Slide 1: Centrica plc Interim Results
Centrica plc Interim Results For the six months ended 30 June 2006
Slide 2: Disclaimers
Disclaimers This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica shares. This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Centrica
Slide 3: Chairman
Chairman Roger Carr
Slide 4: H1 issues
H1 issues • Wholesale prices continued to reach unprecedented levels • Significant operating loss in BGRE • Reduced profits in BGB • Higher losses on the I&C contracts • BGS hit by exceptional workload due to weather patterns The first quarter of 2006 was particularly tough and as a result first hal
Slide 5: Retail pricing
Retail pricing • Unacceptable H1 losses in residential energy business • Pricing decision re-introduces margin headroom • Pricing based on market curve • Longer term view of falling wholesale prices remains Some margin will be restored in BGRE in H2 but the business may only break even for the year
Slide 6: Cash management
Cash management • Cash management is a priority • Continuing suspension of the buyback programme • Operating cash flow discipline • Prudent investment policies • Commitment to dividend growth preserved Shareholder reward remains the priority of the Board
Slide 7: Progress
Progress • Focus on performance improvement in BGRE • Customer losses contained: back to growth in electricity • BGS internal restructure • Increased upstream profits • Rough returned to full injection capability • Good progress & financial performance in North America • Encouraging signs of EU comm
Slide 8: Group Finance Director
Group Finance Director Phil Bentley
Slide 9: Financial headlines
Financial headlines Six months ended 30 June 2006 Δ Turnover (£m) 8,728 32% Operating profit (£m) 692 (29%) Earnings (£m) 277 (38%) Earnings per share* (p) 7.6 (36%) Interim dividend per share (p) 3.15 2% H1 was difficult but a stronger second half is expected which supports current guidance for ful
Slide 10: The wholesale cost of commodity has continued to rise
The wholesale cost of commodity has continued to rise 70 70 60 60 50 50 power £/MWh gas p/therm Gas MAH* 40 40 Power MAH* 30 30 20 20 10 10 H1 02 H2 02 H1 03 H2 03 H1 04 H2 04 H1 05 H2 05 H1 06 % increase period on period Gas - -7% 4% 24% 4% 25% 1% 61% 28% Power - -7% 3% 31% 1% 18% 9% 51% 21% * Dema
Slide 11: Forward prices have been poor predictors of market outturns
Forward prices have been poor predictors of market outturns 70 60 50 gas p/therm 40 30 Forward curve* 20 10 H1 02 H2 02 H1 03 H2 03 H1 04 H2 04 H1 05 H2 05 H1 06 * Average price in previous 12 months
Slide 12: Forward prices have been poor predictors of market outturns …
Forward prices have been poor predictors of market outturns … 70 60 50 gas p/therm Outturn MAH** 40 30 Forward curve* 20 10 H1 02 H2 02 H1 03 H2 03 H1 04 H2 04 H1 05 H2 05 H1 06 * Average price in previous 12 months ** Demand-weighted
Slide 13: … This has made pricing decisions very difficult for all suppliers
… This has made pricing decisions very difficult for all suppliers 70 60 50 gas p/therm Outturn MAH** 40 30 Forward curve* 20 10 H1 02 H2 02 H1 03 H2 03 H1 04 H2 04 H1 05 H2 05 H1 06 Over/(under) prediction p/therm 3.1 1.6 2.1 -4.2 -2.3 -8.0 -1.9 -15.7 -15.0 * Average price in previous 12 months **
Slide 14: Retail pricing is rational but we continue to lag wholesale market
Retail pricing is rational but we are all continuing to lag the wholesale market 120% 70 90% 60 % increase p/therm 60% 50 Average 12 month Cumulative retail gas forward price price increases 30% 40 0% 30 Aug-04 Oct-04 Jun-05 Aug-05 Oct-05 Jun-06 Jul-04 Nov-04 Apr-05 Jul-05 Nov-05 Apr-06 Feb-05 Feb-0
Slide 15: Operating profit analysis
Operating profit analysis Six months ended 30 June, £m 2006 2005 Δ£m Δ% British Gas Residential Energy (143 ) 165 (308 ) nm Centrica Energy 579 543 36 7% British Gas Business 11 55 (44 ) (80% ) Centrica Storage 93 57 36 63% British Gas Services 44 59 (15 ) (25% ) North America 121 87 34 39% Europe (
Slide 16: British Gas Residential Energy
British Gas Residential Energy Operating profit*: causal track 250 165 (1,142) £m (143) 0 846 (22) 8 2 -250 -500 -750 -1000 H1 2005 Commodity & Selling prices Customer Weather / Opex/Other H1 2006 transportation numbers Consumption We are committed to returning BGRE to profitability on a stand-alone
Slide 17: Centrica Energy
Centrica Energy Operating profit*: causal track £m 112 (112) 265 (16) 579 600 543 (213) 400 200 Post-tax 0 H1 2005 Morecambe Morecambe Other gas / oil I&W Accord H1 2006 volumes selling price Centrica Energy profits remain depressed by losses in I&W: gas production profits will continue to increase
Slide 18: I&C sales contracts
I&C sales contracts I&C contract volumes 3000 m.therms 2000 1000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 is the peak year of losses on the I&C contracts as volumes begin to fall
Slide 19: British Gas Services
British Gas Services • Record number of callouts • CH installations down from 2005 H1 peak • Product growth & pricing increases contributed £27m • Business restructuring has increased operating costs Despite a number of one-off H1 impacts, actions taken will improve performance in H2
Slide 20: British Gas Business
British Gas Business • Increased input costs • Tariff changes effective from March • Margin profile of contracts negative in Q1 • Reduced churn in SME base • Contract renewals remain high Wholesale costs depressed H1 but H2 outlook is consistent with full year guidance
Slide 21: Centrica Storage
Centrica Storage • Strong H1 • 2006/07 SBU average price up 74% year on year • £42m exceptional charge due to Force Majeure incident • £24m recognised in Centrica Storage • Now back to full injection • Currently 75% full • Expect to be filled by the end of the injection season • Full production expe
Slide 22: North America
North America Operating profit*: causal track £m 140 14 (11) 4 (2) 121 120 39 100 87 (10) 80 60 40 20 0 H1 2005 Canada Texas Other US Home Business Trading H1 2006 Services markets North America had a good H1 and the trend will continue in H2: forecast c. 20% EBIT growth for the full year * Includin
Slide 23: Tax
Tax • Net benefit of £46m in the period from upstream restructuring • Change of law nullifies continuing benefit • PRT down on 2005 H1 • H1 effective tax rate was 51% • Full year ETR expected to be around 58% The effective tax rate will decline as production from PRT-paying fields reduces and the pr
Slide 24: Cash flow
Cash flow* Six months ended 30 June (£m) 2006 2005 Opening net cash/(debt) (excluding non-recourse) (1,060) (513) EBITDA 947 1,184 Working capital (819) 22 CT and PRT paid (164) (295) Post-tax operating cash flow (36) 911 Interest paid (118) (51) Capex, acquisitions & disposals (403) (216) Other (23
Slide 25: H2 financial outlook
H2 financial outlook • Some restoration of margins in BGRE relative to H1 • Improved profitability in BGB and BGS • Gas production profits driven by higher volumes & pricing • H1 strong performers continue to be strong in H2 • No change to full year earnings guidance As a result of actions taken, fi
Slide 26: Chief Executive
Chief Executive Sam Laidlaw
Slide 27: H2 business outlook
H2 business outlook • BGRE profitability restored • but return to customer growth delayed • Progress on cost reduction across the Group • billing system delivered in BGRE • Rough Storage ready for the winter production season • Strong performance continues in North America • Earnings guidance remain
Slide 28: Business principles
Business principles • Leading integrated energy company in key markets • Improved operational, financial and customer service performance • Focussed and selective pursuit of growth • Value more important than size • Disciplined capital allocation • Relentless focus on costs Creation of shareholder v
Slide 29: First impressions
First impressions • British Gas Residential Energy • British Gas Services • British Gas Business • Centrica Energy • Centrica Storage • North America • Europe
Slide 30: Business priorities
Business priorities • Restore appropriate margins in energy retailing • Reduce exposure to commodity prices • Deliver further cost efficiencies • Deliver the growth in BGS • Build on our position in Europe • Selectively infill in North America Centrica must move rapidly to successfully meet the chal
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