Slide 1: Centrica plc Preliminary Results for the year ended 31 December 2016
Centrica plc Preliminary Results for the year ended 31 December 2016
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, Group Chief Executive
Iain Conn Group Chief Executive
Slide 4: Headlines
Headlines • Customer-led strategic repositioning on track - Shift in investment towards customer-facing activities - New offers, improved customer service, new technology and capability • Robust financial performance - Adjusted operating profit and earnings up 4%; underlying AOCF growth of 14% - Eff
Slide 5: Jeff Bell, Group Chief Financial Officer
Jeff Bell Group Chief Financial Officer
Slide 6: Commodity prices
Commodity prices Average Brent oil prices Average UK NBP gas prices Average UK baseload power prices ($/boe) (p/th) (£/MWh) 80 60 75 $70/boe 50p/th 60 40 50 £50/MWh 35p/th 40 £35/MWh $35/boe 20 25 20 0 0 0 Jan 15 Jan 16 Jan 17 Jan 15 Jan 16 Jan 17 Jan 15 Jan 16 Jan 17 60 (17%) 60 60 (18%) 4% 40 40 4
Slide 7: Financial headlines
Financial headlines Year ended 31 December 2015 2016 ∆ Revenue (£m) 27,971 27,102 (3%) Adjusted operating profit (£m) 1,459 1,515 4% Adjusted earnings (£m) 863 895 4% Adjusted basic earnings per share (p) 17.2 16.8 (2%) Full year dividend per share (p) 12.0 12.0 0% EBITDA (£m) 2,396 2,365 (1%) Adjus
Slide 8: Energy Supply & Services – UK & Ireland
Energy Supply & Services – UK & Ireland ADJUSTED OPERATING PROFIT / (LOSS) Year ended 31 December (£m) 2015 2016 ∆ UK Home 880 810 (8%) UK Business (19) 50 nm Ireland 30 46 53% Energy Supply & Services – UK & Ireland 891 906 2% ADJUSTED OPERATING CASH FLOW Energy Supply & Services – UK & Ireland 623
Slide 9: Energy Supply & Services – North America
Energy Supply & Services – North America ADJUSTED OPERATING PROFIT Year ended 31 December (£m) 2015 2016 ∆ North America Home 77 93 21% North America Business 246 221 (10%) Energy Supply & Services – North America 323 314 (3%) Energy Supply & Services – North America ($m) 500 415 (17%) ADJUSTED OPER
Slide 10: Connected Home, DE&P and EM&T
Connected Home, DE&P and EM&T ADJUSTED OPERATING PROFIT / (LOSS) Connected Home Year ended 31 December (£m) 2015 2016 ∆ gross revenue (£m) Connected Home (49) (50) (2%) 2015 19 Distributed Energy & Power (DE&P) (32) (26) 19% 2016 33 Energy Marketing & Trading (EM&T) 66 161 144% Total Connected Home,
Slide 11: Exploration & Production
Exploration & Production Year ended 31 December (£m) 2015 2016 ∆ Gas and liquids realisations1 1,839 1,440 (22%) Adjusted operating profit 95 187 97% Adjusted operating cash flow 787 655 (17%) Total production volumes Average gas sales price Average liquids sales price (mmboe) Europe (p/therm) Ameri
Slide 12: E&P free cash flow
E&P free cash flow Year ended 31 December (£m) 2015 2016 ∆ Free cash flow 86 166 93% Unit lifting and other cash production costs E&P capital expenditure Europe (£/boe) Americas (£/boe) (£m) 2015 15.2 2015 7.7 2015 715 2016 12.9 2016 4.7 2016 518 The above figures are stated before exceptional items
Slide 13: Central Power Generation
Central Power Generation Year ended 31 December (£m) 2015 2016 ∆ Adjusted operating profit 128 75 (41%) Adjusted operating cash flow 130 (1) nm Gas-fired generation (TWh) Nuclear generation (TWh) & achieved clean spark spread & achieved prices Wind generation (TWh) 12.1 13.0 10.1 6.1 £49.2 £44.2 /MW
Slide 14: Centrica Storage
Centrica Storage Year ended 31 December (£m) 2015 2016 ∆ Adjusted operating profit / (loss) 37 (52) nm Adjusted operating cash flow 112 (49) nm Storage gross revenue (£m) Forward seasonal gas spreads (p/th) 8 2015 62 94 7 W16 - S16 spread 2016 50 43 6 5 W15 - S15 Additional space / cushion gas / oth
Slide 15: Operating costs
Operating costs Year ended 31 December (£m) 2015 2016 ∆ Reported operating costs 3,039 3,054 0% FX impact 124 - nm Adjustments (427) (517) (21%) Adjusted operating costs 2,736 2,537 (7%) Growth investment - (21) nm Adjusted operating costs excl. growth investment 2,736 2,516 (8%) The above figures a
Slide 16: Efficiency programme delivery
Efficiency programme delivery £100m £384m £205m £261m £5.0bn £4.7bn 2015 FX Inflation Efficiency Other1 2016 2016 controllable programme like-for-like controllable costs Controllable costs Costs of goods sold costs Operating costs The above figures are stated before exceptional items and certain re-
Slide 17: Net investment
Net investment Year ended 31 December (£m) 2015 2016 ∆ Energy Supply & Services – UK & Ireland 106 103 Energy Supply & Services – North America 52 49 1 Connected Home, DE&P, EM&T 102 61 Exploration & Production 715 518 Central Power Generation (CPG), Gas Storage, Other 74 111 Capital expenditure (in
Slide 18: Cash flow
Cash flow Year ended 31 December (£m) 2015 2016 EBITDA 2,396 2,365 Tax (349) (206) Dividends received 180 117 1 Working capital & other 26 410 Adjusted operating cash flow 2,253 2,686 Net investment (855) (1,039) Interest (273) (113) Dividends (387) (532) 2 Other (141) (383) Equity placing - 700 Adj
Slide 19: Sources & uses of cash
Sources & uses of cash 2016 UKB working capital inflow Other Capital expenditure AOCF excluding 2016 UKB working capital inflow Material acquisitions Equity placing Dividends Disposals Interest 2015 2016 2017e AOCF excluding 2016 UKB working capital inflow £2.3bn £2.3bn 19 Preliminary Results 2016
Slide 20: Credit rating metrics
Credit rating metrics Moody’s Retained cash flow/debt S&P Funds from operations/debt 35% Mid 20’s % 2015 2016 2016 2016 2015 2016 2016 2016 like-for-like pensions pensions pensions like-for-like pensions excl. impact impact excl. impact impact pensions pensions impact impact S&P current rating: Mood
Slide 21: Financial framework
Financial framework Targets Metric Adjusted operating cash flow • 3-5% underlying growth p.a. Dividend • Progressive in line with adjusted operating cash flow Controllable costs • Operating cost growth < inflation • Investment <70% of adjusted operating cash flow Capital re-investment • Limited to £
Slide 22: Iain Conn, Group Chief Executive
Iain Conn Group Chief Executive
Slide 23: Strategic update
Strategic update • Portfolio re-positioning • Efficiency programme • Capability, technology and innovation • UK energy supply market • Consumer strategy and progress • Business strategy and progress • 2017 targets and outlook 23 Preliminary Results 2016
Slide 24: Portfolio re-positioning
Portfolio re-positioning • Investment shift towards customer-facing activities • Panoramic Power, ENER-G Cogen and Neas Energy acquisitions • Transitioning towards a 40-50 mmboe p.a. E&P business - Trinidad & Tobago divestment announced - Exit from Canada targeted in 2017 - E&P capex in £400m-£600m
Slide 25: Asset business performance
Asset business performance • E&P development opportunities - Cygnus first commercial gas - Maria project on track; Oda project approved - Valemon West gas discovery • E&P cash lifting and production costs down ~£350m since 2014 • Strong nuclear generation volumes • Centrica Storage - Testing and ver
Slide 26: Efficiency programme
Efficiency programme • Building foundations for the future Controllable costs • Fundamental shift in the way Centrica operates; ~£100m ~£250m 10 workstreams, 95 efficiency projects £4.7bn • De-risks overall delivery and accelerates value capture ~£4.55 bn • Further ~£250m of savings expected in 2017
Slide 27: Improved customer-facing capability
Improved customer-facing capability • Focus on customer service • Improved customer segmentation • New propositions and offer development • Investment in digital • Technology and innovation 27 Preliminary Results 2016
Slide 28: Investment in technology
Investment in technology • Data analytics and data science • Scalable connected home platform • New connected home devices • B2B energy disaggregation • Remote dispatch and optimisation • ‘Virtual Power Plant’ capability • CHP and batteries • Micro-grids and distributed systems 28 Preliminary Result
Slide 29: Centrica Innovations
Centrica Innovations • Up to £20m p.a. investment • Scanning and learning - Presence in Seattle, Houston, London, Cambridge, Tel Aviv • Accelerating in-house ventures • Incubating external ventures • Partnering • Ignite social enterprise investment fund 29 Preliminary Results 2016
Slide 30: UK energy supply market
UK energy supply market • CMA investigation concluded • Prepayment tariff cap • Competitive market - Over 50 suppliers - Switching rates up ~50% over past two years • Focus on customer service, innovative offers, cost efficiency • Increased choice for customers 30 Preliminary Results 2016
Slide 31: UK energy supply competitive position
UK energy supply competitive position • Improved customer service - Energy supply complaints down 31% - UK Home Brand NPS up 10 points • SVT cheaper than 95% of the market • British Gas customer commitment - SVT prices frozen until August 2017 • Rewarding customer loyalty - ‘British Gas Rewards’ • F
Slide 32: British Gas household bills and profits
British Gas household bills and profits Breakdown of average British Gas combined gas and electricity bill (£/customer) 1,400 1,200 Profit after tax 1,000 Other costs Corporation tax and VAT 800 Environmental and Social Policies 600 Delivery to your home 400 200 Wholesale energy costs 0 2009 2010 20
Slide 33: Consumer strategic framework
Consumer strategic framework Energy Services Peace Home energy Home supply of mind management automation • Gas supply • Heating & aircon • Home risk • Energy insight • Appliance control installation management • Electricity supply • Energy efficiency • Home control • Repair and • Remote diagnostics
Slide 34: Consumer progress
Consumer progress Energy Services Peace Home energy Home supply of mind management automation • Improved customer • Improved customer • Boiler IQ • ~500k Hive smart • 5 Hive products service service - ~30,000 installed thermostats - Multi-device App • Innovative tariffs • ~12,000 engineers • Water l
Slide 35: Connected Home growth
Connected Home growth Cumulative hubs installed and 759 total products sold (‘000) 403 527 297 364 214 160 292 96 214 48 160 96 48 FY H1 FY H1 FY H1 FY 2013 2014 2014 2015 2015 2016 2016 Total products sold Cumulative hubs installed 35 Preliminary Results 2016
Slide 36: Business strategic framework
Business strategic framework Energy Wholesale Energy Energy Energy supply energy insight optimisation solutions • Gas supply • Trading partner • Energy resource • Asset optimisation • Multi-technology • Electricity supply • Energy commodities management & • Aggregation and solutions & risk products
Slide 37: Business progress
Business progress Energy Wholesale Energy Energy Energy supply energy insight optimisation solutions • Improved customer • Strong existing • Growing customer • New demand • Integration of ENER-G service capabilities base response products Cogen capabilities - Complaints down • Neas Energy - ~40k sen
Slide 38: Distributed Energy & Power growth
Distributed Energy & Power growth DE&P active customer sites Flexible distributed energy capacity under contract (MW) 139% 3,924 46% 543 373 1,642 Jan-15 Jan Jan-16 15 Dec 16 Jan-15 Jan Jan-16 15 Dec 16 38 Preliminary Results 2016
Slide 39: 2017 targets
2017 targets • Adjusted operating cash flow >£2bn • Group capital investment limited to £1bn - E&P capex ~£500m • ~£100m incremental growth revenue investment • ~£250m of cost efficiencies • Like-for-like direct headcount reduction of ~1,500 • Net debt in £2.5-£3.0bn range 39 Preliminary Results 201
Slide 40: Summary
Summary • Customer-led strategic repositioning on track • Robust financial performance; underlying AOCF growth of 14% • Investment for growth in Consumer and Business • Continued confidence in 3-5% p.a. underlying AOCF growth on average 2015-20 • Restoration of progressive dividend currently expecte
Slide 41: Q&A
Q&A Iain Conn Jeff Bell Mark Hodges Mark Hanafin Group Chief Group Chief Chief Executive, Chief Executive, Executive Financial Officer Centrica Consumer Centrica Business On 8 February 2017, Mark Hodges and Mark Hanafin were announced as Chief Executive, Centrica Consumer and Chief Executive, Centri
Slide 42: Adjusted operating profit/(loss)
Adjusted operating profit/(loss) Year ended 31 December (£m) 2015 2016 ∆ Energy Supply & Services – UK & Ireland 891 906 2% Energy Supply & Services – North America 323 314 (3%) Connected Home (49) (50) (2%) Distributed Energy & Power (32) (26) 19% Energy Marketing & Trading 66 161 144% Total custom
Slide 43: Adjusted operating cash flow
Adjusted operating cash flow Year ended 31 December (£m) 2015 2016 ∆ Energy Supply & Services – UK & Ireland 623 1,555 150% Energy Supply & Services – North America 496 431 (13%) Connected Home (46) (58) (26%) Distributed Energy & Power (14) (15) (7%) Energy Marketing & Trading 248 198 (20%) Total c
Slide 44: Net debt
Net debt Year ended 31 December (£m) 2015 2016 Opening net debt (5,196) (4,747) Adjusted net cash inflow 597 1,319 Other non-cash movements in net debt (148) (45) Closing net debt (4,747) (3,473) Margin cash (535) (496) Closing net debt including impact of margin cash (5,282) (3,969) The items to wh
Slide 45: Centrica divisions from 2017
Centrica divisions from 2017 ADJUSTED OPERATING PROFIT / (LOSS) Year ended 31 December (£m) 2015 2016 ∆ UK Home 880 810 (8%) Ireland 30 46 53% North America Home 77 93 21% Connected Home (49) (50) (2%) Total Centrica Consumer 938 899 (4%) UK Business (19) 50 nm North America Business 246 221 (10%) D