Slide 1: Interim Management Statement and British Energy Investment
Interim Management Statement and British Energy Investment May 2009
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: Interim Management Statement
Interim Management Statement • Good start to the year for British Gas • UK upstream impacted by low wholesale gas price and narrow spark spreads • Strong performance in Centrica Storage • North America performing well in challenging conditions, helped by currency benefit • Exit from SPE as part of B
Slide 4: Investment in British Energy
Investment in British Energy
Slide 5: Why vertical integration? Why nuclear?
Why vertical integration? • Reduces exposure to volatile wholesale commodity prices • Delivers more robust Group earnings through cycle • Reduces requirement for capital for procurement support Why y nuclear? • Source of power for British Gas customers which is: − low carbon − long-life − low cash c
Slide 6: Proposed Transaction
Proposed Transaction
Slide 7: Deal terms
Deal terms Net cash consideration of £1.1bn • 20% equity stake in British Energy • Average price per share 710p cash plus 0.242 CVRs − cash consideration of £2.3bn • Partly financed through sale of SPE for €1.325bn • 20% stake in new nuclear build • Power offtake − 20% of available power, plus − add
Slide 8: Drivers of value
Drivers of value
Slide 9: Wholesale power prices have fallen
Wholesale power prices have fallen 90 80 e (£/MWh) 70 UK Power Price 60 50 40 30 May-2009 May-2010 May-2011 May-2012 May-2013 Sep 2008 May 2009 9
Slide 10: British Energy output has increased
British Energy output has increased 8,000 pacity (MW) 7,000 6,000 Monthly average cap 5,000 4,000 3,000 2,000 1,000 0 Sept '08 Oct '08 Nov '08 Dec '08 Jan '09 Feb '09 Mar '09 April '09 Source: Exelon “Balancing Mechanism Reporting System (BMRS)" 10
Slide 11: Governance Package
Governance Package • Joint venture is a long term partnership • Centrica is a 20% investor in Lake Acquisitions − EDF has day-to-day operational control • Centrica rights − Board representation on both Lake Acquisitions and British Energy Group − full information rights − minority protections • 100%
Slide 12: Nuclear new build opportunity
Nuclear new build opportunity • Centrica has the right to participate in EDF’s new nuclear build programme in the UK − final investment decision on 1st reactor in 2011 • British Energy sites best positioned for building new nuclear reactors − disposal of certain sites as agreed with EC − recent NDA
Slide 13: SPE sale
centrica
Slide 14: Disposal of SPE
Disposal of SPE • Landscape for energy retailing in Europe remains difficult • Short term profit outlook reduced by lower commodity prices • Attractive sale price • Remaining European positions are under strategic review • Will retain a presence in Europe − infrastructure for delivery of gas remains
Slide 15: Impact of the Transaction
centrica Impact of the Transaction aS 4 = SG aa
Slide 16: Substantially increases the upstream hedge
Substantially increases the upstream hedge Power cover ratio (%) Energy hedge ratio (%) 100 50 Drax contract 80 Drax contract 40 BGY 60 30 BGY Wind & renewables Wind 40 20 North Sea Gas 20 10 Morecambe 0 0 2009 2006 2007 2008 2009 2010 2011 2012 2013 Energy hedge ratio: Proportion of UK floating gas
Slide 17: Earnings impact
Earnings impact • Key variables – output, power prices, operating costs, synergies • Forward power sales: 2010: 46TWh, 2011: 28TWh, 2012: 14TWh • Based on prices achieved plus current forward curve for remaining output, acquisition (net of SPE sale) expected to be broadly neutral from 2010 (before t
Slide 18: 2010 / 2011 earnings impact
2010 / 2011 earnings impact Starting from pre Starting from post Rights Issue Rights Issue Before Fair Value accounting neutral eu a accretive acc e e After Fair Value accounting dilutive neutral 18
Slide 19: Group structure going forward
Group structure going forward • Reduced Group earnings volatility • More balanced portfolio of upstream and downstream positions • Business concentrated in UK and North America • Investment opportunities − Nuclear new build − North Sea gas − UK gas storage − UK wind − North America – strengthen down
Slide 20: Timetable
Timetable
Slide 21: Timetable for completion of transaction
Timetable for completion of transaction • Sign and announce transactions 11 May • Commence regulatory processes mid May − British Energy acquisition subject to UK competition approval − SPE sale requires q EC approval pp • Post Circular to shareholders mid May • General Meeting June • Estimated clos
Slide 22: Summary
centrica
Slide 23: Summary
Summary • Significant reduction in scale of net transaction • Improved terms reflect commodity price environment • Joint venture delivers value for Centrica shareholders • Positions Centrica strongly − improves business risk profile − reduces earnings volatility − enhances long term value growth • S