Slide 1: Direct Energy Investor Day June 2011
Direct Energy Investor Day 28 June 2011 BW Direct E EAE 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
Sam Laidlaw Chief Executive BW Direct E MM Ener centrica
Slide 4: Agenda
Agenda 09:00 Introduction Sam Laidlaw Update on strategy and progress Chris Weston Financial context James Spence Q&A All 10:45 Coffee break 11:30 Market environment Badar Khan & Maura Clark 12:30 Lunch 13:30 Line of Business presentations DE Residential Steven Murray DE Business Maura Clark DE Serv
Slide 5: Our Strategic Priorities
Our Strategic Priorities 1 Grow British Gas . . . leading the transition to low carbon homes and businesses 2 Deliver value from our growing upstream business . . . securing sustainable energy for our customers 3 Build an integrated North American business . . . with leading positions in deregulated
Slide 6: Centrica and the role of North America
Centrica and the role of North America • Large profit pools Attractive growth • Key positions in evolving competitive markets opportunity • Continued demand and household growth • Managing a vertically integrated business Leverages Group • Core competencies in competitive retail markets expertise •
Slide 7: Good progress to date
Good progress to date Over 10 years experience in North America • Contributing c.10% of Group operating profit and delivering above cost of capital returns Profitable downstream businesses in key markets • Transformation of the residential energy business • 3rd largest C&I power supplier in North Am
Slide 8: Well positioned for further growth
Well positioned for further growth Strong financial track record under new management • Successful integration of value adding acquisitions • Good progress towards doubling the size of the business through organic growth and acquisitions Further significant growth potential, organically and through
Slide 9: Chris Weston
Chris Weston President and CEO, Direct Energy pirect BI nerdy 1 5816 1,900.266.3939 BW Direct ° MM Energy Centrica
Slide 10: Economic environment
Economic environment Year on year GDP growth (%) • Steady economic growth 8 – recent US unemployment figures 4 US have raised some concerns that 0 recovery may be slowing -4 UK -8 2008 2009 2010 2011 • Political focus on debt and budget deficits – energy is not a top priority – state regulatory envi
Slide 11: Upstream gas
Upstream gas Annual gas production (Bcf/d) Commodity prices (p/therm) 70 60 80 50 NBP 60 40 30 40 20 Shale 20 10 Henry Hub 0 0 2000 2009 2025 2000 2009 2025 2008 2009 2010 2011 2012 2013 United States United Kingdom • Profit pool of c. US$25 billion1 North American gas demand (Bcf/d) 100 • Driven by
Slide 12: Power generation
Power generation Total US generation capacity (GW) 1,200 1,129 1,002 1,129 1,000 Other 800 Renewable • US profit pool of c. US$15 billion1 Nuclear 600 Natural Gas • Reserve margins expected to fall Coal 400 • Coal oversold; expected to remain key 200 85 part of generation 0 2009 2035 2009 • Gas the
Slide 13: Retail: dynamic regulatory landscape
Retail: dynamic regulatory landscape Restructured residential markets • Three types of regulated market structure: – regulated – unbundled – hybrid • Growth is driven by restructuring and economic activity DC Unbundled – pace of restructuring varies Hybrid • Increasing political consensus regarding
Slide 14: The US Northeast and Texas are key growth markets
The US Northeast and Texas are key growth markets US Northeast 37% of US • Largest energy market in the world population – generating capacity: 340 GW – gas demand: 4 Tcf DC • Retail energy profit pool1 of $7 billion 8% of US • Utility default service population • Residential electricity sales expec
Slide 15: Direct Energy management team
Direct Energy management team
Slide 16: Direct Energy: established expertise and platform in North America
Direct Energy: established expertise and platform in North America Downstream Upstream DE Residential Upstream Gas 3m customers in 4,600+ wells Canada, Texas, US 60 Bcfe/year production Northeast 618 Bcfe reserves (2P) DE Business Power Generation Number 3 in North Three CCGT plants America (1,215 M
Slide 17: Centrica capabilities, North American opportunities
Centrica capabilities, North American opportunities Regulatory/ Retail Managing an Positioning government operations integrated for a low carbon relationships excellence business future • Established • Sales & marketing • Gas and power • Services capability working upstream capability relationships
Slide 18: North American strategy
North American strategy: . . . building a scale, vertically integrated business IMPROVE returns from • Drive operational excellence and cost efficiency existing • Be the most recommended provider business GROW • Achieve leadership in each of our core markets scale and • Build a single pan-North Amer
Slide 19: The value in vertical integration
The value in vertical integration • Upstream assets and retail positions provide an advantage across the cycle – earnings stability and growth, during periods of volatility – reduced transaction costs – enhanced portfolio optimisation – reduced collateral requirements • Our competitors typically hav
Slide 20: Doubling our business
Doubling our business Double size of business through organic growth Operating profit (£m) and acquisitions 400 300 200 Growth 100 0 2009 3-5 years 2010 from 2009 -100 Downstream Upstream Note: 2009 operating profit stated before £61m of one-off charges
Slide 21: North America – platform for growth
North America – platform for growth A strong set of growth drivers supplemented by further acquisitions Capitalise on Energy / commodity Operational services price upside Market overlap Growing excellence penetration market • Dynamic • Opportunity to • Sustain and • Leverage • Positioned to regulato
Slide 22: DE Residential
DE Residential Progress Challenges Opportunities • Texas transformation • Largest in North America, • Further leveraging North – consolidated platforms but neither number 1 or 2 America scale – reconfigured channels in core markets • Significant growth – improved cost to • Brand awareness and potent
Slide 23: DE Business
DE Business Progress Challenges Opportunities • Strong profit growth • Competition intensifying • Small business growth – operating profit more – consolidating market, – product portfolio than doubled in 2010 with competitors catering to • Improved margins becoming larger and underserved more vertic
Slide 24: DE Services
DE Services Progress Challenges Opportunities • Transformation through • Weak housing market, in • Large market: 130 million Clockwork acquisition new build and in housing households and a – number 1 services prices potential services provider in a highly – impacts household revenue pool of $75bn fr
Slide 25: DE Upstream
DE Upstream Progress Challenges Opportunities • Increased gas asset cover • Low commodity price • Further upstream gas to c.35% environment investments in the – Wildcat Hills: C$367m – impact on near term Western Canadian – further Wildcat Hills earnings Sedimentary Basin assets: C$47m (WCSB) • Scal
Slide 26: North America – platform for growth
North America – platform for growth A strong set of growth drivers supplemented by further acquisitions Capitalise on Energy / commodity Operational services price upside Market overlap Growing excellence penetration market • Pan North • Leveraging • Low gas price • US Northeast competitive American
Slide 27: Build an integrated North American business
Build an integrated North American business . . . with leading positions in deregulated markets Good progress to-date • Organic growth, operational efficiencies, and value-adding acquisitions Well positioned for further growth • Increase penetration in dynamic retail markets • Further grow C&I, espe
Slide 28: James Spence
James Spence CFO, Direct Energy il lait - bale ate mn |_| i . it | ab Pr Direct ua Energy. centrica
Slide 29: Energy prices
Energy prices AECO and Henry Hub gas prices ERCOT South on-peak power price (US$/MMBtu) (US$/MWh) 14 500 Henry Hub 12 250 10 200 8 150 6 100 4 AECO 50 2 0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Note: AECO is the Alberta gas hub price
Slide 30: DE Consolidated
DE Consolidated (£m) Operating profit (£m) and ROCE (%) (%) Revenue (£bn) 400 12 ROCE 6 300 9 200 6 4 100 3 2 0 0 Upstream operating profit Downstream operating profit -100 -3 0 2008 2009 2010 2008 2009 2010 Upstream Downstream Operating cash flow (£m) Drivers of future growth 600 • DE Residential w
Slide 31: DE Residential
DE Residential (£m) Operating profit (£m) and ROCE (%) (%) (£bn) Revenue (£bn) and operating margin (%) (%) 200 20 6 8 ROCE 150 15 Operating 6 4 margin 100 10 4 2 50 5 2 0 0 0 0 2008 2009 2010 2008 2009 2010 Operating profit Revenue Customers (m) Drivers of future growth 3 Gateway • Texas transforma
Slide 32: DE Business
DE Business (£m) Operating profit (£m) and ROCE (%) (%) (£bn) Revenue (£bn) and operating margin (%) (%) 100 25 3 4 80 20 Operating margin 3 2 60 15 ROCE 2 40 10 1 1 20 5 0 0 0 0 2008 2009 2010 2008 2009 2010 Operating profit Revenue Power sales volumes (TWh) Drivers of future growth 50 • Continued
Slide 33: DE Services
DE Services (£m) Operating profit (£m) and ROCE (%) (%) (£m) Revenue (£bn) and operating margin (%) (%) 30 6 500 5 ROCE 400 4 20 4 Operating 300 3 margin 200 2 10 2 100 1 0 0 0 0 2008 2009 2010 2008 2009 2010 Operating profit Revenue Customers (m) Drivers of future growth 3 Clockwork • Clockwork pro
Slide 34: DE Upstream
DE Upstream (£m) Operating profit (£m) and ROCE (%) (%) Gas production costs1 (C$/mcfe) 60 7 6 40 ROCE 5 5 3 20 4 1 0 3 -1 -20 2 -3 -40 -5 1 -60 -7 0 2008 2009 2010 2008 2009 2010 2010 Operating profit Wildcat Hills (bcf) Gas production and generation volumes (TWh) Drivers of future growth 50 10 • W
Slide 35: History of successful acquisitions, contributing to growth
History of successful acquisitions, contributing to growth Strategic Energy Clockwork Wildcat Hills Jul 2008: US$300m (£151m) Jul 2010: US$183m (£122m) Oct 2010: C$367m (£218m) • Scalable platform for growth • Established brands • Gas production costs of • Doubled DE scale in C&I • Franchise model C
Slide 36: Build an integrated North American business
Build an integrated North American business …with leading positions in deregulated markets Good progress to-date • Earning returns above Group cost of capital • Strong cash flow Well positioned for further growth • Profitable, organic growth across all our businesses Building the business downstream
Slide 37: MM Energy. Centrica
MM Energy. Centrica 0 ro) dS (=) BE w ‘Simple, Frienc
Slide 38: Market Environment
Market Environment Badar Khan, President, DE Upstream
Slide 39: Upstream power and natural gas: Summary
Upstream power and natural gas: Summary • Large domestic resource base – shale phenomenon driving excess supply – North America has disconnected from global gas prices • Growing natural gas and electric power demand – gas-fired generation major driver of gas demand growth • Diverse generation fuel m
Slide 40: North America has the world's largest gas and power markets
North America has the world’s largest gas and power markets Annual gas production1 (Tcf) Annual generation (TWh) 25 5,000 20 4,000 15 3,000 10 2,000 5 1,000 0 0 USA Iran Germany China S Arabia USA Japan India Germany Brazil UK Russia Japan UK Canada2 Italy China Russia Canada France S. Korea • Large
Slide 41: North America has disconnected from global gas prices
North America has disconnected from global gas prices 14 2008: 70 Shale production Mid-Late 1990’s: expands out of Texas 12 View of gas as plentiful and cheap 65 leads to CCGT build-out; development US gas production (bcf/d) of new shale methods in Texas Gas price (US$/MMbtu) 10 60 8 55 6 50 4 45 2
Slide 42: Shale has changed the game
Shale has changed the game . . . North American natural gas (Tcf) • Over one-third of natural gas resources have been 1,200 3,000 identified since 2006 • North America has secure natural gas supplies for the 100+yrs foreseeable future supply at 1,500 current consumption • The estimated resource base
Slide 43: Natural gas producers are increasingly turning to shale
. . . and natural gas producers are increasingly turning to shale . . . US gas production (Bcf/d) Canada gas production (Bcf/d) 80 25 20 60 15 40 10 20 5 0 0 2008 2015 2025 2035 2006 2010 2015 2020 Lower 48 onshore Coalbed methane Conventional gas Coalbed methane conventional Shale gas Lower 48 offs
Slide 44: WCSB continues to be attractive
. . . the Western Canadian Sedimentary Basin (WCSB) continues to be attractive WCSB is a low cost basin Multiples at relative lows 2010 per unit F&D and lifting costs (US$/mcfe) WCSB reserve value metrics P+P (C$/mcfe) 8 5 50 mmboe 7 P+P reserves 2005-2008 average WCSB fields 4 6 5 3 2010-2011 YTD a
Slide 45: Power generation driving North American natural gas demand growth
Power generation driving North American natural gas demand growth North American gas demand (Bcf/d) 100 Other • Total natural gas demand projected to rise c.40% from 80 2009 to 2030 Power • Power generation demand 60 expected to be driven by higher CCGT capacity factors 40 Industrial and new build •
Slide 46: US generation mix is evolving due to a number of factors
US generation mix is evolving due to a number of factors . . . Coal Natural gas Nuclear Renewables 1,772 TWh (45%) 931 TWh (23%) 799 TWh (20%) 420 TWh (11%) • EPA • Increase in • There has been • No federal requirements demand no new nuclear carbon mostly impact expected to be build in a legislation
Slide 47: Coal and gas fired generation expected to remain significant
... however, both coal and gas fired generation expected to remain significant . . . US capacity (GW) US generation (TWh) 1,129 5,166 1,002 Other 3,981 Renewable Nuclear Natural gas Coal 2009 2035 2009 2035 Sources: EIA International Energy Outlook 2010
Slide 48: ... to meet growing power demand
... to meet growing power demand US electric power demand (TWh) 5,000 Transportation • Demand expected to increase at 1% CAGR for next 25 years 4,000 Industrial – major drivers are population growth and transition to services economy 3,000 – power demand from electric vehicles not expected to be a s
Slide 49: North American competitive power markets
North American competitive power markets Installed ISO/RTO capacity (GW) Ontario 200 Alberta Electric Independent System Operator Midwest ISO Electricity System Operator Regulated – 290 GW 160 Unregulated – 330 GW New Brunswick 120 System Operator ISO New England 80 New York ISO PJM 40 Interconnecti
Slide 50: Energy only vs. capacity markets
Energy only vs. capacity markets There are two approaches to ensure adequacy of generation, to maintain reserve margins and to compensate generating resources Energy only markets Capacity markets • Energy prices to send correct price • A regulatory mechanism establishing signals to ensure adequate r
Slide 51: Regional power markets vary by price
Regional power markets vary by price Prices are different Prices have different volatilities Average daily on-peak power prices Average daily on-peak power prices May 2011 (US$/MWh) June 2010 – June 2011 (US$/MWh) 80 350 ERCOT South 300 60 PJM West 250 200 40 150 20 100 50 0 0 ERCOT PJM PJM MISO NYI
Slide 52: Regional power markets vary by resource adequacy and fuel mix
Regional power markets vary by resource adequacy and fuel mix Reserve margins (%) Installed capacity by fuel (%) 30 100 2010 25 2015 80 Target Other 20 60 Hydro 15 Wind 40 Nuclear 10 Gas 20 Coal 5 0 0 NY ERCOT PJM ISO NE MISO NY ERCOT PJM ISO NE MISO • Current reserve margins are adequate in • Fuel
Slide 53: Upstream power and natural gas: Summary
Upstream power and natural gas: Summary • Large domestic resource base – shale phenomenon driving excess supply – North America has disconnected from global gas prices • Growing natural gas and electric power demand – gas-fired generation major driver of gas demand growth • Diverse generation fuel m
Slide 54: Market Environment
Market Environment Maura Clark, President, DE Business BW Direct E MM Energy Centrica
Slide 55: Retail: Summary
Retail: Summary • Dynamic competitive landscape with a range of business models – strong competition, but no truly dominant national players • 80m addressable residential customers across North America • The US Northeast is a growing market with 53m customers – positive outlook for switching: more t
Slide 56: Large retail energy market
Large retail energy market Restructured residential markets • Residential energy: – 80m addressable customers • Business energy: – largely competitive for both gas and power – addressable volumes: 1,000 TWh, 6 Tcf • Home services: DC – 130m households – underlying demand: 1.5m housing starts per ann
Slide 57: Competitive landscape
Competitive landscape Business models Major competitors Utility affiliate Dominion Retail Residential Competitive integrated Reliant Independent Just Energy Utility affiliate FirstEnergy Commercial / Competitive integrated Constellation New Energy industrial Independent GDF Suez Major / National Ser
Slide 58: Many market participants, however no truly dominant national players
Many market participants, however no truly dominant national players Residential electricity Business electricity (%) 100 Others (c.50) 90 80 Ambit Others (90+) Stream 70 Direct Energy Others (10+) 60 Others (20+) Others (80+) 50 Sempra NRG / Reliant 40 GDF Suez 30 Direct Energy MyRate FirstEnergy 2
Slide 59: Texas: the largest state power market
Texas: the largest state power market Market overview Regulatory and competitive landscape • No utility default provider; fully competitive – gas is not open to competition Dallas • 30+ residential competitive retailers Houston • Outside the top 3 players, the market is fragmented – TXU: 1.8m custom
Slide 60: Canada: a large market, however, with regulatory challenges
Canada: a large market, however, with regulatory challenges Market overview Regulatory landscape Ontario - hybrid market structure • Market structure does not encourage competition • Utility default providers dominate Calgary Ontario consumer protection legislation Toronto • Competition further disc
Slide 61: US Northeast: improving regulatory environment
US Northeast: improving regulatory environment in a densely populated area Market overview Regulatory and competitive landscape • A region open to competition, spanning 16 US states and DC • Over 50 gas and power utilities – utilities are the default provider – utility performs the billing • Recent
Slide 62: US Northeast: large market with increasing switching
US Northeast: large market with increasing switching US Northeast switching expected to increase, especially amongst residential customers (15% CAGR, 2010-16) Residential volumes switched by state (TWh) 20 2006 2010 2016 16 12 8 4 0 CT IL MA MD NJ NY OH PA Sources: KEMA Retail Energy Outlook, May 20
Slide 63: Large home services market
Large home services market . . . North America home services North America households (millions) potential market revenue* (C$bn) 140 80 130 Plan 120 Canada 60 110 Maintenance 100 and repair 40 90 US Replacement 80 20 70 60 0 1989 1994 1999 2004 2009 • 70-75% of market concentrated in high density m
Slide 64: Housing market has not yet recovered
. . . although the housing market has not yet recovered US housing prices (US$ ‘000s) US housing starts (millions) 200 2.4 180 2.0 160 1.6 140 1.2 120 0.8 100 80 0.4 60 0.0 1989 1992 1996 1999 2003 2006 2010 1989 1992 1996 1999 2003 2006 2010 Weak housing market impacts not only the stock of homes i
Slide 65: Changing landscape: consolidation continues
Changing landscape: consolidation continues Top 30 NA utility and retail energy companies Consolidation for scale Duke/Progress and earnings stability Exelon/Constellation Dominion NextEra AES/DPL FirstEnergy/Allegheny Hess Sempra NRG/Reliant Consolidation for vertical integration Equitable Resource
Slide 66: Retail: Summary
Retail: Summary • Market is consolidating, driven by companies looking to – increase scale – acquire of regulated businesses for earnings stability – increase vertical integration to balance upstream and retail • 80m addressable residential customers across North America • The US Northeast is a grow
Slide 67: Direct Energy Residential
Direct Energy Residential Steven Murray, President ot ae a Li BB Direct MM Energy Centrica
Slide 68: DE Residential: summary
DE Residential: summary • Large and growing market with 80m addressable customers across North America – 67m addressable customers in DE core markets – 53m addressable customers in US Northeast markets • DE is the largest retailer in North America, with top three positions in each chosen market – On
Slide 69: The residential energy market
The residential energy market Large market . . . … and growing1 Residential power volumes Canada United States switched by state (TWh) 100 80 (%) 35 80 Rest of Rest of 30 country country 2006 2010 2016 60 25 20 40 15 Ontario 10 / Alberta USN 20 5 Texas 0 0 Population CT IL MA MD NJ NY OH PA TX Canad
Slide 70: DE Residential overview
DE Residential overview • 3m gas and electricity customers in core markets in Canada, Texas, and US Northeast • Sales through door-to-door, Electricity Natural Gas web, and inbound/outbound Electricity & Natural Gas telesales Houston, TX DER HQ • Products include fixed and variable-priced options of
Slide 71: Leveraging British Gas
Leveraging British Gas, the most successful competitive energy retailer British Gas Residential Direct Energy Residential • Number 1 supplier of gas and • Top 3 in each core market electricity in the UK • Operating in world’s largest gas and • Operating in fully deregulated electricity market, thoug
Slide 72: Historical performance
Historical performance (£m) Operating profit (£m) and ROCE (%) (%) 200 20 ROCE • Built positions in core markets 150 15 • Building the base in Texas 100 10 – Texas platform consolidation 50 5 – launched prepaid product 0 0 • Growing US Northeast 2008 2009 2010 Operating profit – US Northeast market
Slide 73: Vision and strategy
Vision and strategy Our vision: to build on our leading position by being the provider of choice in our chosen markets and extending our lead over the competition Innovation Increase penetration in existing US Northeast markets new markets Build the base in Texas Manage Ontario Operational excellenc
Slide 74: The Ontario challenge
The Ontario challenge Consumer protection Implications for Direct Energy Hybrid market structure The impact • Market structure does not • Reduced customer numbers encourage competition • Lower profitability • Utility default providers dominate Managing the impact Consumer protection legislation • Fo
Slide 75: Delivering growth
Delivering growth Operational excellence Value proposition Investment and growth • Fully harness scale • Present value • Continue to drive value – full integration of propositions tailored to from Texas platform operations leading each customer consolidation to lower cost to segment • Invest in US N
Slide 76: Texas: building the business
Texas: ‘building the business’ • Improve CTA efficiency CTA reduction • Leverage scale • Segmentation Operating Customer • Consolidate • Pricing costs retention platforms Building the • Expand channels business and partners Prepay Customer • Channel restructuring • Expand geographies product acquisi
Slide 77: Innovation: Texas prepaid
Innovation: Texas prepaid Prepaid is changing the way customers use electricity by giving them flexibility, convenience, awareness and ultimately choice • Benefits to customers – no deposit, credit check, or contract term – updates via email or SMS – enables management of usage and spend • Access to
Slide 78: Innovation: new energy opportunities enabled by smart technologies
Innovation: new energy opportunities are being enabled by smart technologies Planned smart meter deployments by 2020 • Smart meter rollout in different stages depending on market – utilities own and deploy the meters – 25m expected to be rolled-out by end of 2011 DC • Smart technologies enable new p
Slide 79: The US Northeast opportunity
The US Northeast opportunity Residential volumes switched by state (TWh) • Size of opportunity: 53m power and 20 gas customers 2006 2010 2016 16 • Increased switching 12 • Competitive activity 8 – low commodity prices and 4 improved regulatory conditions – markets are attracting new 0 CT IL MA MD NJ
Slide 80: DE Residential: summary
DE Residential: summary • Large and growing market with 80m addressable customers across North America – 67m addressable customers in DE core markets – 53m addressable customers in US Northeast markets • DE is the largest retailer in North America, with top three positions in each chosen market – On
Slide 81: Direct Energy Business
Direct Energy Business Maura Clark, President BW Direct a: MM Energy Centrica
Slide 82: DE Business: Summary
DE Business: Summary • Top three in a large and growing, but highly competitive market across North America • Strong organic growth trajectory with good profit fundamentals • Leveraging best practice between DE Business and British Gas Business • Continued growth driven by – segmentation – sales pro
Slide 83: DE Business overview
DE Business overview • Top three supplier to small, medium and large businesses/governments • Dual commodity offering across all competitive markets • Direct sales force and brokers – industry leading sales productivity • Leading supplier to National Accounts • NPS score of 24 in 2010 Electricity Na
Slide 84: Strong market fundamentals support growth
Strong market fundamentals support growth • Stable commodity and policy environments in the US • US C&I power market expected to grow at 6% CAGR to 2015 • Sector reporting healthy levels of profitability; competitive intensity returning Market opportunity Top 5 US C&I electricity retailers (estimate
Slide 85: British Gas comparison
British Gas comparison British Gas Business Direct Energy Business • A leading player – 19 TWh • Third largest player – 40 TWh – strength in SME segment – strength with larger C&I • Strong brand awareness at all levels customer segment • Customer value segmentation • Good brand awareness approach •
Slide 86: Historical performance
Historical performance (£m) Operating profit (£m) and ROCE (%) (%) 100 25 • The journey 80 20 – 2007: sub-scale 15 – 2008: acquired Strategic Energy 60 ROCE – 2009-2010: integration and 40 10 optimisation 20 5 • Strategic Energy provided opportunity 0 0 2008 2009 2010 to achieve scale Operating prof
Slide 87: Vision and strategy
Vision and strategy Our vision: to be a leading provider of energy and services to business customers Our strategy • Profitable growth by delivering the right product, to the right customer, at the right price – improve sales productivity of direct and indirect sales channels – targeted focus on sma
Slide 88: A range of growth opportunities
A range of growth opportunities Markets Sales Innovation • Customer segments • Sales productivity • Broker portal – small business • Improved channels – PowerChannel segment under- – field sales, telesales, • 360Direct served web – demand response – further leverage – power procurement national acco
Slide 89: The Small Business opportunity
The Small Business opportunity • Small businesses are very focused on Key competitors low price and good performance on the basics • Competitors are mainly regional players, extending their residential and/or C&I strategies to small businesses • A few competitors have begun to build the capabilities
Slide 90: The Small Business vision and strategy
The Small Business vision and strategy Vision: to be the leading small business retailer in NA Strategy Management agenda 1. Profitably grow our • Continue to build and increase yield of sales customer portfolio channels • Launch product suite (fixed, variable, flex) • Build on-line sales channel 2.
Slide 91: The 360Direct opportunity
The 360Direct opportunity • Non-commodity product and service offerings – facilitate energy management – improve stickiness and value of energy customers – provide a non-capital intensive source of growth • Developing a robust product suite – including demand response, integrated energy planning and
Slide 92: DE Business: Summary
DE Business: Summary • Top three in a large and growing, but highly competitive market across North America • Strong organic growth trajectory with good profit fundamentals • Leveraging best practices between DE Business and British Gas Business • Continued growth driven by – segmentation – sales pr
Slide 93: Direct Energy Services
Slide 94: DE Services: Summary
DE Services: Summary • Large and growing home services market – 90% of market served by local contractors • Acquisition of Clockwork makes DE the largest national home services provider – in 74 of the top 100 US metro regions • Significant potential to grow franchise presence • Material opportunity
Slide 95: Home services market is very large
Home services market is very large, despite unprecedented lows in new home starts North America home services potential market revenue (C$bn) US housing starts (millions) 80 2.4 Plan 2.0 60 1.6 Maintenance and repair 40 1.2 0.8 20 Replacement 0.4 0 0.0 1989 1992 1996 1999 2003 2006 2010 70-75% of ma
Slide 96: Home services market is highly fragmented
Home services market is highly fragmented, with majors capturing only 12% share North America home service providers (%) 100 Other Major / Cross Country National 90 Old Republic BGE Home Del-Air 80 Large First American Locals Number of States / Reliance 70 Sears technicians provinces Dwyer* Major /
Slide 97: DE Services is the largest home services provider in North America
DE Services is the largest home services provider in North America • Operates in 45 US states plus DC, and all 10 Canadian provinces • Product offerings – on demand service and repair: - heating, ventilation and air conditioning - plumbing - electrical Toronto – protection and maintenance plans Dayt
Slide 98: Presence in 74 of the top 100 US metropolitan regions
We have a presence in 74 of the top 100 high density US metropolitan regions 1) Increase scale in current regions 2) Expand into new regions 3) Expand service breadth DE Residential Energy Metro region with DE Services Metro region with no DE Services
Slide 99: Opportunity to export UK experience
Opportunity to export relevant UK experience to spearhead the North American model British Gas Services Direct Energy Services • Proven leadership talent in the • Transferred several leaders to key services industry roles in North America • Well developed Service Plan • Nascent market in US, but pro
Slide 100: 2010: a turning point through Clockwork acquisition
2010: a turning point through the acquisition of a platform for growth – Clockwork (£m) Operating profit (£m) and ROCE (%) (%) 30 6 2010 ROCE 20 4 • Acquired Clockwork Home Services as a platform for growth in a fragmented 10 2 market 0 0 2008 2009 2010 Operating profit Customers (m) 2011 3 Clockwor
Slide 101: Our vision: pre-eminent home services company in North America
Our vision: to be the pre-eminent home services company in North America To extract value To redefine the To be the leading through the To be the safest customer brands, services / place to work experience in our nationally and in energy industry our local markets proposition Have the lowest Become
Slide 102: Strategy: build a plan portfolio
Strategy: to build a plan portfolio to enhance the economics of our services business We aim to be the first major provider in North America to have both a service Further delivery capability and a material acquisitions customer annuity Geographic coverage and Franchise Protection Organic Affinity d
Slide 103: Building a One Services operating model
We are building a ‘One Services’ operating model across the whole of North America 2010 2011 2012 Positioning for success Transformation One Services • Developed growth • Installed Centrica • Pan-North American strategy leadership into Home Services • Acquired Clockwork as a Clockwork business – wit
Slide 104: NA Protection Plan potential is 8x the UK
NA Protection Plan potential is 8x the UK Plan market potential Indicative market penetration There are 25% DE targets 141m penetration 10% market UK Can US housing units and each share in North customer Housing units (m) 26 13 128 America buys two contracts Plans in force1 (m) 16 1 14 Penetration o
Slide 105: Protection plans present a further opportunity
Protection plans present a further opportunity to augment on-demand business More homeowners want . . . customers with . . . and few protection plans than protection plans are competitors offer have them . . . more profitable . . . them. % of homeowners across NA Customer lifetime value (index) % of
Slide 106: Upside potential through integration of energy and services
Longer term, upside potential through integration of energy and services Cross-sell Bundling Brand building • Technicians to sell energy • Reduce energy customer • Increase overall brand • Market protection plan to churn with protection plans recognition through co- energy customer base • Attract wi
Slide 107: DE Services: Summary
DE Services: Summary • Large and growing home services market – 90% of market served by local contractors • Acquisition of Clockwork makes DE the largest national home services provider – in 74 of the top 100 US metro regions • Significant potential to grow franchise presence • Material opportunity
Slide 108: Direct Energy Upstream
Direct Energy Upstream Badar Khan, President ) BW Direct x MM Energy Centrica
Slide 109: DE Upstream overview
DE Upstream overview Retail Upstream Power Midstream (DER, DEB, Gas Generation DES) • WCSB • Retail hedging • Texas (ERCOT) • Conventional, coal • Gas & power • 1,215 MW (three bed methane, marketing CCGTs) tight/shallow • Asset optimisation • 4,600+ wells • 23 Bcf gas • 60 Bcfe/year gas storage pro
Slide 110: DE Upstream: Summary
DE Upstream: Summary • North America is world’s largest gas and power market – plentiful opportunities to increase vertical integration • Doubled upstream gas reserves since 2007, while maintaining top- quartile costs – Wildcat Hills acquisitions adding low-cost production, reserves, and ability to
Slide 111: Market recap
Market recap Upstream gas Power generation • WCSB is a large and low cost • Ageing generation fleet: 1/3 of basin non-renewable US generation is 40+ years old • Portfolio reshaping towards unconventional gas • Load growth driven by population and economy, offsetting energy • Underexploited conventio
Slide 112: Historical performance
Historical performance (£m) Operating profit (£m) and ROCE (%) (%) 60 7 Drivers of performance 40 ROCE 5 20 3 • Upstream gas 0 1 – natural gas prices -1 -20 -3 – low cost acquisitions -40 -5 – hybrid and oil development -60 -7 2008 2009 2010 • Power generation Operating profit Gas production and – s
Slide 113: Vision and strategy
Vision and strategy Our vision: To build a leading vertically integrated energy business with low cost assets Strategy • Maximise returns in the low price environment – optimise power assets – low cost gas producer • Increase generation asset cover – geographic diversification matching downstream lo
Slide 114: Upstream Gas overview
Upstream Gas overview Total 2P reserves: Current production: 618 Bcfe 167 mmcfe/d North North Foothills Foothills North South South Team DE production (mmcfe/day) 167 Foothills Conventional Coalbed methane (94% gas) Team Shallow/Tight 118 108 (94% gas) (94% gas) South Team 2009 2010 2011
Slide 115: Upstream Gas performance
Upstream Gas performance We have doubled our business . . . . . . and we are low cost Reserves (Bcfe) WCSB gas production costs (C$/mcfe) Peyto Tourmaline 700 Birchcliff DIRECT ENERGY 600 Trilogy Bonavista 500 Progress Angle 400 Perpetual ARC Advantage 300 Compton Fairborne 200 Enerplus Anderson 100
Slide 116: The gas opportunity
The gas opportunity Recent deals have lowered costs Upside given large gas-in-place Original Gas-In-Place 2P Reserves Gas production costs (C$/mcfe) Recovery to Date 6 (Tcf) 6 5 5 4 4 3 3 2 2 1 1 0 0 2008 2009 2010 Wildcat Hills Legacy assets Wildcat Hills Recovery 64% 41% factor: F&D Costs: c. $3.0
Slide 117: Power generation assets
Power generation assets ERCOT Start date Date Capacity Heat-rate Capacity assets acquired (MW) (BTU/kWh) factor Bastrop 2002 2004 525 7,035 44% Frontera 2000 2004 450 7,053 49% Paris 1990 2006 240 8,305 20% Assets acquired at well (US$/kW) below new build cost 1,400 1,200 ERCOT CCGT new build cost 1
Slide 118: Power generation competitive positioning
Power generation competitive positioning Competitively positioned on the stack Spark-spreads have fallen recently ERCOT supply ERCOT stackatat Bid Stack US$4.50/MMBtu $4.50/MMBtu 15 ($/MWh) ERCOT South ATC for 7,000 hr Power plant Average minimum Average Peak 10 (Heat rate) summer load 32 GW load 40
Slide 119: The power generation opportunity
The power generation opportunity Targeting increased asset cover Integration benefits Peak load / capacity (GW) • Earnings stability and growth, during 12 periods of volatile commodity prices 10.5 10 • Reduced transaction costs Other • Enhanced portfolio optimisation 8 • Reduced collateral requireme
Slide 120: Customer-focused midstream opportunity
Customer-focused midstream opportunity Leveraging capabilities to develop customer-focused business Upstream Power Retail Gas Generation Midstream • Generation optimisation, marketing gas production and retail procurement • Optimising 23 Bcf of natural gas storage agreements and 1 Bcf/d natural gas
Slide 121: DE Upstream: Summary
DE Upstream: Summary • North America is world’s largest gas and power market – plentiful opportunities to increase vertical integration • Doubled upstream gas reserves since 2007, while maintaining top-quartile costs – Wildcat Hills acquisitions adding low-cost production, reserves, and ability to l
Slide 122: Direct Energy Investor Day June 2011
Direct Energy Investor Day 28 June 2011 BW Direct E EAE centrica