Slide 1: Strategy Presentation
centrica ae STRATEGY PRESENTATION 30 July 2015
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, Chief Executive
centrica P iG IAIN CONN Chief Executive
Slide 4: Strategic Review
STRATEGIC REVIEW Outlook and §§ Portfolio mix sources of and capital Group financial growth _ f intensity framework @ 4 STRATEGY PRESENTATION July 2015 centrica
Slide 5: Outlook and Sources of Growth
OUTLOOK AND SOURCES OF GROWTH STRATEGIC REVIEW ¢ Market trends and environment Outlook and — changes in global oil and gas markets sources of - changing trends in demand and growth customer behaviour ¢ Medium term view * Sources of potential growth @ 5 STRATEGY PRESENTATION July 2015 centrica
Slide 6: Portfolio Mix and Capital Intensity
OUTLOOK AND LIO MIX AND. SUMMARY SOURCES OF GROWTH CAPITAL INTENSITY STRATEGIC REVIEW ¢ Upstream / downstream mix Portfolio mix and capital * Focus areas for growth intensity * Investment priorities * Capital intensity 6 STRATEGY PRESENTATION July 2015 OPERATING CAPABILITY GROUP FINANCIAL ‘AND EFFIC
Slide 7: Operating Capability and Efficiency
STRATEGIC REVIEW * Capabilities assessed Operating capability * Efficiency benchmarked and ¢ Material efficiency opportunities identified efficiency @ 7 STRATEGY PRESENTATION July 2015 centrica
Slide 8: Group Financial Framework
JTLOOK AND PORTFOLIO MIX AND) = OPERATING ABILIT GROUP FINANCIAL JRCES OF GROWTH CAPITAL INTEN: ND EFFICIEN FRAMEWORK STRATEGIC REVIEW * Robust financial framework Group ¢ Medium term expectations for: financial _ h framework grow! - returns — reinvestment — distributions - credit rating eo 8 STRATE
Slide 9: Headline Messages
SUMMAR HEADLINE MESSAGES * Centrica well positioned * Strengths lie in being a customer facing business * Purpose — “to provide energy and services to satisfy the changing needs of our customers” * Increase shareholder value through returns and growth ¢ Growth = post-tax operating cash flow growth *
Slide 10: Operating Cash Flow Growth
OPERATING CASH FLOW GROWTH * 3-5% post-tax operating cash flow growth to 2020 and beyond * Flat real oil and gas prices - $70/barrel Brent oil - 50p/therm UK gas * Normal weather patterns * Excludes major inorganic activity and one-off costs @ 10 STRATEGY PRESENTATION July 2015 centrica
Slide 11: Headline Messages Continued
HEADLINE MESSAGES CONTINUED * Customer-facing focus — additional £1.5ln resource allocation to 2020 * Smaller E&P and central thermal generation businesses — reduction of £1.5bn resource allocation to 2020 * Less capital-intense business model ¢ Efficiency programme to deliver £750m of annual saving
Slide 12: Financial Framework
FINANCIAL FRAMEWORK * Operating cash flow growth of 3-5% per annum * Progressive dividend reflecting operating cash flow growth * Capital limited to £1fbn per annum in near term and to 70% of operating cash flow longer term ¢ Underpinning dividend and credit ratings « Post-tax ROACE of 10-12% centri
Slide 13: Outlook and Market Fundamentals
OUTLOOK AND MARKET FUNDAMENTALS « Primary energy demand growth * Fastest growing contributors will be natural gas, nuclear and renewables * Divergence of CO, from energy growth * Fossil fuels still important ¢ Growth in LNG trade and energy marketing and trading @ 13 STRATEGY PRESENTATION July 2015
Slide 14: Outlook and Market Fundamentals Continued
OUTLOOK AND MARKET FUNDAMENTALS CONTINUED * OECD central power generation ‘market failure’ * Distributed generation likely to take market share « Energy supply demand in core markets at best flat * Energy services a source of differentiation * ‘Internet of Things’ developing rapidly @ 14 STRATEGY PR
Slide 15: Centrica's Purpose
CENTRICA’S PURPOSE “To provide energy and services to satisfy the changing needs of our customers” GAS LIGHT & COKE COMPANY 1813-1937 SITE OF A GASWORKS WHICH PROVIDED THE FIRST PUBLIC SUPPLY OF GAS IN THE WORLD @ 15 STRATEGY PRESENTATION July 2015 centrica
Slide 16: Centrica's Purpose Continued
CENTRICA’S PURPOSE CONTINUED « Energy and services company * Deliver for the changing needs of our customers * Delivering long-term shareholder value through returns and cash flow growth ¢ Trusted corporate citizen « Employer of choice * A “21st century energy company” @ 16 STRATEGY PRESENTATION Jul
Slide 17: Grow Centrica
GROW CENTRICA * Customer-facing businesses a source of competitive advantage * Energy supply cash flow broadly flat | nee — competitive market for British Gas - -_ - - — market share growth in North America 7 0 7 0 and Ireland ¢ Stable E&P remains a material source of cash flow * Near term growth un
Slide 18: Focus Areas for Long-Term Growth
FOCUS AREAS FOR LONG-TERM GROWTH « Energy supply * Services * Distributed Energy and Power * Connected Home * Energy Marketing and Trading centrica 18 STRATEGY PRESENTATION July 2015
Slide 19: Growth - UK and Ireland Energy Supply
TFOLIO MIX AND = OPERATING BILIT GROUP FINANCIAL CAPITAL INTEN: ND IED RAMEWORI GROWTH -— UK AND IRELAND ENERGY SUPPLY UMMAR UK market environment Response Current market _ Sanh i wa arene ervice excellence Innovative =» Competitive =~ offerings environment Cost efficiency => management eo 19 STRATE
Slide 20: Growth - North America Energy Supply
UMMAR PORTFOLIO MIX AND) = OPERATING ABILIT orn eee CAPITAL INTEN: ND IEN RAMEWORI GROWTH — NORTH AMERICA ENERGY SUPPLY North America market environment Response Current market =» Improved propositions aw share and customer mix Competitive = ad environment Cost efficiency => management eo 20 STRATEG
Slide 21: Business Energy Supply
BUSINESS ENERGY SUPPLY * Increased scale following Hess Energy US business supply volumes Marketing acquisition eet 800 5 ¢ Market leading position in provision of energy on | Gas to business customers 400 5 * Optimisation opportunities around capacity — bower and storage positions Power 0 2013 2014
Slide 22: Growth - UK Services
GROWTH - UK SERVICES Insurance contracts Landlords On-demand Installation Efficiency @ 22 STRATEGY PRESENTATION July 2015 centrica
Slide 23: Services
SERVICES Protection plans Connected homes Efficiency @ 23 STRATEGY PRESENTATION July 2015 centrica
Slide 24: Growth - Distributed Energy
GROWTH -— DISTRIBUTED ENERGY Distributed Energy Assets (1) Dee Efficiency (2) Flexible Generation (3) New Technology eae Gas engine ‘ Battery storage = combined pore einf Diesel generator ea Future technology 4 4 4 u u + (4) Energy control centre 6 : =a e 24 STRATEGY PRESENTATION July 2015 centrica
Slide 25: Distributed Energy Capabilities
TH DISTRIBUTED ENERGY CAPABILITIES Customer what do customers want? Centrica capabilities journey : New information on their existing energy usage, Consultation needs and audits Right-sized measures and installation fit for the customers usage needs Implementation A guarantee of performance on new i
Slide 26: Growth - The Connected Home
GROWTH — THE CONNECTED HOME I ‘gy storage (battery) Security Micro-generati _ 1 Insulation & Glazing Danger alerts Electrical appliances Consumer electronics Water Property Insurance Lighting EV charging Gas pipes & gas safety 26 STRATEGY PRESENTATION July 2015 Telephony Entertainment (e.g. TV, musi
Slide 27: Connected Home Capabilities
CONNECTED HOME CAPABILITIES Scale « Large customer base * High volume of customer data Brand * In both energy & services « Potential to build global connected consumer brand (Hive) Capabilities « Existing engineer workforce, both UK & US « Multi-channel sales & support « Platform (AlertMe), product
Slide 28: Energy Marketing and Trading
PORTFOLIO MIX AND) = OPERATING ABILIT GROUP FINANCIAL RAMEWORK * Good benchmarked capability * Cheniere US export contract « Route-to-market services * Detailed knowledge of European gas and power markets * International marketing and trading capability £150m investment over next five years eo 28 ST
Slide 29: Resourcing for Growth
ND RESOURCING FOR GROWTH ¢ Shift of resource allocation from E&P and power to customer-facing activities * £1.5 billion additional resources in customer-facing growth areas — approximately half capex, half opex ¢ Lower capital intensity * Capital discipline 29 STRATEGY PRESENTATION July 2015 centric
Slide 30: Exploration and Production
LIO MIX AND. "APITAL INTENSITY EXPLORATION AND PRODUCTION @ 30 STRATEGY PRESENTATION July 2015 centrica
Slide 31: Role of E&P
PORTFOLIO MIX AND CAPITAL INTENSITY ROLE OF E&P * Diversification of cash flows * Balance sheet strength to manage risk * Role evolved away from security of supply and integration * Appropriately scaled position ¢ Sufficient capability to participate effectively * Concentrate on fewer geographies @
Slide 32: Transition to Smaller E&P Business
* Size limited to 40-50mmboe per annum * £400m-£600m per annum of capex * Includes possible small inorganic additions post 2017 * Restoration of E&P margins a source of growth * Strong E&P business sustainable within reduced scale 32 STRATEGY PRESENTATION July 2015 PORTFOLIO MIX AND CAPITAL INTENSIT
Slide 33: E&P Geographic Focus
* Currently in five countries * Improve efficiencies in UK and Netherlands * Continue to develop Norwegian assets * Release capital from Trinidad and Tobago * Canadian E&P business non-core @ 33 STRATEGY PRESENTATION July 2015 centrica
Slide 34: Central Thermal Power Generation
x AND CAPITAL INTENSITY CENTRAL THERMAL POWER GENERATION « More focused central power generation business * Retain sufficient capability * Each station considered on a plant-by-plant basis * Capabilities transitioned towards distributed energy * New Distributed Energy and Power business unit establi
Slide 35: Nuclear Power Generation
PORTFOLIO MIX AND CAPITAL INTENSITY NUCLEAR POWER GENERATION * Diversity of cash flows and balance sheet strength * Limited optionality * Future value dependent on — operational excellence — life extensions - effective cost management — capacity market * Nuclear shareholding considered as a financia
Slide 36: Wind Power Generation
AND CAPITAL INTENSITY WIND POWER GENERATION ¢ Exit our 245MW portfolio of wind assets * Scale not material « New offshore wind expensive ¢ No future potential projects @ 36 STRATEGY PRESENTATION July 2015 centrica
Slide 37: Gas Storage
PORTFOLIO MIX AND CAPITAL INTENSITY GAS STORAGE * Hold the Rough gas storage asset * Not seen as a growth option given low seasonal gas spreads * Focus on completing the assessment of operating integrity ¢ Strategic storage asset for the UK @ 37 STRATEGY PRESENTATION July 2015 centrica
Slide 38: Strategic Review
STRATEGIC REVIEW Outlook and §§ Portfolio mix sources of and capital Group financial growth _ f intensity framework @ 38 STRATEGY PRESENTATION July 2015 centrica
Slide 39: Cost Efficiency
OPERATING CAPABILITY ‘AND EFFICIENCY COST EFFICIENCY * Gross efficiencies of £750m per annum by 2020 * Efficiency programme excludes L 7 300m - cost of smart metering J — major acquisitions or disposals — — additional investment in growth areas * Like-for-like opex base down £300m after taking accou
Slide 40: Cost Efficiency
COST EFFICIENCY « Boundaries — safety, compliance and customer service * Two-thirds of efficiencies by end 2018 « Required investments of £500m- £600m over next five years 40 STRATEGY PRESENTATION July 2015 Realised efficiency savings 2015 -£500m 2018 4 -£750m 2020 J Inflation Underlying operating c
Slide 41: Areas of Cost Focus
AREAS OF COST FOCUS * Customer facing businesses — back office simplification, consolidation and automation - front office simplification and optimisation — sales efficiencies — shared services for marketing and network services * Centrica Energy simplification and efficiency * Group functions and c
Slide 42: Common Operating Model
OUTLOOK AND >ORTFOLIO MIX AND JRCES OF GROWTH CAPITAL INTEN: COMMON OPERATING MODEL UMMAR Common strategic priorities across our customer-facing businesses Leading to the same 5 core propositions We supply your energy needs We help you to use energy efficiently We service your home / business We giv
Slide 43: Headcount Implications
HEADCOUNT IMPLICATIONS ¢ Reduction in like-for-like headcount of around 6,000 roles — half attrition — half redundancy ¢ Redundancies mainly by 2017 * 2,000 roles created through growth ¢ Net reduction of 4,000 roles centrica 43 STRATEGY PRESENTATION July 2015
Slide 44: Strategic Review
STRATEGIC REVIEW Outlook and §§ Portfolio mix sources of and capital Group financial growth _ f intensity framework @ 44 STRATEGY PRESENTATION July 2015 centrica
Slide 45: Jeff Bell, Chief Financial Officer
centrica a: i JEFF BELL Chiet Financial Officer
Slide 46: Financial Framework
FINANCIAL FRAMEWORK Targets Metrics Operating cash flow * 3-5% growth p.a. Dividend ° Progressive in line with operating cash flow Controllable costs * Cost growth < inflation Capital re-investment * Investment <70% of Operating cash flow ¢ Limited to £1bn p.a. in 2016-17 Credit rating * Strong inve
Slide 47: Operating Cash Flow Growth
OPERATING CASH FLOW GROWTH * Operating cash flow most appropriate measure of business performance £500m- — underpins dividend and credit rating — fundamental driver of shareholder value * Deliver £800m-£600m of incremental cash flow by 2020 - ~£2bn current operating cash flow - 3-5% growth rate rang
Slide 48: Operating Cash Flow Growth by Source
SOURCES OF GROW AL INTENS| AND EFFICIENC OPERATING CASH FLOW GROWTH Services, Distributed Energy Mand Power, Connected Homes, Energy Marketing — a ie | | —_ i Energy Mar Mm E&P i Energy Supply 2015 2016 2017 2018 2019 2020 eo 48 STRATEGY PRESENTATION July 2015 centrica
Slide 49: Strong Investment Grade Credit Rating
GRC STRONG INVESTMENT GRADE CREDIT RATING ¢ Strong investment grade credit - ; ; , D aes ratings important for Centrica = — large user of collateral Baat A- os (stable outlook) (negative outlook) — efficient procurement of energy — cost effective short term Baat BBB+ sources of liquidity @ 49 STRATE
Slide 50: Capital Reinvestment
CAPITAL REINVESTMENT jm Additional investment consistent with financial framework £1bn 4 Potential to invest —— oe = omc £200m- Rest of Group £800m i i i £400m- Mll™ E&P (including maintenance) £600m 2015 2016 2017 2018 2019 2020 @ 50 STRATEGY PRESENTATION July 2015 centrica
Slide 51: Sources and Uses of Cash
GROUP FINANCIAL FRAMEWORK SOURCES AND USES OF CASH EBITDA ia Investment lw Dividends HB Tax and interest 2014 2015 2016 -17 2018+ @ 51 STRATEGY PRESENTATION July 2015 centrica
Slide 52: Progressive Dividend Policy
UMMAR OUTLOOK AND TFOLIO MIX AND = OPERATING BILIT GROUP FINANCIAL ES OF GROWTH CAPITAL INTEN: ND EFFICIED FRAMEWORK PROGRESSIVE DIVIDEND POLICY * Progressive dividend policy sustainable cash flow growth * Dividend linked to sustainable growth _— in operating cash flows * Scrip alternative retained
Slide 53: Measuring Progress
MEASURING PROGRESS * Progress measured against parameters set out in strategic review * Finalise future reporting in the second half — reporting segments and key performance indicators — transparency of changes * ‘Rules of thumb’ to help understanding of changes to commodity prices and weather @ 53
Slide 54: Financial Framework
FINANCIAL FRAMEWORK Targets Metrics Operating cash flow * 3-5% growth p.a. Dividend ° Progressive in line with operating cash flow Controllable costs * Cost growth < inflation Capital re-investment * Investment <70% of Operating cash flow ¢ Limited to £1bn p.a. in 2016-17 Credit rating * Strong inve
Slide 55: Iain Conn, Chief Executive
centrica P iG IAIN CONN Chief Executive
Slide 56: Summary
SUMMARY * 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 on custome
Slide 57: Q&A
O&A lain Conn Jeff Bell Mark Hanafi Mark Hodges Badar Khan Chief Executive Chief Financial Officer Managing Director, Managing Director, President CEO, Centrica Energy British Gas Direct Energy @ 57 STRATEGY PRESENTATION July 2015 centrica