credit investor update - centrica · 2012-05-01 · british gas is well positioned for market...

Credit Investor UpdateMay 2012y

1

Credit Investor UpdateMay 2012Disclaimer

This presentation does not constit te an in itation to nder rite s bscribe for or other ise acq ire orThis 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 businesses of Centrica plc These statements and forecasts involve risk andresults, operations and businesses of Centrica plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

Unless otherwise stated all reported figures include share of JVs & associates after interest and taxation (except adjusted operating profit which includes share of JVs and associates before interest and taxation) and are before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain re-measurements.

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Credit Investor UpdateMay 2012Energy value chain

we source it. . . by finding and producing new gas

we trade it. . . in the UK, North America and Europe to maintain energyproducing new gas

reserves across the world

t it

and Europe to maintain energy security for our customers

l itwe generate it. . . through our highly efficient gas-fired power stations and wind farms

we supply it. . . to millions of residential and commercial customers in Britain and North America

we process it. . . at our onshore gas terminals to make it safe

we service it. . . through our energy services and installationsterminals to make it safe

for our customers to useservices and installations businesses in Britain and North America

we store it. . . at our Rough gas storage facility - the largest storage operation in the UK

we save it. . . by offering innovative low carbon products and services to our customers

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Credit Investor UpdateMay 2012Centrica overview

St

Existing CCGTFuture CCGT

Existing Wind

DOWNSTREAM UK NORTH AMERICAUPSTREAM AND STORAGE UK

StavangerFuture Wind

Future Nuclear (20%)Existing Nuclear (20%)

Existing Gas StorageFuture Gas Storage

LNGGas regions

‘East Irish Sea’Offshore

Wind Portfolio(3-4GW)

‘Wash’ OffshoreWind Portfolio

(1.6GW)

Sizewell

Baird

Bains Caythorpe

Hinkley Point

Hoofddorp

Trinidad & TobagoPower generation

Upstream gas

Residential electricity and/or natural gas sales

• 3m residential energy customers in Ontario Alberta US North East and• c 600mmboe 2P reserves• 9 3m residential gas customers Ontario, Alberta, US North East and Texas

• DE Business – Number 3 in North America

• 2.8m residential and business services

• c. 600mmboe 2P reserves• c. 70 mmboe gas and oil

production p.a.• 5.2GW CCGT capacity• 191MW equity wind capacity

• 9.3m residential gas customers (42.4% market share)

• 6.6m residential electricity customers (25.3%)

• 1m business supply points - 1bncustomers across North America

• c. 100mmboe 2P reserves• c. 10mmboe gas production p.a.• c. 1.2GW CCGT capacity in Texas

• 191MW equity wind capacity• 20% share of British Energy,

c.1.8GW equity Nuclear capacity• 128 BCF storage capacity in Rough

(70% of UK total)

1m business supply points 1bn therms / 19TWh energy supplied

• 8.7m services product holdings• c. 11,000 engineering staff

employed ( )• Growing new energy business

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Credit Investor UpdateMay 2012Commodity prices and spreads

Average oil and gas prices

Oil NBP Gas 25Oil($/barrel)

NBP Gas (p/therm)

78

110

58 10

15Clean Dark Spread (£/MWh)

20

2011

39

2010

58

2010 201220110

10

5Clean Spark Spread (£/MWh)

Average winter gas and power prices

71.2

36.44 7

60.1

48.346.451.2

69.1

51.0

63.1

48.0 49.6

37 738.0

31.736

2009/10

4.7

2011/12

2.9

2010/11

4.0

2012/13

3.0

2008/09

5.5

2007/08

7.837.7

2006/07

6.9

5 As at 10 May 2012

NBP Gas(p/therm)

UK Power(£/MWh)

Henry Hub Gas($/mmbtu)

Credit Investor UpdateMay 2012Our Strategic Priorities

Grow British Gas1 Grow British Gas. . . leading the transition to low carbon homes and businesses

Deliver value from our growing upstream business

1

2 Deliver value from our growing upstream business . . . securing sustainable energy for our customers

2

Build an integrated North American business. . . with leading positions in deregulated markets

3

Drive superior financial returns. . . through operating performance and our investment choices

4

energy for a low carbon world

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Credit Investor UpdateMay 2012

British Gas is well positioned for market leadership

• 12 million homes, half of all UK householdsCustomers ,• One million business sites, No.1 in SME gas and electricity

• National base of over 11,000 highly trained and engaged engineers

Customers and Service

C bili i d, g y g g g

• No. 1 in Service & Repair, Boiler Installations and Smart Meter Installations• Leading capabilities in solar and insulation

Capabilities andproduct range

• No. 1 in brand recognition / TV cut through• Most trusted for energy efficiencyBrand

• Most advanced IT platform• Scale to manage complex relationships• Cost efficiencies

Scale

• No. 1 for online• Leadership in low carbon technologies

Innovation

7


British Gas – continued growth in challenging environment

Residential energy operating profit

800 70

Services energy operating profit

300 9 0

BGB operating profit

£250 10

G

600

£m60

40

Gasmarketprice(p/thm)50

200

£m300 9.0

8.5

Productholdings(m)

250 200

150

£m

8

6

Grossprofit margin (%)

400

200

30

20

10

150

100

50

8.0

7.5

100

50

4

2

2008 2010 201120090

2012consensus

0

• Maintaining profits . . . – reduced churn

2012consensus

2008 2010 201120090 7.0

• Growth driven mainly from cost cutting efficiencies

2008 2010 201120090

2012consensus

0

• Economy and competition putting pressure on

– customer service– cost efficiencies

• . . . in an unpredictable environment

cutting efficiencies– improved service flexibility

• New market opportunities create further growth opportunities

– affinity agreements in place

margins in short term• Leverage BGR systems

and processes• Marketing-led tailored

iti– rising wholesale prices– challenging regulatory

environment– underlying consumption

d li

– affinity agreements in place with Thames Water, Bristol Water and Wessex water

– continued focus on service excellence and innovative

propositions• Growth in business energy

services

decline product development

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Leading business model leaves us well placed to seize ongoing market opportunities

Maintaining profitsG Maintaining profits – cost advantage, industry leading retention, deeper customer relationshipsBGR

Steady double digit profit growth – attractive propositions, cost control, productivity improvements

BGS

Near term investment to drive longer term growth – B2B services, leveraging BGR cost baseBGB

Rapid growth in new markets BGNM– underpinned by new technologies and Smart meter roll-out

BGNM

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Ofgem Retail Market Review and Green DealOfgem focus British Gas addressing key Ofgem issues

M t t t fi i l t t t f ll li f llTransparency • Most transparent financial statements of all suppliers – full reconciliation of Ofgem statements with Annual Report

• Include full breakdown of costs in customer billsDetails inth bill

Transparencyof accounts

• Two simple tariff types offered (fixed and variable) with on line tariff checker

Simpletariffs

the bill

tariff checker

• Only big six supplier with no investigations for mis-sellingOpeninvestigations

tariffs

• Moratorium on cold-call doorstep selling of energy – focusing now on face-to-face appointment-based sales

Doorstepselling

g

• We have been engaging closely in the development of the Green Deal and believe it has the potential to deliver significant energy Green Deal

10

p g gyefficiency measures into people’s homes

• Launch expected in October 2012 but take up may be limited

Credit Investor UpdateMay 2012Centrica Energy

• Grow upstream production to reach 75 mmboe/a in the Investment for growth p pnext 3-5 years– Delivering additional value from upstream, building on

our distinctive capabilities– Maintaining an appropriate level of our energy hedgeGrow upstream production

Investment for growth and value

g pp p gy g• Targeted blend of organic growth and acquisition

– Ensure a balanced, sustainable reserve base– Focus on the Atlantic Basin

Grow upstream production by 50% to 75 mmboe/a

in the next 3-5 years

Grow offshore wind capacity• Offshore wind

– Deliver Lincs first power second half of 2012Grow offshore wind capacity by 300% to 560MW by 2016;

Options in new nuclear, biomass and CCGT

Deliver Lincs first power second half of 2012– Complete Race Bank – FID on Docking Shoal or the most attractive Round 3

project– Joint venture with DONG Energy for Round 3 projectsJoint venture with DONG Energy for Round 3 projects

• Further growth options– New nuclear, subject to conditions being met– Biomass: over 200MW of development options– CCGT: options to construct up to 2 new plantsCCGT: options to construct up to 2 new plants

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Upstream gas and oil - delivering stable secure production

Upstream long-term sustainability Strong production replacement ratio

607080

Production, mmboe

Exploration

607167

Reserves*, mmboe

203040

5060

Producing fields

Underdevelopment

p

Future Developments2011

production2011

additions

Recent North Sea

acquisitions434 440

0

1020

2020201920182017201620152014201320122011

g

2011 y/e2010 y/e

Creating a sustainable business by:

• Maximising performance of hubs and cornerstone assets

Strong production replacement ratios:

• 2011 replacement ratio of 112% reflecting upgrades of existing fields

• Maintaining extensive development pipeline and exploration portfolio, linked to our strong capabilities

• Partnerships and acquisitions – recent Statoil Statfjord and Total acquisitions

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recent Statoil, Statfjord, and Total acquisitions

* Includes Rough cushion gas (31mmboe)


Power Generation – diversified generation mix and investment options

Power production has been diversified EMR proposalsdiversified

40

Production, TWh

• Contracts for Difference

30 • Capacity market

20

10

• Carbon Price Floor

• Emissions Performance Standard

2011201020092008

CCGT N clearWind

0

CCGT NuclearWind

Our diverse portfolio positions us well for any EMR outcome

1. Centrica share

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Centrica and the role ofNorth America

• Large profit poolsLarge profit pools

• Key positions in evolving competitive markets

• Continued demand and household growth

Attractivegrowth

opportunity

• Managing a vertically integrated business

g

Leverages• Core competencies in competitive retail markets

• Opportunity to develop services propositions

LeveragesGroup

expertise

• Reduces exposure to the UK market environmentInvest forth d

• Disciplined investment to deliver growth for the Groupgrowth and

value

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Direct Energy: established expertise and platform in North America

Upstream GasDE ResidentialO 3 t i

Downstream Upstream

4,600+ wells10+ mmboe/year production109 mmboe reserves

Over 3m customers in Canada, Texas, US Northeast

109 mmboe reserves (2P)

pPower Generation

DE BusinessNumber 3 in North America46 TWh and 714mmth

Three CCGT plants (1,215 MW)

46 TWh and 714mmth

DE Services3m residential and business services customers

Power generation

Upstream gas

Residential electricity and/or natural gas sales

Note: DE Residential customers include Gateway; DE Upstream as per 2011 annual accounts :DE Business volumes are 2010

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Build an integrated North American business . . .

G d t d t

. . . with leading positions in deregulated markets

Good progress to-date• Organic growth, operational efficiencies, and value-adding acquisitions

Well positioned for further growthWell positioned for further growth• Increase penetration in dynamic retail markets• Further grow C&I, especially small business segment• Leverage services potential• Drive further operational efficiencies

Building the business downstream and upstream, to achieve scale• Achieve retail leadership by becoming number 1 or 2 in our chosen markets• Achieve 35%-40% upstream cover if investment offers valuep

Disciplined approach to further investment• To deliver value for the Group

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Credit Investor UpdateMay 2012Centrica overview - financial

• Market capitalisation c. £16bn* • Credit Ratings: A- (stable) S&P, A3 (stable) Moody’s• FTSE top 25*

• 2011 financial headlines

(stable) Moody s• Centrica is committed to “A” range long

term credit rating

22,838 22,423Continuing operations:Revenue

20102011Year ended 31 December - £m

EBITDA / Net debtInterest / tax / dividends from

(3,435)3,128

Year ended 31 December 2011 (£m) Cash flow Debt %

3,1282,415

3,1882,390

EBITDA Adjusted operating profit

Group result:Earnings

Interest / tax / dividends from JVsLease adjustmentRestricted cashOther adjustments

-(950)(344)

97

(715)--

(12)1,3331,6013,435

1,2971,6693,312

Earnings CapexNet Debt

Other adjustmentsFunds from operations / adjusted debtDividendsAdditional lease adjustment /

97(4,632)

-

(12)2,401

(762)

52%

Figures include share of JVs & associates stated net of interest & taxation (except dj t d ti fit hi h i l d h f JV d i t b f i t t d

* As at 14 May 2012

Additional lease adjustment / otherRetained cash flow / adjusted debt

(703)(5,335)

(150)1,489 28%

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adjusted operating profit which includes share of JVs and associates before interest and taxation) and are before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items & certain re-measurementsCapex includes investment in JVs and associates

Credit Investor UpdateMay 2012Optionality in investment programme

• Strong cash generation gives us(£bn)

3 5• Strong cash generation gives us significant flexibility and investment choices

• 2011 numbers include

3.5

3.0Acquisitions /disposals

OtherBritish GasS

EBITDA

– UK Gas: Ensign, York, Statfjord, Cygnus, Rhyl

– UK Power: Lincs, CCGT maintenance NNB

2.0

2.5StorageNorth America

UK Power

UK Gas

maintenance, NNB– Acquisitions: mainly North

America downstream• Proportion of committed capex

1.5

1 0Tax and Interest

Proportion of committed capex beyond 2012 is small

1.0

0.5Dividends

0Sources

2011Uses2011

Investments2011

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Credit Investor UpdateMay 2012Capital and acquisition expenditure

Year ended 31 December (£m) 2010 2011 2012e3

UK upstream gas and oilUK upstream power1

613 300

475233

Year ended 31 December (£m) 2010 2011750300

2012e3

North AmericaUK gas storageB iti h G

70 59

211

8763

150

100 50

150British GasOtherTotal pre-acquisitions

211 48

1,301

15039

1,047

15050

1,400 p qAcquisitions / disposalsTotal

,3002

1,601

,622

1,669

,1,3004

1 UK Upstream power includes investment in JVs / associates for windfarm and new nuclear developments2 Major items in acquisitions / disposals in 2011 include acquisitions of Gateway First Choice Power Vectren Wildcat Hills PH Jones and the disposal of Oxxio

19

2 Major items in acquisitions / disposals in 2011 include acquisitions of Gateway, First Choice Power, Vectren, Wildcat Hills, PH Jones and the disposal of Oxxio3 Latest guidance for 20124 Acquisitions announced to date – includes the Statoil Norwegian asset purchase, Home Warranty of America, the Carrot Creek assets, an additional interest in

the Statfjord field and a package of UK North Sea assets from Total (following notice of pre-emption)

Credit Investor UpdateMay 2012Financial profile

• £3.4bn of committed standby banking facilities from 25 banks

Group Gross Debt Maturity Profile (£m)(£m)banking facilities from 25 banks

on identical terms• £2.6bn of facilities have maturity

in July 2016

(£m)

1,000

y• No financial or other restrictive

covenants in any of the facilities• Despite trend of strong cash flow

800

600Despite trend of strong cash flow generation we have a financial profile consisting of

– conservative net debtt li idit

600

400– strong liquidity– strong credit rating– weighted average maturity

for debt of 10.7 years200

as at 31 March 2011

o deb o 0 yea s

02012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2031

+

20

as at 31 March 2011

Credit Investor UpdateMay 2012Summary

• Driving value in challenging external environment

• Centrica business model remains robust– customer at the heart of everything we do– healthy balance between upstream and downstream

f– strong cash flow

• Disciplined investment programme– Upstream UK and North America– geographic diversity– attractive investment options, aligned to strategy and capability– competitive advantage through cost reduction programme

• Low financial risk and strong liquidity credentials, with a repeated commitment to the ‘A’ range credit ratings

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Appendix

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Credit Investor UpdateMay 2012Centrica business

UK Upstream North AmericaUK Downstream

Grow British Gas Deliver value from our growing upstream business

Build an integrated North American business

Drive superior financial returns

Strategicpriorities

. . . securing sustainable energy for our customers

. . . leading the transition to low carbon homes and businesses

. . . with leading positions in deregulated markets

Drive superior financial returns. . . through operating performance and our investment choices

Operating 2011 2010 2011 2010 2011 2010Operatingprofit

2011

• Largest supplier to UK homes • Energy price hedge for the • Geographic diversity

2010£1,005m £1,216m

2011 2010£1,023m £771m

2011 2010£312m £234m

Businessvalue

Largest supplier to UK homes and businesses

• Unique services and new energy capabilities

• Strong customer relationships

Energy price hedge for the downstream business

• Distinctive capabilities

• Opportunities to invest for value and growth

Geographic diversity

• Growth potential in deregulated markets

• Additional value from increasing the scale of

23

• Strong customer relationships provide long term value

value and growth increasing the scale of the business


Centrica’s performance under different commodity price environments

Impact Levers to mitigate / Impact Levers to mitigate /

Lower commodity price environment Higher commodity price environment

Lower gas production profits (some offset from oil production and lower taxes)

• Asset flexibility to preserve reserves O ti lit i

opportunities

– Higher gas production profits Higher returns from nuclear

• Additional value in investment programme CCGT’ it h t

opportunities

+

+and lower taxes)Lower returns from nuclear generation Lower wind profits (protected by ROCs)

• Optionality in investment programme

Upstream

–

–

Pressure on CCGT • CCGT’s switch to peaking –

CCGT’s advantaged (running baseload) Storage depends on volatility and spreads

+

+ / –

• Price competitiveness drives growth

Upward pressure on tariff book margins

Strong relative competitive position

+

+ream

• Structural hedge now protects competitive position

• Greater demand for new

Downward pressure on tariff book margins

–

position +

Integrated model protects earnings i l i i t

Dow

nstr • Greater demand for new

energy / service propositions

Higher gas prices drive i d l t l

24

in a low gas price environment increased long-term value

Credit Investor UpdateMay 2012Downstream UK

Operating profit & key drivers

Operating Profit

Residential energyResidential services

522264

742241

Year ended 31 December (£m) 20102011Operating Profit

Residential servicesBusinessDownstream UK

264219

1,005

241233

1,216

Business revenue (£m)& margin (%)

2 907

Residential services revenue (£m) & margin (%)

Residential energy revenue (£m) and margin (%)

8 359 2,9072,702

8.0% 8.1%

1,4641,504

16.5% 17.6%

8,359 8,113

8.9% 6.4%

2010 20112010 20112010 2011

25

Above figures include share of joint ventures and associates before interest and taxation and are before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain re-measurements

Credit Investor UpdateMay 2012Explaining energy bills

Build trust• Build trust– tariffs simplified, clearer bills– making it easier for customers

to check their tariff– widest eligibility for Warm Home Discount

• Build understanding– commodity costs, non-commoditycommodity costs, non commodity

costs, green levies all increasing– affordability becoming an increasingly

important issuel f li G t d R l t– role for suppliers, Government and Regulator

• Delivering for customers– service excellence

di ti ti d t ff i– distinctive product offerings

26 Cost breakdown figures in charts are indicative as at September 2011. Profit figures are based on average British Gas Residential energy supply profits after tax over the period 2006-11

Credit Investor UpdateMay 2012Upstream UK


Operating Profit

GasPower

769254

566205


Average sales price Gas & oil Power generation (TWh) /

PowerUpstream UK

2541,023

205771

Liquids (£/boe)Gas (p/therm) Liquids (mmboe)Gas (mmth)

production volumes

Wind

achieved CSS / nuclear power price (£/MWh)

0.6

Gas-fired Other

41.6

51.6

46.8

57.2 2,550 2,160 Nuclear

22.815.0

0.511.2

9.7£11.6/ MWh £10.1/

MWh £48.5/ MWh£42 9/

2010 2011 2010 2011 2010 2011 2010 2011

11.8 12.5

2010 2011 2010 2011

MWh£42.9/ MWh

27


Credit Investor UpdateMay 2012Gas reserves

We now have >1 0bn boe reserves and resourcesWe now have >1.0bn boe reserves and resources

22%

Net resources at end-20111

Oil22%

43%

24%

25%Contingent

(2C)Norway

T&T Oil

57%

76%

53%Proved + probable UK and NL

Gas

By resource type By productBy country

(2P)

1. Estimated reserves and resource base on Centrica Energy 2011 YE booked reserves and resources, plus recent North Sea acquisitions. Excludes Rough cushion gas and North America

28

Credit Investor UpdateMay 2012Electricity Market Reform

Proposal Centrica response

Contracts for Difference Welcome the decision to provide support for low carbon investment; pushing DECC for design detail and underpinning payment model

Capacity market Welcome the decision of a market based mechanism; pushing DECC for detail and highlighting need for early implementation

Welcomed by Centrica; will support new and existing lower carbon investments

Carbon Price Floor

Proposals are workableEmissions Performance Standard

• Series of decision documents in May/June with legislation scheduled• Series of decision documents in May/June with legislation scheduled in the autumn

• We support the objectives of EMR but much important detail still needs to be worked through for investment decisions to be madeg

29

Credit Investor UpdateMay 2012UK power – new nuclear

New nuclear build of 4 new reactors• New nuclear build of 4 new reactors• Centrica has option to participate at up to 20% in

each reactorI t t ld b h d b f• Investment would be phased over a number of years and be part of capital spend budget

• First FID will be for Hinkley Point• EMR outcome will be significant in the final decision

30

Credit Investor UpdateMay 2012UK power – offshore wind

Significant pipeline of potential projects• Significant pipeline of potential projects– Lincs currently under construction - 270 MW capacity

(operational from winter 2012/13) – further Round 2 projects awaiting consent - Race Bank p j g

(up to 580 MW) and Docking Shoal (up to 540 MW)– Round 3 - up to 4.2 GW in the Irish Sea Zone

• Making use of JV partnerships– sold 50% of equity in GLID to TCW– Lincs in partnership with Siemens (25%) and

Dong (25%)may use partnerships for future construction– may use partnerships for future construction

• Project finance where appropriate– successfully completed post construction for GLID

Lincs completed pre construction– Lincs completed pre construction– may or may not look for PF on future projects, depending

on market conditions, risks and returns at the time

31

Credit Investor UpdateMay 2012North America

Operating Profit


Residential energyBusiness energy

161110

177 88


Business energyServicesUpstream & WholesaleNorth America

1102813

312

88 15

(46)234

Residential energy

Revenue (£m) Operating margin (%)Gas volume (mmth) and achieved price (C$/GJ)

Power volumes (TWh) / achieved CSS (US$/MWh)

Upstream and wholesaleRevenue &

margin % (£m)

Business energy

Power volumes (TWh)

2,502 2,416 7.1% 6.7% 409 567 3.9

5.22,682 2,748

39.7 46.4

2010 2011 2010 2011 2010 2011 2011

$4.8 $4.4 $11.8 $13.8

20102010 2011 2010 2011

3.3% 4.0%

32


Credit Investor UpdateMay 2012y

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credit investor update - centrica · 2012-05-01 · british gas is well positioned for market...

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