Slide 1: Centrica plc Preliminary Results
Centrica plc Preliminary Results For the year ended 31 December 2003
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underw rite, subscribe for, or otherw ise acquire or dispose of any Centrica shares. Past performance is no guide to future performance and persons needing adv ice should consult an independent financial adviser.
Slide 3: Chairman
Chairman Sir Michael Perry GBE
Slide 4: Chief Executive
Chief Executive Sir Roy Gardner
Slide 5: Results in brief
Results in brief Year ended 31 December 2003, £m 2003 +/- %∆ Turnover (excluding Accord) 11,713 17% Oper ating pr ofit* 1,058 14% Earnings * 714 12% Earnings (post goodw ill & excep) 500 5% Final dividend per shar e 3.7p 42% Total div idend per share 5.4p 35% * Before goodwill amortisation & excepti
Slide 6: Strategic Development of Centrica in 2003
Strategic Development of Centrica in 2003 • Improving asset portfolio • British Gas • Delivery from AA and North America • Exit from Goldfish • Exceptional cash generation • Significant dividend growth • Centrica’s strategic development in 2003: – underpinned energy position w ith upstream acquisiti
Slide 7: Rough storage
Rough storage • Return in first year of ownership above WACC • Increase in summer/winter spread • Improved reliability • Value of Rough increased since acquisition Summer/winter pricing differential Inherited backlog control & r eduction 14 12. 9 35000 11. 7 11.4 11. 3 11. 3 12 30000 10 25000 P/ther
Slide 8: Further developments of the asset portfolio
Further developments of the asset portfolio Spalding 860 MW Tollin g Contract with Goldeneye Armada InterGen Q4 2004 Humber Power 1260 MW Roosecote 229MW JV: 60% Centrica & 40% TFE 100% Centrica Glanford Brigg 4x60MW 100% Centrica Galleon Rose Rough gas storage Chiswick Ensign N&S Morecambe York Bai
Slide 9: First investments in building renewable capacity
First investments in building renewable capacity Lynn (90MW) Inner Dowsing (90M W) Race Bank (500MW) Barrow Offshore Wind (90MW) Docking Shoal (500M W) Lincs (250MW) • Committed to £500 million investment over 5 years to build renew able generation capacity, principally w ind pow er. • Progress to d
Slide 10: Draft national allocation plan on emissions trading
Draft national allocation plan on emissions trading • Satisfactory allocation for our plants • Set-aside pool of free allowances for new entrants • Loss of future allowances for plants that close • Restriction on banking allowances between phases 1 & 2 • Not structurally disadvantaged • Overall plea
Slide 11: External factors have impacted British Gas margins in 2003
External factors have impacted British Gas margins in 2003 • Commodity prices – Unanticipated second half increase – Partiall y mitigated b y Ene rg y Management Group • Weather – Warmer than normal – Unusual weather patterns • Transportation – Retrospecti ve cha rging • British Gas financial perfor
Slide 12: British Gas customer base grew in 2003
British Gas customer base grew in 2003 40,000 30% 30,000 20% 20,000 Weekly net customer movements 10% 10,000 Churn* 0 0% - 10,000 -10% - 20,000 Price Price -20% - 30,000 Rise Rise - 40,000 -30% Jul A ug S ep Oc t Nov Dec Jan Feb Mar A pr May Jun Jul Aug Sep Oct Nov Dec Jan 2002 2003 2004 E lectric i
Slide 13: Continued growth in other British Gas services
Continued growth in other British Gas services • Average customer product holding* increased 6% to 1.62 • 5% increase in turnover • 169% increase in operating profit 8 British Gas s ervices product holdings (millions) Telecom s 7 Home electrical care 6 Kitchen appliance care 5 Plumbing & drains car
Slide 14: Progress on the systems elements of the British Gas transformation
Progress on the systems elements of the British Gas transformation Release 1 Release 2 Release 3Release 3 Releases 4&5 (Single View) (Selling) (SAP) (Billing) (Telco/Home Services) 2002 2003 2004 2005 2006 Auto call ID Cross-sell energy & home services products Sing le customer v iew Integration of
Slide 15: Continued progress in the AA
Continued progress in the AA • Increased membership • Grow th in insurance • £1bn loan business • Increased range of products and services • Cost efficiencies • Technology 1000 1 00 Turnover Operating Profit 800 80 600 60 £m £m 400 40 200 20 0 0 1999 2000 2001 2002 2003 19 99 2000 2 001 2 002 200 3
Slide 16: North America delivers
North America delivers • Profits doubled • Excellent progress in Texas • Cross-selling in Ontario • Value from water heater public offering • Alberta acquisition: working towards completion • Concentrated customer base in core markets • Upstream investments • Profits doubled in 2003 to £130 million.
Slide 17: Exit from Goldfish
Exit from Goldfish • Reduced strategic relevance • Attractive offer from Lloyds TSB – premium of £112.5m (15% o f a ve rage credit card receivables o ver 12 months) • Book loss on disposal (after tax) of £43 million • Exit from Goldfish w as a key point in Centrica’s evolution in 2003. • Strategic r
Slide 18: Cash & dividend
Cash & dividend • Operating cash flow £1,293m • Full year dividend 5.4 pence per share – 35% increase on 2002 – 32% di vidend pa yout ra tio • Generated a significant amount of cash in 2003. • Committed to increasing dividend payout ratio to 40%. – increase from 26% in 2002 to 32% in 2003 • Committe
Slide 19: Summary and outlook
Summary and outlook 2003 • Good results despite challenging environment • Record profits • Investment in quality assets 2004 • Top line growth • Further asset investments • Operational efficiencies • Cash & dividends • In 2003; – we delivered good financial performance and record profits – invested
Slide 20: Group Finance Director
Group Finance Director Phil Bentley
Slide 21: Financial highlights
Financial highlights FY 2003 +/- ∆ Turnover (excl. Accord) (£m) 11,713 17% Oper ating pr ofit (£m) 1,058 14% Oper ating margin* 9.0% (0.3ppt) Interest cover 20 times 5 times Tax rate 28% - Earnings (£m) 714 12% All figures before goodwill & exceptional charges * Based on turnover excluding Accord •
Slide 22: Key financial drivers
Key financial drivers • British Gas margins • Upstream performance • The AA • North America
Slide 23: Underlying British Gas energy margins
Underlying British Gas energy margins Variable margin impact 2003 Weather Transco Commodity ‘Normalised’ cost s margin Turnover 5,289 167 - - 5,456 Cost of goods (4,248) (86) 13 58 (4,263) Gross profit 1,041 81 13 58 1,193 Operating m argin (%/bps) 2.6% 140bps 25bps 110bps 5.3% • Transformation spen
Slide 24: Correlation of temperature and commodity
Correlation of temperature and commodity 250 250 250 250 200 200 200 200 150 150 150 150 D-1 gas price vs. June 30 f wd. price D-1 gas price vs. June 30 f wd. price 100 100 100 100 Daily avg. temp. vs. 10- year avg. Daily avg. temp. vs. 10- year avg. 50 50 50 50 (Cumulativ e) 0 0 0 0 (Cumulativ e) (
Slide 25: Why are Summer gross margins higher than Winter?
Why are Summer gross margins higher than Winter? p / therm Gross Margin Sep Mar Jul May Dec Oct Jan Feb Jun Nov Aug Apr Gas cost of goods Weighted average selling price • Gas cost of goods (commodity plus transportation) is low er in the summer than the w inter. • In summer, our w eighted average se
Slide 26: Upstream (inc. Storage) operating profit
Upstream (inc. Storage) operating profit £m £m Y ear ∆ Year ended 31 December 2002 520 Low er Morecambe volumes (30) Higher gas selling prices 19 Higher PRT charge (27) Abolition of Royalties (net of PRT shield) 49 Higher Accord profits / other 31 Rough 39 Year ended 31 Decem ber 2003 601 • Upstream
Slide 27: AA operating profit
AA operating profit FY 2003 +/- ∆% £m Roadside 61 13% Personal finance 50 6% Service Centres / Other (18) 36% Total 93 27% • Operating cashflow £107m • Return on invested capital* 9.9% *(NOPAT + post-tax depreciation) / Undepreciated capital invested inc. all capex • Operating profit rose 27% to £93
Slide 28: North America operating profit
North America operating profit FY 2003 FY 2002 +/- £m £m Retail electricity 87 (10) Retail gas 1 16 Production & trading 13 34 Home & business 29 23 Total 130 63 • Operating cashflow £207m • Return on invested capital* 9.2% *(NOPAT + post-tax depreciation) / Undepreciated capital invested inc. all c
Slide 29: 2003 cash flow drivers (excluding Goldfish)
2003 cash flow drivers (excluding Goldfish) £m 2003 2002 EBITDA 1,409 1,290 Adjustments: PRT P&L charge 128 75 PRT cash paid (210) (319) Corporation tax (181) (192) Other w orking capital (6) (267) (269) (703) Post tax operating cash flow 1,140 587 Interest (15) (25) Capex & acquisitions (384) (1337
Slide 30: Summary
Summary • Increasing economic profit and ROIC* • Investment for growth • Dividend growth target • Balance sheet: single A target • Strong performance *Group ROIC assumes £4bn invested capital was deemed to UK energy in 1997 • Increased economic profit contribution. • Post-tax ROIC now 12%. • Our pri
Slide 31: centrica
centrica
Slide 32: Appendices
Appendices
Slide 33: Net cash capital expenditure
Net cash capital expenditure £m 2003 2002 British Gas Res idential 137 194 Centrica Energy Management Group 67 51 AA 35 61 North A mer ica 57 67 Goldfish 0 46 Other 27 30 Less disposals & loans repaid (41) (47) Total 282 402
Slide 34: Net cash acquisitions
Net cash acquisitions £m 2003 Roosecote pow er station 24 Barry pow er station 40 AEP deferred consideration 26 North A mer ica 12 JVs and associates 10 Other 5 Pr oceeds from disposals (15) Total 102 2002 935