Centrica Plc – Half-year Report

Interim results for the period ended
30 June 2019

Iain Conn, Group Chief Executive

“Centrica faced an exceptionally challenging environment in the first half of 2019, which impacted earnings and cash flows. We have also regrettably had to make the decision to rebase the dividend due to our changed circumstances including the UK energy price cap and increased demands on our cash flows, including additional pension contributions. The outlook is more positive for the second half of the year and we expect this momentum to continue into 2020, while we expect to meet our cash flow and net debt targets for 2019.

Today we have announced our intention to exit oil and gas production. This will complete our shift towards the customer, as we focus on our distinctive strengths, with an emphasis on helping our customers transition to a lower carbon future. This major refocusing of our portfolio will unlock further efficiencies enabling us to be even more cost-competitive, as we focus on being a leading Energy Services and Solutions provider.”

GROUP FINANCIAL SUMMARY

1.  The Group has amended the presentation of energy derivative contracts and re-presented prior period accordingly. See note 3(c) to the Financial Statements for further details.

2.  Includes an impact of Centrica adopting IFRS 16 from 1 January 2019 of £394m. See notes 3(a) and 12(b) for further details.

See notes 3, 4 and 9 to the Financial Statements and pages 58 to 61 for an explanation of the use of adjusted performance measures.

FIRST HALF RESULTS AND OUTLOOK

· A challenging environment in H1 2019 impacted adjusted earnings and adjusted operating cash flow.

· Overall growth in Centrica Consumer customer accounts of 314,000. UK Home accounts down 38,000 with energy supply accounts down 178,000, but with growth in May and June. UK services accounts up 140,000.

· 2019 full year adjusted earnings expected to be weighted towards H2, providing momentum into 2020.

· Continue to expect to meet 2019 full year Group financial targets, including adjusted operating cash flow in the range £1.8bn-£2.0bn and net debt in the range £3.0bn-£3.5bn.

STRATEGY AND PORTFOLIO

· Centrica will complete its shift towards the customer by exiting oil & gas production, which combined with our intended exit from Nuclear generation will create a leading international Energy Services and Solutions provider.

· Focus on our distinctive strengths in energy supply and its optimisation, and on services and solutions centred around energy, with a major emphasis on helping our customers transition to a lower carbon future.

· Specific actions taken to improve positioning of UK Home, Connected Home and North America Business:

·     UK Home to be fundamentally rebased, driving structural changes in customer journeys and further reductions in the cost-base.

·     Connected Home refocused on the UK and Ireland with propositions centred around Home Energy Management, and renamed Centrica Home Solutions.

·     North America Business – actions taken to improve average returns to at least 10-12% and reduce volatility.

· Further efficiency and accelerated delivery unlocked through the refocused portfolio.

·     Targeting £1bn of annualised efficiencies over the period 2019-22, up £250m compared to the previous target. Total cash restructuring expenditure of around £1.25bn expected to be required to deliver savings. 

·     Will move Centrica towards becoming the most competitive provider in all its markets, enabling stabilisation and subsequent growth of customer numbers and margin.

DIVIDEND AND BALANCE SHEET

· 2019 full year expected dividend rebased to 5.0p per share reflecting changed circumstances, including the UK default tariff price cap, and additional pension deficit contributions and restructuring charges.

· E&P and Nuclear divestment proceeds used to fund restructuring costs and underpin balance sheet to ensure strong investment grade credit ratings.

Group Metrics