Centrica (CPYY.Y) M&A Announcement Transcript

Centrica Investor Q&A Call Summary Company Overview - Company: Centrica (CPYY.Y) - Event: Investor Q&A Call regarding M&A Announcement - Date: July 22, 2025 Key Points Industry and Company Context - Centrica is involved in the energy sector, specifically focusing on nuclear power investments and regulated cash flows from energy projects [1][2][3] Financial Insights - Centrica plans to invest £1,300,000,000 in equity CapEx, with an expected £3,000,000,000 in Regulatory Asset Base (RAB) upon commissioning [7][10] - The growth in RAB is attributed to inflation accretion and returns on investment, with a net investment of £500,000,000 after an £800,000,000 cash payout pre-commercial operations [8][10] - The expected return on investment (IRR) is approximately 10.8%, with inflation considered at around 13% [10][24] - In a worst-case scenario of significant cost overruns and delays, the real return on equity (ROE) could drop to around 7% to 7.5% [16][22] Regulatory Framework - The regulatory framework allows for a 50% addition to RAB for costs below the lower regulatory threshold (LRT) of £40,000,000,000 and only half of the excess investment is recognized above the higher regulatory threshold (HRT) of £47,000,000,000 [21][22][24] - The allowed cost of debt is pass-through, meaning Centrica will not bear the risk of rising interest rates during the project [63][64] Project Financing and Structure - The project financing includes a 9% coupon on shareholder loans, with a 6% cash return expected, while the difference will be reinvested to grow the RAB [66][67] - Centrica maintains a strong liquidity position and plans to utilize treasury funds for investments without needing to break swaps on net debt [25][26] Strategic Considerations - Centrica is committed to a £2,000,000,000 share buyback program and has a healthy investment pipeline beyond the nuclear transaction [49][50] - The company is focused on balancing risk and governance, opting for a 15% stake in the project to maintain a significant influence without overexposure [80][81] Future Outlook - The company anticipates that the investment will lead to regulated cash flows, positively impacting credit ratings over time [54][55] - Centrica is exploring further lifetime extensions for existing nuclear assets, aiming for safe and economical operations [82][83] Additional Insights - The project is expected to deliver profitable activity for Centrica Energy, enhancing earnings through better pricing for electricity [75] - The IRR calculations consider both construction and commissioning phases, with expectations for returns to reflect the unique risks associated with nuclear assets [92][95] Conclusion Centrica's strategic investment in nuclear power is positioned to enhance its regulated cash flows and overall financial health, with a focus on maintaining a balanced risk profile while pursuing growth opportunities in the energy sector [107]