Slide 1: Centrica plc Interim Results
Centrica plc Interim Results for the period ended 30 June 2016
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica shares or other securities. This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and busi
Slide 3: Iain Conn, Group Chief Executive
Iain Conn Group Chief Executive
Slide 4: Headlines
Headlines • Encouraging H1 financial delivery despite weak environment • Efficiency programme ahead of target • Good progress in implementing the strategy • Full year cash flow and financial targets underpinned • Balance sheet strengthened 4 Interim Results 2016
Slide 5: Strategic context
Strategic context • Some recovery in commodity prices • UK regulatory and political context evolving - CMA final report published - UK Capacity Market changes constructive - Brexit vote creates uncertainty but limited immediate impact • Competition in energy supply intense, but Centrica responding w
Slide 6: Jeff Bell, Group Chief Financial Officer
Jeff Bell Group Chief Financial Officer
Slide 7: Commodity prices
Commodity prices Average Brent Oil prices Average UK NBP gas prices Average Henry Hub gas prices ($/boe) (p/th) ($/mmbtu) 75 60 3.0 (31%) (24%) 50 (31%) 40 2.0 25 20 1.0 0 0 0.0 H1 H1 H1 H1 H1 H1 2015 2016 2015 2016 2015 2016 55 3.0 65 50 55 2.5 45 45 40 2.0 35 35 25 30 1.5 Jan 15 Jul 15 Jan 16 Jul
Slide 8: Financial headlines
Financial headlines Period ended 30 June H1 2015 H1 2016 ∆ Revenue (£m) 15,451 13,380 (13%) Adjusted operating profit (£m) 970 853 (12%) Adjusted effective tax rate 29% 28% (1ppt) Adjusted earnings (£m) 587 507 (14%) Adjusted basic earnings per share (p) 11.8 9.8 (17%) Interim dividend per share (p)
Slide 9: Energy Supply & Services – UK & Ireland
Energy Supply & Services – UK & Ireland ADJUSTED OPERATING PROFIT Period ended 30 June (£m) H1 2015 H1 2016 ∆ UK Home 678 635 (6%) UK Business 6 31 417% Ireland 23 24 4% Energy Supply & Services – UK & Ireland 707 690 (2%) ADJUSTED OPERATING CASH FLOW Energy Supply & Services – UK & Ireland 178 822
Slide 10: Energy Supply & Services – North America
Energy Supply & Services – North America ADJUSTED OPERATING PROFIT Period ended 30 June (£m) H1 2015 H1 2016 ∆ North America Home 50 33 (34%) North America Business 139 62 (55%) Energy Supply & Services – North America 189 95 (50%) ADJUSTED OPERATING CASH FLOW Energy Supply & Services – North Americ
Slide 11: Connected Home, DE&P and EM&T
Connected Home, DE&P and EM&T ADJUSTED OPERATING PROFIT Period ended 30 June (£m) H1 2015 H1 2016 ∆ Connected Home revenue (£m) Connected Home (28) (23) 18% Distributed Energy & Power (DE&P) (20) (11) 45% H1 2015 8 Energy Marketing & Trading (EM&T) (55) (14) 75% H1 2016 12 Total Connected Home, DE&P
Slide 12: Exploration & Production
Exploration & Production Period ended 30 June (£m) H1 2015 H1 2016 ∆ Adjusted operating profit 106 88 (17%) Adjusted operating cash flow 450 336 (25%) Free cash flow 35 72 106% Total production volumes Unit lifting and other cash production costs (mmboe) Europe (£/boe) Americas (£/boe) Total (£/boe)
Slide 13: Central Power Generation
Central Power Generation Period ended 30 June (£m) H1 2015 H1 2016 ∆ Adjusted operating profit 58 24 (59%) Adjusted operating cash flow 26 (30) nm Gas-fired generation Nuclear generation Wind generation (TWh) (TWh) (TWh) H1 2015 3.1 H1 2015 6.1 H1 2015 0.4 H1 2016 4.7 H1 2016 6.2 H1 2016 0.3 The abo
Slide 14: Centrica Storage
Centrica Storage Period ended 30 June (£m) H1 2015 H1 2016 ∆ Adjusted operating profit 13 4 (69%) Adjusted operating cash flow 60 30 (50%) Storage revenue (£m) Forward seasonal gas spreads (p/th) 8 H1 2015 46 25 7 W16 - S16 spread 6 H1 2016 40 42 5 W15 - S15 spread 4 Additional space / cushion gas /
Slide 15: Operating costs
Operating costs Period ended 30 June (£m) H1 2015 H1 2016 ∆ Reported operating costs 1,525 1,514 (1%) Adjustments (211) (263) nm Adjusted operating costs 1,314 1,251 (5%) Growth investment - (22) nm Like-for-like adjusted operating costs 1,314 1,229 (6%) Adjusted operating costs exclude depreciation
Slide 16: H1 efficiency programme delivery
H1 efficiency programme delivery £38m £141m £2.5bn £129m £2.3bn H1 2015 Inflation Efficiency Other / one off / H1 2016 controllable programme phasing 1 controllable costs costs Costs of goods sold Operating costs 1. Includes costs that are either non-repeating in nature or a result of phasing betwee
Slide 17: Net investment
Net investment Period ended 30 June (£m) H1 2015 H1 2016 ∆ Energy Supply & Services – UK & Ireland 40 48 Energy Supply & Services – North America 25 24 1 Connected Home, DE&P, EM&T 47 15 Exploration & Production 416 289 Central Power Generation (CPG), Gas Storage, 34 48 Other Capital expenditure (in
Slide 18: Cash flow
Cash flow Current credit ratings Period ended 30 June (£m) H1 2015 H1 2016 EBITDA 1,444 1,272 Tax (144) (141) Baa1 BBB+ Dividends received 65 49 (Stable Outlook) (Negative Outlook) 1 Working capital & other (216) 192 Adjusted operating cash flow 1,149 1,372 Net investment (383) (444) Interest (119)
Slide 19: Summary & outlook
Summary & outlook • Earnings down 14% • Adjusted operating cash flow up 19% • Underlying adjusted operating cash flow up 11% • Net debt down to £3.8bn • Strong investment grade credit ratings • Good progress on efficiency programme 19 Interim Results 2016
Slide 20: Iain Conn, Group Chief Executive
Iain Conn Group Chief Executive
Slide 21: Strategic update
Strategic update • Centrica’s strategy • Portfolio repositioning and customer-led growth • Cost efficiency programme • Financial framework • 2016 targets and outlook 21 Interim Results 2016
Slide 22: Centrica's strategy
Centrica’s strategy • Energy and services company • Purpose: “to provide energy and services to satisfy the changing needs of our customers” • Long term shareholder value through returns and growth • 3-5% per annum operating cash flow growth • £750m per annum cost efficiency programme • Growth focus
Slide 23: Challenges and opportunities
Challenges and opportunities • Challenging environment - Low commodity prices - Weak economic growth - Political uncertainty • Fundamental trends – market participants must change • Centrica has a strong starting position - Customer base and key customer-facing capabilities • Competition likely to b
Slide 24: Reduce scale in E&P and CPG
Reduce scale in E&P and CPG • Reduced investment into E&P E&P capex (£m) • E&P free cash flow positive in H1 FY 2014 £1,086m - Capex ~£500m for the full year FY 2015 £728m - Cash production costs down FY 2016 ~£500m ~£200m for the full year vs 2014 E&P lifting and other cash • Commenced process to e
Slide 25: Growth focus on customer-facing businesses
Growth focus on customer-facing businesses • Underpinning growth in Energy Supply & Services - Repositioning organisation and capability - Customer service, offer innovation, cost efficiency • Growing capabilities and customers in DE&P and EM&T - Panoramic Power, ENER-G Cogen, Neas Energy - Organic
Slide 26: Delivery in Energy Supply & Services
Delivery in Energy Supply & Services UK Home Innovative offers UK Business Energy supply complaints Operating Profit (£m) 38% 31 H1 H1 H2 H1 H2 H1 2015 2016 2014 2015 2015 2016 NA Home NA Business Energy supply complaints H2 net margin under contract as at 30 June 37% 43% H1 H1 2015 2016 2015 2016 2
Slide 27: Distributed Energy & Power capabilities
Distributed Energy & Power capabilities Differentiated offering Energy insights Asset optimisation Energy solutions Underlying products CHP PV Trading Battery Stand-by Energy Demand side response Generators Efficiency 27 Interim Results 2016
Slide 28: Customer growth in DE&P
Customer growth in DE&P DE&P active customer sites and capacity • Customer growth under management • Capacity under management increased Active customer sites H1 2015 983 • Material increase in order book secured revenue H1 2016 2,450 Capacity under management (MW) H1 2015 489 H1 2016 517 28 Interim
Slide 29: Growth in Connected Home
Growth in Connected Home Connected Home cumulative • Five new products launched in H1 UK hubs installed (‘000) • Smart thermostat sales remain strong 364 • Plans to launch H1 2015 our suite of connected home 292 products in H1 North 2016 America around end of the 214 year 160 H1 2015 96 48 H1 2016 F
Slide 30: Cost efficiency programme
Cost efficiency programme • Efficiency programme ahead of target Controllable costs • H1 progress ~£100m ~£300m - Efficiencies of £141m - ~1,500 direct headcount reduction £5.0bn • Full year headcount reduction ~3,000 ~£4.8bn • Full year efficiencies ~£300m • £750m per annum of savings by 2020 2015
Slide 31: Financial framework
Financial framework Targets Metric Adjusted operating cash flow • 3-5% growth p.a. • Progressive in line with adjusted operating cash Dividend flow Controllable costs • Operating cost growth < inflation • Investment <70% of adjusted operating cash Capital re-investment flow • Limited to £1bn p.a. in
Slide 32: 2016 targets
2016 targets • Adjusted operating cash flow >£2bn • Group capital investment limited to £1bn - E&P capex of around £500m • Around £300m of cost efficiencies in 2016, increased from £200m expectation in February • Like-for-like operating costs below 2015 • Like-for-like direct headcount reduced by ar
Slide 33: Summary
Summary • Encouraging financial delivery despite weak environment • Efficiency programme ahead of target • Good progress in implementing the strategy • Full year cash flow and financial targets underpinned • Balance sheet strengthened • Growth target: 3-5% p.a. growth in underlying adjusted operatin
Slide 34: Q&A
Q&A Iain Conn Jeff Bell Mark Hanafin Mark Hodges Badar Khan Group Chief Group Chief Chief Executive, Chief Executive, Chief Executive, Executive Financial Officer Energy Production, Energy supply Energy supply Trading and and services, and services, Distributed Energy UK & Ireland North America 34 I
Slide 35: Adjusted operating profit – H1
Adjusted operating profit – H1 Period ended 30 June (£m) H1 2015 H1 2016 ∆ Energy Supply & Services – UK & Ireland 707 690 (2%) Energy Supply & Services – North America 189 95 (50%) Connected Home (28) (23) 18% Distributed Energy & Power (20) (11) 45% Energy Marketing & Trading (55) (14) 75% Total c
Slide 36: Adjusted operating profit - FY
Adjusted operating profit - FY Period ended 30 June (£m) FY 2015 Energy Supply & Services – UK & Ireland 891 Energy Supply & Services – North America 323 Connected Home (49) Distributed Energy & Power (32) Energy Marketing & Trading 66 Total customer-facing businesses 1,199 Exploration & Production
Slide 37: Adjusted operating cash flow – H1
Adjusted operating cash flow – H1 Period ended 30 June (£m) H1 2015 H1 2016 ∆ Energy Supply & Services – UK & Ireland 178 822 362% Energy Supply & Services – North America 370 199 (46%) Connected Home (31) (25) 19% Distributed Energy & Power (22) (19) 14% Energy Marketing & Trading 143 103 (28%) Tot
Slide 38: Net debt
Net debt Period ended 30 June (£m) H1 2015 H1 2016 Opening net debt (5,196) (4,747) Adjusted net cash inflow 382 1,022 Other non-cash movements in net (91) (58) debt Closing net debt (4,905) (3,783) Margin cash (465) (359) Closing net debt including impact of (5,370) (4,142) margin cash The items, t