Preliminary Results
for the year ended
31 December 2013
Disclaimer
This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or
dispo...
Rick Haythornthwaite
Chairman
Sam Laidlaw
Chief Executive
Overview
• Robust actions in a challenging environment
– service level improvements and cost reduction downstream
– cost e...
Nick Luff
Group Finance Director
Commodity prices and spreads
Average temperature

Average month ahead
commodity prices
112

(degrees Celsius)

SNT = 12.9
...
Financial headlines
2013

2012

26,571

23,942

2,695

2,743

43%

45%

1,370

1,378

Adjusted earnings per share (p)

26....
Operating profit analysis
Year ended 31 December (£m)

British Gas
Direct Energy
Centrica Energy
Centrica Storage
Adjusted...
British Gas
Year ended 31 December (£m)

British Gas
Direct Energy
Centrica Energy
Centrica Storage
Adjusted operating pro...
British Gas
Operating profit
2013

2012

Residential energy

571

606

Residential services

318

312

Business

141

175
...
Direct Energy
Year ended 31 December (£m)

British Gas
Direct Energy
Centrica Energy
Centrica Storage
Adjusted operating p...
Direct Energy
Operating profit
2013

2012

163

156

Business energy

77

121

Services

36

33

276

310

Residential ene...
Centrica Energy
2013

2012

1,030

1,093

276

310

Centrica Energy

1,326

1,251

Centrica Storage

63

89

2,695

2,743
...
International gas
Gas & oil production volumes

Gas (mmth)

2013

2012

Operating profit before tax 1,155

940

Operating ...
UK power
Operating profit/(loss)

Power generation (TWh)

2013

2012

1,155

940

0.5

0.8

Power

171

311

9.0

8.9

Gas...
Centrica Storage
British Gas
Direct Energy
Centrica Energy
Centrica Storage
Adjusted operating profit
Storage revenue (£)
...
Exceptional items and certain re-measurements
Pre tax

Post tax

Rijnmond tolling contract1

(125)

(125)

E&P Impairments...
Cash flow
2013

2012

Opening net debt

(4,047)

(3,292)

EBITDA

3,799

3,650

237

(51)

82

114

Interest

(219)

(172)...
Capex and acquisitions
1

4

2012

2013

2014e

906

1,078

950

Centrica Energy power

314

77

50

British Gas

161

204...
Summary and outlook
• 2013 EPS flat at 26.6p; scale and efficiency benefits offset by market headwinds
• 2014 outlook
– ma...
Sam Laidlaw
Chief Executive
Our strategic priorities
1. Innovate

to drive growth and service excellence

2. Integrate

our natural gas business, link...
Good strategic progress
• Validation of refreshed strategy; investing to secure gas for our customers
• Hess and Suncor tr...
Securing gas for the UK in an
increasingly international market
• £14bn of new gas supply contracts
– US export deal with ...
Enhanced scale in North America
• C$1bn gas and liquids acquisition doubles upstream
scale in Canada and cements QPI relat...
Working towards a transparent and
affordable UK energy policy

• UK energy market amongst the most competitive in
the worl...
Working towards a transparent and
affordable UK energy policy
• Detailed discussions with all stakeholders
– improved unde...
Positioning the Group for the future operational and capital efficiency
• Group-wide £500m cost reduction programme comple...
Growth through differentiation in British Gas
• Targeting industry leading service levels for our customers
– improving ke...
Improving cost competitiveness in Direct Energy
• Targeting $100m cost reduction in 2014
– benefiting from synergies from ...
Positioning Centrica Energy for the future adding value through selective investments
• Adding value through reserve addit...
Positioning Centrica Energy for the future adding value through selective investments
• Organic E&P capex reduced to aroun...
Summary
• Good strategic progress, robust actions in place across the Group in a challenging environment
• Engaging with p...
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Preliminary results 2013 presentation slides

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Centrica plc preliminary results for the year ended 31 December 2013 - presentation to analysts and investors

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Preliminary results 2013 presentation slides

  1. 1. Preliminary Results for the year ended 31 December 2013
  2. 2. 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 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 and 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. 2
  3. 3. Rick Haythornthwaite Chairman
  4. 4. Sam Laidlaw Chief Executive
  5. 5. Overview • Robust actions in a challenging environment – service level improvements and cost reduction downstream – cost efficiency and tight capital allocation upstream • New platforms for long term growth – Sabine Pass LNG, Canadian E&P, Hess Energy Marketing, innovation in downstream • Political engagement to restore investor confidence 5
  6. 6. Nick Luff Group Finance Director
  7. 7. Commodity prices and spreads Average temperature Average month ahead commodity prices 112 (degrees Celsius) SNT = 12.9 Brent Oil ($/barrel) 109 12.9 SNT = 9.5 NBP Gas (p/therm) 66.7 58.3 44.6 50.0 2.8 2012 2013 140 2012 2013 2012 2013 3.7 2012 2013 Average month ahead gas and oil prices H1 2013 H2 2012 H2 2013 UK power prices and clean dark and spark spreads UK Power (£/MWh) 40 UK Gas (p/therm) 80 30 60 Clean Dark Spread (£/MWh) 20 40 10 US Gas (p/therm) 20 7 H1 2012 7.3 50 100 0 US Gas ($/mmbtu) 60 Oil ($/boe) 120 8.5 UK Power (£/MWh) 11.3 Clean Spark Spread (£/MWh) 0 2012 2013 As at 20 February 2014 2014 2015 -10 2012 2013 2014 2015
  8. 8. Financial headlines 2013 2012 26,571 23,942 2,695 2,743 43% 45% 1,370 1,378 Adjusted earnings per share (p) 26.6 26.6 Full year dividend per share (p) 17.0 16.4 Year ended 31 December Revenue (£m) Adjusted operating profit (£m) Adjusted effective tax rate Group result: Adjusted earnings (£m) 8 Above figures include share of JVs and 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 The Group has applied IAS19 (revised) pensions accounting. As a result, 2012 taxation, earnings and EPS have been restated A definition of the effective tax rate is provided in the Group Financial Review
  9. 9. Operating profit analysis Year ended 31 December (£m) British Gas Direct Energy Centrica Energy Centrica Storage Adjusted operating profit Share of JV / associates’ interest and taxation Depreciation of FV uplifts to property, plant and equipment Group operating profit 9 2013 2012 1,030 1,093 276 310 1,326 1,251 63 89 2,695 2,743 (111) (85) (66) (96) 2,518 2,562 Above figures are before exceptional items and certain re-measurements The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly
  10. 10. British Gas Year ended 31 December (£m) British Gas Direct Energy Centrica Energy Centrica Storage Adjusted operating profit 10 2013 2012 1,030 1,093 276 310 1,326 1,251 63 89 2,695 2,743 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 The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly
  11. 11. British Gas Operating profit 2013 2012 Residential energy 571 606 Residential services 318 312 Business 141 175 1,030 1,093 Residential energy revenue (£m) and post tax margin (%) Year ended 31 December (£m) Residential services revenue (£m) and post tax margin (%) 1,674 14.1% 2012 11 1,655 14.6% 2013 9,487 5.0% 4.5% 2012 British Gas 9,121 2013 Business revenue (£m) and post tax margin (%) 3,062 3,084 4.2% 3.7% 2012 2013 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
  12. 12. Direct Energy Year ended 31 December (£m) British Gas Direct Energy Centrica Energy Centrica Storage Adjusted operating profit 12 2013 2012 1,030 1,093 276 310 1,326 1,251 63 89 2,695 2,743 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 The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly
  13. 13. Direct Energy Operating profit 2013 2012 163 156 Business energy 77 121 Services 36 33 276 310 Residential energy revenue (£m) and post tax margin (%) Year ended 31 December (£m) Residential energy Direct Energy Business energy revenue (£m) and post tax underlying margin (%) 4,238 2,357 4.4% 2,517 4.4% 2012 2013 Services revenue (£m) and post tax margin (%) 532 570 2,795 4.1% 2.8% 13 2013 2012 2013 1.8% 2012 4.4% Above figures are before exceptional items and certain re-measurements The North American upstream gas business is now included within Centrica Energy. The North American Power and Midstream & Trading businesses are now included within Direct Energy Business energy supply. The 2012 comparatives have been restated accordingly The business energy post tax margin (%) excludes the impact of amortisation of customer intangibles and integration costs resulting from the acquisition of the energy marketing business of Hess
  14. 14. Centrica Energy 2013 2012 1,030 1,093 276 310 Centrica Energy 1,326 1,251 Centrica Storage 63 89 2,695 2,743 Year ended 31 December (£m) British Gas Direct Energy Adjusted operating profit 14 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 The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly
  15. 15. International gas Gas & oil production volumes Gas (mmth) 2013 2012 Operating profit before tax 1,155 940 Operating profit after tax Liquids (mmboe) 198 Year ended 31 December (£m) 325 3,557 2,990 Americas 17.4 2012 2013 Europe 18.7 2012 2013 Average gas sales price Average liquids sales price Total unit production costs Europe (p/therm) Europe (£/boe) Europe (£/boe) Americas (US$/mmbtu) 65.0 62.8 57.6 Americas ($/boe) 10.2 62.9 72.1 3.7 2012 15 2013 2012 67.8 13.8 12.9 13.5 9.3 9.8 11.7 3.3 2013 Americas ($/boe) Total (£/boe) 2012 2013 2012 2013 2012 2013 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 The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly Americas figures include production from Canada and Trinidad & Tobago 11.4 9.6 15.1 2012 2013 12.4 12.6 2012 2013 DDA costs Lifting & other cash production costs
  16. 16. UK power Operating profit/(loss) Power generation (TWh) 2013 2012 1,155 940 0.5 0.8 Power 171 311 9.0 8.9 Gas-fired Renewables Nuclear Midstream (133) 25 250 29 (4) 56 237 22 1,326 1,251 Year ended 31 December (£m) Gas Centrica Energy Achieved power price Nuclear (£/MWh) Renewable incl. ROCs (£/MWh) 105.7 Gas-fired 12.0 12.1 2012 2013 2012 114.5 121 Free carbon allowances 16 96 51.9 2013 2012 Nuclear Gas-fired gross margin & Clean spark spread (£/MWh) 2013 104 £10.7/ MWh 49.6 Renewables £11.7/ MWh 2012 Gross margin 2013 Clean spark spread 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 Renewables includes a net loss of £11m in 2013 relating to profit on disposal and write-downs. The equivalent figure in 2012 is a profit of £32m
  17. 17. Centrica Storage British Gas Direct Energy Centrica Energy Centrica Storage Adjusted operating profit Storage revenue (£) 61m 141m 18 Other 67m 2012 1,093 310 1,251 89 2,743 2013 1,030 276 1,326 63 2,695 Year ended 31 December (£m) 15 SBU Forward price spreads (p/therm) 12 W12-S12 spread W14-S14 spread 9 121m W13-S13 spread 6 3 2012 17 2013 0 2011 2012 2013 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 The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly
  18. 18. Exceptional items and certain re-measurements Pre tax Post tax Rijnmond tolling contract1 (125) (125) E&P Impairments2 (699) (318) (240) (224) (1,064) (667) 438 284 (626) (383) Year ended 31 December 2013 (£m) Gas storage projects 3 Total exceptional items Total net re-measurements Exceptional items and certain re-measurements 18 1 An onerous contract charge for the Rijnmond tolling contract in the Netherlands as a result of decreases in expected future revenues 2 Reflecting updated information on resources and development costs following assessment of production rates and drilling results in the UK Southern North Sea, and a reduction in North American natural gas prices and an increase in the discount rate applicable to existing North American assets 3 Reflecting weak economics for storage projects and the UK Government’s decision to rule out incentivisation for additional gas storage capacity to be built
  19. 19. Cash flow 2013 2012 Opening net debt (4,047) (3,292) EBITDA 3,799 3,650 237 (51) 82 114 Interest (219) (172) Tax (892) (524) Net capex (2,565) (2,727) Dividends (862) (815) Share repurchase (500) 0 (85) (37) 3 (193) (5,049) (4,047) (107) (102) Period ended 31 December (£m) Working capital movements Margin calls Pension deficit payments FX / Other Closing net debt Margin cash held / (pledged) within net debt 19
  20. 20. Capex and acquisitions 1 4 2012 2013 2014e 906 1,078 950 Centrica Energy power 314 77 50 British Gas 161 204 150 Centrica Storage 37 50 25 Direct Energy 50 89 100 Other 59 38 25 Total pre-acquisitions 1,527 1,536 1,300 Acquisitions / (disposals) 1,200 1,029 Total 2,727 2,565 Period ended 31 December (£m) Centrica Energy gas and oil 2 20 3 5 (460) 1. The North American upstream gas business is now included within Centrica Energy. The 2012 comparatives have been restated accordingly 2. Centrica Energy power includes investment in JVs / associates for wind farm s and new nuclear developments 3. Acquisitions / disposals include the acquisition of Hess’ Energy Marketing business and the acquisition of gas and oil assets in Canada from Suncor. For further details of all acquisitions and disposals see note 15 of the preliminary financial statements 4. Latest guidance for 2014 5. Includes the disposal of Texas CCGTs and of an interest in the Greater Kittiwake Area E&P assets
  21. 21. Summary and outlook • 2013 EPS flat at 26.6p; scale and efficiency benefits offset by market headwinds • 2014 outlook – margin pressures in energy supply on both sides of the Atlantic – new source of growth from Hess Energy Marketing; extreme weather conditions and FX movements impacted Direct Energy in the year to date – growth potential in Canada and Norway and E&P cost pressures in North Sea – UK gas storage and spark spreads remain low • Strong cash position; real dividend growth and £420m share buyback programme 21
  22. 22. Sam Laidlaw Chief Executive
  23. 23. Our strategic priorities 1. Innovate to drive growth and service excellence 2. Integrate our natural gas business, linked to our core markets 3. Increase our returns through efficiency and continued capital discipline The leading integrated energy company with customers at its core 23
  24. 24. Good strategic progress • Validation of refreshed strategy; investing to secure gas for our customers • Hess and Suncor transactions deliver enhanced scale and capability in North America • Simplified tariffs and improved reporting transparency in UK energy supply • Realised value through divestments of selected assets • Positive actions across the Group to deliver long term growth 24
  25. 25. Securing gas for the UK in an increasingly international market • £14bn of new gas supply contracts – US export deal with Cheniere, giving Centrica market optionality – extension to Qatargas LNG contract • Acquired 25% stake in Bowland UK shale exploration licence • £1.5bn organic capital expenditure across the Group in new sources of gas and power • First gas at York, Rhyl and Kew • Lincs offshore wind farm fully operational, capable of providing power for up to 200,000 UK homes 25
  26. 26. Enhanced scale in North America • C$1bn gas and liquids acquisition doubles upstream scale in Canada and cements QPI relationship – initial production ahead of expectations – reserves and production upside potential • $1.2bn Hess Energy Marketing acquisition transforms our operating model in North America B2B – advantaged positions along the gas value chain – long term customer relationships – growth through dual fuel offerings – initial financial performance ahead of business case 26 NE BRITISH COLUMBIA CENTRAL FOOTHILLS Carrot Creek Ferrier Calgary Wildcat Hills Wood River Craigmyle WCSB Existing Centrica acreage Acquired acreage
  27. 27. Working towards a transparent and affordable UK energy policy • UK energy market amongst the most competitive in the world • Energy efficiency is reducing average bills 27 1 Source: International Energy Agency publication, Energy Prices and Taxes. Domestic gas prices include taxes 12 2012 Comparison of UK vs. EU domestic gas prices (p/kWh) 1 10 8 Greece Sweden Denmark Italy Spain Portugal Netherlands Belgium Austria Ireland Germany 0 France 2 UK 4 Luxembourg 6 Finland • Prospect of political intervention has damaged investor confidence – proposed price freeze and ‘resetting the market’ is creating uncertainty – over 50% of UK gas now imported and priced off international markets – strong companies necessary to secure long term supplies and invest in power generation
  28. 28. Working towards a transparent and affordable UK energy policy • Detailed discussions with all stakeholders – improved understanding of true cost of components of the bill – proposals for more affordable ways to decarbonise • First supplier to reduce prices following Government changes to ECO programme • Transparency key to rebuilding trust in the industry • Service and price competitiveness underpin supply margins 28 Based on British Gas 2013 financial results and consumption and is an average of all payment types / tariffs / regions
  29. 29. Positioning the Group for the future operational and capital efficiency • Group-wide £500m cost reduction programme completed • Downstream focus on improving core operations – new targets to deliver better service, lower costs and account growth • Cost control and selective capital investment upstream – targeting flat unit cash production costs over next three years – reduced and refocused capital expenditure – limited near term power investment 29
  30. 30. Growth through differentiation in British Gas • Targeting industry leading service levels for our customers – improving key processes – combined residential energy and services platform • Reducing costs – targeting £100m annual cost savings in BGB by end of 2015 • Driving for growth – number of customer accounts stabilising; targeting account growth in BGR and BGS – leadership in digital and smart connected homes – leveraging insurance based capabilities to offer new pricing structures and expanded product choice – growth in B2B services 30
  31. 31. Improving cost competitiveness in Direct Energy • Targeting $100m cost reduction in 2014 – benefiting from synergies from enhanced scale • Differentiation through innovative product offerings – further growth expected in protection plans – significant potential for bundling of energy and services over time • Integration of Hess Energy Marketing proceeding well – retain key personnel and systems; delivering good service and high customer retention – capture new business from Marcellus producers and from oil to gas switching 31 TWh 250 Total US non-residential annualised sales volumes 800 200 600 150 Gas 100 50 0 Gas Gas 400 200 Power Power Power Direct Energy Hess Energy Marketing business Combined 0 bcf
  32. 32. Positioning Centrica Energy for the future adding value through selective investments • Adding value through reserve additions, reflecting quality of previous investments – 56mmboe of organic 2P reserve additions, predominantly in Norway – well placed to benefit from any upside in NA gas prices through accelerated development of Canadian resources • Increasingly selective investments against backdrop of rising costs. Targeting flat unit cash production costs over next 3 years • Continue to develop our LNG capabilities 32 1 Excludes Rough cushion gas (30mmboe) Centrica 2P reserves (mmboe) 1 56 633 77 31 Dec 2012 Production Acquisitions /disposals 711 99 Net organic additions 31 Dec 2013 Centrica 2C resources (mmboe) 62 771 135 602 31 Dec 2012 28 Transfer to 2P Acquisitions /disposals Net organic additions 31 Dec 2013
  33. 33. Positioning Centrica Energy for the future adding value through selective investments • Organic E&P capex reduced to around £900m on average over next 3 years – limited impact on near-term production – increasing proportion directed towards North America • Consider acquisition opportunities if economics are attractive – continue to high-grade our portfolio for value 33 Production volumes include 100% share of Suncor assets acquired in partnership with QPI 100 Global gas & oil production outlook (mmboe/a) 80mmboe – 85mmboe range 80 Americas 60 Norway UK & Netherlands 40 Total 20 0 2009 2010 2011 2012 2013 2014e 2015/ 16e
  34. 34. Summary • Good strategic progress, robust actions in place across the Group in a challenging environment • Engaging with political stakeholders to help reduce uncertainty • Strong cash flow and balance sheet • Platform for long term growth – underpin competitive position in UK downstream through service and innovation – realise the potential of the enlarged North American business – develop upstream portfolio for value – integrate along the gas value chain • Political engagement to restore investor confidence 34

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