centrica plc strategy update - 27 february 2013

Strategy update 27 February 2013

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.

Sam Laidlaw Chief Executive

Progress against previous strategic priorities

Stable BGR profit and market share BGS profit up 34% Leadership in systems, online and smart

2P reserves up 50%, production up 50% Established significant Norwegian business Strong nuclear output and life extensions

US customer numbers up 75%, DEB power volumes up 54% Multi-state services capability Gas and liquids production up 50%, resource base trebled

EPS up 25% DPS up 28% TSR 36% (FTSE 100: 21%)

Strategic priorities

Grow British Gas

Deliver value from our growing upstream

business

Build an integrated North American

business

Drive superior financial returns

Strategy delivery over past 3 years

4

The external environment is evolving

• Gas continues to play a major but changing role in UK and US energy supplies – the UK is increasingly reliant on imports. LNG will intensify the link between the

UK and global gas markets – in North America, growing shale production has resulted in low prices and is

opening an opportunity for exports

• In UK power generation, new investment depends on regulatory outcomes

• Downstream trends differ in our markets – in the UK, affordability is high on the political agenda and energy efficiency and

technology are key to managing energy bills – in contrast, in North America bills are decreasing and the market environment

is improving

5

2010 2015 2020 2025

Gas has an important role to play in the US and UK

Source: UK – National Grid National Grid Ten Year Statement US – EIA Annual Energy Outlook 2013 Early Release, central case

• Coal to gas switching in power

• Lower CO2 emissions

• Potential additional industrial demand growth

• Scope for gas exports

Forecast UK gas demand

2010 2012

8.4 8.0

bcf/d

2015 2020 2025

8.5 8.4 7.8

Forecast demand for power generation

2010 2015

bcf/d

2020 2025

UK - continuing role for gas

1

2

3

4 Forecast residential gas demand bcf/d

1

2

3

4

Gas currently heats 81% of UK homes

Gone Green scenario

Slow Progression scenario

Gone Green scenario

Slow Progression scenario

2010 2012

64 69

bcf/d

2015 2020 2025

68 71 72

Gas demand for power generation

2009 2010

19 20

bcf/d

2011 2012

21

25

US - new sources of demand Forecast US gas demand

6

Source: UK – National Grid Ten Year Statement (Slow Progression scenario)

UK more reliant on gas imports

• Traditional supplies declining • LNG increasing • UK shale may contribute in the longer-term

7

LNG imports

Europe imports

Norway imports

UK onshore

UKCS domestic 0

2

4

6

8

10

12

2001 2006 2011 2016 2021

29% 3% 57% 61% 72% % of supply from import

UK gas supply (bcf/d)

2000 2012 2010 2008 2006 2004 2002 2018 2016 2014

Forward curve

LNG intensifies link between UK and global markets

• UK competing for supply in a global LNG market

• 25 countries importing LNG in 2011 (12 in 2001)

• Spot LNG increased from 6% to 25% of traded volume between 2005 and 2012

• Regional price spreads are driven by – North America: abundance of gas – Asia: oil indexation and growing demand – Europe: tension between oil indexed and

gas-on-gas pricing

Growing global LNG demand

8 Source: UK – BCG, IHS CERA, ICE, Nymex

2011 2001

7

2

31

13

Other

India

Spain

UK

Japan

South Korea

France

US

bcf/d

Regional pricing with high volatility

Gas Europe (NBP) Gas U.S. (Henry Hub)

Gas Asia (Japan LNG) (USD/mmbtu)

0

5

10

15

20

Shale gas has transformed the US energy outlook

• Greater certainty about scale and enduring nature of shale gas in the US given technology developments

• >20 LNG export projects under consideration

• UK a potential future market for US gas

Shale increasing gas production

9 Source: EIA Annual Energy Outlook 2012; FERC: Federal Energy Regulatory Commission; LNG export project status as at 21 February 2013

LNG export projects are planned

Cameron LNG, LA (Sempra)

Sabine Pass, LA (Cheniere)

Lake Charles, TX (BG/S. Union)

Lavaca Bay LNG, TX (Excelerate)

Corpus Christi LNG, TX (Cheniere)

Freeport LNG, TX (FLNG)

Oregon LNG, OR (OLNG)

Jordan Cove, OR (Veresen/OPD)

FERC filing

FERC pre-filing

Under construction

Cove Point, MD (Dominion)

Shale increasing gas production

1990 2000 2010 2020 2030

100

20

bcf/day

US gas production

0

40

60

80

US demand

Non-Shale

Shale

UK Power investments depend on regulatory support

• Spark spreads remain low

• Reserve margins expected to fall for next three years, leading to market tightening

• Attraction of new investment will depend on capacity payments, which remain uncertain

• Projects are becoming larger and more complex

• Regulatory uncertainty remains – CfD design and strike price

• Few equity investors able to take construction risk

• Fixed price will no longer provide a hedge for downstream volatility

Gas fired generation

10 Source: Argus; 4C Offshore

Renewables Average offshore wind project characteristics

~100

~500

~1,0001

Round 1

Round 2

Round 3

Average size (MW)

9

15

45

8

25

60

Average water depth (m)

Distance to shore (km)

1. R3 zones are c.3,500MW but actual projects are likely to be divided into smaller sizes

(£/MWh)

UK power price and clean spark spread

40

60

80

100

20

0

-20

Baseload power

2005 2007 2009 2013 2011 2015

Clean Spark Spread

Forward curve

Downstream: emphasis on affordability in the UK

• Regulatory scrutiny of pricing and product transparency – building trust a key issue

• Energy efficiency more important for customers and Government – underlying gas consumption down 15% since 2008 – cost of carbon abatement increasing

11 Source: ONS, economic position of households, Q2 2012 update; European Commission/nVision 2012; Average bills based on national average direct debit rates and at Seasonal Normal Temperature (SNT)

Energy bills increasing British Gas residential dual fuel energy bill

£/customer/year @SNT

2008 2009 2010 2012 2011

1,067

944 1,027 1,005 Non-commodity

costs

Commodity costs 14.8

15.0

15.2

14.4

14.2

14.6

14.0

2008 2009 2010 2012 2011 2013

Real households’ disposable income per head £ ‘000 /year, real 2009

UK consumer confidence Index, %

Challenging economy, pressure on spending

15.4

-40

-35

-30

-25

-20

-15

-10

-5

0

1,125

Downstream: favourable environment in NA

• Improving market environment – regulators welcoming competition – ~8m new residential competitive retail customers since 2008 (up 64%)

• Businesses interested in demand response and energy management services

12 Source: Federal Reserve Economic Data: US Department of Commerce, Bureau of Economic Analysis; University of Michigan; KEMA retailer landscape September 2012

Energy bills decreasing Direct Energy customer energy bills

$/customer/year

2008 2009 2010 2012 2011

US North

Texas

1,000

1,500

2,000

3,000

500

0

2,500

Income and sentiment improving

35

32

30

2008 2009 2010 2012 2011 2013

34

33

31

Real households’ disposable income per head $ ’000s/year, real 2005

90

50

30

70

60

40

80

US consumer sentiment index, %

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

Our strategic priorities

The leading integrated energy company with customers at its core

13

What these priorities mean

14

Share technology and new propositions across the Atlantic, leveraging our leading positions. Grow in B2B, services and North American residential

Invest for value in E&P, notably in North America, and limit capital employed in power. Increase our presence in LNG and grow optimisation activities

Drive operational and cost efficiency across the Group, deploy balance sheet capacity where we see value, return surplus capital to shareholders




New organisational structure

• Leverage scale benefits in sales operations, billing and customer service

• Share best practice in competitive energy retailing

• Share innovations and new products e.g. connected homes

• Deploy expertise across the Atlantic e.g. B2B and services

• Leverage scale, systems and technology in the UK and North America

• Share best practice across the Atlantic

International Downstream

• Deliver best in class safety and environmental performance

• Reduce cost

15

• Leverage technology, reservoir and geoscience expertise

• Harness project management capability

• Explore options for North American exports to UK as well as to US customers

• Optimise midstream and arbitrage opportunities

International Upstream

International functional organisation

New organisational structure

16


• E&P Global • UK Power

Jill Shedden Group Director

Human Resources

Grant Dawson General Counsel & Company Secretary

Mark Hanafin Managing Director

International Upstream

• Centrica Storage Ltd

• British Gas Residential • British Gas Services • British Gas Business • North America (excl. E&P)

Chris Weston Managing Director

International Downstream

Nick Luff Group Finance

Director

1. Innovate to drive growth and service excellence • Lead with great service and efficient operations

• Enable our customers to control their energy use in a simpler, smarter, more efficient way

• Grow in selected markets, building on our leading capabilities




17

Our downstream business

18

Benefits of scale in sales operations, billing and customer service

15.7m residential energy accounts • 1.2 bcf/d gas • 26 TWh electricity

4.1m services customers

3.5m residential energy accounts • 584 mcf/d gas • 19 TWh electricity

0.4m B2B accounts • 217 mcf/d gas • 51 TWh electricity

3.1m services customer relationships

0.9m B2B accounts • 248 mcf/d gas • 17 TWh electricity

Distinctive capabilities across downstream

• ‘Five star’ UK customer service rating from Consumer Focus • Same day service promise in NA and UK • IT platforms driving scale efficiencies

• UK base of over 11,000 highly trained engineers • Presence in 78 of top 100 US metropolitan areas – 1,900 US

employee licensed technicians and 1,600 franchisees

• No. 1 UK website, 30% of customers registered online • Innovative US ‘Free Power Saturdays’ and ‘Power-to-Go’ propositions • Highly rated connected home products and applications

Customer service and efficiency

Home and business services

Innovation

Great brands

19

http://www.directenergy.com/EN/Pages/default.aspx

UK:

• Relentless focus on costs, enabled by leading systems and efficiencies

• Energy customer churn 3pp below industry average

20

Great service and efficient operations

Efficiency in energy and services has improved . . .

British Gas

Competitor Average

90

80

70

60

40

20

10

0

30

50

2011 operating cost per account

9

8

7

6

4

2

1

0

3

5

2011 post- tax BGR margin (%)

2009 2012

Material costs 600

575

550

525

500

BGS product holdings per FTE

20

15

10

5

0 2009 2010 2011 2012

Total British Gas Net Promoter Score 35

30

25

20

15

10

5

0

. . . while Net Promoter Score has been increasing

£ £/job, real

great service and efficient operations

US:

• Call centre consolidation reduced costs but maintained service

• Investment in customer information platforms to improve first call resolution

21


. . . as are Net Promoter Scores Operational efficiency is increasing…

80

60

40

20

0

-20

Services

Business

Residential

DE operating metrics

US$

Cost to serve/ customer

2009

2012

Opex/ customer

Operating profit/customer

104

67

167 157

64 76

Direct Energy Net Promoter Score

2009 2010 2011 2012

great service and efficient operations

Opportunities to differentiate in residential

• Target attractive customer segments bundling products, services and energy

• Aid customer retention differentiates British Gas and Direct Energy from competitors

• Material contribution to future operating profit

Simpler, smarter, more efficient energy

• Additional opportunities in connected homes driven by – smart meter roll-out – energy efficiency

• Good fit with our digital presence and services capabilities

Power-To-Go

Free Power Saturdays

22

Remote Heating Control

Smart phone application

Smart Energy Report

http://www.stuff.tv/news/stuff-gadget-awards-2012/stuff/stuff-gadget-awards-2012-%E2%80%93-home-gadget-of-the-year-winner

Source: 1. Lawrence Berkley National Lab

Opportunities to differentiate in B2B Simpler, smarter, more efficient energy

23

Improving energy performance in UK

• EPCs – partnering with major organisations to fund energy saving measures, paid via energy bill reduction

• 7 UK partnerships from standing start

– 5-10 year contracts – growing book, 5-10%

net margin • BGB Services 2012 revenue

up 12%

Demand response is already material in US

• Customers modify electricity consumption in response to electricity prices

• Large and growing US market: from 15GW in 2007 to >30GW in 2012

• Creates a ‘virtual generation’ asset at lower capital and operational risk than peaking plants

Distributed generation poised for growth

• Energy management – potential for >15 GW of commercial solar by 2016 in DEB’s footprint

Reducing churn and improving margins through additional B2B services

Average Installed Price of Distributed Solar PV 1

1998 2010

$/W

2011 2012

12

10

8

6

4

2

0

All other costs

PV module

A market leading position in North America

• DE downstream ROACE up from 9% to 13% since 2009

24

Strong growth track record Market leading position

Grow in selected markets

• 400,000 DEB accounts – small business segment operating

profit has grown 8x since 2009

Direct Energy underlying operating profit

£m

2009 2010 2011 2012

331 312

234 214

Ontario

CAGR:+16%

North America competitive residential energy retailers

Energy customers, millions

Direct Energy

FirstEnergy Solutions

Just Energy

TXU Energy

1.6 1.6

2.1

2.7

1.1

1.4

Reliant Energy

Dominion Retail

North America: growth in residential

25


• Product differentiation and effective sales channel management delivering higher organic growth

– USNE customer base now 1.4m

• New sales channels including improved digital platform

Organic customer base growth

Residential energy net customer additions (’000)1 % of total

2011 2012

396 796

Acquisitive

Organic

100%

80%

60%

40%

20%

0%

Integration of bolt-on acquisitions

• Platform standardisation and staff consolidation to deliver synergies

• Flexible integration approach to identify opportunity above investment case

• Identify and retain best practices (e.g. targeted sales strategies)

Gateway

Vectren

First Choice Power

$90m

$39m

$270m

15%

17%

12%

Cost IRR

(latest view) 2011 acquisitions

1. Excludes Ontario, Alberta regulated, transfers of accounts to DEB and aggregation customers acquired as a result of the 2011 Vectren acquisition

Positioned for further growth in North America

26


• 50m homes in deregulated markets in the US

• Realise scale benefits and portfolio diversity

• Leverage smart opportunity

Large residential energy market with room for growth . . .

. . . supported by growth in Services and B2B

• 13% p.a. growth in customer relationships (2009-12)

• Strengthen services platform and build protection plan business

Residential Energy market share % of total (2012)

85% 77%

Incumbents

Retailers

100%

80%

60%

40%

20%

0% 15%

23%

Direct Energy

DE Services operating profit Services

18 15

28 33 £m

2011 2012 2010 2009

• Target growth in small business and through new offerings (e.g. demand response)

DE Business operating profit

34

88 110

129 £m

2011 2012 2010 2009 C&I

Small Business

B2B

Growth prospects in downstream

• Operational efficiency and great service to remain competitive

• New segments (e.g. landlords), affinity partnerships, and smart meter enabled sales

• Connected homes and businesses to contribute ~£50m and underpin core propositions

• Near term challenging • Growth supported by business services

maintain stable margins

high single digit growth

mid single digit growth over time

double in the next 3-5 years

(downstream)

• Organic growth in DER, DEB and DES: customer loyalty in DER and differentiated products and services

• Bolt-on acquisitions: leveraging our integration expertise

• Attractive adjacencies: leverage our existing customer base and core capabilities

Operating profit

BGR

BGS

BGB

27

International downstream in summary

28


Growth in selected markets

Simpler, smarter, more efficient energy


Lead with great service and relentless focus on costs, utilising our unique scale, systems and services capabilities

Enable our customers to control their energy use with innovative new products and services

Apply our leading capabilities in services and B2B in the UK and US, build scale in US NE and Texas residential


2. Integrate our natural gas business, linked to our core markets • Grow and diversify our E&P portfolio for value

• Develop our midstream business to integrate along the value chain

• Maintain a low carbon power hedge and invest where we see value



29

Delivering on our strategy Grow and diversify our E&P portfolio for value

• Larger, more diverse portfolio

• 30 operated fields compared to 6 at the start of 2009

• Sustainable mix of producing, development and exploration assets

• Good progress towards existing production target

– ~75mmboe/a in 2013 including 10mmboe/a in North America

• 208% Production Replacement Ratio for 2009-12

30

Global oil & gas production

mmboe/a

2009

44

75

bcfe/d 1.3

2013e 2009

2P reserves 1,2

mmboe

2009

290

633

tcfe 4.0

2013 2009

2C resources 1

mmboe

60

590

tcfe 4.0

2013 2009

Trinidad & Tobago North America

Netherlands Norway UK

1. At 1 January; Netherlands includes UK sector of Markham hub, Norway includes UK sector of Statfjord hub 2. Excludes Rough cushion gas (31mmboe in 2012)

31

Our UK hedge is now in line with our competitors

bth

2009

6.6

2.7

Supply Demand Residential pre-tax energy hedge:

Centrica’s changing energy balance1

bth

2009

6.3

4.8

Supply Demand

Power

Gas

2009 2012 %

2009

Competitors Centrica

Centrica hedge ratio vs competitors

Competitors

Pre-tax Post-tax

0 10

20

30

40

50

60

70

80

210

220

230

2009

46

Centrica

1. Demand includes residential energy demand, power station gas requirements and gas required to generate power demand not covered by own gas-fired generation. Supply includes non-US gas and oil production and the gas equivalent of power generated from non-gas sources (wind power, nuclear power and coal linked purchase contracts).

77

42%

26%

Residential post-tax energy hedge: 46%

77%

Distinctive capabilities underpin recent success

• Morecambe field life extended beyond 2025 • Wildcat Hills redevelopment commenced in 2012 • Hydraulic fracturing of tight sands in Southern North Sea

• Ensign, Seven Seas and Atla fields brought into production • Cygnus FID taken, supported by new £500m tax allowance, peak

production ~110 mmcf/d • Innovative but proven solutions (e.g. F3-FA self-installing platform)

• 40% 2010-12 exploration success rate, £3.5/boe finding costs • 22 awards in latest UK and Norwegian license rounds • Discoveries at Butch, Maria and Rodriguez

• Norwegian assets acquired from Statoil for c.£1bn, alongside partnership agreement on gas exploration opportunities

• Statfjørd share increased to ~35% • North American reserves up 65% over 3 years

Recent achievements Distinctive capabilities

Asset stewardship

Delivering mid-sized projects

Exploration in known subsurfaces

Strategic acquisitions and partnerships

32

Grow and diversify our E&P portfolio for value

Norway – a successful growth story

Production: fastest growing entrant since 2000

• 4 acquisitions between 2008 and 2012

• Statoil and Statfjørd acquisitions outperforming double-digit IRR acquisition cases

• ~65kboe/d in 2013 from Statfjørd, Kvitebjørn and Heimdal hubs

Development: capturing upside from our acquisitions

• Portfolio of 8 development assets (5 operated)

• Can sustain current production until at least 2020

• Self-funding from 2013

Exploration: outstanding success

• 37 licences awarded – 95% success rate

• 10 wells drilled, with 60% success rate

• Average finding costs of £2.4/boe

• 10 further exploration wells identified 33


1. Includes UK sector of Statfjørd field

From entry to successful mid-scale E&P in 5 years

Production assets Development assets

2P + C

2007 2009 2010 2012 2011

128 117

63

0

375

2008

63

Exploration discoveries

mmboe1

Morecambe – extracting value from a mature asset Production: managing performance and cost

• FEED underway on Barrow terminal optimisation project – potential for field life extension

• Ongoing terminal reliability and maintenance programmes

Development: adding new reserves

• Rhyl - first Centrica gas development in the East Irish Sea in over 10 years (13mmboe, 80bcf)

• First gas expected Q1 2013, reserves doubled since sanction

• Whitehaven exploration well successful, may add up to 20bcf to reserves

Exploration: adding new resources

• 3D seismic survey completed in January, first in region since 1993

• Identifying deep pre-Triassic targets under the current reservoir

• First deep exploration well expected 2014

34


North Morecambe

Rhyl

Marram

Bains

Ormonde Millom

Heysham

Barrow

A highly strategic asset

• One of UK’s largest gas fields • First gas 1985, peak gas 2000 • 100% owned and operated • Low operating cost

South Morecambe

Western Canada – capabilities in onshore E&P

35

Transforming our business Production: building scale

• Doubled our 2P reserves and production

• Taking advantage of low gas prices to acquire long-life assets for value

Development: capabilities in horizontal wells

• Shifted focus from shallow gas and coal bed methane to more valuable liquids-rich gas and oil

– average well length increased from ~0.8km to ~ 3km – drilling programme from 95% vertical wells to 80% horizontal wells

• Unit costs decreased from $5.5/mcf to under $4/mcf

• Well positioned for further growth in North America

Production 2P Reserves

2007 2009 2010 2012 2011 2008

mmboe bcfe

700

350

0

bcfe/d

0.2

0.1

0.0

mmboe/a


120 12

Diversified portfolio with stable production outlook

• Increasing diversification: UK <25% of production by 2020

• Four developments approved: Cygnus, Valemon, Kew, Grove

• Development options represent over 0.5bn boe of 2C resources

• Targeting double-digit returns from developments

36


0

15

30

45

60

75

90

Global gas & oil production outlook mmboe/a

Exploration

Development options

Approved developments

North America

Europe, T&T2 Base

1.5 bcfe/d Typical investment

~£100m/a

~£1bn/a1

1. Includes ~£100m/a maintenance capital expenditure 2. Base production includes York and Rhyl

2009 2011 2013 2015 2017 2019

Deploying further capital in E&P for value

• Consider upstream growth only where we see value

• Apply rigorous capital discipline

• North America currently an attractive market for further investment

– good value opportunities – our gas production is

only ~20% of our NA gas demand

37

Opportunity to step up from 75mmboe/a towards 100mmboe/a production globally


Norway • Scale and longevity - exploration

potential • Further acquisitions around hubs

UK & Netherlands • Mature assets, declining resources • Focus on existing hubs • Bolt-on acquisitions and

divestments to high-grade portfolio

North America • Opportunity to acquire position in

conventional and unconventional plays • Scalable with the potential for exports • Diversifies NBP exposure

Trinidad & Tobago • Opportunities to deliver value

from our existing positions • Further exploration potential

Value is emerging in US unconventionals

• Natural gas prices recovering as demand grows and production adjusts

• Asset prices now more realistic

• Technological advances have de-risked unconventional resources and increased well productivity

38

0102030405060708090100110120

0123456789

101112

Forward curve

$/bbl $/mmbtu

Historic

EV/ EBITDA of Companies Exposed to Unconventional Gas Western Texas Intermediate

Oil Price

Henry Hub Gas Price

EV/ EBITDA Multiple1

2015 2014 2013 2012 2011 2010 2009 2008 012345678

1. Enterprise value over 12-month forward earnings forecast for selected group of companies exposed to US unconventional gas


Significant positions along the gas value chain

800 mmcf/d residential & business gas demand

1.3 GW CCGT (126 mmcf/d fuel gas)

Potential investment in gas production (focus on NA)

Access to 1 bcf/d pipeline & 23 bcf storage capacity

321 mmcf/d supply contract with Qatargas

1.5bcf/d residential & business gas demand

4.1 GW CCGT (175 mmcf/d fuel gas)

10 mmboe/a production (159 mmcf/d)

39mmboe/a production UK and NL (588 mmcf/d)

150mmcf/d production potential development

22mmboe/a production Norway (270 mmcf/d)

117 bcf of gas storage (Rough)

566 mmcf/d LNG import at Isle of Grain

LNG

Upstream production

Gas demand

Midstream Positions

1.2bcf/d of European contracts and storage and

pipeline capacity

Opportunities to link and optimise our positions along the value chain

39

Develop our midstream business to integrate along the value chain


Deploying our midstream capabilities

• Managing price risk, shape, intermittency and seasonal swing

• Track record in gas and power asset optimisation

• Assets and positions in UK, North America, Norway and Benelux across E&P, power, storage and logistics

• Strategic partnerships – 0.5 bcf/d supply contract with Statoil

alongside a £1bn upstream asset acquisition

– 2.4mmtpa (0.3 bcf/d) supply contract with Qatargas; MoU with QPI

• Market insights from participation across gas value chain

Asset-backed optimisation

Procurement and contracting

40

Our capabilities Opportunities

Grow our optimisation business, linking our positions along the gas value chain

Increase our presence in LNG contracting, securing energy for our customers

Expertise and options in UK storage

• UK has relatively low seasonal storage capacity

• Volatility in gas price may increase with more wind on the system

• Strong Asian demand may limit LNG imports

• Floor price may be required to promote investment and provide insurance

41


Rough (existing)

Baird

Caythorpe

% owned by Centrica

Working gas (bcf)

Injection/withdrawal (days)

100%

117

190/90

Rough

100%

4.9

26/30

Caythorpe

70%

108

90/95

Baird

Projects

Maximising value from our existing UK power assets

• CCGT: managing the fleet for market recovery – higher utilisation expected by 2015 – turbine blade upgrade at South Humber and

potential Kings Lynn replant – ongoing portfolio restructuring

• Nuclear: focus on reliability and life extension – good performance – seven year average life extension now assumed

• Wind: management of asset and maintain new options – Lincs into production and financing complete

Flexible, low carbon generation capacity

Expected increase from existing fleet

42

Maintain a low carbon hedge and invest in power where we see value

Centrica Energy UK equity generation capacity1

6.0 GW

2012

4.1

1.7 0.2 Nuclear

CCGT

Wind

Peak Power cover ratio2

~ 70%

Centrica Energy UK equity generation output

21.5 TWh

2012

9.0

12.0

0.5

2015e 1. Includes Spalding tolling contract 2. Peak power demand from BGR and BGB / maximum CCGT, nuclear and contract power generation capacity

Options to invest if we see value

CCGT • New build options maintained at least cost • Investment decision subject to improvements in

market outlook and capacity payment outcome – Kings Lynn 2 (1 GW) – other sites being considered

Offshore wind • Pipeline of development opportunities but

challenging environment. Investment requires: – regulatory certainty around revenues – steady, predictable timelines – fast capital cycling – availability of partners

• Seeking to progress Race Bank to FID • R3 ‘Celtic Array’ next in pipeline, following

successful Race Bank

Langage Power Station

43

Maintain a low carbon hedge and invest in power where we see value

Offshore wind project pipeline 3,500

3,000

2,500

2,000

1,500

1,000

500

0

MW

2006 2008 2010 2012 2014 2016 2018e 2007 2009 2011 2013 2015 2017e Post

2018

Race Bank

R3 Celtic Array

LID

Lincs

Barrow

International upstream in summary

44


Maintain a low carbon power hedge and invest

where we see value

Develop our midstream business to integrate along

the value chain


• Strong near term growth and good development pipeline • Build and optimise our portfolio: moving towards 100mmboe/a,

investing only for value • Greater focus on North America

• Grow our midstream activities to integrate along the gas value chain and across the Atlantic

– focus on LNG, storage, and asset optimisation

• Further investment in offshore wind with limited capital employed • Maintain new build CCGT options at least cost

– higher output and margins as market conditions improve

Nick Luff Group Finance Director

Our strategic priorities 1. Innovate

to drive growth and service excellence


3. Increase our returns through efficiency and continued capital discipline • Further develop organisational capability

• Continuously focus on safety

• Deliver value to shareholders

46

Cash generation

• Highly cash generative business model – ~£1.8bn free cash flow p.a.

• Significant flexibility in investment choices across the Group

• Opportunities benchmarked against returns to shareholders

Sources and uses

Sources Uses

£4.0bn EBITDA

Normalised cash flows

£1.2bn

£0.9bn

Interest and tax

Dividends

Other1 £0.1bn

Free cash flow

47 1. Includes working capital, exceptional payments, pension deficit payments

Capex profile

• ~£200m p.a. maintenance capex

• ~£1.1bn p.a. to maintain and sustain production – bring gas and oil projects onstream – enhance production from existing assets – includes ~£100m p.a. exploration spend

• ~£400m-£500m p.a. available for ‘growth’ investment choices, broadly maintaining current levels of net debt

– including additional upstream investment, offshore wind, new-build CCGT, gas storage, bolt-on acquisitions

48

Other maintenance

Upstream gas and oil (Including maintenance)

‘Growth’ capex

Annualised capex profile 2013-15

~£0.2bn

~£1.1bn

£0.4bn-£0.5bn

Credit headroom

• Maintain commitment to A3 / A- credit ratings

• Comfortable 2012 metrics, expected to improve in 2013

• Headroom for value-adding acquisitions

49

EBITDA Net debt

£3.7bn £4.0bn

Funds from operations

Adjusted debt

£3.0bn

£5.2bn

Retained cash flow

£1.7bn

£5.9bn

Adjusted debt

57% 29%

For the year ended 31 December 2012

Bringing projects on stream

• Bringing £1.5bn of major new projects onstream between 2013-2015

• Track record of bringing resources into production – Rhyl discovery in 2009, first gas due early 2013 – York appraisal in 2010, first gas due early 2013

• Balanced portfolio of exploration, development and production assets

– high grading portfolio through investment choices

50

Capital moving from pre-productive to productive

2012 2013 2014 2015 First year

of project earnings

Ensign Seven Seas

Atla Lincs

York Rhyl Kew

Valemon Cygnus

0.0

£bn 1.5

Case studies – organic investment decisions Cygnus

• Strong strategic fit – cornerstone asset – acquired through Venture Production acquisition – largest discovery in Southern North Sea for 25 years, £1.4bn total investment – Centrica share of 2P reserves of 53mmboe – deploying our expertise through 48.75% non-operated interest

• Shallow field allowance improves full cycle returns to ~10% level and point forward IRR to >20%

New nuclear

• Potentially attractive option acquired as part of BE acquisition in 2009

• £200m pre FID investment – good progress in a number of key areas

• Strict financial discipline, decision not to proceed – increased costs, extended timeline for return on capital – CFD structure does not provide hedge against downstream price volatility – existing nuclear JV performing well 51

Case studies - acquisitions Statoil strategic partnership

• Delivered step change in scale of Norwegian activities, trebling 2P reserves – £1bn investment for 117mmboe 2P reserves (including 90mmboe producing

Kvitebjørn field and 21mmboe Valemon development asset) – building on existing Norwegian position – leveraging our relationship with Statoil – specially tailored package - upside through development and exploration

• Broader partnership, including supply contract and exploration MoU

• ~10% IRR, production ahead of investment case

First Choice Power

• Added 200,000 customers in core Texas market, increasing our scale by one third – high consumption, low-churn incumbent customer base

• Double digit IRR investment case; accretive in first year; five-year payback period – integration into existing platform completed ahead of plan, delivering synergies – lower churn

52

Operational excellence

• Strong health and safety record – process and personal safety a core priority

• Strong track record of cost reduction – on track to deliver £500m Group-wide cost

reduction programme, ensuring we remain competitive

– half of savings achieved in 2012 – 3,000 roles removed – 5% reduction in underlying British Gas costs

in 2012 – improved levels of customer service

• Continuous focus on operational efficiency and cost reduction

53

1. Excludes exploration, bad debt, depreciation, additional investment in growth areas and the impact of acquisitions

A further £100m of cost savings are targeted within cost of sales

Controllable operating cost base1

2011 2012

£2.3bn

£2.1bn

2013

£1.9bn

Controllable cost base

Inflationary impact

Dividend growth

• Strong track record of real dividend growth

• £500m share buy back announced in February 2013

• All investments benchmarked against returns to shareholders

• TSR of 36% over past 3 years

0

2

4

6

8

10

12

14

16

18

1999 2001 2003 2005 2007 2009 2011

CAGR = 16.5%

DPS (p)

54

Our five year vision for a leading integrated energy company with customers at its core

• Growing Midstream business in North America and Europe, with emerging presence in LNG

• Increase linkage between our gas supply and demand positions, maximising value through midstream optimisation

• Strong and stable UK retail business, with growth in services and adjacent sectors

• More material energy retail and services businesses in North America

• Sustainable and high-grade portfolio in the North Sea

• Significant upstream position in North America e.g. unconventional gas

• Efficient power plants in the UK and North America, maintaining an appropriate hedge

56

Upstream Midstream Downstream

The next 3-5 years

57


• Stable profits in BGR, growth in BGS and BGB • Build capabilities in connected homes and businesses • Double operating profit in North America downstream through

organic growth and acquisition

• Invest for value across our international portfolio, delivering annual production in the range 75mmboe to 100mmboe

• Link our positions along the gas value chain, emerging presence in LNG

• Options to invest in UK power generation if we see value, with partners to share equity risk

• Drive cost efficiency across the Group • Stay focused on health, safety and environmental performance • Deploy capital where we see value • Return surplus capital to shareholders

