Centrica as an Investment

Centrica is a uniquely integrated energy company operating primarily in the UK and Ireland. We aim to deliver long-term value for investors by driving and leading the energy transition through our distinct, but complementary businesses.

Our existing gas production and nuclear assets will decline naturally over time, so to maintain balance in our portfolio we need to invest to replace this with new infrastructure.

With the UK’s Electricity demand set to grow materially over the coming years, and the generation mix becoming greener and more intermittent with a growing penetration of renewables, we have material, attractive investment opportunities across the energy value chain, aligned to our capabilities today.

We have plans to materially increase investment over the coming years as part of our green-focused growth and investment strategy, where we will build our annual capital investment to £600m-£800m until at least 2028.  As part of our investment framework we are targeting average portfolio post-tax unlevered returns of at least 7-10%+.

In customer activities, we will continue to invest in energy management and demand response capabilities, while we will also start our own smart meter asset provision.

We already have a growing number of flexible and renewable power assets in our portfolio, with a number of projects already underway, such as the two 100MW gas peaking plants in Ireland. We will also invest in new renewable and flexible power assets, which could be our own projects or by investing with partners. Our strong optimisation capabilities will allow us to capture additional value from these investments.

Longer term, we also retain optionality for potential hydrogen and carbon capture investments through our Rough and Spirit Energy assets. While still at an early stage, and dependent on government regulatory mechanisms, these provide us with long-term net zero aligned optionality. We may also be interested in investing in new nuclear, dependent on how the regulatory framework develops.

Over 50% of our capital expenditure is expected to go into green taxonomy eligible projects, compared to only 5% in 2019. This will help us meet our targets to achieve net zero by 2045, and help our customers reach net zero by 2050.

A strong balance sheet and investment grade credit ratings are essential for the efficient running of the Group. As a responsible energy supplier, we manage the risk of providing energy to our customers by hedging our commodity exposures, and as a supplier to nearly a quarter of the UK's households those positions are significant. We also choose to hedge our electricity generation and gas production rateably, which again leverages our strong credit rating.

We believe the appropriate medium-term leverage for the Group is up to 1x Net Debt to EBITDA. This provides us with enough headroom to manage volatility in the energy system, to continue to invest for the future and to maintain and grow shareholder distributions.

Delivering cash returns to shareholders is a core priority for the Group. In July 2022 we reintroduced a progressive dividend policy and we expect dividend cover to move to around 2 times adjusted earnings over the coming years, supported by the core sustainable earnings of the Group.

We will maintain capital discipline and maintain a focus on the efficient use of capital, with surplus structural capital returned to shareholders, with a £1bn share buyback programme already underway, to be completed by around July 2024.

Following this, our focus will be on delivering on our investment plans, with any further additional distributions on top of the dividend reviewed against our revised capital framework and our future outlooks.