The central components of E.ON’s finance strategy are capital structure management and our dividend policy.
We manage E.ON’s capital structure by using our debt factor in order to ensure that E.ON’s access to capital markets is commensurate with its current debt level. Debt factor is our economic net debt divided by EBITDA; it is therefore a dynamic debt metric. Economic net debt includes not only our financial liabilities but also our provisions for pensions and asset retirement obligations as well as the fair value (net) of currency derivatives used for financing transactions (excluding transactions relating to our operating business and asset management). Our medium-term target debt factor is less than 3.
To ensure that we achieve our target debt factor, in November 2010 we announced a program for managing our portfolio and capital structure. It included €15 billion of disposals by year-end 2013, a target we will surpass by a wide margin. In addition, E.ON plans to generate positive free cash flow (defined as operating cash flow minus investments and dividends) by 2015. We intend to achieve this by enhancing efficiency (E.ON 2.0), reducing future investment volumes, and adjusting the planned dividend (in absolute terms) from financial year 2013 onwards.
The second key component of our finance strategy is a consistent dividend policy, under which we aim to pay out 50 to 60 percent of underlying net income. We are therefore proposing a dividend of €1.10 per share for the 2012 financial year. We also plan for future payout ratios to be within this target payout range. The dividend policy ensures that our shareholders receive an attractive return on their investment and at the same time provides E.ON with the opportunity to invest in its transformation.