Centrica Plc · LSE:CNA
Centrica — Investor Presentation (July 2004)
34 slides from Centrica's investor presentation, Jul 1, 2004
Slide 1: Centrica Presentation
Centrica Presentation 1 July 2004 Roger Carr, Chairman Sir Roy Gardner, Chief Executive Phil Bentley, Group Finance Director
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica shares. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
Slide 3: Chairman
Chairman Roger Carr
Slide 4: Chief Executive
Chief Executive Sir Roy Gardner
Slide 5: Today's Agenda
Today’s Agenda 1. AA disposal • £1.75bn total consideration 2. Centrica’s strategic focus • Deeper customer relationships • Competitive cost of goods • Operational efficiency 3. Returns to shareholders • Delivering targeted 40% dividend payout ratio in 2004 • Increase to 50% in 2005 • Special divide
Slide 6: Today's Agenda
Today’s Agenda 1. AA disposal • £1.75bn total consideration 2. Centrica’s strategic focus • Deeper customer relationships • Competitive cost of goods • Operational efficiency 3. Returns to shareholders • Delivering targeted 40% dividend payout ratio in 2004 • Increase to 50% in 2005 • Special divide
Slide 7: We have created significant value in the AA
We have created significant value in the AA 1000 Turnover 100 Operating Profit 800 80 600 60 £m £m 400 40 200 20 0 0 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 • Increased roadside membership from 9.5m to >15m • Increased range of products and services • 1.6m insurance policies / £1bn loan bu
Slide 8: It was the right time to realise the value through an efficient sales process
It was the right time to realise the value through an efficient sales process • Board approved process • Small field of quality bidders • Controlled timescale to minimise disruption to the business • Bid selected on criteria of: • Value • Execution risk • Certainty 8
Slide 9: … and we have secured an attractive price
… and we have secured an attractive price • Disposal to CVC Capital Partners & Permira for £1.75bn • Net proceeds estimated at £1.63bn after working capital, pension, capital expenditure, private medical cover and other adjustments • The net proceeds • are around £400m above the average of analyst S
Slide 10: Transition & people
Transition & people • Transitional services agreement • Centrica will continue to provide the AA with a range of shared services for a period of 12 months • Transfer of employees to the purchaser • All AA employees, and • Some Centrica staff who currently provide shared services to the AA • Pensions
Slide 11: Today's Agenda
Today’s Agenda 1. AA disposal • £1.75bn total consideration 2. Centrica’s strategic focus • Deeper customer relationships • Competitive cost of goods • Operational efficiency 3. Returns to shareholders • Delivering targeted 40% dividend payout ratio in 2004 • Increase to 50% in 2005 • Special divide
Slide 12: We are reinforcing our focus as a leading provider of energy and related home services
We are reinforcing our focus as a leading provider of energy and related home services • Our strategy is to create value for shareholders through: • Deepening relationships with customers: Brand & cross-selling • Managing risk in energy markets: Competitive cost of supply • Sharing knowledge & best
Slide 13: Strategy: Competitive cost of goods
Strategy: Competitive cost of goods Energy market dynamics favour greater equity supply • UK will switch from being a gas exporter to an importer in the near future - Demand growing - Prices continuing to rise - Market liquidity falling • Growing shortage of gas in Europe with new reserves remote fr
Slide 14: In the UK & Europe continued growth in gas demand is expected
In the UK & Europe continued growth in gas demand is expected whilst UKCS production is declining 250 EU15 demand 60,000 UK demand & supply billion therms EU15 demand 50,000 200 40,000 m therms 150 30,000 100 20,000 50 10,000 0 0 '03/04 '04/05 '05/06 '06/07 '07/08 '08/09 '09/10 '10/11 '11/12 '12/13
Slide 15: UK prices are being driven to higher, previously unseen levels
UK prices are being driven to higher, previously unseen levels whilst liquidity in traded markets has reduced UK Forward Market Price Contracts traded (market) 40 35 30,000 30 25 NBP p/therm contracts 20,000 20 15 10,000 10 5 0 0 +1 +2 +3 +4 +5 +6 +7 +8 +9 + Q Q Q Q Q Q Q Q Q Q 97 98 99 00 01 02 03
Slide 16: Marginal demand will be met by LNG or new pipeline imports
Marginal demand will be met by LNG or new pipeline imports, bringing remote gas to the UK market Additional Russian 25 Annual 2010 Demand Additional LNG 360BCM 20 LNG via UK Resource cost p/therm Ormen Lange 15 German domestic 10 Norwegian UK Dutch Russian imports imports domestic domestic 5 product
Slide 17: The convergence of gas and power industries is happening across the value chain
The convergence of gas and power industries is happening across the value chain Gas Supply Chain Rationale Power Supply Chain Examples Centrica Exploration & EdP/Galp Growth in CCGTs Generation Production BG National Grid Transco Transmission & Operational synergies Transmission Storage Centrica Who
Slide 18: We have been investing in higher levels of equity supply
We have been investing in higher levels of equity supply for some time and will continue Asset Area Spent & Assets Guidance Additional committed acquired already given investment (since 2000) (since 2000) (2004-2008) planned UK Power £730m 2,910MW £250m 9 Gas for UK £488m* 522 bcf* £550m 9 Renewable
Slide 19: We have been investing in higher levels of equity supply
We have been investing in higher levels of equity supply for some time and will continue Asset Area Spent & Assets Guidance Additional committed acquired already given investment (since 2000) (since 2000) (2004-2008) planned UK Power £730m 2,910MW £250m 9 Gas for UK £488m* 522 bcf* £600m 9 Renewable
Slide 20: We have been investing in higher levels of equity supply
We have been investing in higher levels of equity supply for some time and will continue Asset Area Spent & Assets Guidance Additional committed acquired already given investment (since 2000) (since 2000) (2004-2008) planned UK Power £730m 2,910MW £250m 9 Gas for UK £488m* 522 bcf* £600m 9 Renewable
Slide 21: Strategy: Brand and customer relationships
Strategy: Brand and customer relationships • Deepening customer relationships • High quality customer service • Differentiation through home services • The engineer as the face of the brand • Telecoms as an integral part of the home services offering • Understanding customer data • Segmented offers
Slide 22: British Gas continues to develop capabilities that exploit its unique assets
British Gas continues to develop capabilities that exploit its unique assets to deliver value Identify unique assets Invest in capabilities Exploit Customer experience Brand Size & heritage People Brand premium Segmentation Right product Customers 15M unique CRM & billing with right experience & dat
Slide 23: Within-brand cross-selling has been very successful
Within-brand cross-selling has been very successful and has added value Electricity customers Home Services product holdings 8 m.customers 6 m.products Electricity 6 4 4 Of which, 2 2 dual fuel 0 0 1999 2003 1999 2003 British Gas products/customer products/customer 2 1.5 1 1999 2003 23
Slide 24: Strategy: Operational efficiency
Strategy: Operational efficiency • Sharing learning & best practice across the Group, eg. • AA / British Gas home services synergies • skills in managing regulation transferred from UK to North America • customer service experience from British Gas to North America • Scale economies • Integration of
Slide 25: Cost control will continue to be a key value driver for Centrica
Cost control will continue to be a key value driver for Centrica • The British Gas transformation P&L Impact (pre-tax) programme is on track to deliver £200m the predicted benefits £150m £100m • Latest data gives us confidence that we will be towards the top £50m end of those ranges £0m 02 03 04 05
Slide 26: Group Finance Director
Group Finance Director Phil Bentley
Slide 27: Today's Agenda
Today’s Agenda 1. AA disposal • £1.75bn total consideration 2. Centrica’s strategic focus • Deeper customer relationships • Competitive cost of goods • Operational efficiency 3. Returns to shareholders • Delivering targeted 40% dividend payout ratio in 2004 • Increase to 50% in 2005 • Special divide
Slide 28: We will generate a significant post-tax profit on disposal
We will generate a significant post-tax profit on disposal £m Gross amount of the consideration 1,750 Estimated adjustments * (120) Estimated net cash consideration ** 1,630 Tax - Transaction fees & separation provisions ** 50 Exceptional post-tax profit ** c. 700 * Working capital, capex, pensions,
Slide 29: Board proposes returning up to £1.5bn to shareholders
Subject to completion of the AA disposal, the Board proposes returning up to £1.5bn to shareholders • Special dividend of £1bn in 2004 • Associated share consolidation • reduce shares in issue by c. 10% • subject to EGM approval* • Planned share repurchase programme of £500m (for cancellation) over
Slide 30: At the same time we are enhancing our ordinary dividend plans
At the same time we are enhancing our ordinary dividend plans • 32% dividend payout ratio in 2003 Ordinary dividend per share 6 • 40% payout ratio in 2004 pence/share • 50% payout ratio in 2005 4 2 Nil Nil 0 97 98 99 00 01 02 03 30
Slide 31: And we are committed to an efficient balance sheet
And we are committed to an efficient balance sheet • Centrica remains highly cash-generative • Cash flow and debt headroom will finance planned investments • Upstream investments will anchor downstream growth • Continued commitment to retain single “A” credit rating • Further surplus capital to be r
Slide 32: In summary
In summary • Disposal of the AA for £1.75bn * • Return of cash to shareholders • Enhanced dividend policy • Strategic focus on energy and related home services • An international energy business • Upstream investments ensure competitive cost of energy • Strong acquisition discipline • Continued crea
Slide 33: Today's Agenda
Today’s Agenda 1. AA disposal • £1.75bn total consideration 2. Centrica’s strategic focus • Deeper customer relationships • Competitive cost of goods • Operational efficiency 3. Returns to shareholders • Delivering targeted 40% dividend payout ratio in 2004 • Increase to 50% in 2005 • Special divide
Slide 34: centrica
4 centrica taking care of the essentials A