Centrica Plc · LSE:CNA
Centrica — EEI Conference, November 2006
24 slides from Centrica's conference presentation, November 2006
Slide 1: Centrica - a leading Integrated Energy Company
Centrica - a leading Integrated Energy Company Sam Laidlaw, Chief Executive Officer EEI Conference, November 2006
Slide 2: Today's presentation
Today’s presentation • A brief history • Initial observations as new CEO • Strategic imperatives • Short term earnings upside • Summary 1
Slide 3: Centrica: A leading integrated energy company
Centrica A leading integrated energy company • Demerged from British Gas plc in 1997 UK downstream • Market cap c. $23bn, 29th position in FTSE100 • Revenue $25bn, $2.9bn operating profit in 2005 • Unregulated, competitive business model UK upstream • Focus on energy & related services to homes and
Slide 4: Our growing portfolio of quality assets and customers
Our growing portfolio of quality assets and customers Power station Gas field Wind farm Energy or Services customers 2005 year end and full year data UK N. America Europe* Total Residential Energy 17,051 3,347 2,130 22,528 Customer accounts (000) Business Energy **909 17 68 994 Services 6,894 1,885
Slide 5: Initial observations as new CEO
Initial observations as new CEO • Margins in the core downstream business are unacceptably low • Business is overly exposed to commodity movements • Historic business structure has left a conglomerate legacy • Customer churn is high and service levels need raising But: • Still have >50% of the UK ga
Slide 6: We are focussing on core strategic imperatives
We are focussing on 4 core strategic imperatives • Restore margins in British Gas Residential • Retail pricing • Cost reduction • Cost control across the group • Substantial potential • Operational excellence • Reduce commodity risk • Higher level of asset hedge • Advantaged supply contracts • Conti
Slide 7: Restoring margins in BGRE: Price
Restoring margins in BGRE: Price • Retail pricing is catching up with wholesale cost increases • Competitors are exposed to same wholesale market and are pricing rationally • Market predicts some margin recovery in 2007 Residential Energy Margin Gas 5% 100% 100% %age customer tariff increase 12-mont
Slide 8: Restoring margins in BGRE: Cost control
Restoring margins in BGRE: Cost control • Ongoing work to streamline processes and procedures • New technology and billing platform complete by end of 2006 • Initial cost reduction target of over £200m between 2004 and 2007 BGRE Cost profile 1,200 1,100 £m 1,000 900 800 700 600 2004 2005 2006 2007 E
Slide 9: Cost control is a priority across the business
Cost control is a priority across the business Centrica cost base - £12 billion 100% • £3.6bn of controllable cost in 2005 90% Opex • A further £2.5bn of T&D cost 80% Other COGS 70% • Activity identified to streamline Transportation and processes and procedures including: 60% distribution 50% – Syst
Slide 10: History of successful asset acquisitions and contractual positions
History of successful asset acquisitions and contractual positions 2000 2001 2002 2003 2004 2005 2006 Direct Energy N.Sea & Irish Central North Roosecote Brae, Skene & Paris Energy Statfjord (gas reserves) Sea assets Sea assets CCGT Buckland Center Avalanche Kings Lynn Rose Barry CCGT Horne & Wren L
Slide 11: We have built an equity and contractual portfolio in gas
We have built an equity and contractual portfolio in gas… Centrica UK Gas supply Statoil Gasunie Contract Other equity Morecambe 2005 2006 2007 2008 2009 2010 2011 10 Source: Centrica Energy
Slide 12: ... and in electricity
… and in electricity 100% Supply as a percentage of peak residential demand 90% International power 80% South Humber Bank 2 70% Spalding Killingholme 60% Barry 50% British Energy 40% Roosecote 30% Brigg 20% Peterborough 10% Kings Lynn 0% South Humber Bank 1 2001 2002 2003 2004 2005 2006 11 Source: C
Slide 13: Continue growth: Direct Energy
Continue growth: Direct Energy • 28% CAGR in operating profit 2001-2005 • Highly hedged and integrated business model • Entered further 9 markets in last 12 months • 5 million customer relationships across 30 states/provinces • Business load doubled in past year • Further opportunities emerging 250
Slide 14: Continue growth: British Gas Services
Continue growth: British Gas Services • Market leading national provider • 28% CAGR in revenues 2001-2005 • 33% CAGR in operating profit 2001-2005 • Market growth driven by ‘time poor’ customers • New management to maximise growth opportunity • Delivery model is unique and difficult to replicate 140
Slide 15: Continue growth: Centrica Storage
Continue growth: Centrica Storage • 75% of UK Storage Capacity (105 BCF) • Storage price up 74% year on year • Field well prepared for winter - now 100% full • 2006 consensus EBIT of £212m • Work ongoing to expand capacity 250 Operating profit growth 200 150 £m 100 50 0 2002 2003 2004 2005 2006* 200
Slide 16: Continue growth: Europe
Continue growth: Europe FRANSPIPE ZEEPIPE r /y EU EU m NO bc RO RO RP 55 PIP 1 PIP IPE E2 E BALTIC LINE RUSSIA 60 bcm/yr • Focus on Western Europe Bacton BBL Emden OSZ DornumGERMANY UK Frankfurt/Oder YAMAL-EUROPE NETRA • Deregulation gaining momentum Dunkerque IZT WEDAL Eynatten MIDAL JAGAL POLAND B
Slide 17: New import infrastructure is being put in place by the competitive UK market
New import infrastructure is being put in place by the competitive UK market … Tampen link to FLAGS: 140 BCF capacity by Oct-2007 Contract awarded Langeled: 950 BCF capacity by end-2006 Connection to Ormen Lange gas field end-2007 Easington reception terminal operational - Average daily flow rate to
Slide 18: As the infrastructure comes on-line prices are being driven downwards
… As the infrastructure comes on-line prices are being driven downwards 20 $/mcf 15 10 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Q4'06 Q1'07 17
Slide 19: LNG increases options for supply
LNG increases options for supply Skikda Exp Marsa el Brega Snohvit Murmansk Pars LNG Skikda Persian LNG Iran LNG •7,600 bcf of regasification Arzew NIOC LNG being built around the Atlantic Das Island basin (by 2015)* Atlantic LNG Rasgas •5,800 bcf of liquefaction Rasgas 3 Atlantic 4 being built with
Slide 20: Short term earnings upside
Short term earnings upside • Cost reduction • Margin expansion • Reduction in effective tax rate • Increasing gas-fired power profitability • Expiry of Industrial and Commercial contracts 19
Slide 21: Decreasing effective tax rate
Decreasing effective tax rate • Effective tax rate trends downwards as the profit mix changes • Petroleum Revenue Tax (PRT) peaks in 2007 500 400 PRT Profile 300 £m 200 100 0 2006 2007 2008 2009 2010 20
Slide 22: ...and margins are improving for gas fired plant
…and margins are improving for gas fired plant • Current disadvantaged position to competitor coal fleet expected to decrease £/MWh 30.0 0.0 2006 2007 2008 2009 Clean Spark Spread Clean Dark Spread Based on current market spreads (source: Spectrometer), including market price of carbon 21
Slide 23: I&C contract decline
I&C contract decline • Industrial and Commercial losses forecast at around £300 million in 2006 • Breakeven by 2009 3000 2500 2000 mmth 1500 1000 500 0 2006 2007 2008 2009 2010 2011 22
Slide 24: In Summary
In Summary • Centrica has a global portfolio of energy customers, assets and supply contracts • We have a sharp focus on the strategic priorities • Commodity cycle is moving in our favour • Margins are improving in our core UK business • Cost efficiency programmes across the business • Growth is bei