Interim results for the period ended 30 June 2018

IAIN CONN, GROUP CHIEF EXECUTIVE

“In a first half in which we experienced rapidly rising commodity prices, extreme weather patterns, continued competitive pressures and ongoing political and regulatory uncertainty, Centrica demonstrated resilience from its portfolio of businesses. We delivered stable gross margin and EBITDA relative to 2017, and adjusted operating cash flow of £1.1bn. We are on track to achieve our full year Group financial targets and expect to maintain the full year dividend per share at its current level, subject to delivering adjusted operating cash flow and net debt in line with our target ranges. We continue to make progress on implementing our strategy. We have developed new propositions and delivery capabilities in both customer divisions and our cost efficiency programme is on track. Although we are awaiting the final outcome of regulation to impose a temporary cap on all default tariffs for residential customers in the UK, we have plans in place to manage this. Our focus remains on performance delivery and financial discipline.” 

H1 PERFORMANCE AND FULL YEAR OUTLOOK

• Stable adjusted gross margin and EBITDA relative to H1 2017. Adjusted operating cash flow of £1.1bn, down 11%, including impact of working capital outflows due to cold weather and wholesale commodity price increases.
• Full year adjusted operating cash flow currently expected to be higher than 2017, within the targeted £2.1-£2.3bn range, and net debt expected to be within the targeted £2.5-£3bn range for 2018.
• Full year dividend per share expected to be maintained at 12.0p, subject to delivering adjusted operating cash flow and net debt in line with our target ranges.
• H1 2018 adjusted operating profit down 4%. Profit recovery in E&P from higher commodity prices and Rough field production, largely offsetting lower profit in the customer-facing divisions.
• H1 2018 adjusted EPS down 22% to 6.4p, impacted by a higher adjusted effective tax rate of 39%.
• Centrica Consumer adjusted operating profit down 20%. Rising wholesale energy costs have put pressure on UK energy supply margins, and extreme cold weather resulted in additional costs in UK services. Consumer account holdings down 1% in H1 2018, but rate of losses slowed compared to 2017. UK services accounts stable.
• Centrica Business adjusted operating profit down 57%. Strong underlying performance in EM&T but losses as expected from legacy gas contracts reduced overall EM&T profit. Good recovery in UK Business vs H2 2017 and strong orderbook growth in DE&P. Continued weakness in North America Business power retail book as previously signalled. North America Business forward book higher for 2019. 
• Awaiting final regulations imposing a temporary default tariff cap in the UK. Continue to engage constructively while implementing mitigating actions. 

PROGRESS ON IMPLEMENTING THE STRATEGY

• Resilience from Centrica’s diverse portfolio of businesses. Focus on performance delivery and financial discipline.
• Demonstrating new sources of gross margin growth. Improved customer segmentation, enhanced propositions, focus on customer lifetime value. Connected Home gross revenue up 31% and DE&P order book up 47% compared to H1 2017.
• Continued strong cost efficiency delivery with £92m of efficiencies delivered in H1 2018. On track to deliver £200m of savings for the full year, taking cumulative annual savings relative to 2015 to around £900m.
• Spirit Energy successfully established, providing cash flow diversity and balance sheet strength for the Group. 

GROUP FINANCIAL SUMMARY

Six months ended 30 June	2018	2017	Change
Revenue	£15.3bn	£14.3bn	7%
Adjusted gross margin	£2,256m	£2,242m	1%
EBITDA	£1,324m	£1,291m	3%
Adjusted operating profit	£782m	£814m	(4%)
Adjusted effective tax rate	39%	30%	9ppt
Adjusted earnings for the period attributable to shareholders	£358m	£447m	(20%)
Adjusted basic earnings per share (EPS)	6.4p	8.2p	(22%)
Interim dividend per share	3.6p	3.6p	0%
Adjusted operating cash flow	£1,101m	£1,242m	(11%)
Underlying adjusted operating cash flow growth	(15%)	(3%)	nm
Group net debt	£2,886m	£2,941m	(2%)
Statutory operating profit	£704m	£250m	182%
Statutory profit for the period attributable to shareholders	£238m	£42m	467%
Statutory net cash flow from operating activities	£876m	£1,109m	(21%)
Net exceptional items after taxation included in statutory profit	(£169m)	(£268m)	37%
Basic earnings per share	4.3p	0.8p	438%

Group Metrics

Six months ended 30 June	2018	2017	Change
Total recordable injury frequency rate (per 200,000 hours worked) 1	1.13	1.03	10%
Brand Net Promoter Score (NPS)
Consumer
UK Home	(2)	2	(4pt)
North America Home	32	23	9pt
Business
UK Business	(13)	(11)	(2pt)
North America Business	32	29	3pt
Customer account holdings (period end)
Consumer
Energy supply and services (‘000s)	24,055	25,450	(5%)
Connected Home cumulative customers (‘000s)	1,035	660	57%
Business
Energy supply (‘000s)	1,223	1,309	(7%)
DE&P active customer sites	5,120	4,236	21%
Total customer energy consumption
Gas (mmth)	6,940	6,518	6%
Electricity (GWh)	64,922	64,495	1%
Energy use per Home energy customer (kWh)
UK	5,037	4,645	8%
North America	14,773	13,735	8%
Annualised cost per Home customer (£) 2
UK	101	92	10%
North America	168	173	(3%)
Growth revenue (Connected Home, DE&P) (£m) 3	105	106	(1%)
European E&P total production volumes (mmboe) 4	32.0	23.5	36%
Controllable operating costs (£m) 5	1,286	1,240	4%
Controllable operating costs as a % of underlying adjusted gross margin	57%	58%	(1ppt)
Direct Group headcount (period end) 6	31,939	35,191	(9%)
Adjusted operating cash flow (£m)	1,101	1,242	(11%)
Underlying adjusted operating cash flow growth 7	(15%)	(3%)	nm
Group net investment (£m) 7
Capital expenditure (including acquisitions)	493	385	28%
Net disposals	(30)	(254)	88%
Group net investment (£m)	463	131	253%
ROACE (post-tax) 8	nm	nm	nm
Adjusted gross margin (£m)
Centrica Consumer	1,399	1,517	(8%)
Centrica Business	507	585	(13%)
E&P	350	140	150%
Total adjusted gross margin (£m)	2,256	2,242	1%
Adjusted operating profit (£m)	782	814	(4%)
Adjusted earnings (£m)	358	447	(20%)
Adjusted earnings per share (pence)	6.4p	8.2p	(22%)

Prior period results have been restated on transition to IFRS 15.
1. Group and business unit total recordable injury frequency rate (per 200,000 hours worked) is on a 12 month rolling basis.
2. Annualised cost per Home customer is controllable operating costs and controllable cost of sales (costs which management deem can be directly influenced and excluding items such as commodity costs and transmission and distribution costs) per the total of holdings, installs and on demand jobs. 2017 North America annualised cost per Home account restated for foreign exchange movements.
3. Growth revenue is gross revenue for both Connected Home and Distributed Energy & Power.
4. E&P total production volumes relate to European volumes only following the disposal of Canadian and Trinidad and Tobago assets in 2017. E&P volumes include 100% share of Spirit Energy assets owned in partnership with Stadtwerke München and volumes from Rough.  
5. Controllable operating costs exclude depreciation and amortisation, smart metering and solar expenses, dry hole costs, profit on fixed asset disposals, business performance impairments (other than credit losses on financial assets), the impact of portfolio changes and foreign exchange movements. Total like-for-like controllable costs as referenced in the Group Overview and Business Review sections is controllable operating costs, excluding growth investment in Connected Home and Distributed Energy & Power, and controllable cost of sales, excluding the impact of portfolio changes, foreign exchange movements and growth investment in Connected Home and Distributed Energy & Power. 2017 restated to reflect foreign exchange movements and portfolio changes.
6. Direct Group headcount excludes contractors, agency and outsourced staff.
7. See pages 56 to 58 for an explanation of the use of adjusted performance measures.
8. ROACE (post-tax) is reported annually.

 

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