Centrica Plc · LSE:CNA
Centrica — Investor Presentation (February 2013)
57 slides from Centrica's investor presentation, Feb 27, 2013
Slide 1: Centrica
centrica
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: Sam Laidlaw, Chief Executive
Sam Laidlaw Chief Executive centrica
Slide 4: Progress against previous strategic priorities
Progress against previous strategic priorities Strategic priorities Grow British Gas Deliver value from our growing upstream business Build an integrated North American business Drive superior financial returns Strategy delivery over past 3 years QLNN ENN N ENN NINN Stable BGR profit and market shar
Slide 5: The external environment is evolving
The external environment 's evolving * Gas continues to play a major but changing role in UK and US energy supplies the UK is increasingly reliant on imports. LNG will intensify the link between the UK and global gas markets in North America, growing shale production has resulted in low prices and i
Slide 6: Gas has an important role to play in the US and UK
6 Gas has an important role to play in the US and UK Forecast UK gas demand bef/d 2010 2012 2015 2020 Forecast US gas demand bef/d 2010 2012 2015 2020 ‘Source: UK — National Grid National Grid Ten Year Statement US— EIA Annual Energy Outlook 2013 Early Release, central case UK - continuing role for
Slide 7: UK more reliant on gas imports
UK more reliant on gas imports P UK gas supply (bcf/d) Gs) 57%) ®) % of supply from import @ LNG imports @ Europe imports ® Norway imports ©) UK onshore @ UKCS domestic 2001 2006 2011 2016 2021 * Traditional supplies declining » LNG increasing e UK shale may contribute in the longer-term ‘Source: UK
Slide 8: LNG intensifies link between UK and global markets
LNG intensifies link between UK and global markets Growing global LNG demand bof/d 31 @ Other @ India ® Spain @ UK 13 @us © France ® South Korea ® Japan 2001 2011 « UK competing for supply in a global LNG market * 25 countries importing LNG in 2011 (12 in 2001) ¢ Spot LNG increased from 6% to 25% of
Slide 9: Shale gas has transformed the US energy outlook
9 Shale gas has transformed the US energy outlook Shale increasing gas production LNG export projects are planned US gas production 100 ® Under construction ey (@ FERC filing 80 @ FERC pre-filing US demand 60 - 40 20 Non-Shale 0) 1990 2000 2010 2020 2030 * Greater certainty about scale and enduring
Slide 10: UK Power investments depend on regulatory support
10 UK Power investments depend on regulatory support Gas fired generation UK power price and clean spark spread 100 (£/MWh) Baseload power Forward curve 80 60 ote ont 40 20 Clean Spark Spread a ottes 0 —— 2005 2007 2009 2011 2013 2015 * Spark spreads remain low » Reserve margins expected to fall for
Slide 11: Downstream: emphasis on affordability in the UK
Downstream: emphasis on affordability in the UK Challenging economy, pressure on spending 15.4 (0) Real households’ disposable income per head Energy bills increasing British Gas residential dual fuel energy bill £/customer/year @SNT 45.2 | £1000 Wear, -5 4125 real 2009 a 4,005 1,027 1.067 ® Non-com
Slide 12: Downstream: favourable environment in NA
12 Downstream: favourable environment in NA Income and sentiment improving 35 90 US consumer sentiment index, % 80 34 70 33 60 32 . Real households’ disposable 50 income per head $ 000s/year, real 2005 31 40 30 | ; 30 T T T T 2008 2009 2010 2011 2012 2013 * Improving market environment — regulators
Slide 13: Our strategic priorities
13 Our strategic priorities Innovate to drive growth and service excellence Integrate our natural gas business, linked to our core markets Increase our returns through efficiency and continued capital discipline The leading integrated energy company with customers at its core centrica
Slide 14: What these priorities mean
What these priorities mean 1. Innovate Share technology and new propositions across the to drive growth and Atlantic, leveraging our leading positions. Grow in service excellence B2B, services and North American residential 2. Integrate Invest for value in E&P, notably in North America, our natural
Slide 15: New organisational structure
15 New organisational structure International Downstream International Upstream ¢ Leverage scale benefits in sales operations, billing and customer service ¢ Share best practice in competitive energy retailing * Share innovations and new products e.g. connected homes ¢ Deploy expertise across the At
Slide 16: New organisational structure
New organisational structure Sam Laidlaw Chief Executive r 1 Chris Weston Nick Luff Mark Hanafin Managing Director Group Finance Managing Director International Downstream Director International Upstream * British Gas Residential » E&P Global * British Gas Services * UK Power * British Gas Business
Slide 17: Our strategic priorities: Innovate
7 Our strategic priorities Innovate to drive growth and service excellence ¢ Lead with great service and efficient operations * Enable our customers to control their energy use in a simpler, smarter, more efficient way * Grow in selected markets, building on our leading capabilities centrica
Slide 18: Our downstream business
18 Our downstream business s 615.7m residential energy accounts * 1.2 bcf/d gas * 26 TWh electricity 3.5m residential energy accounts * 584 mcf/d gas * 19 TWh electricity 0.9m B2B accounts 248 mcf/d gas 0.4m B2B accounts °217 mef/d " 4.1m services customers we Benefits of scale in sales operations,
Slide 19: Distinctive capabilities across downstream
19 Distinctive capabilities across downstream Customer service * ‘Five star’ UK customer service rating from Consumer Focus and efficiency * Same day service promise in NA and UK * IT platforms driving scale efficiencies Home and ° UK base of over 11,000 highly trained engineers business services *
Slide 20: Great service and efficient operations
20 Great service and efficient t operations UK: great service and efficient operations Efficiency in energy and services has improved... 2011 operating cost per account Material costs 0 te 9 2011 post- 20 S/ob, real O 600 80 g tax BGR margin (%) fg) v 15 575 60 6 50 5 10 550 40 4 30 3 20 2 5 525 10
Slide 21: Great service and efficient operations
Great service and efficient operations US: great service and efficient operations Operational efficiency is increasing... ...as are Net Promoter Scores DE operating metrics a Direct Energy Net Promoter Score US$ 157 60 Services ® 2009 B 2012 40 104 Residential 67 64 ob 20 f 0 Business -20 Cost to se
Slide 22: Simpler, smarter, more efficient energy
Simpler, smarter, more efficient energy Opportunities to differentiate in residential ° Additional opportunities in connected homes driven by 22 — smart meter roll-out — energy efficiency * Good fit with our digital presence and services capabilities Remote Heating Control Free Power Saturdays nt GN
Slide 23: Simpler, smarter, more efficient energy
23 Simpler, smarter, more efficient energy Opportunities to differentiate in B2B Improving energy performance in UK » EPCs - partnering with major organisations to fund energy saving measures, paid via energy bill reduction ° 7 UK partnerships from standing start — 5-10 year contracts — growing book
Slide 24: Grow in selected markets
Grow in selected markets A market leading position in North America Strong growth track record Direct Energy underlying operating profit £m CAGR:+16% - Ontario 2009 2010 2011 2012 » DE downstream ROACE up from 9% to 13% since 2009 24 Market leading position North America competitive residential ener
Slide 25: Grow in selected markets
25 Grow in selected markets North America: growth in residential Integration of bolt-on acquisitions 2011 acquisitions Cost Gateway $90m Vectren $39m First Choice Power $270m ¢ Platform standardisation and staff consolidation to deliver synergies * Flexible integration approach to identify opportuni
Slide 26: Grow in selected markets
26 Grow in selected markets Positioned for further growth in North America Large residential energy market with room for growth... Residential Energy market share % of total (2012) 100% 80% ® Direct Energy ® Incumbents @ Retailers 60% 40% 20% 0% » 50m homes in deregulated markets in the US * Realise
Slide 27: Growth prospects in downstream
Growth prospects in downstream Operating profit a BGR + Operational efficiency and great service to remain maintain stable British Gas competitive margins BGS »° New segments (e.g. landlords), affinity partnerships, and smart meter enabled sales high single digit * Connected homes and businesses to
Slide 28: International downstream in summary
28 International downstream in summary 1. Innovate to drive growth and service excellence Great service and efficient operations Simpler, smarter, more efficient energy Growth in selected markets Lead with great service and relentless focus on costs, utilising our unique scale, systems and services
Slide 29: Our strategic priorities: Integrate
29 Our strategic priorities Integrate our natural gas business, linked to our core markets * Grow and diversify our E&P portfolio for value * Develop our midstream business to integrate along the value chain ¢ Maintain a low carbon power hedge and invest where we see value centrica
Slide 30: Grow and diversify our E&P portfolio for value
30 Grow and diversify our E&P portfolio for value Delivering on our strategy Global oil & gas production bore/d 2P reserves 12 tere 2C resources! _tcfe mmboe/a 75 . mmboe 633 . mmboe aa 590 44 290 60 2009 2013e 2009 2013 2009 2013 @uk t Norway @ Netherlands B North America ® Trinidad & Tobago 1. Att
Slide 31: Our UK hedge is now in line with our competitors
31 Our UK hedge Is now in line with our competitors Centrica’s changing energy balance’ 2009 2012 bth bth 4.8 ® Power @ Gas Demand Supply Demand Supply Residential pre-tax energy hedge: Residential post-tax energy hedge: 26% 1. Demand includes residential energy demand, power station gas requirement
Slide 32: Distinctive capabilities underpin recent success
32 Grow and diversify our E&P portfolio for value Distinctive capabilities underpin recent success Distinctive capabilities Asset stewardship Delivering mid-sized projects Exploration in known subsurfaces Strategic acquisitions and partnerships Recent achievements Morecambe field life extended beyon
Slide 33: Norway: a successful growth story
Grow and diversify our E&P portfolio for value Norway — a successful growth story Production: fastest growing entrant since 2000 * 4 acquisitions between 2008 and 2012 FOTN E SABES tT mid-scale E&P in 5 years * Statoil and Statfiord acquisitions outperforming Pphic double-digit IRR acquisition cases
Slide 34: Morecambe: extracting value from a mature asset
34 Grow and diversify our E&P portfolio for value Morecambe — extracting value from a mature asset A highly strategic asset One of UK’s largest gas fields First gas 1985, peak gas 2000 100% owned and operated Low operating cost Production: managing performance and cost * FEED underway on Barrow term
Slide 35: Western Canada: capabilities in onshore E&P
35 Grow and diversify our E&P portfolio for value Western Canada — capabilities in onshore E&P Transforming our business befe mmboe mmboe/a befe/d 700 |120 12 0.2 350 0.1 0) 0.0 2007 2008 2009 2010 2011 2012 @ 2P Reserves = Production Production: building scale * Doubled our 2P reserves and producti
Slide 36: Diversified portfolio with stable production outlook
Grow and diversify our E&P portfolio for value Diversified portfolio with stable production outlook Global gas & oil production outlook mmboe/a 99 1.Sbefe/d 75 60 45 30 15 Typical investment 100m r ~£1bn/a! 0 2009 2011 2013 2015 2017 2019 @ North America ® Exploration Base @® Europe, T&T? ©) Develop
Slide 37: Deploying further capital in E&P for value
Grow and diversify our E&P portfolio for value Deploying further capital in E&P for value * Consider upstream growth only where we see value * Apply rigorous capital discipline * North America currently an attractive market for further investment — good value opportunities — our gas production is on
Slide 38: EV/EBITDA multiple
• 12 120 11 110 10 100 9 90 EV/ EBITDA • 8 80 Multiple1 8 • 7 70 7 6 60 6 5 50 5 4 40 4 3 30 3 2 20 2 1 10 1 0 0 0
Slide 39: LNG
Develop our midstream business to integrate along the value chain 39mmboe/a production 22mmboe/a production 9 ae UK and NL (688 mmcf/d) Norway (270 mmcf/d) sah SSo R 10 mmboe/a production Pare . Gas demand (159 mmcf/d) \ nl Upstream production Potential investment in gas Midstream production (focus
Slide 40: Deploying our midstream capabilities
40 Develop our midstream business to integrate along the value chain Deploying our midstream capabilities Asset-backed optimisation Procurement and contracting Our capabilities Managing price risk, shape, intermittency and seasonal swing Track record in gas and power asset optimisation Assets and po
Slide 41: Expertise and options in UK storage
Develop our midstream business to integrate along the value chain Expertise and options in UK storage Projects o—"—_ % owned by Centrica 100% 100% 70% Working gas (bcf) 117 4.9 108 Injection/withdrawal (days) 190/90 26/30 90/95 « UKhas relatively low seasonal storage capacity @ Roush (existing) gs .
Slide 42: Maximising value from our existing UK power assets
42 Maintain a low carbon hedge and invest in power where we see value Maximising value from our existing UK power assets Flexible, low carbon generation capacity Centrica Energy UK equity generation capacity’ * CCGT: managing the fleet for market recovery aw so — higher utilisation expected by 2015
Slide 43: Options to invest if we see value
43 Maintain a low carbon hedge and invest in power where we see value Options to invest if we see value CCGT Langage Power Station * New build options maintained at least cost ° Investment decision subject to improvements in market outlook and capacity payment outcome — Kings Lynn 2 (1 GW) — other s
Slide 44: International upstream in summary
44 International upstream in summary 2. Integrate our natural gas business, linked to our core markets * Strong near term growth and good development pipeline Grow and diversify our * Build and optimise our portfolio: moving towards 100mmboe/a, E&P portfolio for value investing only for value * Grea
Slide 45: Nick Luff, Group Finance Director
Nick Luff Group Finance Director centrica
Slide 46: Our strategic priorities: Increase returns
46 3. Our strategic priorities Increase our returns through efficiency and continued capital discipline ¢ Further develop organisational capability * Continuously focus on safety ° Deliver value to shareholders centrica
Slide 47: Cash generation
Cash generation ° Highly cash generative business model — ~£1.8bn free cash flow p.a. Significant flexibility in investment choices across the Group * Opportunities benchmarked against returns to shareholders 47 4. includes working capital, exceptional payments, pension deficit payments Sources and
Slide 48: Capex profile
Capex profile Annualised . capex profile 2013-15 * ~£200m p.a. maintenance capex * ~£1.1bnp.a. to maintain and sustain production £0.4bn- — bring gas and oil projects onstream avian — enhance production from existing assets — includes ~£100m p.a. exploration spend * ~£400m-£500m p.a. available for ‘
Slide 49: Credit headroom
Credit headroom For the year ended 31 December 2012 EBITDA Net Funds from Adjusted Retained Adjusted debt operations debt cash flow debt * Maintain commitment to A3 / A- credit ratings * Comfortable 2012 metrics, expected to improve in 2013 ° Headroom for value-adding acquisitions . centrica
Slide 50: Bringing projects on stream
Bringing projects on stream Capital moving from pre-productive to productive 1.5 Son 0.0 2012 2013 First year Ensign York of project SevenSeas Rhyl earnings Atla Kew Lincs 50 * Bringing £1.5bn of major new projects onstream between 2013-2015 * Track record of bringing resources into production — Rhy
Slide 51: Case studies: organic investment decisions
51 Case studies — organic investment decisions Cygnus * Strong strategic fit - cornerstone asset — acquired through Venture Production acquisition — largest discovery in Southern North Sea for 25 years, £1.4n total investment — Centrica share of 2P reserves of 58mmboe — deploying our expertise throu
Slide 52: Case studies: acquisitions
Case studies - acquisitions Statoil strategic partnership * Delivered step change in scale of Norwegian activities, trebling 2P reserves — £1bn investment for 117mmboe 2P reserves (including 9Ommboe producing Kvitebjorn field and 21mmboe Valemon development asset) — building on existing Norwegian po
Slide 53: Operational excellence
53 Operational excellence * Strong health and safety record — process and personal safety a core priority * Strong track record of cost reduction — on track to deliver £500m Group-wide cost reduction programme, ensuring we remain competitive — half of savings achieved in 2012 — 3,000 roles removed —
Slide 54: Dividend growth
54 Dividend growth * Strong track record of real dividend growth * £500m share buy back announced in February 2013 All investments benchmarked against returns to shareholders TSR of 36% over past 3 years 1999 2001 CAGR = 16.5% 2003 2005 2007 2009 2011 centrica
Slide 55: Sam Laidlaw, Chief Executive
Sam Laidlaw Chief Executive centrica
Slide 56: Our five year vision for a leading integrated energy company
56 Our five year vision for a leading integrated energy company with customers at its core es > as > * Sustainable and high- grade portfolio in the North Sea ° Significant upstream position in North America e.g. unconventional gas ° Efficient power plants in the UK and North America, maintaining an
Slide 57: The next 3-5 years
The next 3-5 years 1. Innovate * Stable profits in BGR, growth in BGS and BGB to drive growth and * Build capabilities in connected homes and businesses service excellence * Double operating profit in North America downstream through organic growth and acquisition 2. Integrate * Invest for value acr