ON, when considered in conjunction with (but not in lieu of) other measures that are computed in U.S. GAAP, enhance an understanding of E.ON’s results of operations. A number of these non-GAAP financial measures are also commonly used by securities analysts, credit rating agencies, and investors to evaluate and compare the periodic and future operating performance and value of E.ON and other companies with which E.ON competes. Additional information with respect to each of the non-GAAP financial measures used in this report is included together with the reconciliations described below.

E.ON prepares its financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). As noted above, this report contains certain financial measures (internal operating profit, adjusted EBIT, adjusted EBITDA, net financial position, net interest expense, and free cash flow) that are not calculated in accordance with U.S. GAAP and are therefore considered “non-GAAP financial measures” within the meaning of the U.S. federal securities laws. In accordance with applicable rules and regulations, E.ON has presented in this report a reconciliation of each non-GAAP financial measure to the most directly comparable U.S. GAAP measure for historical measures and an equivalent U.S. GAAP target for forward-looking measures. The footnotes presented with the relevant historical non-GAAP financial measures indicate the page of this report on which the relevant reconciliation appears. The non-GAAP financial measures used in this report should not be considered in isolation as a measure of E.ON’s profitability or liquidity, and should be considered in addition to, rather than as a substitute for, net income, cash provided by operating activities, and the other income or cash flow data prepared in accordance with U.S. GAAP presented in this report and the relevant reconciliations. The non-GAAP financial measures used by E.ON may differ from, and not be comparable to, similarly titled measures used by other companies.

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Contents

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Interim Report I/2004

Results of Operations

Consolidated Sales

Adjusted EBIT

Effective January 1, 2004, we realigned our organization based on the five target markets we had defined in on.top, our enterprise-wide strategy and structure project: Central Europe, Pan-European Gas, U.K., Nordic, and U.S. Midwest. To facilitate comparison, we have provided pro forma figures for the prior year according to the new corporate structure.

In addition, effective the same date earnings before interest and taxes and adjusted for nonrecurring effects (“adjusted EBIT”) has replaced internal operating profit as our key performance measure (see commentary on pages 30-31).

We sold 112 billion kilowatt-hours (kWh) of electricity in the first quarter of 2004, 5 percent more than in the same period last year. The increase is principally attributable to the inclusion of JME and JCE, regional distribution companies operating in the Czech Republic, and Graninge, a Swedish energy utility. Relatively mild temperatures resulted in our gas sales volume declining by 7 percent to approximately 300 billion kWh.

Consolidated sales advanced 7 percent, primarily due to the inclusion of Ruhrgas and Graninge for the entire period under review. Ruhrgas became a consolidated E.ON company on February 1, Graninge on November 1, 2003.

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Consolidated Net Income

In the first three months of 2004, we grew adjusted EBIT by 21 percent to €2.3 billion. All market units contributed to the increase. The increase recorded in the Corporate Center segment is primarily attributable to foreign-currency gains in connection with bond repurchases.

Net book gains in the first quarter of 2004 were on par with last year and resulted in particular from the sale of equity interests in EWE and VNG (€317 million). We also recorded book gains of €75 million on the sale of securities. The prior-year figure consists primarily of a book gain of €294 million on the sale of an approximately 5.8 percent interest in Bouygues Telecom, a book gain of €168 million on the sale of a roughly 18 percent shareholding in Degussa, and a book loss of €76 million on the sale of a 1.9 percent stake in HypoVereinsbank.

Restructuring expenses declined year-on-year to €11 million and were recorded predominantly at the Central Europe market unit in the period under review. In the same period a year ago, restructuring expenses were recorded mainly at Powergen in connection with the integration of TXU activities.

Other nonoperating earnings chiefly reflect a loss from the required marking to market of energy derivatives. The year-earlier figure reflected positive effects from the marking to market of derivatives.

Income from continuing operations before income taxes and minority interests rose by €254 million.

In the first three months of 2004, our continuing operations included a tax expense of €526 million. The increase results mainly from a nonrecurring extraordinary item in the prior year.

Minority interests increased slightly to €175 million.

Income from continuing operations rose to €1,451 million.

In the prior-year period, the cumulative effect of changes in accounting principles was primarily attributable to the adoption of the Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations.

Consolidated net income climbed by 48 percent to €1,455 million. Earnings per share advanced by 47 percent to €2.22.

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Core Energy Business

Central Europe

The prices end-customers in Germany paid for electricity averaged 3 percent higher year-on-year in the residential segment and 15 percent higher for new contracts in the industrial segment in the wake of the marked increase in wholesale prices in 2003.

Forward prices for year-ahead power have stabilized in 2004. In the period under review, the average price was roughly €32.3 per megawatt-hour (MWh) for year-ahead baseload power and roughly €48.6 per MWh for year-ahead peakload power, approximately 30 percent higher than the comparable figures of a year ago. This increase is mainly attributable to consistently higher coal prices, which averaged €63 per metric ton of coal equivalent (TCE) in the first quarter of 2004, compared with €36 per TCE in the prior-year quarter.

The Central Europe market unit sold €3.4 billion kWh more electricity than in the first quarter of last year, mainly due to the first-time consolidation of JME and JCE. The two Czech regional distributors, which have been consolidated E.ON companies since October 1, 2003, sold an aggregate 3.5 billion kWh of power in the first three months of 2004.

The Central Europe market unit met around 35 billion kWh, or just under 51 percent, of its power requirements with electricity from its own generation assets, compared with 53 percent in the prior year. From jointly owned power stations and outside sources Central Europe procured 3.2 billion kWh more electricity than the prior-year figure of 30.8 billion kWh. Central Europe thus met 49 percent of its power requirements with electricity procured from outside sources, an increase that results primarily from the inclusion of JME and JCE, which were not consolidated in the first quarter of 2003. Central Europe has a balanced energy resource portfolio in its generation operations.

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Power Generation and Procurement(1)

Gas sales volumes at the Central Europe market unit’s regional distribution companies were down approximately 12 percent. In the prior-year period, the winter months were colder than average, leading to increased gas consumption.

The Central Europe market unit grew sales, mainly due to the inclusion of JME and JCE and to higher electricity prices.

Gas Sales by Customer Segment(1)

Adjusted EBIT rose 9 percent year-on-year to €1,179 million. Central Europe’s business units showed the following development:

The Central Europe West Power business unit grew adjusted EBIT by €74 million to €924 million. The increase results in particular from renewed improvements in gross margins. One positive contributing factor was the passthrough of higher wholesale electricity prices to ultimate customers. A further driver was a reduction in costs for nuclear waste management.

At €203 million, the Central Europe West Gas business unit’s adjusted EBIT was a modest €5 million below the prior-year figure. The main driver was a weather-driven decline in sales volume. This effect was largely counteracted by favorable procurement costs.

The Central Europe East business unit grew adjusted EBIT by €21 million, principally due to the inclusion of JME and JCE.

Financial Highlights by Business Unit(1)

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Interim Report I/2004

Core Energy Business

Pan-European Gas

Energy consumption in Germany was influenced by mild temperatures in the first quarter of 2004.

The comparably mild weather in early 2004 also had a negative effect on gas sales volume at the Pan-European Gas market unit. In the first quarter of 2004, Pan-European Gas recorded gas sales of 211.2 billion kWh, 7 percent below the prior-year figure of 226.5 billion kWh.

Ruhrgas generated sales of €4.6 billion in the first three months of 2004. Sales growth compared with the prior-year period results primarily from the inclusion of figures for January, which were not included in the previous year, since Ruhrgas became a consolidated E.ON company on February 1, 2003. Another factor leading to higher sales was the first-time inclusion of Thüga’s operations in Italy at the Downstream Shareholdings business unit.

Adjusted EBIT was €416 million in the period under review. This 25 percent increase is also due to the fact that January was not included in the prior-year quarter.

The Up-/Midstream business unit made the largest contribution to sales and earnings. Despite the inclusion of January in 2004, its adjusted EBIT did not surpass last year’s performance, primarily because of the temperature-driven decline in sales volume and revenues.

The Downstream Shareholdings business unit performed positively compared with the first quarter of 2003. Together with the inclusion of January sales and earnings streams for the Ruhrgas Energie Beteiligungs Group, this performance principally reflects the inclusion of Thüga’s Italian operations for the entire period and higher proportional SPP earnings.

Pan-European Gas

Gas Sales by Month(1)

The results of Ruhrgas Industries, which are recorded under the Other/Consolidation business unit, were adversely affected by one-off charges from the purchase price allocation in the first quarter of 2003. The absence of this nonrecurring effect resulted in an improved adjusted EBIT performance. The increase in adjusted EBIT is also due to the fact that January earnings streams were not included in the prior-year quarter.

Financial Highlights by Business Unit(1)

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U.K.

U.K. peakload forward electricity prices at the end of March 2004 were £27.06 per MWh, compared with £22.14 per MWh in late March 2003. The main drivers for this were higher fuel costs, forecast reductions in excess plant capacity, the cost of carbon dioxide (CO₂) emissions, and expected future environmental costs. Gas forward prices were also higher, rising 24 percent to 30 pence per therm (1 therm equals 29.32 kWh), driven by higher oil prices and supply-demand issues in the United Kingdom and Continental Europe.

In response to increases in the wholesale energy market, Powergen UK has increased its mass market retail prices for electricity by 6.9 percent and for gas by 4.9 percent with effect from January 5, 2004. By the end of February 2004, all of the other top suppliers had announced increases in retail prices of 5-6 percent.

Sales by Customer Segment(1)

Power Generation and Procurement

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Interim Report I/2004

Core Energy Business

The U.K. market unit sold 18.8 billion kWh of electricity in the first quarter of 2004, a reduction of 7 percent on the same period in 2003. Gas sales decreased by 4 percent over the first quarter of 2003 to 39.4 billion kWh. In both cases, the majority of the fall in sales volumes was in the industrial and commercial market, where Powergen’s approach is based on margin rather than volume.

The share of own generation of electricity procured was 9.6 billion kWh. The decrease in own generation of 2 billion kWh compared with the prior year is mainly related to the closure of the former TXU plants Drakelow and High Marnham.

Generation capacity at March 31, 2004, was 8,548 MW, 501 MW higher than in 2003. The principal reason for this increase was that Killingholme power station (which had previously been mothballed) operated during winter 2003/04 under a standing contract with National Grid, giving 600 MW of additional capacity. On April 1, 2004, Killingholme power station was mothballed again. In addition, Powergen acquired the remaining 50 percent stake of Cottam Development Centre (a previously 50 percent owned power station) during January 2004. Other movements include the closure of a 333 MW unit at Drakelow power station during 2003.

The sales increase of the U.K. market unit was due to the first-time consolidation of Midlands Electricity, which offset lower industrial and commercial sales volumes in the non-regulated business. Adjusted EBIT of €270 million in the first quarter of 2004 showed a significant increase compared with the prior year.

The adjusted EBIT improvement of the regulated business is principally the result of the acquisition of the Midlands Electricity business in January 2004, which nearly doubled the size of Powergen’s distribution business. Integration of the business is progressing well, and the rebranding of the East Midlands and Midlands Electricity distribution businesses to Central Networks began in early April 2004.

Adjusted EBIT from the non-regulated business increased by €27 million compared with the same period in 2003 due to higher retail earnings from the residential and small and medium enterprise business partly offset by higher fuel and gas purchase costs.

Financial Highlights by Business Unit

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Nordic

Spot electricity prices in Scandinavia were stable during the first quarter of 2004. Although down considerably from the prior year due to the high availability of generation assets and to warmer temperatures, prices remained above the average for a normal year. Reservoir levels in Sweden and Norway were about 20 billion kWh less than in average water conditions. Forward electricity prices have generally risen since the end of 2003, due mainly to low reservoir levels.

Nordic

The Nordic market unit sold 2.8 billion kWh, or 25 percent, more power than in the first three months of 2003. The increase mainly reflects the inclusion of Graninge (which became a consolidated E.ON company on November 1, 2003) and a return to higher hydroelectric output.

Nordic met around 9.5 billion kWh, or 64 percent (prior year: 7.7 billion kWh, or 64 percent), of its power requirements with electricity from its own generation assets. It purchased 5.4 billion kWh of electricity from jointly owned power stations and from outside sources, 26 percent more than the prior-year figure of 4.3 billion kWh. The increase is again mainly due to the inclusion of Graninge.

In the first quarter of 2004, the Nordic market unit’s nuclear power stations produced 51 percent of total generation compared with 57 percent in the first quarter of 2003. Power generated at hydroelectric facilities accounted for 38 percent against 26 percent in the prior year, resulting in lower average production costs.

Gas and heat sales volumes were on par with prior-year levels.

In the first quarter of 2004, the Nordic market unit increased its sales (excluding energy taxes) by 28 percent to €919 million. The inclusion of Graninge accounted for €120 million of the increase.

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Core Energy Business

Nordic grew adjusted EBIT by €126 million year-on-year to €279 million. Graninge contributed €20 million to the increase. The improvement at Nordic’s existing operations was due mainly to better margins in the electricity and heat retail segment, increased hydroelectric output, lower fuel costs in heat production, and higher revenues from electric distribution.

Gas and Heat Sales

U.S. Midwest

Wholesale electricity prices in the Midwestern U.S. have remained strong at approximately $42 per MWh, with continued support from volatile natural gas prices and high coal prices. The North American gas supply-demand balance remains fragile, and gas prices are subject to ongoing weather-induced volatility. Unlike the cold temperatures experienced in the first quarter of 2003, weather in the Kentucky area was relatively normal during the first quarter of 2004.

Sales by Customer Segment

Power Generation and Procurement

The regulated utility operation sold 9.3 billion kWh of electricity in the first three months of 2004, up from 2003 due to higher sales in the off-system wholesale market. Natural gas sales declined 0.5 billion kWh to 6.9 billion kWh due to milder weather conditions in the first quarter of 2004.

The non-regulated operation sold 3.0 billion kWh of electricity in the first quarter of 2004, up 20 percent from 2003, as a result of improved plant performance.

At 11.9 billion kWh, the U.S. Midwest market unit’s owned and leased generation output covered most of its demand during the period under review. Ninety-nine percent of electricity generation at the market unit was from coal-fired power stations. The attributable generation portfolio of the U.S. Midwest market unit remained unchanged from year end 2003 at 9,073 MW.

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First quarter 2004 sales of the U.S. Midwest market unit of €520 million decreased 7 percent compared with the first quarter of 2003 due to the exchange rate deterioration of the U.S. dollar against the euro. In local currency, sales increased by 9 percent compared with the first quarter of 2003. Adjusted EBIT of €93 million improved 48 percent compared with the prior year (local currency increase of 71 percent). Adjusted EBIT of LG&E Energy’s regulated utility operations was 385 million, while the non-regulated operation contributed €8 million.

Adjusted EBIT at LG&E Energy’s regulated utility operations improved significantly over 2003. In the first quarter of 2003, the utility operation suffered one of the worst ice storms in the company’s history. The storm left approximately 146,000 customers without power for up to two weeks.

LG&E Energy’s non-regulated operations posted adjusted EBIT of €8 million, up appreciably from 2003. LG&E Energy’s Western Kentucky Energy operation improved considerably due to enhanced plant performance resulting in higher sales and lower operating costs. In 2003, Western Kentucky Energy experienced a plant outage which did not recur in 2004.

Financial Highlights by Business Unit

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Interim Report I/2004

Corporate Center

The Corporate Center consists of equity interests managed directly by E.ON AG, E.ON AG itself, and consolidation effects at the Group level.

The marked increase in adjusted EBIT is mainly attributable to foreign-currency gains. This mostly results from the repurchase of Midlands bonds.

Corporate Center

Other Activities

Our other activities consist of our Viterra and Degussa shareholdings. Effective February 1, 2003, Degussa has been accounted for using the equity method in line with E.ON’s 46.5 percent shareholding in the company. Under the equity method, Degussa’s sales are not included in E.ON’s consolidated sales and 46.5 percent of Degussa’s earnings after taxes and minority interests are recorded in E.ON’s consolidated earnings for all periods after February 1, 2003. Degussa contributed €39 million to adjusted EBIT in the first quarter of 2004, compared with €107 million in the same period a year ago.

Viterra

As anticipated, Viterra’s business was down in the period under review. The company expanded sales of condominiums. However, the total number of housing units sold in the first quarter of 2004 (1,126 units) was lower than the high prior-year figure (2,342 units), which included the sale of a block of multi-family homes, of which 1,257 units were located in the Ruhr region and the Düsseldorf area.

Viterra’s sales of €224 million were down 9 percent relative to the same period last year. The reasons were lower sales in apartment buildings at Viterra Development and a decline in rental revenue in the wake of housing unit sales in 2003.

Viterra’s adjusted EBIT declined to €77 million after €95 million in the prior-year period, in particular due to the reduction in sales of multi-family homes.

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Employees

At the end of March 2004, the E.ON Group had 70,207 employees in its continuing operations worldwide as well as 2,006 apprentices and 281 board of management members and managing directors. As of this date, 33,576 employees (48 percent) were working outside Germany. E.ON’s workforce has increased by 3,105 employees, or 5 percent, since year end 2003. This development is mainly attributable to the acquisition of Midlands Electricity.

Central Europe’s workforce consisted of 36,319 employees, a modest decline relative to year end 2003.

At 11,570, the number of employees at Pan-European Gas remained largely unchanged from year end 2003.

At the end of the first quarter of 2004, the U.K. market unit had 10,430 employees. Since year end 2003, the staff count increased by 59 percent due to the acquisition of Midlands Electricity (3,700 employees).

Nordic’s staff count of 6,187 at March 31, 2004, represented a 2 percent decrease relative to year end 2003.

At 3,491, the number of employees at the U.S. Midwest market unit remained relatively stable.

Since year end 2003, the workforce at the Corporate Center declined by 32 percent to 404 employees due to the disposal of a noncore shareholding.

At the end of March 2004, Viterra employed 1,806 people, a 4 percent reduction from year end 2003. One reason for the decline was the phaseout of Viterra Baupartner.

During the reporting period, wages and salaries including social security contributions totaled approximately €1.1 billion, compared with €1.3 billion a year ago.

Degussa, which we account for using the equity method, had 44,464 employees and 1,773 apprentices at March 31, 2004. At year end 2003, the company’s staff count was 44,481.

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Investments

The E.ON Group invested €1.7 billion in the period under review, 67 percent less than in the prior-year period. E.ON invested €463 million in property, plant, and equipment and in intangible assets, compared with €456 million in the first three months of 2003. Investments in financial assets totaled €1,257 million, versus €4,689 million in the prior year.

The Central Europe market unit invested 2 percent less than in the previous year. Its capital expenditures for property, plant, and equipment and intangible assets totaled €197 million, compared with €186 million a year ago. Central Europe invested €80 million in financial assets, versus €96 million in the prior year. The greater part of capital expenditures for property, plant, and equipment went toward power generation and distribution assets.

In the first three months of 2004, the Pan-European Gas market unit invested €26 million in property, plant, and equipment and intangible assets and €13 million in financial assets. The prior-year figures were €50 million and €85 million, respectively. The major share of investments went toward infrastructure projects.

At €100 million, the U.K. market unit’s capital expenditure in the first quarter of 2004 was 89 percent higher than the figure of €53 million for the same period in 2003. Capital expenditure in additions to property, plant, and equipment amounted to €122 million (prior year: €49 million) and was directed primarily at renewable generation, conventional power stations, and the regulated distribution business. The negative investment in financial assets of -€22 million in the first quarter of 2004 is the result of cash acquired as part of the Midlands Electricity acquisition which exceeded the cash outflow for the equity.

In the first three months of 2004, the Nordic market unit invested €63 million in property, plant, and equipment. Investments in financial assets totaled €304 million, chiefly due to the acquisition of additional equity in Graninge, of which E.ON Nordic now owns nearly 99 percent.

Investments of the U.S. Midwest market unit for the first quarter 2004 were €54 million, down from €98 million a year ago due to the slowing of spending for environmental equipment and the costs of construction for combustion turbines to meet native load needs of the utilities’ retail customers.

The investments reported under the Corporate Center segment consist mainly of payments to repurchase bonds relating to the acquisition of Midlands Electricity. In the year-earlier period, investments primarily related to the acquisition of Ruhrgas shares.

Viterra’s capital expenditures of €3 million were appreciably lower than the prior-year figure of €85 million, of which €49 million was attributable to the acquisition of additional shares in Frankfurter Siedlungsgesellschaft.

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E.ON Stock

The value of E.ON stock rose 4 percent in the first three months of 2004, slightly outperforming other European blue chips as measured by the EURO STOXX 50 Return Index, which advanced 2 percent over the same period. E.ON stock performance was slightly under that of its peer index, the STOXX Utilities Return Index, which finished March 2004 8 percent higher than its year end 2003 closing. The trading volume of E.ON stock climbed by 10 percent year-on-year to €11.5 billion, making E.ON the eighth most-traded stock in the DAX index of Germany’s top 30 blue chips. As of March 31, 2004, E.ON was the fifth-largest DAX issue in terms of market capitalization.

For the latest information about E.ON stock, visit www.eon.com.

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Interim Report I/2004

Financial Condition

Cash Provided by Operating Activities

Net Financial Position

Management’s analysis of E.ON’s financial condition uses, among other financial measures, net financial position and cash provided by operating activities. Net financial position, a measure of E.ON’s financial strength, equals the difference between our total financial assets and total financial liabilities.

Cash provided by operating activities in the first three months of 2004 was above the prior-year figure. Cash provided by operating activities in our core energy business remained on a high level.

The Central Europe market unit reported a decrease in cash provided by operating activities because payments for nuclear fuel reprocessing were higher than in the prior-year quarter due to a revised payment cycle. In addition, the figure for the previous year reflected higher intercompany tax credits.

The Pan-European Gas market unit continued to generate a high cash provided by operating activities. However, despite the consolidation of the entire quarter in 2004 (the prior-year quarter comprised February and March only), this market unit was unable to increase its cash provided by operating activities, which was adversely affected by the distinctly less favorable weather conditions and intercompany tax payments.

U.K. and Nordic posted sharp increases in cash provided by operating activities. At U.K., the rise is attributable to the consolidation of Midlands Electricity in 2004. In addition, the prior-year period reflected a number of nonrecurring items, such as settlement payments to unwind interest-rate swaps and a gas contract as well as an increase in working capital.

The increase in Nordic’s cash provided by operating activities is attributable to better margins in the retail business and higher hydroelectric output. The consolidation of Graninge and the decline in working capital also served to increase Nordic’s cash provided by operating activities.

The Corporate Center’s cash provided by operating activities was higher, due in particular to positive effects from inter-company tax offsets.

It should be noted that surplus cash provided by operating activities in the energy business of the Central Europe and U.K. market units are lower in the first quarter of the year owing to the nature of their billing cycles. During the remainder of the year, particularly in the second and the third quarters, there is a corresponding reduction in working capital, which results in surplus cash provided by operating activities.

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Free cash flow is defined as cash provided by operating activities less investments in fixed and intangible assets. E.ON uses its free cash flow primarily to make growth-creating investments, to pay out cash dividends, to repay debts, and to make short-term financial investments.

Due to the stable level of investments in fixed and intangible assets, free cash flow for the first quarter of 2004 was above the year-earlier number.

As of March 31, 2004, the E.ON Group’s net financial position—the difference between our total financial assets of €12,286 million and our total financial liabilities to banks and third parties of €19,949 million—amounted to –€7,663 million.

Net financial position, a non-GAAP financial measure, is derived from several items, each of which can be reconciled to a U.S. GAAP financial measure, as shown in the table below.

The E.ON Group’s net financial position showed further improvement (the figure reported as of December 31, 2003, was –€7,855 million). This is mainly attributable to cash provided by operating activities and funds received from the sale of VNG and EWE. On the liabilities side were the substantial financial outlays and the consolidation of financial liabilities in conjunction with the acquisition of Midlands Electricity and the remaining shares in Graninge as well as investments in fixed assets and other shareholdings. The offer to purchase Powergen bonds had no impact on our net financial position, though it did improve the structure of the E.ON Group’s financial liabilities.

Net interest expense rose by €21 million relative to the prior-year figure, primarily due to the nonrecurring effect of the repurchase of Powergen bonds. Net interest expense consists only of interest income and interest expense that are included in the calculation of our net financial position.

Adjusted EBITDA ÷ net interest expense improved further because adjusted EBITDA grew at a considerably faster rate than net interest expense.

On April 30, 2004, Moody’s upgraded the long-term rating for E.ON bonds from A1 (“review for possible upgrade”) to Aa3 (“stable outlook”). On August 4, 2003, Standard & Poor’s confirmed its AA- rating for E.ON’s long-term bonds and changed the outlook from “stable” to “negative.” Commercial paper issued by E.ON has a short-term rating of A-1+ and P-1 by Standard & Poor’s and Moody’s, respectively. E.ON has committed itself to maintaining at least a strong single -A rating.

Reconciliation of Net Financial Position

Financial Key Figures

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Highlights

In March 2004, E.ON tendered an offer for all outstanding bonds of Powergen and its subsidiaries. The offer had a nominal value of approximately €1.8 billion and did not include dollar-denominated bonds that mature in 2004. The transaction was completed in March 2004. E.ON paid approximately €1.3 billion for bonds with an aggregate nominal value of €1.2 billion.

On October 23, 2003, the EU adopted a directive that inaugurates trading in CO₂ emissions allowances on January 1, 2005. The directive required each EU member state to develop a national allocation plan (NAP) that explains how it intends to allocate CO₂ emissions allowances and to submit the NAP to the EU Commission for approval by March 31, 2004. In March 2004, the German federal government reached a compromise on the NAP. Based on the information currently available to us, we are unable to issue a final statement on the effects emissions trading will have on E.ON. We still have to study the recently released list of generating facilities. Furthermore, there are no reliable indicators for the future price of CO₂ emissions allowances. Based on preliminary calculations, however, we believe that the reduction obligations are tolerable for E.ON. Moreover, our generation fleet emits relatively little CO₂, giving us a comparatively favorable position relative to our competitors.

Outlook

Our solid start in 2004 strengthens our expectation that full-year adjusted EBIT will surpass the record number we posted in 2003.

However, we expect full-year results to show a lower rate of increase than in the first quarter, which benefited considerably from consolidation effects. We expect our core energy business to achieve double-digit growth in adjusted EBIT.

The earnings forecasts for the individual market units are as follows:

We anticipate that the Central Europe market unit’s adjusted EBIT for 2004 will top the comparable year-earlier figure. We expect the main earnings drivers to be further improved margins in the electricity business, the inclusion of newly consolidated subsidiaries in central Eastern Europe, efficiency improvements, and reductions in nuclear waste management costs.

For 2004, we do not expect Pan-European Gas to repeat the prior-year’s extraordinarily high adjusted EBIT performance. The first quarter of 2004 was warmer than the year-earlier period and therefore resulted in lower gas sales volumes and revenues. Due to billing cycles, this effect also negatively impacts subsequent months and, together with current energy price trends, is the reason behind our lower earnings forecast.

The 2004 adjusted EBIT of the U.K. market unit is expected to be significantly above the prior-year level. The main driver for this will be the first-time consolidation of the Midlands Electricity distribution business. In response to increases in wholesale energy prices in the non-regulated business, Powergen increased the prices of both electricity and gas for the majority of its residential and small business customers.

The Nordic market unit is expected to benefit from the first-time full-year consolidation of Graninge, better margins, and increased hydroelectric output. Assuming normal water conditions, we therefore expect adjusted EBIT for 2004 to be up markedly from the prior-year figure.

We expect 2004 adjusted EBIT for the U.S. Midwest market unit to be ahead of 2003 in local currency. This increase should occur, in part, as a result of the December 2003 rate cases filed with the Kentucky Public Service Commission to increase retail customer rates at the two utility businesses. The success of the non-regulated businesses will depend on coal and wholesale prices in the Midwest and political and economic factors in Argentina. In reporting currency, 2004 adjusted EBIT is expected to be affected by the development of the U.S. dollar-euro exchange rate.

After Viterra’s extraordinary growth rate in housing units sold in 2003, we expect declining sales of housing units in 2004. We therefore do not anticipate that Viterra’s adjusted EBIT for 2004 will reach the prior year’s level. Viterra’s earnings development will depend to a substantial degree on the effects of changes to the tax laws for the real estate sector, which are difficult to estimate at this time.

Despite additional improvements in our operating performance, we do not expect consolidated net income for 2004 to reach the prior-year level. From today’s perspective, we do not anticipate book gains in 2004 that would be similar in magnitude to those recorded in 2003.

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Interim Financial Statements (Unaudited)

E.ON AG and Subsidiaries Consolidated Statements of Income

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Interim Report I/2004

Interim Financial Statements (Unaudited)

E.ON AG and Subsidiaries Consolidated Balance Sheets