Slide 1: Preliminary Results Full Year 2001
Preliminary Results Full Year 2001 21 February 2002 Investor Relations Millstream Phone: 01753 494900 Maidenhead Road Fax: 01753 494909 Windsor Berkshire www.centrica.com SL4 5GD Email: IR@centrica.co.uk
Slide 2: Distribution restrictions notice
This document is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the “Order”) or (b) high net worth entities
Slide 3: Roy Gardner, Chief Executive
Roy Gardner CHIEF EXECUTIVE 3
Slide 4: Results in Brief
Results in Brief 2nd half 2nd half Full year Full year £m 2001 2000 * 2001 2000 * Sales 5,858 5,226 12,611 9,933 Operating profit ** 242 122 679 526 Earnings ** 150 40 482 406 Operating cash flow ** 502 655 869 1,139 Dividend 1.9p 1.7p 3.1p 2.8p • Earnings pre-excep & g’will up 29% pre-FRS 19, 19% p
Slide 5: Delivering the Strategy
Delivering the Strategy Business highlights • Strong organic turnover growth – Increasing product breadth – Leveraging & investing in our brands – Cross selling attractive propositions to customers we know • Demonstrating financial scalability – Controlling costs, growing revenue, new channels – Syn
Slide 6: Funding Strategy
Funding Strategy • Accelerated opportunities • Financial flexibility • Continued investment in organic growth • Acquisition opportunities have accelerated, financial flexibility needed to take advantage of these. • Profitable growth opportunities for companies with sufficient liquidity and managemen
Slide 7: Residential Gas & Electricity Customers
Residential Gas & Electricity Customers Weekly movements (‘000’s) Sales & retention campaigns Price changes implemented Price changes announced announced 60 40 20 0 -20 -40 -60 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- 01 01 01 01 01 01 01 01 01 01 01 01 02 02 Net gas Net
Slide 8: Customer Product Relationships
Customer Product Relationships (UK) 2000 2001 Residential gas 14.0m 13.4 million Residential electricity 3.9m 5.4 million Home services 4.5m 5.2 million Motoring services 10.9m 12.2 million Insurance policies 1.6m 1.6 million Credit cards in issue 1.1m 1.1 million Other loans & credit 0.6m 0.7 milli
Slide 9: Product Breadth
Product Breadth • UK Energy: Gas to electricity; focus on B2B channel • Home: CHI growth; plumbing & appliance cover • AA Road: Vehicle inspection & service; sourcing; tyres • AA Finance: Wider panel; record loans • Goldfish: Card focus; new savings, loan, insurance • Telecoms: Single-bill bundles;
Slide 10: Operations
Operations • UK Energy: Electricity profitable; gas margins to improve • Home: Benefits of scale; growing engineer force • AA Road: Callout efficiency; reduced waiting time • AA Finance: Further productivity gains; online service • Goldfish: Maximise card value; new marketing • Telecoms: Customer va
Slide 11: Customer Relationship Management
Customer Relationship Management • Customer data warehouse providing building block to real time capability in CRM • Partnership with Accenture • Investing £340m over 5 years • Scale and cross selling skills enable a return on investment, over £100m per annum within British Gas – Customer service, o
Slide 12: Investments & Acquisitions
Investments & Acquisitions • UK Energy: Enron Direct customers, upstream assets • Home: National Homecare & Trolhurst engineers • AA Road: Halfords garages; car sourcing with Inchcape • AA Finance: Growing loan book; Golf England • Goldfish: Significant banking platform infrastructure • Telecoms: Re
Slide 13: North America
North America Existing business & market context • Growth in Canada, Ontario 4.0 Customer product relationships electricity opens May 2002 • Operating in Texas 3.0 • Planning market entry 2.0 where deregulation commitment exists in other 1.0 key states 0.0 • Acquisitions complement Jun-00 * Dec-00 J
Slide 14: Europe
Europe • First European energy customers through Luminus in Belgium, over 750,000 customers from mid 2003 • Platform in the EU – energy deregulation directive under review – Barcelona summit of Heads of Government in May • Luminus has provided access to customer base without networks. Will have over
Slide 15: Summary
Summary • Sustain organic growth • Realise further financial scalability • Acquisitions continue to add value • New businesses for future growth 15
Slide 16: Phil Bentley, Group Finance Director
Phil Bentley GROUP FINANCE DIRECTOR 16
Slide 17: Financial Highlights
Financial Highlights £m 2001 2000 * Growth Turnover 12,611 9,933 19%1 Gross profit 2,387 2,012 19% Operating profit 2 679 526 29% Interest (43) (28) (54%) Tax (164) (92) (78%) Minority interests 10 - - Earnings 2 482 406 19% Operating cash flow 2 869 1,139 (24%) 1 Excluding Accord 2 All figures befo
Slide 18: Operating Profit Analysis
Operating Profit Analysis (including JV’s & Associates, pre exceptionals & goodwill amortisation) 2nd half 2nd half Full year Full year £m 2001 2000 * 2001 2000 * UK Gas Production 216 218 552 309 UK Residential Gas (55) (11) 3 294 UK Non-residential Gas 21 10 41 55 UK Electricity 21 (62) 40 (107) A
Slide 19: UK Gas Production
UK Gas Production (including JV’s & Associates, pre exceptionals & goodwill amortisation) 2nd half Change Full year Change £m 2001 2000 2001 2000 Equity production (m therms) 1,654 (25%) 4,287 (6%) Operating profit 216 (1%) 552 79% Operating Profit (£m) 600 • Full year production near 2000 500 recor
Slide 20: UK Energy Supply
UK Energy Supply (including JV’s & Associates, pre exceptionals & goodwill amortisation) 2nd half Change Full year Change £m 2001 2000 2001 2000 Total WACOG (p/therm) 20.5 12% 20.5 25% Gas turnover 2,279 (1%) 5,410 4% Gas operating profit (34) (33) 44 (305) Total WACOE (p/kWh) 2.6 (18%) 2.6 (19%) El
Slide 21: British Gas Home Services
British Gas Home Services (including JV’s & Associates, pre exceptionals & goodwill amortisation) 2nd half Change Full year Change £m 2001 2000 2001 2000 Turnover 383 15% 722 14% Operating profit 25 47% 36 38% Operating margin 6.5% + 1.4% pts 5.0% + 0.9% pts Operating Profit (£m) 40 • Business scala
Slide 22: AA Road & Personal Finance
AA Road & Personal Finance (including JV’s & Associates, pre exceptionals & goodwill amortisation) Road Services Personal Finance £m 2001 2000 2001 2000 Turnover 486 9% 141 10% Operating profit 37 48% 37 54% Operating margin 7.6% + 2.0% pts 26.2% + 7.5% pts Operating Profit (£m) 80 70 Personal Finan
Slide 23: North America
North America (including JV’s & Associates, pre exceptionals & goodwill amortisation) 1st half 2nd half Change Full Year £m 2001 2001 H1/H2 2001 Turnover 432 336 (22%) 768 Revenue investment (14) (14) - - (28) Operating profit 29 39 34% 68 Operating margin 6.7% 11.6% + 4.9% pts 8.9% • H2/H1 turnover
Slide 24: Investing for Growth
Investing for Growth Goldfish Telecoms • From 3 September, card • Migrating to enhanced revenue of £34m, technology platform operating profit of £5m - • £97m loss after £64m after £2m advertising revenue investment • Anticipate returns in 2003 • 2002 focus on growth in following cost reductions, cus
Slide 25: Financial Value Drivers
Financial Value Drivers • Strong organic turnover growth – Electricity up 57%; Home up 14%; AA up 6% & 10% • Demonstrating financial scalability Op Margin Electricity Home AA Road AA Finance N.America 2000 -14% 4% 6% 19% 3% 2001 3% 5% 8% 26% 9% • Acquisitions paying off – Operating profit: AA Road &
Slide 26: Capital Structure
Capital Structure Full year Full year £m 2001 2000 EBITDA / (Net interest & div.) 6.1x 6.1x Debt (ex Goldfish) / book cap 22% 8% Debt (ex Goldfish) / EBITDA 0.4x 0.1x Debt Programmes (£m) 1200 • Prudent capital structure fund 1000 working capital swing 800 600 • Strong balance sheet allows 400 us to
Slide 27: Solid Platform for Value Growth
Solid Platform for Value Growth • Top-line & earnings growth in chosen markets • Continuing investment in organic growth opportunities • Balance sheet strength & management depth to sustain market leadership, seize profitable opportunities • Ability & credibility to succeed in uncertain times • Acqu
Slide 28: Proposed Placement Details
Proposed Placement Details • The offering: cash placing of 200m new ordinary shares • Listing: Official UKLA list, traded on LSE • Shares to be placed via accelerated book build • Settlement T+3 • Ranking: Fully pari passu with existing ordinary shares • No further equity fundraising for foreseeable
Slide 29: Financial Discipline
Financial Discipline • Aim to achieve upper quartile TSR • Value-based target setting for strategic planning • Competition for capital • Performance Management processes • Risk management framework • Ratings modelling • Will continue to set stretching targets & aim to achieve upper quartile TSR. • V
Slide 30: Outlook
Outlook • Excellent progress since demerger • Still targeting top quartile returns • Outlook for improved gas and electricity supply profit • Increased profit contribution from new businesses • Business model working • Using UK experience to deliver value internationally • Financial & management cap
Slide 31: Appendices
Appendices 31
Slide 32: Turnover
Turnover 2nd half 2nd half Full year Full year £m 2001 2000 2001 2000 UK Residential Gas 1,659 1,757 4,029 4,078 UK Non-residential Gas 620 536 1,381 1,110 UK Gas Production/Accord 1,673 1,550 3,650 2,410 UK Electricity 714 457 1,242 792 Total UK Energy Supply 4,666 4,300 10,302 8,390 British Gas Ho
Slide 33: Summary Profit & Loss Account
Summary Profit & Loss Account 2nd half 2nd half Full year Full year £m 2001 2000 * 2001 2000 * Turnover 5,858 5,226 12,611 9,933 Gross margin 1,158 893 2,387 2,012 Operating costs (950) (781) (1,755) (1,504) Operating profit including associates & joint ventures 242 122 679 526 Net interest (23) (11
Slide 34: Operating Profit Causal Track
Operating Profit* Causal Track £m Year to December 2000 (as restated) 526 Higher gas input costs (305) Increased electricity customers, lower input costs 147 Increase in gas production sales price 243 Energy trading 36 Full year contribution from North America 60 AA Road Services & Personal Finance
Slide 35: Impact of FRS 19
Impact of FRS 19 £m 2001 2000 2 P&L1 Underlying earnings pre-FRS 19 503 389 Tax from FRS 19 (21) 17 Underlying earnings post FRS 19 482 406 Balance Sheet Net assets pre-FRS 19 1,452 1,193 Net deferred tax assets 84 3 105 Net assets post FRS 19 1,536 1,298 1 Before exceptional charges & goodwill amor
Slide 36: Impact of FRS 17
Impact of FRS 17 Proforma, had the standard been adopted in 2001 £m FRS 17 SSAP 24 Change P&L Amount charged to operating profit 107 54 53 Amount charged to net finance income (37) - (37) Net charge to profit & loss 70 54 16 Balance sheet Total pension assets 2,193 2,193 Present value of pension lia
Slide 37: Gas
Gas Volumes, Pricing & Input Cost 2nd half 2nd half Full year Full year £m 2001 2000 2001 2000 Turnover 2,279 2,293 5,410 5,188 Operating profit (overall) (34) (1) 44 349 Operating margin % (1.5%) - 0.8% 6.7% Residential sales Turnover (£m) 1,659 1,757 4,029 4,078 Volume (m therms) 3,594 3,995 9,029
Slide 38: Electricity
Electricity Volumes, Pricing & Input Cost 2nd half 2nd half Full year Full year £m 2001 2000 2001 2000 Operating profit 21 (62) 40 (107) Operating margin % 2.9% (13.6%) 3.2% (13.5%) UK Sales Turnover (£m) 714 457 1,242 792 Volume (GWh) 11,818 7,392 20,621 12,782 Price (p/kWh) 6.0 6.2 6.2 6.2 UK Tota
Slide 39: Goldfish
Goldfish £m Acquisition of credit card Receivables 692 Purchase of customers 86 Total consideration (£68m to pay in 2002) 778 Receivables acquired 692 Net liabilities acquired (57) 635 Goodwill 143 • Goodwill will be amortised over 10 years • As at 31 December 2001, receivables stood at £677m of whi
Slide 40: Cash Flow before Financing
Cash Flow before Financing Full year Full year £m 2001 2000 * Operating cash flow 869 1,139 Capital expenditure (337) (165) Tax, interest & dividends rec’d (108) (150) sub-total 424 824 Acquisitions (net of disposals) (607) (590) Exceptional payments (44) (76) Dividends (115) (103) Total (342) 55 Ne
Slide 41: Capital Expenditure
Capital Expenditure 2nd half 2nd half Full year Full year £m 2001 2000 2001 2000 British Gas Energy supply (119) (47) (157) (82) British Gas Home Services (14) (6) (18) (11) AA Road Services (8) (1) (9) (4) AA Personal Finance (2) - (3) - Energy Supply North America (34) (6) (50) (6) Goldfish Financ
Slide 42: Exceptionals & Goodwill
Exceptionals & Goodwill 2nd half 2nd half Full year Full year £m 2001 2000 2001 2000 AA integration restructuring (8) (11) (21) (14) Exposure to Enron (37) (37) LPG impairment (8) (8) Telecom billing system (14) (14) Total exceptionals (67) (11) (80) (14) Goldfish (5) (5) Energy Supply (1) (1) Road
Slide 43: Transactions - First half 2001
Transactions - First half 2001 • Energy America - Completion - US energy supply • Agreement with The First Resort Limited • Greensource - Home servicing business Canada • National Homecare - UK Electrical Servicing business • Humber Power - 750MW Capacity power station 43
Slide 44: Transactions - 2nd Half 2001
Transactions - 2nd Half 2001 • One.Tel - UK Telecoms provider • Luminus - Joint Venture with Belgian Municipal Utilities • Halfords garages - To be branded AA Service Centres • Power Stations - King’s Lynn & Peterborough • Credit/Loyalty card - In partnership with the English Golf Union & AdvancedWa
Slide 45: Acquisition Payments
Acquisition Payments £m First Half 2001 (103) Second Half 2001 Subsidiary undertakings (1,071) Joint Ventures (43) Deferred consideration (8) Cash acquired 17 Overdraft acquired 4 Draw down on Goldfish working cap facility 590 Proceeds from disposal 7 subtotal (504) Total 2001 (607) 45