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Private shareholders Q & As

The following questions and answers will address most of your queries regarding the special share dividend and share consolidation. If you have any further queries, please call the shareholder helpline on 0871 384 2985*.

*Calls to this number are charged at 8p per minute from a BT landline. Other providers’ telephony costs may vary.

Timetable of events

Completion of the sale of the AA is anticipated to take place within 3 months of 1 July 2004.

All shareholders will be sent a circular, giving full details of the special dividend, the share consolidation and the EGM, shortly after completion of the sale of the AA.

Questions and answers

What are the details of Centrica’s announcement on 1 July 2004?

Centrica has announced it has agreed to sell the AA to a company formed by CVC Capital Partners Ltd and Permira Advisers Ltd for a total consideration of £1.75 billion. The proceeds of the disposal, net of anticipated adjustments of approximately £120 million, will be used to fund a proposed special dividend of £1 billion as well as a planned rolling share repurchase programme of £500 million, which will be conducted over the 12 months following completion.

The company will also increase its planned investment in energy assets over the next five years to support its downstream activities. This increased investment reinforces Centrica’s strategic focus as a leading provider of energy and related home services.

Highlights

  • The disposal price for the AA of £1.75 billion will result in an estimated net cash consideration, after adjustments, of approximately £1.63 billion, which represents an exit price earnings multiple of 23 times the AA’s 2003 earnings. The tax impact of the transaction is expected to be minimal.
  • Subject to completing the sale of the AA, the Board is proposing:
    • a special dividend totalling £1bn;
    • a share consolidation; and
    • a further planned £500m rolling share re-purchase programme, which will be conducted over the 12 months following completion of the sale of the AA.
  • Reflecting its ongoing confidence in Centrica’s performance, the Board has decided to increase its dividend pay-out ratio to 40 per cent in 2004 and to 50 per cent in 2005.
  • Centrica will target further investment of around £2-3 billion in value-creating energy assets over the next five years. This is in addition to the £3.5 billion already earmarked, which includes £1.5 billion of existing maintenance capital expenditure.
  • Centrica remains committed to retaining a single “A” credit rating, whilst improving balance sheet efficiency.

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When is completion of the sale of the AA expected?

Completion of the sale is conditional upon regulatory approvals and is anticipated to take place within three months of 1 July 2004.

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As a Shareholder, what will I receive/how do these proposals affect me?

Centrica announced on 1 July 2004 that, subject to completion of the sale of the AA, a special dividend of approximately 23 pence per share will be paid to shareholders. This payment will be accompanied by a share consolidation, whereby new ordinary shares will be issued to replace the existing ordinary shares in issue.

The share consolidation will require shareholder approval at an EGM. The share consolidation and the special dividend payment will take place after the completion of the sale of the AA, which will be held on a date yet to be determined, probably in September or October 2004.

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What is a share consolidation?

The effect of the share consolidation will be to reduce the number of ordinary shares in issue. This reduction will be by approximately the same percentage as the proposed special dividend represents compared with the market capitalisation of the Company immediately following completion of the sale of the AA.

For example, the proposed special dividend is equivalent to approximately 10 per cent of the market capitalisation of the company (as at 30 June 2004), which would result in a consolidation giving 9 shares for each 10 currently held. However, as mentioned above, this will be determined on completion of the sale.

This is being done to allow comparability of the Company’s share price and dividend per share both before and after the payment of the special dividend. The payment of the special dividend will be made after approval by shareholders of the accompanying share consolidation at an extraordinary general meeting to be held on a date probably in September or October 2004.

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Why is the Company proposing to consolidate its share capital? What does this mean?

The effect of the share consolidation will be to reduce the number of ordinary shares in issue. This reduction will be by approximately the same percentage as the proposed special dividend represents compared with the market capitalisation of the Company immediately following completion of the sale of the AA.

The purpose of the share consolidation, amongst other things, is to try to ensure that (subject to normal market movements) the market price of each of your new ordinary shares is approximately the same as the market price of each of your existing ordinary shares. Hence it will provide comparability in earnings per share and share prices with prior financial periods.

The share consolidation will also ensure that the value of the Company’s employee incentives under the share schemes remain approximately the same immediately following the payments of the special dividend (subject to rounding and normal market fluctuations).

The proposed special dividend is equivalent to approximately 10 per cent of the market capitalisation of the company (as at 30 June 2004), which would result in a consolidation giving 9 shares for each 10 currently held. However, as mentioned above, this will be determined on completion of the sale.

Although each shareholder will hold fewer shares than before, his or her shareholding as a proportion of the total shares in issue, and therefore his or her ownership in the Company, will be broadly the same before and after the consolidation.

Full details together with examples will be contained in the circular which will be posted to shareholders in September or October 2004.

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What about the rolling share repurchase programme?

Shares are purchased by the company, in the open market, when the time is appropriate. They are NOT purchased directly from shareholders. Up to £500m-worth of shares will be purchased in phases over the next twelve months.

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When will I find out more details?

Full details regarding the payment of the special dividend and the share consolidation will be posted to all shareholders shortly after completion of the sale of the AA. Completion of the sale is expected within three months’ of 1 July 2004 and therefore shareholders should expect to receive full details in September or October 2004.

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Should I sell my shares now?

I am not allowed to advise you on this and recommend that you consult your stock broker or other independent financial advisor if you need advice.

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Why are you, as a shareholder helpline, not allowed to give me financial advice?

Owing to the restrictions imposed on Equiniti by the Financial Services Act, I am not allowed to advise you and recommend that you consult your stockbroker or other independent financial adviser if you need advice. Also, Centrica plc is not allowed to advise you on such matters.

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When is the record date for the special dividend and new ordinary shares?

The record date will be set around the time we issue the shareholder circular, i.e., shortly after completion of the sale of the AA – expected within three months of July 2004.

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If I sell my shares now, will I still get the special dividend and new ordinary shares from the capital reorganisation?

No, only those registered as a Centrica plc shareholder on the record date will be entitled to receive the special dividend and new ordinary shares arising from the proposal (see above).

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Does Centrica operate a dividend reinvestment plan?

Yes, through the FlexiShare service, which also offers the opportunity to take advantage of low-cost dealing in Centrica shares. You will need to join up at least one month before the special dividend payment date.

Further details can be found in the FlexiShare pages on this site.

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How much will the new ordinary shares be worth?

You can find out the share price of the new ordinary shares here and it will also be shown on Teletext and in most national newspapers. The first day of dealing in those new shares is some months down the line at present.

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Is there a difference in the rights of the new ordinary shares compared with the rights of the existing ordinary shares?

No.

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I hold my shares in FlexiShare, does this make a difference in the shares consolidation?

No, FlexiShare holders will be treated in exactly the same way as ordinary shareholders.

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Is the special share dividend in addition to the interim dividend that I normally expect to be paid in November each year?

The interim dividend, normally paid in November each year, will be announced with the half year results at the end of July.

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