Slide 1: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica Shares. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. 1
Slide 2: Sir Roy Gardner, Chief Executive
Sir Roy Gardner CHIEF EXECUTIVE 2
Slide 3: Results in Brief
Results in Brief Six months ended 30 June, £m 2002 change Turnover (excluding Accord) 5,156 + 7% Operating profit* 627 + 43% Earnings* 431 + 30% Interim dividend per share 1.4p + 17% Operating cash flow 330 - 2% * Before exceptional charges & goodwill • Have built on strong performance from 2001. •
Slide 4: Progress Highlights
Progress Highlights z UK energy operating profit up 31% z 49% of UK operating profit derived from customer supply z Centrica Business Services launched, doubling profit z AA growth in roadside (8%), insurance (10%) & loans (62%) z Telecoms losses halved; improving sector outlook z Texas and Ontario
Slide 5: Strategic Imperatives
Strategic Imperatives z Deeper customer insight z Product innovation & cross selling z Service standards to win & retain customers z Energy asset ownership z Operating synergies • Continuing to work towards customer relationship targets previously set; relationships give us the scale and platform ag
Slide 6: Strategic Imperatives: Deeper Customer Insights
Strategic Imperatives: Deeper Customer Insights z Key demographics, household size z Buying on quality vs. price z Instinct to protect using “peace of mind” products z Sensitivity to branding z Interest in product bundles Æ Highlights valuable customer segments Æ Enables action based on customer nee
Slide 7: Strategic Imperatives: Product Innovation & Cross-selling
Strategic Imperatives: Product Innovation & Cross-selling z Rapid trial & launch of tailored propositions z Optimise proposition/channel matrix z Consistent cross-selling culture across Group Æ Yields more products per customer Æ Results in greater customer loyalty Æ Reduces average service and acqu
Slide 8: Strategic Imperatives: Service Standards to Win & Retain Customers
Strategic Imperatives: Service Standards to Win & Retain Customers z Standards appropriate to customers’ varying needs z Deliver on promises of tailored customer experience z Insights to exhibit knowledge of each customer Æ Clear benefit to customer satisfaction Æ Improves share & profit across vary
Slide 9: Strategic Imperatives: Customer Focus
Strategic Imperatives: Customer Focus More frequent customer Data contact Higher sales per customer Insights Personalised solutions, bundles, promotions & pricing • The customer-led strategic imperatives come together in a “virtuous circle”: – more data leads to greater insights ... – which leads to
Slide 10: Strategic Imperatives: Operating Synergies
Strategic Imperatives: Operating Synergies z Synergies within unified brand organisations z Combine activities exhibiting economies of scale z Best-practice methods across Group Æ Reduced cost of total Group processes per customer relationship... e.g. Group-wide costs to acquire & serve customers •
Slide 11: Strategic Imperatives: Energy Asset Ownership
Strategic Imperatives: Energy Asset Ownership z “Upstream hedge” remaining > 25% z Acquisitions support growing customer base z Morecambe; gas production volume replacement z Cheap & plentiful availability of CCGT plant in UK & US; Brigg acquired in June z Potential increase in our asset hedge • Str
Slide 12: Improving UK Results Mix
Improving UK Results Mix z Strategic focus on UK Operating Profit customer-facing 1st Half 2002 2001 operations z British Gas, AA, Customer 49% 16% One.Tel contributing to operations this improvement now Upstream 51% 84% z Goldfish expected to energy follow • Strategic imperatives being reflected in
Slide 13: Residential Gas & Electricity Customers
Residential Gas & Electricity Customers Weekly movements (000’s) Price changes effective 60 50 40 30 20 10 -10 -20 -30 -40 -50 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 01 01 01 01 01 01 02 02 02 02 02 02 02 02 Net Gas Net Electricity Net Position • Two factors have impacted numbers th
Slide 14: Sector Environment
Sector Environment UK Energy : Consolidation, greater stability, improving margins Motoring Services : New entrants, improving technology; opening of market for new car warranty repair Telecoms : Progress toward level playing field in residential market; excess wholesale capacity; support for more b
Slide 15: North America
North America z Ontario: good electricity start; Customer product relationships 20% residential energy share 5.0 z Texas: expect to serve c.15% 4.0 of deregulated electricity 3.0 customers by year-end 2.0 z Combining new entrant and 1.0 acquired incumbent positions 0.0 z Gradual progress in Midwest
Slide 16: Business Highlights
Business Highlights z Focus on profitable growth, organic and acquisitive z Defensive qualities - brand strength - market leadership - large market segment opportunities z Financial scalability • First half has built on themes from 2001; unique blend of profitable growth and defensive qualities unde
Slide 17: Phil Bentley, Group Finance Director
Phil Bentley GROUP FINANCE DIRECTOR 17
Slide 18: Financial Highlights
Financial Highlights Six months ended 30 June, £m 2002 2001 ∆% Turnover1 5,156 4,817 +7 Gross profit 1,592 1,229 +30 Gross margin 31% 26% +5 ppts Operating profit2 627 437 +43 Operating margin 12% 9% +3 ppts Interest 29 20 +45 Tax 168 91 +85 Earnings2 431 332 +30 Net margin 8% 7% +1 ppt 1 Excluding
Slide 19: Operating Profit Analysis
Operating Profit Analysis (including JV’s & Associates, pre exceptionals & goodwill amortisation) Six months ended 30 June, £m 2002 2001 ∆ British Gas Residential 193 28 165 Centrica Business Services 40 19 21 Centrica Energy Management Group 336 351 (15) AA 36 35 1 One.Tel 5 - 5 Goldfish (17) (22)
Slide 20: British Gas Residential
British Gas Residential Operating profit: causal track £m £m H1 2001 result 28 Gas price increases +10% on 4,559m therms 173 Gas costs WACOG + 4% (41) Gas customer reduction Net -4% year-on-year (21) Weather -13% gas volume/customer (44) NTS / Operating Costs 50 Gas subtotal 117 Electricity profit +
Slide 21: AA Operating profit: causal track
AA Operating profit: causal track £m £m H1 2001 result 35 Underlying profit growth: Road Services 10 Personal Finance 8 Other units (5) Total 13 S&M, incl. “Just AAsk” (10) CRM (2) 1 H1 2002 result 36 • Road Services : Customer numbers +8%, renewal rate of 83%. • Personal Finance : – loan book +62%
Slide 22: North America Operating profit: contribution breakdown
North America Operating profit: contribution breakdown Segment Development Contribution (£m) Res. gas Customers +4%, pricing +14%, consumption + 12% 21 Res. electricity New Texas & Ontario operations (20) Services New: result for approx. 2 months 6 Prod. & Trading Prod. volume +12%, pricing -29% 17
Slide 23: Continuing Margin Improvement
Continuing Margin Improvement Operating margin* for the six months ended 30 June 2002 2001 Residential gas 8% 2% Residential electricity 4% 3% Home services 6% 3% Centrica Business Services 8% 6% AA Road 10% 9% AA Personal finance 28% 25% One.Tel 6% 5%** North America 5% 7% Centrica Group (ex-Accord
Slide 24: H1 2002 Cash Flow Drivers
H1 2002 Cash Flow Drivers £’m H1 2002 ∆ Factors EBITDA 830 204 Sustained, well-spread EBIT ↑ Gas transport (167) (92) Prepayments ↑ PRT & royalties (251) (139) End of “safeguard”, prices ↑ Other w/c, tax & (127) (6) Growth in customers, debtors provisions CapEx (154) (75) CRM investment ↑ £65m Cashf
Slide 25: Accounting and Risk Management
Accounting and Risk Management z Confirmation of turnover z Mark-to-market conventions z Value-at-Risk limits / Risk Management committee z Acquisition rigour z Impairment tests • Results reported in accordance with best practice. Turnover does not contain ‘wash’ trades. • Mark-to-market methods use
Slide 26: Pensions
Pensions z Actuarial surplus of 10% z FRS17 net asset shortfall < 10% of Group net assets z Scheme duration (23 years) exceeds longest index- linked gilts z High equity strategy z High cash funding rates • A reconciliation between SSAP24 and FRS17 treatment of our pension accounting can be found in
Slide 27: Medium-term Outlook
Medium-term Outlook Operating cash flow drivers EBITDA z Electricity margin ↑ z CBS customers ↑ z AA, One.Tel, Goldfish all ↑ across products z N America growth & margin ↑ z Operating synergies ↑, reduction in CRM implementation expenses Working Capital z Total increase of < £600m over 3 years z Per
Slide 28: Medium-term Outlook: CapEx & acquisitions
Medium-term Outlook CapEx & acquisitions Unit Outlook British Gas CRM investment (c. £350m) through 2004, then ↓ CEMG Gas reserves @ c. £100m/annum; power generation AA CRM (c. £80m) through 2004 Goldfish Platform investment to be complete by 2003 N America Customers ↑ : > 50% via acquisition; CRM &
Slide 29: Outlook Summary
Outlook Summary z Positive free cash flow outlook z Dividend growth to reflect earnings and operating cashflow drivers z Focus on growth 29
Slide 30: Conclusion
Conclusion z Strong current performance – operating profit up 43% z Successful strategy implementation – 49% of UK operating profit from customer facing units – operating margin of 12%, up from 9% z Strong outlook for cash flow generation z Platform for substantial dividend growth 30
Slide 31: Appendices
APPENDICES centrica 31
Slide 32: Pensions
Pensions Proforma, had the standard been adopted in 2002 £m FRS 17 SSAP 24 Change P&L Amount charged to operating profit 65 35 30 Amount charged to net finance income (9) - (9) Net charge to profit & loss 56 35 21 Balance sheet Total pension assets 2,093 2,093 Present value of pension liabilities (2
Slide 33: H1 2002 Operating Profit Analysis - Previous Segmental Format
H1 2002 Operating Profit Analysis - Previous Segmental Format Estimated (including JV’s & Associates, pre exceptionals & goodwill amortisation) £m, for the six months ended 30 June 2002 2001 ∆ UK Gas Production 290 336 (46) UK Residential Gas 177 58 119 UK Non-residential Gas 56 20 36 UK Electricity
Slide 34: 2001 Op. Profit Analysis - 2002 Reporting Format Estimates
2001 Op. Profit Analysis - 2002 Reporting Format Estimates (including JV’s & Associates, pre exceptionals & goodwill amortisation) 2001 Reports Format Residential Production Telecoms AA Pers - Electricity Other UK AA Road Non-Res Services Services Goldfish America Finance Accord Home North Total Gas