Interim Report II/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 consolidated 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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Results of Operations

Consolidated Sales

Adjusted EBIT

Effective January 1, 2004, we realigned our organization based on the five target markets 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 provide pro forma figures for the prior year according to the new market unit structure; these pro forma figures do not affect the consolidated group figures. The publication Strategy and Key Figures, available at www.eon.com, contains more information about our market unit 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 4 percent more electricity in the first six months of 2004 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. Milder temperatures compared with 2003 resulted in a decline of 2 percent in our gas sales volumes.

Consolidated sales were higher, primarily due to the inclusion of E.ON Ruhrgas and several European energy utilities for the entire period under review. E.ON Ruhrgas became a consolidated E.ON company on February 1, JME and JCE on October 1, Graninge on November 1, 2003, and Midlands Electricity on January 16, 2004.

In the first half of 2004, we grew adjusted EBIT by €725 million or 21 percent. All market units contributed to the increase. In particular, our operations outside Germany posted marked

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earnings growth. The increase in adjusted EBIT resulted from operating improvements and the first-time inclusion of our successful acquisitions for the entire period under review. Furthermore, the results of our Central Europe market unit also benefited from the reversal of provisions relating in part to the Renewable Energy Law and the Cogeneration Protection Law (for more information, see page 7).

Consolidated Net Income

Consolidated net income (after income taxes and minority interests) was on par with the high prior-year figure, even though book gains were substantially lower, particularly those recorded under income from discontinued operations.

Adjusted interest income (net) improved in the first six months of 2004 by approximately €360 million, primarily due to a one-off effect related to amendments to Germany’s Ordinance on Advance Payments for the Establishment of Federal Facilities for Safe Custody and Final Storage for Radioactive Wastes (Endlager-Vorausleistungsverordnung) (see commentary on page 7).

Net book gains in the first half of 2004 were below last year’s figure and resulted in particular from the sale of equity interests in EWE and VNG (€317 million), the sale of securities (€124 million), and the sale of more Degussa stock (€63 million). The prior-year number consists primarily of book gains on the sale of shares in Bouygues Telecom (€294 million) and Degussa (€168 million) and on the sale of securities at our Central Europe market unit (€125 million). The prior-year figure also includes book gains of roughly €100 million resulting mainly from Central Europe’s sale of shares in a regional distribution company and the U.K. market unit’s sale of interests in generating facilities in Asia and a book loss of €76 million on the sale of HypoVereinsbank stock recorded at Central Europe.

Restructuring expenses declined year-on-year to €31 million and in the period under review were recorded at the U.K. market unit (in connection with the integration of Midlands Electricity) and at the Central Europe market unit (in connection with the creation of the regional utilities E.ON Hanse and E.ON Westfalen Weser). In the same period a year ago, restructuring expenses were recorded mainly at the U.K. market unit in connection with the integration of TXU activities.

Other nonoperating earnings, which declined appreciably from the figure for the first half of 2003, primarily reflects positive effects from the marking to market of energy derivatives. Besides these effects, the prior-year figure included extraordinarily high equity earnings of €213 million from our RAG shareholding.

The €392 million increase in our tax expense compared with the first six months of 2003 stems in particular from improved results.

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.

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Core Energy Business

Central Europe

Following a period of consolidation in early 2004, prices on power exchanges in Central Europe rose again in the second quarter. On the German power exchange, forward prices for year-ahead power contracts almost returned to autumn 2003 levels. Key drivers were increases in fuel prices and freight rates. The price European power producers pay for coal roughly doubled year-on-year and reached a high of €79 per metric ton of coal equivalent (TCE) on June 30, 2004. Coal prices averaged €64 per TCE in the first half of 2004, compared with €36 per TCE in the same period last year.

The prices end-customers in Germany paid for electricity averaged 3 percent higher year-on-year for standard rate service in the residential segment and 11 percent higher for new contracts in the industrial segment. These price increases stemmed mainly from the marked upsurge in wholesale prices in 2003.

The Central Europe market unit sold 6.3 billion kWh more electricity than in the first half of last year, mainly due to the inclusion of JME and JCE, regional distribution companies operating in the Czech Republic.

Central Europe met 68.4 billion kWh, or about 53 percent, of its power requirements with electricity from its own generation assets, compared with 56 percent in the previous year. In its generation business, Central Europe is able to capitalize on the advantages of its balanced energy resource portfolio. From jointly owned power stations and outside sources Central Europe procured 7.3 billion kWh more electricity than in the first half of last year, an increase that is also principally attributable to the inclusion of JME and JCE.

Gas sales volumes at Central Europe’s regional distribution companies were down nearly 9 percent from last year due to relatively milder temperatures.

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Power Generation and Procurement(1)

Central Europe grew sales by 8 percent relative to the year-earlier period, mainly due to the full consolidation of JME and JCE. Another positive factor was the recovery of retail electricity prices in Germany.

Adjusted EBIT rose €309 million year-on-year. Central Europe’s business units showed the following development:

The Central Europe West Power business unit grew adjusted EBIT by €201 million, or 13 percent, to €1,751 million. Just over half of the increase, approximately €110 million, resulted from the reversal of provisions following a court decision expressly granting the right to pass on the additional costs relating to the Renewable Energy Law and the Cogeneration Protection Law and from the reversal of provisions for refunds for allegedly excessive grid access fees. Absent these non-recurring effects, adjusted EBIT would have increased by roughly 6 percent.

Gas Sales by Customer Segment(1)

This increase results mainly from continued improvements in gross margin. One positive factor was the passthrough of higher wholesale electricity prices to end customers. A further driver was a reduction in costs for nuclear fuel and nuclear waste management. Earnings were negatively impacted by higher expenditures for conventional fuel and obligations in this business unit’s electric transmission operations.

Results for the second quarter reflect the amendment of Germany’s Ordinance on Advance Payments for the Establishment of Federal Facilities for Safe Custody and Final Storage for Radioactive Wastes (Endlager-Vorausleistungsverordnung). Under the amended ordinance, construction costs for the final storage facilities at Gorleben and Konrad will now be shared fairly by nuclear plant operators and by other users, such as research institutes. Overall, this will lower E.ON’s share of the costs and enable the company to reduce past provisions for nuclear waste management. By contrast, the post-operation phase at nuclear power stations that use mixed oxide fuel elements has been extended, resulting in a negative impact on earnings. On balance, the effect on adjusted EBIT is negligible, whereas adjusted interest income (net) increased by roughly €270 million in the second quarter of 2004. This is a nonrecurring effect.

The Central Europe West Gas business unit’s adjusted EBIT was €17 million above the prior-year figure. The high, weather-driven sales volume of the year-earlier period could not be reached again. However, the decline in sales volume was counteracted by stable sales prices and favorable procurement costs.

Financial Highlights by Business Unit(1)

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Core Energy Business

The Central Europe East business unit grew adjusted EBIT by €32 million, principally due to the inclusion of JME and JCE for the entire period under review.

Adjusted EBIT reported under the Other/Consolidation business unit was €59 million higher than the figure for the first half of 2003, in which negative factors included expenditures related to ownership structure measures at E.ON Bayern.

Pan-European Gas

Pan-European Gas

Primary energy consumption in Germany in the first six months of 2004 fell by 1.9 percent relative to the same period last year. The significantly warmer weather Germany experienced in the first three months of 2004 was the key factor in the 1.3 percent decline in natural gas consumption during the first six months of the year. In the first quarter, gas consumption fell by about 4 percent, whereas in the second quarter it rose by about 4 percent. Average temperatures during the first three months of 2004 were 0.8° Centigrade (C) higher, while in the second quarter they were nearly 0.7° C lower than in 2003.

At 337 billion kWh, Pan-European Gas’s sales volume was only slightly below the prior-year level. The weak first quarter of 2004 was nearly compensated for by appreciable growth in the second quarter, which reflected lower temperatures as well as an increase in the export business. By contrast, used peak capacity, which was determined primarily by temperatures during the first quarter, was below the figure for the previous year.

Pan-European Gas recorded approximately €909 million in adjusted EBIT and €7.4 billion in sales in the first six months of 2004. Current-year sales and adjusted EBIT include figures for January, which were not included in the previous year, since E.ON Ruhrgas became a consolidated E.ON company on February 1, 2003. Another factor leading to higher sales was the first-time inclusion of Thüga Italia’s operations at the Downstream Shareholdings business unit.

The Up-/Midstream business unit made the largest contribution to sales and earnings. The period under review was particularly impacted by a temperature-driven decline in sales volume and revenues. These temperature-related effects were counteracted by the inclusion of all six months in the first half of the current year versus five months in the previous year. As a result, Up-/Midstream grew sales by €1 billion and adjusted EBIT by €60 million.

Gas Sales by Month(1)

The Downstream Shareholdings business unit performed positively compared with the first half of 2003, in particular due to higher proportional earnings from SPP, a shareholding operating in the Slovak Republic. Another factor was the inclusion of Thüga Italia’s operations for the entire period.

In the first quarter of the previous year, the results of Ruhrgas Industries, which are recorded at the Other/Consolidation business unit, were adversely affected by nonrecurring charges from the purchase price allocation. The absence of this nonrecurring effect resulted in an improved adjusted EBIT performance.

Financial Highlights by Business Unit(1)

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U.K.

Forward electricity prices have increased substantially since April 2003. The main drivers have been higher fuel costs and the cost of carbon emissions. Annual gas forward prices also rose markedly compared with the prior year, driven principally by higher oil prices and the expectation that the United Kingdom will become a net importer of gas in the near future.

At the beginning of 2004, E.ON UK increased its mass market retail prices for electricity (+6.9 percent) and gas (+4.9 percent) in response to higher wholesale energy prices. All of the other top suppliers also announced similar increases in retail prices. Following further increases in wholesale prices, E.ON UK announced further retail price changes for its residential customers. The revised charging structure from Sep-tember 6, 2004, will abolish the fixed standing charge and incorporate clear discount structures. Gas prices for residential customers will increase by 3.1 percent on average.

Sales by Customer Segment(1)

Power Generation and Procurement

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Core Energy Business

The decrease in power and gas sales volumes was primarily the result of E.ON UK’s approach in the industrial and commercial market to secure margin rather than volume.

The decline in owned generation of 1.9 billion kWh is attributable to the closure of the plants at Drakelow and High Marnham in March 2003.

The U.K. market unit’s attributable generation portfolio was 7,895 MW at June 30, 2004, of which coal-fired stations represented 62 percent. The decrease in attributable generation capacity compared with December 31, 2003 (9,614 MW) is primarily due to the mothballing of plant at Grain and Killingholme.

E.ON UK increased its sales in 2004 compared with the prior year as a result of the first-time consolidation of the Midlands Electricity business, retail price increases, and exchange rate effects. Adjusted EBIT of €520 million was recorded in the first half of 2004, with €215 million recorded in the regulated business and €329 million in the non-regulated business.

Adjusted EBIT from the regulated business increased by €97 million, principally because of the acquisition of the Midlands Electricity business in January 2004, which effectively doubled the size of E.ON UK’s distribution business. Integration of the business is progressing well, and the rebranding of the East Midlands and Midlands distribution businesses to Central Networks took place in April 2004.

The adjusted EBIT improvement of €66 million for the non-regulated business is due to higher retail earnings from the residential and small and medium enterprise business and to the continued savings from the integration of the TXU business acquired in 2002, partly offset by higher fuel and gas purchase costs.

Financial Highlights by Business Unit

Nordic

Spot electricity prices in Scandinavia were fairly stable in the first six months of 2004. Forward prices increased considerably. The main factors behind this development were higher coal prices and the hydrological situation. Reservoir levels in Sweden and Norway remained more than 20 billion kWh below average. Following heavy rainfall during the last week of June, however, electricity prices have started to decline.

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The Nordic market unit sold 3.9 billion kWh more electricity than in the first six months of 2003. Sales to residential and business customers increased by 2.8 billon kWh, mainly due to the inclusion of Graninge. Sales to minority partners and Nordpool improved owing to higher generation output in existing operations.

Nordic covered about two thirds of its electricity sales with power from its own generating assets. Generation increased by 1.5 billion kWh as a result of the Graninge acquisition, but also due to improvements of 1.4 billion kWh in existing operations. During the first half of 2004, Nordic’s nuclear power plants produced 54 percent of total generation, while hydroelectric plants accounted for 38 percent.

Gas sales volumes were on par with the prior-year level. Heat sales increased by 0.3 billion kWh compared with the first six months of 2003 due to the inclusion of Graninge.

The sales increase of €264 million for the first half of 2004 was mainly attributable to the inclusion of Graninge.

Nordic grew adjusted EBIT by €124 million year-on-year to €393 million. Graninge contributed €45 million to the increase. The improvement at Nordic’s existing operations was mainly due to better margins in the electricity retail segment as well as increased nuclear and hydroelectric output.

Power Generation and Procurement

Gas and Heat Sales

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Interim Report II/2004

Core Energy Business

U.S. Midwest

Electricity prices continued to show strength in the second quarter, supported by high gas prices and warmer-than-normal weather. Wholesale electricity prices in the Midwest were approximately $43 per MWh, compared with $41 per MWh for the same period in 2003. Gas prices remained strong even during the industry’s seasonal phase of replenishing gas storage fields.

Sales by Customer Segment

Through June 2004, the regulated utility operation sold 0.7 billion kWh more electricity compared with 2003 due to increases in retail electric customer sales resulting from unseasonably warm weather. Natural gas sales declined 0.6 billion kWh due largely to mild winter weather conditions in 2004.

The non-regulated operation showed a 0.6 billion kWh improvement in electricity sales in the first six months of 2004 compared with 2003 as a result of warm spring weather in 2004 and improved plant performance.

Power Generation and Procurement

Ninety-nine percent of the U.S. Midwest market unit’s 22.7 billion kWh of electricity generation was from coal-fired power stations. At June 30, 2004, U.S. Midwest’s generation portfolio grew by 281 MW to 9,354 MW due to the addition of two gas-fired combustion turbines that are available for the 2004 summer peaking season.

U.S. Midwest’s sales for the first six months of 2004 decreased 2 percent to €963 million compared with the first half of 2003, resulting from the deterioration of the U.S. dollar against the euro. In local currency, however, sales improved by 9 percent, led by higher retail sales in utility operations. Adjusted EBIT increased 46 percent compared with the prior year; in local currency, the increase was 61 percent.

Adjusted EBIT at U.S. Midwest’s regulated utility operations improved significantly, primarily as a result of the higher retail sales. In addition, the contribution from off-system sales was higher, as prices in the off-system wholesale electric market for 2004 were higher than in 2003 due to high gas prices and strong demand. These effects more than offset the impact of spring storms, which caused significant damage to the utility operation’s distribution network. Furthermore, in 2003 the utility business had suffered from a severe winter storm.

U.S. Midwest’s non-regulated operations appreciably increased adjusted EBIT from 2003. U.S. Midwest’s Western Kentucky Energy operation improved considerably due to enhanced plant performance. In 2003, Western Kentucky Energy had experienced a plant outage that did not recur in 2004.

Financial Highlights by Business Unit

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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.

Corporate Center

Other Activities

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. After selling more Degussa stock, E.ON owns 42.9 percent of Degussa effective June 1, 2004. Degussa contributed €82 million to adjusted EBIT in the first half of 2004, compared with €123 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 from 1,168 in the first six months of 2003 to 1,296 this year. At 2,593, however, the total number of housing units sold in the first half of 2004 was lower than the 3,748 units sold by this time last year. The high prior-year figure 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 were down €70 million 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.

Viterra’s adjusted EBIT declined to €145 million after €182 million in the prior-year period, in particular due to the reduction in sales of multi-family homes and the decline in rental revenue.

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Employees

At the end of June 2004, the E.ON Group had 69,786 employees worldwide, as well as 1,896 apprentices and 283 board members and managing directors. As of this date, 33,633 employees, roughly 48 percent of all staff, were working outside Germany. E.ON’s workforce increased by 2,684 employees, or 4 percent, since year end 2003. This development is mainly attributable to the acquisition of Midlands Electricity in the first quarter of 2004, which increased the group’s staff count by 3,700 employees.

During the reporting period, wages and salaries including social security contributions totaled €2.3 billion, compared with €2.4 billion a year ago, which includes €259 million for Degussa for January 2003.

Investments

Investments

The E.ON Group invested €3.2 billion in the period under review, 53 percent less than in the prior-year period, which included the acquisition of Ruhrgas shares recorded under Corporate Center. E.ON invested €1,066 million in property, plant, and equipment and in intangible assets, compared with €1,022 million in the first six months of 2003. Investments in financial assets totaled €1,812 million, versus €5,059 million in the prior year.

The Central Europe market unit invested 42 percent more than in the previous year. Its capital expenditures for property, plant, and equipment totaled €432 million, compared with €438 million a year ago. The greater part of capital expenditures for property, plant, and equipment went toward power generation and distribution assets. Financial investments mainly reflect the acquisition of shareholdings from other E.ON companies as part of the group-wide program to optimize E.ON’s shareholding structure.

E.ON UK’s capital expenditure in the first half of 2004 was €258 million compared with €212 million for the same period in 2003. The increase is mainly due to expenditures in the newly acquired Midlands Electricity business. Investments in property, plant, and equipment focused on the expansion of the renewable generation portfolio, the upgrade of the distribution network, and the maintenance of conventional power stations.

During the first half of 2004, the Nordic market unit invested €171 million in property, plant, and equipment in order to maintain existing production plants and upgrade and enhance its distribution network. Investments in financial assets totaling €346 million were mainly directed toward the acquisition of additional Graninge shares. E.ON Nordic now owns 100 percent of Graninge.

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     Interim Report II/2004

     E.ON Stock

     The value of E.ON stock (including the dividend) rose 14 percent in the first six months of 2004, significantly outperforming other European blue chips as measured by the EURO STOXX 50 Performance Index, which advanced 5 percent over the same period. E.ON stock performance was slightly under that of its peer index, the STOXX Utilities, which finished June 2004 16 percent higher than its year-end 2003 closing. The trading volume of E.ON stock climbed by 13 percent year-on-year to €22.2 billion, making E.ON the eighth-most-traded stock in the DAX index of Germany’s top 30 blue chips. As of June 30, 2004, E.ON was the fourth-largest DAX issue in terms of market capitalization.

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

E.ON Stock

High, Low, and Trading Volume

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Financial Condition

Cash Provided by Operating Activities

Net Financial Position

Management’s analysis of E.ON’s financial condition uses, among other financial measures, cash provided by operating activities, free cash flow, and net financial position. Free cash flow is defined as cash provided by operating activities less investments in fixed and intangible assets. 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 six months of 2004 was well above the prior-year figure. The increase was solely attributable to our core energy business.

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 period 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 generated strong cash provided by operating activities, which was markedly higher than last year’s figure due to the consolidation of the entire six months in 2004.

The U.K. market unit posted a sharp increase in cash provided by operating activities. The rise is attributable to the consolidation of Midlands Electricity in 2004 and retail price adjustments. 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. Working capital also increased.

The marked rise in the Nordic market unit’s cash provided by operating activities is attributable to better margins in the retail business and increased electric generation. The consolidation of Graninge and the decline in working capital also served to grow Nordic’s cash provided by operating activities.

The Corporate Center’s cash provided by operating activities was higher mainly due to positive effects from intercompany tax offsets.

It should be noted that surplus cash provided by operating activities in the energy business of the Central Europe, U.K., and U.S. Midwest market units is lower in the first quarter of the year owing to the nature of their billing cycles. In the second and the third quarters, there is a corresponding reduction in working capital, which results in significant surplus cash provided by operating activities. The fourth quarter is characterized by an increase in working capital. In the gas business, by contrast, cash provided by operating activities is recorded principally in the first quarter, whereas natural gas tax prepayments result in cash outflows in the fourth quarter.

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

     The E.ON Group’s net financial position remained essentially unchanged from the figure reported as of December 31, 2003
(–€7,855 million). This is mainly attributable to higher 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 dividend payout along with related tax payments also led to cash outflows.

     Net interest expense was on par with last year’s figure. Adjusted EBITDA ÷ net interest expense improved further because adjusted EBITDA grew at a considerable rate, while net interest expense remained unchanged.

     On April 30, 2004, Moody’s upgraded the long-term rating for E.ON bonds from A1 to Aa3 (“stable outlook”). On June 4, 2004, Standard & Poor’s confirmed its AA– rating for E.ON’s long-term bonds and changed the outlook from negative to stable. 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

Pursuant to an earlier agreement, E.ON sold a further 3.6 percent of Degussa stock to RAG on May 31, 2004, for €283 million. E.ON therefore owns 42.9 percent of Degussa effective June 1, 2004.

In early July 2004, E.ON and OAO Gazprom signed a Memorandum of Understanding in which they agree to further deepen their successful business relationship in the field of strategic projects. The companies intend to leverage their complementary strengths in the gas business to pursue joint projects in gas production in Russia, gas transport to Europe, power generation in Russia, and the expansion of infrastructure to market natural gas and power in Europe, as well as examine and, if possible, jointly implement generation projects. Gazprom and E.ON intend to contribute appropriate shareholdings and other assets to the cooperative arrangement. Joint construction of the North European Gas Pipeline is expected to enhance supply to the European gas market, enabling Gazprom to diversify its transport routes and expand export capacity. The array of projects along the value chain in both gas and power is consistent with E.ON’s integrated business model.

Other Information

The U.S. Securities and Exchange Commission (SEC) has requested that we provide them with information for an inquiry focusing in particular on the preparation of our financial statements for the year 2002, including the accounting treatment and depreciation of our power plant assets, our accounting for and consolidation of subsidiaries (Degussa and Viterra) and their shareholdings, the nature of the services performed by our auditors, disclosures with regard to our long-term fuel procurement contracts, and our 2002 Annual Report on Form 20-F, in particular the process of its preparation and its conformity with U.S. GAAP. We are in close contact with the SEC and will cooperate fully.

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Outlook

The positive trend in adjusted EBIT continued in the second quarter, further improving our earnings outlook for the year as a whole. Based on the solid earnings performance of all market units, we now expect the E.ON Group 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 markedly surpass the comparable year-earlier figure. Current-year earnings will benefit substantially from the reversal of provisions for potential financial exposure relating to the Renewable Energy Law, the Cogeneration Protection Law, and transmission fee refunds. Other earnings drivers are operating improvements at Central Europe West, the inclusion of earnings streams from newly consolidated subsidiaries at Central Europe East, and cost reductions for nuclear fuel and nuclear waste management.

For 2004, we expect adjusted EBIT of Pan-European Gas to be nearly on par with the exceptionally high 2003 figure, which did not include January, since E.ON Ruhrgas became a consolidated E.ON company on February 1, 2003.

The 2004 adjusted EBIT of the U.K. market unit is expected to be significantly above the prior-year level. The main drivers will be the first-time consolidation of the Midlands Electricity distribution business as well as improvements of the margins in the non-regulated business.

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

We expect 2004 adjusted EBIT for the U.S. Midwest market unit to be ahead of 2003 in both local and reporting currency. This increase should occur primarily as a result of the favorable year-to-date performance as well as the new retail electric rates at the two regulated utility businesses, which were approved by the Kentucky Public Service Commission on June 30, 2004. This improvement is expected to be partially offset by an increase in storm costs for 2004. In mid-July 2004, another severe wind storm swept through the utilities’ service territory, causing widespread damage to the distribution network.

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 high level.

Despite additional improvements in our operating performance, we do not expect consolidated net income for 2004 to reach last year’s level. From today’s perspective, we do not anticipate book gains in 2004 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