REG - Centrica PLC - Half-year Report
28/07/2022 07:16
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RNS Number : 0066U Centrica PLC 28 July 2022
Centrica plc Interim Results for the six months ended 30 June 2022
CHRIS O'SHEA, GROUP CHIEF EXECUTIVE
"The past year has demonstrated the importance of well-funded, well-run energy
companies. We've made significant progress de-risking the Group and building a
stronger business for the benefit of all stakeholders. This strength has
allowed us to lead the industry in measures to protect and support customers
through the most challenging energy crisis in living memory and the benefit of
our balanced portfolio can be seen in our first half performance. We expect
this to continue into the second half, underpinning continued investment in
customer service and elsewhere in our portfolio.
We are very aware of the difficult environment many customers are facing and
we will continue supporting them. We are investing in our customers and
colleagues, creating at least 500 additional UK-based customer service roles
in British Gas Energy and 1,000 new UK engineering apprenticeships, while
through the British Gas Energy Support Fund we are providing grants to help
customers pay their energy bills.
We have a clear strategy to continue improving operational performance, to
grow our business and to position ourselves to deliver net zero at a cost
which helps the many, not the few. We are committed to investing in the energy
transition which will improve the security of energy supply in our core
markets."
STRONG H1 OPERATIONAL PERFORMANCE AND POSITIVE OUTLOOK
· Adjusted basic EPS of 11.0p (2021: 1.7p); 10.2p excluding Spirit
Energy disposed assets.
· Strong Upstream volumes against a backdrop of higher commodity
prices.
· Increased commodity volatility handled well in Energy Marketing &
Trading.
· Statutory basic EPS loss of 14.7p (2021: profit of 23.2p) includes a
£1.9bn loss on net remeasurements after taxation, reflecting the high
commodity price environment.
· Group total free cash flow from continuing operations of £643m
(2021: £524m). Statutory net cash flow from operating activities of £165m
(2021: £558m) including margin cash outflow of £519m.
· 2022 full year outlook remains positive.
A SIGNIFICANTLY DE-RISKED PORTFOLIO AND A STRONGER BALANCE SHEET
· H1 2022 net cash of £316m compared to net debt of £93m at H1
2021.
· Completion of the sale of Spirit Energy Norway and the Statfjord
field in May, resulting in a £0.8bn reduction in gross decommissioning
liabilities.
· March 2021 triennial pensions technical provisions deficit agreed
in principle at £944m. £0.6bn on a roll-forward basis at 30 June 2022. Cash
contributions expected to remain broadly unchanged.
STABILISING THE BUSINESS AND IMPROVING OPERATIONAL PERFORMANCE
· Continued investment in service to stabilise operational performance
and position for growth in British Gas Services & Solutions. Full
financial recovery likely dependent on length of economic downturn.
· Improving net promoter scores and delivering organic customer growth
in British Gas Energy.
DELIVERING GROWTH AND POSITIONING OURSELVES FOR NET ZERO
· Strong Retail and Optimisation capabilities and positions leave us
well positioned for growth as our core markets transition to net zero.
· Opportunities to invest in the energy transition with a focus on
battery storage, gas-peaking plants, solar farms, hydrogen and Carbon Capture,
Utilisation and Storage (CCUS).
BALANCE SHEET STRENGTH ENABLES GROWTH AND SHAREHOLDER RETURNS
· Strong balance sheet - maintain strong investment grade credit
ratings.
· Dividend - reinstate progressive dividend with a 2022 interim
dividend of 1.0p per share. EPS to DPS cover ratio moving to ~2x over time.
· Value accretive investments - invest for growth in lower carbon and
flexible assets, to accelerate the energy transition and improve security of
supply in our core markets.
· Efficient use of capital - including returning surplus structural
capital to shareholders.
FINANCIAL SUMMARY
Six months ended 30 June 2022 2021
Total Group excluding Spirit Energy disposed assets
Adjusted EBITDA £1,175m £427m
Adjusted operating profit £857m £140m
Adjusted earnings attributable to shareholders £598m £74m
Adjusted basic earnings per share (EPS) 10.2p 1.3p
Total Group
Adjusted EBITDA £1,660m £682m
Adjusted operating profit £1,342m £262m
Adjusted tax charge £581m £59m
Adjusted effective tax rate 46% 35%
Adjusted earnings attributable to shareholders £643m £98m
Adjusted basic EPS 11.0p 1.7p
Interim dividend per share (DPS) 1.0p -
Group free cash flow from continuing operations £643m £524m
Group net cash / (debt) £316m (£93m)
Statutory operating (loss) / profit (£1,099m) £1,003m
Statutory (loss) / earnings attributable to shareholders (£864m) £1,351m
Statutory basic (loss) / earnings per share (14.7p) 23.2p
Statutory net cash flow from operating activities £165m £558m
See notes 3, 4 and 9 to the Financial Statements and pages 69 to 73 for an
explanation of the use of adjusted performance measures.
GROUP PERFORMANCE INDICATORS
2022 2021 Change
Total recordable injury frequency rate (per 200,000 hours worked) 1.04 1.07 (3%)
Total customers ('000) (1) 10,193 10,067 1%
Group direct headcount 19,899 19,783 1%
Group colleague engagement (%) 63% 55% 8ppt
All 2021 comparators are as at 31 December 2021.
1. Includes British Gas Energy, British Gas Services and Bord Gáis Energy
households and small and medium business customer sites in British Gas Energy
and Centrica Business Solutions.
INVESTOR PRESENTATION
Centrica will hold its 2022 Interim Results presentation for analysts and
institutional investors at 9.30am (UK) on Thursday 28 July 2022. There will be
a live audio webcast of the presentation and slides. Please register to view
the webcast at: https://webcasts.centrica.com/centrica121
(https://webcasts.centrica.com/centrica121)
ENQUIRIES
Investors and Analysts: tel: +44 (0)1753
494900 email: ir@centrica.com
Media: tel: +44 (0)1784
843000 email: media@centrica.com
Group Overview
GOOD OPERATIONAL PERFORMANCE AS THE TURNAROUND OF CENTRICA CONTINUES
· Centrica's operational performance was good in the first half of
2022, against a backdrop of high and volatile commodity prices. We saw
improved performance across much of the Group, with strong Exploration &
Production (E&P) and Nuclear volumes, effective commodity and risk
management in Energy Marketing & Trading (EM&T) and improving net
promoter scores in British Gas Energy and British Gas Services &
Solutions.
· Underlying financial performance was healthy overall. Adjusted
earnings per share was up from 1.7p to 11.0p. The statutory loss per share was
14.7p, which includes a £1.9bn loss on net re-measurements after taxation.
Free cash flow from continuing operations increased by £119m to £643m, and
statutory net cash flow from operating activities reduced by £393m to £165m
which includes margin cash outflow of £519m. We have declared a 1.0p per
share interim dividend, the first dividend to be paid since 2019, and intend
to retain our historic policy to pay roughly one third of the full year
dividend as an interim.
· Since 2020, we have been on a major transformational journey to turn
the Company around and rebuild shareholder value. We set out three overlapping
phases of this turnaround:
1. Simplify and de-risk the portfolio and strengthen the balance sheet;
2. Stabilise the business and improve operational performance;
3. Deliver growth and position ourselves for net zero.
· We have now completed the first phase of the turnaround. The sale of
Spirit Energy's Norwegian and Statfjord UK oil and gas assets, including the
transfer of material decommissioning liabilities, closed in May 2022. This
followed the completion of the sale of Direct Energy in January 2021. The
Group had net cash of £0.3bn at the end of June 2022, compared to net debt of
nearly £4bn three years ago, with the reduction reflecting our ongoing strong
focus on capital discipline and cash generation. The technical pension deficit
on a roll-forward basis was approximately £0.6bn at the end of June 2022.
· The second phase of the turnaround is the continued focus on
stabilising the business and improving operational performance. A key enabler
to this has been the significant Group restructure, now largely complete,
which is resulting in increased colleague empowerment and customer focus. We
have also continued to focus on improving industrial relations and colleague
engagement increased by 8 points to 63% in the first half of 2022. Although we
still have further to go, a number of other key operational metrics are
improving.
· The third phase will be for Centrica to deliver growth and position
ourselves for net zero. This phase is underway. We are continuing to build our
capabilities across the Group and build out our net zero offers to customers.
Our strong trading and optimisation capabilities also mean we are well placed
to invest in the energy transition. We have already started investing in the
construction of flexible distributed power generation assets, while we
continue to investigate energy transition opportunities for our existing
assets, including Rough and Morecambe.
ACTING RESPONSIBLY THROUGH THE ENERGY CRISIS
· We are very aware of the difficult environment many customers are
facing due to rising energy bills and wider inflationary impacts and we will
continue to do all that we can to support them.
· We are investing over £100m in customer service, support and pricing
over 2022. This includes providing £6m of funds for our most vulnerable
customers in addition to the £7m we have contributed to the British Gas
Energy Trust to fund debt charities and provide grants of up to £750 to help
any customer struggling to pay their energy bills. We are also investing in
500 additional UK based customer service roles in British Gas Energy so we can
handle higher call volumes and be there when our customers need us.
· Our Energy Marketing & Trading business has secured increased
volumes of gas and renewable energy to improve the UK and Europe's security of
supply, having announced our intention to exit gas supply agreements with
Russian counterparties in March. This includes an agreement with Equinor to
deliver an additional 1 billion cubic metres of gas supplies to the UK for
each of the next three winters, sufficient to heat a total of 4.5m homes.
· We also continue to support our colleagues through these challenging
times. We will recruit 1,000 new apprentices across 2021 and 2022, creating
skilled, well-paid British jobs, while we agreed a new pay deal earlier this
year which takes current inflationary pressures in the UK into account.
CONTINUING TO PLAY OUR PART IN THE STABILISATION OF THE UK ENERGY MARKET
· In the last year, over half of the UK's energy suppliers have ceased
to trade, impacting over 4m customers and costing energy consumers billions of
pounds. We have continued to play our part in supporting those affected
customers, taking on over 150,000 in 2022 in addition to approximately 550,000
taken on in 2021.
· Under Ofgem's regulatory framework, relevant costs, including costs
of buying energy incurred by suppliers that they are not able to recover
directly as a result of taking on Supplier of Last Resort (SOLR) customers,
are recoverable through the industry levy. In December 2021 our claim for an
initial £361m was accepted by Ofgem and a further claim will be made later in
2022. Costs incurred and customer credit balances of £413m recoverable
through the SOLR framework have been recognised as a receivable in the H1 2022
financial statements.
· We continue to believe we need to see significant change to address
the underlying issues in the UK's complex energy regulations, by simplifying
and strengthening regulations to protect customers and to ensure a crisis of
this sort never happens again. Consumers ultimately pay for supplier failures
through future energy tariffs or taxation, so we believe the energy retail
market requires stronger prudential regulation to ensure those involved in the
industry are fit and proper, companies have adequate capital and monitored
risk management procedures, and customer deposits are fully protected. As a
responsible supplier, we have voluntarily separated gross customer deposits
and held £189m in a separate account on 30 June 2022. We also asked Ofgem to
make this a requirement for all energy suppliers.
· Ofgem have addressed a number of issues through a range of
consultations and regulatory changes in the first half of 2022:
· In February, Ofgem announced the new level of default tariff caps
effective from 1 April 2022, which includes additional allowances for the
recovery of SOLR-related costs and additional costs incurred by suppliers as a
result of rising wholesale prices and volatility over the 2021/22 winter.
· In May, a statutory consultation was launched looking at redesigning
the price cap to mitigate the risks associated with wholesale cost volatility
by moving to quarterly updates.
· In June, Ofgem launched a consultation covering the protection of
customer credit balances and Renewable Obligation payments, capital adequacy,
and protecting the value of hedges if a supplier ceases to trade.
· Ofgem have also introduced a Market Stabilisation Charge (MSC), aimed
at protecting well-hedged energy suppliers if wholesale costs fall by a
certain amount. Under the current parameters set by Ofgem, the MSC is
triggered if wholesale prices fall by at least 10% compared to the cap index.
In the event that the MSC is triggered, and a customer switches supplier, the
new supplier would need to reimburse the previous supplier for 85% of the
hedged cost. Ofgem has proposed to extend the MSC until at least 31 March
2023.
· We are supportive of the changes that Ofgem is making, although we
believe there is more to be done to be able to give customers full confidence
in the robustness of the UK energy market.
· We will continue to engage constructively with the UK Government,
Ofgem and other industry participants on the future of retail energy markets
in the UK to drive sustainable market reform and ensure that well run,
responsible suppliers can make a fair return.
SIMPLIFYING & DE-RISKING THE PORTFOLIO AND STRENGTHENING THE BALANCE SHEET
Sale of Spirit Energy Norway and Statfjord field completed
· The sales of Spirit Energy's Norwegian E&P business and its
interests in the Statfjord field to Sval Energi and Equinor completed on 31
May 2022. The transactions resulted in a 98% reduction in Spirit Energy's 2021
closing oil and liquids proven and probable (2P) reserves, a 39% reduction in
its 2021 closing gas 2P reserves and a reduction in its gross decommissioning
liabilities from £2.0bn to £1.2bn.
· The headline consideration was $1,076m (approximately £800m), with a
commercial effective date of 1 January 2021, and included the transfer to the
buyers of all related decommissioning liabilities, which were approximately
£830m as of the commercial effective date. The final consideration was
£104m, including deferred commodity price linked consideration and a tax
indemnity provided to Sval Energi, having been adjusted to reflect working
capital and debt-like items and reduced by net post-tax cash flows generated
by the sale businesses since 1 January 2021.
· Centrica owns 69% of Spirit Energy but fully consolidates Spirit
Energy in the Group's financial statements. In June 2022, Spirit Energy
distributed the final consideration and post-tax net cash flows generated by
the sale businesses since 1 January 2021 to Centrica and its joint venture
partners, SWM Group, in proportion to their ownership. This was after
adjusting for certain transaction taxes and costs, and amounts in respect of
certain liabilities to be retained by the Spirit Energy Group. SWM Group's
share of this distribution from Spirit Energy was £233m.
· There was an estimated £65m cost of closing commodity price hedges
related to Statfjord UK borne by Spirit Energy in H1 2022, in addition to a
£64m cost in 2021, with a further approximately £100m cost expected across
the remainder of 2022 and 2023. There was also an estimated £24m cost of
closing commodity price hedges at a Centrica Group level in H1 2022 in
addition to an estimated £27m in 2021 related to its share of Spirit Energy's
Norwegian business and Statfjord interests.
· Under an amended shareholders' agreement with SWM Group, Spirit
Energy's future strategy will be to realise value from its remaining portfolio
of assets in the UK and the Netherlands while minimising further investment in
oil and gas exploration and development, and to utilise cash from Spirit
Energy's operations to meet and de-risk decommissioning obligations in respect
of its remaining portfolio. Future cash flows generated from Spirit Energy's
continuing operations will be retained within Spirit Energy until projected
future pre-tax decommissioning costs are 1.5 times covered. Spirit Energy will
also be able to pursue potential opportunities to leverage existing
infrastructure for net zero projects.
Further non-core divestments
· We will also consider further divestments of smaller assets or
businesses, if they help to simplify and de-risk the Group and we can realise
good value for shareholders.
· In H1 2022, we sold our interest in Driivz, an electric vehicle
charging software provider, while Centrica Business Solutions also agreed to
exit two small positions in the United States and Mexico.
A strong balance sheet
· The Group had net cash of £0.3bn at the end of June 2022. This means
we have reduced net debt by £4.2bn over the past three years, from net debt
of £3.9bn at the end of June 2019, reflecting our divestments, our focus on
cash flow generation and ongoing capital and cost discipline.
· Gross decommissioning liabilities have decreased by £0.7bn over the
same period, reflecting the sale of the Spirit Norway and Statfjord assets,
while the latest roll-forward valuation of the technical pension deficit of
£0.6bn is £0.8bn lower than three years ago having peaked at £2.4bn on a
roll-forward basis two years ago. In addition, projected future losses from
the remaining Sole Pit legacy gas contract in Energy Marketing & Trading
are now around £150m compared with over £500m three years ago.
· In aggregate, these liabilities have reduced by £6.1bn over the past
three years, leaving the Group's balance sheet in a materially stronger
position.
OPERATIONAL, COMMERCIAL AND FINANCIAL PERFORMANCE - STABILISING THE BUSINESS
AND IMPROVING OPERATIONAL PERFORMANCE
Improved operational performance in British Gas Services & Solutions but
negative financial impacts due to a weak economic backdrop and investment in
service and pricing
British Gas Services & Solutions 2022 2021 Change
Services customers ('000) (closing) (1,2) 3,271 3,428 (5%)
Installs and on-demand jobs ('000) 134 148 (9%)
Services complaints per customer (%) (3) 6.5% 6.4% 0.1ppt
Services Engineer net promoter score (NPS) (1,4) 62 60 2pt
Adjusted operating profit (£m) 7 60 (88%)
All 2021 comparators are for the 6 months ended 30 June 2021 unless otherwise
stated.
1. 2021 comparator at 31 December 2021.
2. Services customers are defined as single households having a contract with
British Gas.
3. Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
4. Measured independently, through individual questionnaires, the customer's
willingness to recommend British Gas following an engineer visit.
· British Gas Services & Solutions is focused on fixing operational
delivery following a challenging 2021, in which higher absence rates and
difficulties in recruiting engineers due to UK labour market pressures
resulted in more jobs having to be rescheduled and an increased use of
contractors. These factors negatively impacted customer satisfaction levels in
2021 and into 2022.
· We have been focused on recruiting directly-employed engineers to
rebuild capacity, enabling us to complete a greater proportion of jobs through
our own workforce, to improve customer experience and customer retention and
to create the capacity for growth. We recruited around 600 engineers in the
first half of 2022.
· This investment in recruitment and service led to a lower number of
rescheduled appointments, down to 7% in H1 2022 compared to 13% in H1 2021,
and reflecting this, Engineer NPS increased by 2 points to 62.
· Customer retention increased to 83% in H1 2022 from 80% in H1 2021,
as we remained mindful of price changes that customers can absorb. However,
customer acquisition has been challenging in the current economic environment
and British Gas Services customer numbers fell by 157,000, or 5%, over the
first half. We are also seeing more customers trade down to lower priced
products within our HomeCare range. The number of services products per
customer was unchanged compared to the start of the year, at 2.23.
· The total number of installs and on-demand jobs for the half was down
9% compared to H1 2021. Boiler installations were up 13%, as we saw recovery
from Covid-19 and industrial action impacts in 2021, although the average
price was lower with customers tending to choose lower priced boilers. The
number of on-demand jobs fell 19% due to us focusing our attention on serving
existing customers.
· British Gas Services & Solutions adjusted operating profit fell
by 88% to £7m.
· The reversal of a £50m Covid-19 and industrial action impact from H1
2021 was partially offset by an increase in customer compensation following
disappointing service levels over the past winter, continued higher absence
rates earlier in the year, and increased workload, which we believe is a
function of customers choosing to have non-urgent jobs they had been delaying
during the Covid-19 pandemic completed. These temporary factors negatively
impacted adjusted operating profit by approximately £25m.
· The impacts of lower customer numbers and customers trading down to
lower priced products negatively impacted adjusted operating profit by
approximately £20m compared to H1 2021.
· We are also making a number of choices to improve the resilience of
our business, investing in service and pricing to ensure that our propositions
are attractive and we are well placed for when alternative heating solutions
gain more prominence. These resulted in a negative impact on adjusted
operating profit of approximately £50m, with the main areas of investment as
follows:
o Our recruitment and training of engineers resulted in more downtime from
experienced engineers as they mentored new colleagues.
o In addition, we continue to invest in operating costs to improve the
business, with additional investment in improving our core IT systems and
building our net zero capability.
o We are also seeing increasing costs in a high inflation environment,
including our own employee costs as we look to support colleagues through the
cost of living crisis. Mindful of this difficult time for customers, we are
choosing to invest in our pricing by not passing these inflationary costs
fully onto our customers.
· The impact of a lower priced boiler mix and global supply chain
issues creating capacity constraints earlier in the year negatively impacted
adjusted operating profit by approximately £10m compared to H1 2021.
Organic customer growth against a backdrop of high and volatile prices in
British Gas Energy
British Gas Energy 2022 2021 Change
Residential energy customers ('000) (closing) (1,2) 7,464 7,260 3%
Small business customer sites ('000) (closing) (1) 459 455 1%
Energy complaints per customer (%) (3) 6.6% 4.0% 2.6ppt
Energy Touchpoint NPS (1,4) 14 14 nm
Cost per residential energy customer (£) (1) 96 93 3%
Adjusted operating profit (£m) 98 172 (43%)
All 2021 comparators are for the 6 months ended 30 June 2021 unless otherwise
stated.
1. 2021 comparator at 31 December 2021.
2. Residential energy customers are defined as single households buying
energy from British Gas.
3. Total complaints, measured as an expression of dissatisfaction in line
with submissions made to Ofgem, as a percentage of average customers over the
year.
4. Measured independently, through individual questionnaires and the
customer's willingness to recommend British Gas following contact.
· British Gas Energy is focused on developing more modern ways of
working and the migration of customers onto a new 'software as a service' IT
platform, to lower its cost per customer and improve customer service. It
should also allow us to capture the opportunities arising from changes to how
customers use their energy, for example through increased numbers of electric
vehicles and growth in the electrification of heating, which benefit from
dynamic time-of-use tariffs.
· We now have nearly 900,000 customers on this platform compared to
around 350,000 at the start of the year, as we continue to migrate customers
in a controlled manner.
· British Gas Energy residential customer numbers increased by 204,000,
or 3%, in the first half.
· This included a net increase of 158,000 customers who ultimately
joined us through Ofgem's SOLR process from Together Energy.
· We also saw organic growth of 46,000 customers in the first half,
against a backdrop of low levels of market switching.
· The number of small business customers increased by 1% to 459,000.
· Energy Touchpoint NPS remained flat, however complaints increased in
the period, with higher customer bills prompting higher call volumes into our
contact centres with customers becoming more focused on bills and direct debit
reassessments. We are focused on improving complaint levels, including through
the creation of 500 new UK-based contact centre roles in order to help our
customers.
· Cost per customer increased by £3 to £96. The impacts of an
increased bad debt charge and dual running IT costs were equivalent to £7 per
customer, meaning there was an underlying reduction of £4 per customer.
· British Gas Energy adjusted operating profit decreased by 43% to
£98m.
· As in H2 2021, the rise in wholesale commodity prices meant that
default tariffs remained cheaper than nearly all new fixed-price tariffs. This
resulted in more customers on default tariffs than we had hedged for,
requiring us to purchase more commodity from the market at prices above those
allowed with the price caps. Price cap allowances have been introduced to
compensate for these costs, however this recovery will mostly occur in future
periods.
· Warmer than normal temperatures in the first half reduced demand
compared to a cold H1 2021. However, the impact of this was more than offset
by the positive impact of surplus gas and power being sold back into a
high-priced market.
· The impact of increased customer numbers and average unit margins was
more than offset by the estimated effect that higher bills had on customer
behaviour, with lower underlying energy demand and a £63m increase in the bad
debt charge.
· We saw more normalised Energy Company Obligation (ECO) costs in H1
2022 following elevated spend in 2021 and demand recovery from small business
customers following removal of Covid-19 restrictions, although these were
partially offset by the repayment of £27m received by the Group under the UK
Government's Coronavirus Job Retention Scheme.
Improved financial result from Bord Gáis Energy with Whitegate back in
operation
Bord Gáis Energy 2022 2021 Change
Customers ('000) (closing) (1) 513 509 1%
Complaints per customer (%) (2) 1.0% 0.8% 0.2ppt
Journey NPS (1,3) 20 30 (10pt)
Adjusted operating profit (£m) 33 19 74%
All 2021 comparators are for the 6 months ended 30 June 2021 unless otherwise
stated.
1. 2021 comparator at 31 December 2021.
2. Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
3. Weighted NPS for the main customer interaction channels.
· The number of Bord Gáis Energy customers increased by 4,000, or 1%,
in H1 2022.
· Customer complaints increased slightly and Journey NPS fell by 10
points over the half, reflecting customer concerns as retail tariffs increased
materially due to the significant rise in global wholesale commodity prices.
· Bord Gáis Energy adjusted operating profit increased by 74% to £33m
despite reduced retail margins in a challenging environment for energy supply.
This reflects the return to service of the Whitegate power station in December
2021, which was offline for all of the first half of 2021, and good trading
performance. These factors were partially offset by an increased bad debt
charge.
Impacts of high and volatile commodity prices handled well by Energy Marketing
& Trading
Energy Marketing & Trading (EM&T) 2022 2021 Change
Renewable capacity under management (GW) (1) 11.1 11.7 (5%)
EM&T adjusted operating profit / (loss) (£m) 278 (40) nm
All 2021 comparators are for the 6 months ended 30 June 2021 unless otherwise
stated.
1. 2021 comparator at 31 December 2021.
· Our core EM&T trading and optimisation activities performed well
in the first half of the year, utilising our capability in optimising our
portfolio of European power purchase and route to market agreements against a
backdrop of highly volatile commodity markets.
· EM&T renewable route-to-market capacity under management reduced
by 0.6GW to 11.1GW with a number of contracts coming to an end during the
period. However, the contracts we have remained very valuable in H1 2022 and
delivered materially higher levels of adjusted operating profit compared to H1
2021. We remain focused on growing our route-to-market capacity as more
renewable capacity comes online across Europe and we have a good pipeline of
new contracts.
· The remaining legacy gas contract relating to the Sole Pit gas field
contributed a profit of £25m in H1 2022 compared to a loss of £57m in H1
2021, as we used optionality around the timing of gas takes. We now expect the
contract to broadly break-even for the full year, significantly better than
our expectations of a loss of around £50m at the time of the Preliminary
Results. At current forward commodity prices, we expect adjusted operating
losses to total around £150m until the contract ends in 2025.
· We reported a loss in the LNG business, however this is a function of
accrual accounting treatment of the phasing of costs and revenues associated
with hedges and cargoes. The underlying economic performance of the portfolio
was good and we expect LNG to be profitable for the full year.
· EM&T adjusted operating profit was £278m (H1 2021: loss of
£40m), reflecting strong performance across our gas, power and renewables
trading activities and the profit from the Sole Pit contract.
Covid-19 recovery in a more-focused Centrica Business Solutions
Centrica Business Solutions 2022 2021 Change
Energy supply total gas and electricity volume (TWh) 11.8 11.8 nm
Energy supply complaints per customer (%) (2) 4.0% 3.2% 0.8pt
Energy supply Touchpoint NPS (1,3) 24 21 3pt
New Energy Services order intake (£m) 152 221 (31%)
New Energy Services order book (£m) (1) 851 820 4%
Adjusted operating profit/(loss) (£m) 20 (24) nm
All 2021 comparators are for the 6 months ended 30 June 2021 unless otherwise
stated.
1. 2021 comparator at 31 December 2021.
2. Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
3. Measured independently, through individual questionnaires and the
customer's willingness to recommend.
· In Centrica Business Solutions energy supply, which consists of
medium-sized enterprise and Commercial and Industrial (C&I) customers:
· The total amount of energy supplied in the period was flat at
11.8TWh. An increase in demand following the easing of Covid-19 restrictions
and growth in our core market of mid-sized enterprise customers was offset by
the impacts of warmer weather and a reducing portfolio of large C&I
customers.
· Customer complaints were higher in the period, with increased
customer concern around high energy prices, although Touchpoint NPS increased
slightly to +24.
· In Centrica Business Solutions New Energy Services:
· Order intake of £152m was 31% lower than in H1 2021. This is
partially due to the impact of our more focused strategic approach reducing
the number of markets we participate in, although we are also seeing
competitive market conditions and delayed customer decision making given
current macroeconomic uncertainty. The order book has increased by 4% since
the start of the year to £851m.
· Centrica Business Solutions reported adjusted operating profit of
£20m (H1 2021: loss of £24m).
· Business energy supply reported adjusted operating profit of £33m
(H1 2021: £3m), with no repeat of Covid-19 driven demand reduction from H1
2021. In addition, reducing underlying demand and warmer temperatures allowed
us to sell surplus power and gas back into a higher priced commodity market.
These positive effects were partially offset by the impacts of higher bad debt
provisioning, higher balancing costs, and the phasing of margins towards the
back end of some new customer contracts due to commodity prices being higher
in the near term.
· New Energy Services reported a reduced adjusted operating loss of
£13m (H1 2021: £27m), reflecting growth in revenue and gross margin in both
the UK, Ireland and North America markets and lower operating costs, partially
offset by the impact of the Peterborough site disposal in 2021.
Good Upstream operational performance and higher nuclear volumes
Upstream 2022 2021 Change
E&P total production volumes (mmboe) 18.0 18.5 (3%)
Nuclear power generated (GWh) 4,648 4,171 11%
Adjusted operating profit (£m) 906 75 1,108%
All 2021 comparators are for the 6 months ended 30 June.
· Total E&P production was down 3% to 18.0mmboe. Excluding
production from the disposed Spirit Energy assets, E&P production was up
29% to 11.7mmboe.
· Volumes from the retained Spirit Energy business increased 21% to
9.3mmboe, reflecting strong production at Morecambe and Cygnus which more than
offset natural decline in the portfolio.
· Production volumes from CSL's Rough field increased by 71% to
2.4mmboe, with strong operational performance allowing us to optimise
production from Rough and continue producing during periods of higher prices.
· Centrica's share of nuclear generation volumes of 4.6TWh was 11%
higher than in H1 2021, despite the closures of Dungeness B in June 2021 and
Hunterston B in January 2022, reflecting strong plant reliability. Hinkley
Point B is due to close in August 2022, which will leave five operational
plants.
· Upstream adjusted operating profit increased to £906m (H1 2021:
£75m).
· Disposed Spirit Energy assets adjusted operating profit increased to
£485m (H1 2021: £122m).
· The retained Spirit Energy business reported an adjusted operating
profit of £59m (H1 2021: loss of £18m), with higher production volumes and
higher wholesale commodity prices resulting in a higher achieved gas price
despite the impacts of hedging. These more than offset an increase in cash
lifting costs and higher depreciation following impairment write-backs last
year.
· CSL adjusted operating profit was £76m (H1 2021: £9m), reflecting
strong production from Rough and a higher achieved average gas price. These
impacts were partially offset by higher depreciation following impairment
write-backs last year.
· Nuclear reported adjusted operating profit of £286m (H1 2021: loss
of £38m), reflecting the higher wholesale price environment, increased
generation volumes and lower costs following the closures of Dungeness B and
Hunterston B.
· E&P free cash flow, excluding disposal proceeds, increased to
£860m (H1 2021: £266m), with higher achieved prices resulting in increased
EBITDA.
SUMMARY GROUP FINANCIAL PERFORMANCE
Healthy adjusted operating profit and earnings
· Adjusted EBITDA increased by £978m to £1,660m and adjusted
operating profit increased by £1,080m to £1,342m, reflecting the movements
in business unit adjusted operating profit as described in the previous
section.
· The net finance charge fell by £18m to £78m and the tax rate on
adjusted profit increased to 46% (H1 2021: 35%), largely due to the change in
profit mix towards more highly taxed E&P activities and no repeat of 2021
tax credits. Higher Spirit Energy profit meant adjusted earnings attributable
to Spirit Energy minority partners increased to £50m (2021: £11m).
· Reflecting the above, adjusted earnings attributable to shareholders
of £643m was up £545m on last year (2021: £98m) and adjusted basic EPS was
11.0p (2021: 1.7p). Excluding earnings from the disposed Spirit Energy assets,
adjusted basic EPS was 10.2p (2021: 1.3p).
Statutory loss reflects high commodity price environment
· Total exceptional items recognised after tax generated a profit of
£182m in H1 2022, with write-backs of our nuclear investment and recognition
of a deferred tax asset, both related to the higher commodity price
environment, partially offset by a loss on disposal of Spirit Energy Norway.
This compared to a total exceptional profit of £856m in H1 2021 which
included E&P impairment write backs and a profit on disposal of Direct
Energy.
· A loss from net re-measurements after tax of £1,876m was recognised
in H1 2022 (2021: profit of £396m), largely relating to the movement of an
onerous supply contract provision representing the future cost to fulfil
customer contracts on a current market price basis.
· Reflecting this, the statutory loss after taxation was £1,001m
(2021: profit of £1,361m). After non-controlling interests, the statutory
loss was £864m (2021: profit of £1,351m) with a basic EPS loss of 14.7p
(2021: profit of 23.2p).
Further robust cash flow generation resulting in a stronger balance sheet
· Although adjusted EBITDA increased by £978m, free cash flow from
continuing operations of £643m was only £119m higher than in H1 2021. This
is largely growth related, in that it reflects higher tax payments due to
increased adjusted operating profit, and a significant increase in working
capital utilised. The working capital outflow was largely seen in British Gas
Energy due to the impact of taking on SOLR customers and the impact of higher
commodity costs, as we typically pay for the purchase of commodity in advance
of receiving payment from customers. Growth in Energy Marketing & Trading
also resulted in a working capital outflow in that business. H1 2021 free cash
flow also included £2,582m related to Direct Energy disposal proceeds.
· Statutory net cash flow from continuing operating activities reduced
by £393m to £165m in H1 2022, with the difference between this reduction and
the increase in free cash flow largely related to a £519m negative movement
in margin cash compared to a £129m inflow in H1 2021. This was partly offset
by lower pension deficit payments, with H1 2021 including pension strain
payments related to redundancies in prior years.
· We also made a payment of £233m to the minority shareholders of
Spirit Energy, representing their share of cash flows generated since 1
January 2021 from the disposed Spirit Energy businesses. At the end of June
2022, the Group had net cash of £316m compared to £680m at the end of 2021.
· We retain significant access to liquidity. At the end of June 2022,
the Company had £3.4bn of unrestricted cash and cash equivalents (net of bank
overdrafts) and £2.9bn of undrawn credit facilities. We still have a legacy
of long-dated and relatively expensive debt. However, we did have two
maturities totalling £282m in H1 2022 which we did not need to refinance.
Pensions triennial valuation
· The Company had an IAS19 net pension surplus of £747m at the end of
June 2022 compared to a net deficit of nil at the end of 2021. This
predominantly reflects an increase in the real discount rate due to a rise in
interest rates since the start of the year.
· The technical pension deficit is based on more conservative
assumptions and determines the level of cash contributions into the schemes.
In July 2022, we reached agreement in principle with the pension trustees on a
March 2021 technical provisions deficit of £944m. On a roll-forward basis,
using the same methodology, consequent assumptions and contributions paid, the
technical deficit would be in the region of £600m at 30 June 2022. Annual
deficit contributions are expected to remain broadly unchanged. We have also
been heavily focused on de-risking our pension liabilities. The overall level
of interest rate and inflation hedging has increased from 36% three years ago
to 95% today, meaning the volatility of our pension deficit should be much
reduced in future.
2022 OUTLOOK POSITIVE WITH THE FOCUS ON FURTHER PERFORMANCE IMPROVEMENT
· The strong operational and financial performance in H1 2022 leaves
the business well placed as we head into H2 2022. We will continue to invest
in and drive operational improvements, particularly given the uncertain
economic environment which creates challenges for British Gas Services &
Solutions, and also increases bad debt risk for our energy supply businesses.
· If forward commodity prices were to stay around current levels and
asset performance remains strong, we would expect full year adjusted earnings
per share to be at, or even above the top end of the range of current sell
side analyst expectations, which is currently 10.1p to 15.0p based on 12
forecasts published since our Trading Update on 10 May 2022.
· However, as always there are significant uncertainties and a range of
external factors we cannot control, most materially weather and commodity
prices, both of which are exacerbated at current elevated commodity prices.
Balance sheet strength to facilitate growth and shareholder returns
· We have introduced an updated financial framework which will underpin
our strategy moving forwards.
Strong investment grade credit ratings
· Maintaining strong investment grade credit ratings remain important
to us for our energy procurement and optimisation activities, so maintaining a
strong balance sheet will be key to our continued success. We are currently in
a net cash position. However, we can see significant cash swings, particularly
in times of volatile energy markets and economic uncertainty. As a result, we
would expect to maintain a prudent balance sheet, providing resilience for the
Group while ensuring the flexibility to invest in the attractive investment
opportunities available.
· It also means we will have the headroom to cope with further
regulatory changes in the UK energy market. This includes the mandated
ring-fencing of 100% of gross customer deposits, which we continue to believe
is the right thing for customers.
Progressive dividend policy
· We are reinstating an ordinary dividend and are declaring a 2022
interim dividend of 1.0p per share. We intend to retain our historic policy of
paying roughly a third of the full year dividend as an interim. We expect the
dividend to be progressive and dividend cover from earnings to move to around
2x over time, recognising the ratio is likely to vary each year dependent on
the business cycle.
Investment in organic growth
· We will continue to invest in our people and technology, whether
through operating costs or capital expenditure. This should underpin further
improvements in customer service and productivity, and in turn improve
customer retention. Our balance sheet approach also means we are able to
support increased working capital capacity, should attractive opportunities
arise in our optimisation activities.
Value accretive investments
· We have a number of opportunities to invest in a value accretive way
in flexible and lower carbon assets in areas that will help accelerate the
energy transition and improve security of supply in our core markets. We will
assess these opportunities against a robust framework and each project will
need to deliver appropriate returns commensurate with the risk undertaken.
These assets will have to deliver suitable returns for shareholders. Any
investment will also ensure we retain a diversified and balanced portfolio as
our existing E&P and Nuclear assets naturally reduce in scale over time.
Efficient use of capital
· We will continue to make efficient use of capital. This includes the
potential return of any surplus structural capital to shareholders, although
current market volatility and the uncertain timing of our potential
investments means we cannot yet give clarity on the timing of any returns.
DELIVERING GROWTH AND POSITIONING OURSELVES FOR NET ZERO
· We have significant growth opportunities across retail energy supply
and services, energy system optimisation and infrastructure ownership and
management.
Growth potential in retail
· The UK energy supply regulatory environment is improving for
responsible suppliers, and those successful at improving service levels and
the competitiveness of their cost base should be able to make a fair and
sustainable return. British Gas Energy is well placed to deliver growth over
the long term.
· British Gas Services & Solutions is also well placed to deliver
growth, having the largest energy services field force in the UK with around
7,000 engineers. The decarbonisation of heat will drive substantial demand for
new heating systems, and as the UK's largest installer and servicer of such
systems, this is a real opportunity. There are 28 million homes in the UK and
3 million in the Republic of Ireland - and the majority of them will require
some form of change to their heating systems to ensure net zero is achieved.
· Our award-winning in-house training academies also provide us with a
competitive advantage, allowing us to both train and certify our own
apprentices and upskill our engineers to install heat pumps, electric vehicle
charging points, smart meters and hydrogen-ready boilers.
· We will need to continue to improve our operational performance to
take maximum advantage of these opportunities whenever they might arise. That
is why we are investing in customer service and productivity, which should
over time drive improved retention and market share growth.
Optimisation capabilities are key to delivering growth
· We have always had a requirement to manage our commodity exposure and
risk in core markets, given the scale of our retail and infrastructure
positions, and the expertise we have gained through doing this is incredibly
valuable. We have strong people and technology capabilities in gas and power
balancing and trading and with European energy markets increasingly
interlinked, we have expanded our activities outside our core markets of the
UK and Ireland. In total, we now trade in 27 countries across Europe and
employ around 600 colleagues across our main offices in Aalborg, London and
Antwerp.
· Our optimisation activity is generally underpinned by contractual
positions, including our route-to-market business which provides market access
and optimisation services for customer owned assets. We have grown this and
now manage 15GW of assets, with around 80% of it relating to renewable assets,
largely wind and solar.
· We also manage a global LNG portfolio. In addition to capacity at the
Isle of Grain regassification facility and our long term US export contract
with Cheniere, we have been building up a number of medium term positions that
de-risk and optimise the overall LNG portfolio. We have a strong team with
deep understanding of the LNG market and its logistics and will continue to
seek options to de-risk and potentially grow, enabled by our stronger balance
sheet and deep knowledge of global gas markets.
· We already build and maintain customer assets as well as our own
through Centrica Business Solutions. Combined with our world class
optimisation capability and access to huge amounts of market data, this gives
us confidence that we can compete across the value chain, investing Centrica's
capital in assets and monetising them.
Investment opportunities
· Investment in the UK and Ireland energy systems is expected to
increase materially in the next decade, with nearly £200 billion expected to
be spent between 2021 and 2030 driven by government decarbonisation targets
and the push for increased security of supply.
· The majority of this investment is projected to come from
intermittent renewable technologies such as wind and solar. However, a
combination of technologies will be required, creating opportunities for
companies with strong balance sheets, flexible business models and detailed
knowledge of markets.
· This creates opportunities for Centrica, and we are clear where we
can participate. When making investment decisions we will weigh up the size
and growth rates of the market, expected returns, risk profile, our
competitive advantage and any wider portfolio benefits. Reflecting these
considerations, at this point in time we see our main areas of investment
focus are likely to be battery storage, gas peaking generation, solar,
hydrogen and Carbon Capture, Utilisation and Storage (CCUS). The focus will be
on our core markets of the UK and Ireland.
· Potential investments in small scale, flexible generation will be
aligned to our existing capabilities. We already own operational assets in the
UK and Ireland, including a battery at Roosecote, a gas peaking plant at Brigg
and the Whitegate CCGT in Ireland. A number of projects are also already
underway. A 18MW solar farm in Wiltshire in the UK is already under
construction at a total expected cost of £15m, while we have also recently
made a final investment decision on a 50MW battery investment on the site of
the now closed Brigg CCGT, which is expected to cost £45m. We expect to make
a final investment decision on two 100MW gas peaking plants in Ireland in the
second half of this year, at an expected cost of around €250m. Including
these projects, we have brownfield sites across the UK and Ireland that could
support over 1GW of new flexible generation capacity over the next five years.
We would expect all these projects to deliver asset returns in excess of 5%,
before we include any optimisation upside that our capabilities in this space
should allow us to achieve.
· We own E&P and Nuclear assets today, however their lifespan is
limited. Our challenge is to reinvest cash flows generated by these assets to
turn them into net zero assets, which will continue to provide the balance our
portfolio benefits from today.
· We continue to work on developing the option to convert Rough back to
a gas storage asset, with a view to ultimately converting it to a hydrogen
storage asset. We currently estimate that this project would cost in the
region of £2bn, including the cost of converting it to store hydrogen. We
also continue to assess longer-term options for the Spirit Energy-owned
Morecambe gas field, which could prove to be an attractive asset for CCUS.
Given the scale of both of these investments, we would be looking for a
regulated return model for both options.
A SIMPLER, DE-RISKED, MORE EFFICIENT COMPANY WITH ATTRACTIVE NET ZERO
OPPORTUNITIES
· In summary, our balanced portfolio has served us well through the
ongoing energy crisis. In addition, we have significantly simplified and
de-risked Centrica over the past three years through eliminating net debt,
reducing decommissioning liabilities and reducing pension liabilities.
· We are focused on driving improved operational performance and are
seeing signs of progress in British Gas Energy and British Gas Services &
Solutions as we look to position them to capitalise on the opportunities
presented by net zero.
· We will continue to focus on delivering simply, sustainably and
affordably for our customers and on delivering stable and growing returns for
our shareholders.
· Centrica is evolving into a new type of integrated energy company
using our strong established positions in retail, optimisation and
infrastructure. These capabilities and our financial strength will allow us to
invest in attractive opportunities aligned to the energy transition and net
zero to drive growth over the long term.
Group Financial Review
REVENUE
· Group statutory revenue increased by 49% to £10.3bn (2021: £6.9bn).
Group revenue included in business performance increased by 75% to £14.3bn
(2021: £8.2bn).
· Gross segment revenue from continuing operations, which includes
revenue generated from the sale of products and services between segments,
increased by 83% to £16.0bn (2021: £8.7bn). This was largely driven by the
impact of higher wholesale commodity prices on Energy Marketing & Trading
and Upstream, and the impact of higher wholesale prices on retail tariffs in
British Gas Energy, Bord Gáis Energy and Centrica Business Solutions.
· A table reconciling different revenue measures is shown in the table
below:
2022 2021
Six months ended 30 June Gross segment revenue Less inter-segment revenue Group revenue Gross segment revenue Less inter-segment Group revenue
£m
£m
£m
£m
£m revenue
£m
British Gas Services & Solutions 744 (22) 722 722 (32) 690
British Gas Energy 5,090 - 5,090 3,840 - 3,840
Centrica Business Solutions 1,295 (11) 1,284 871 (9) 862
Bord Gáis Energy 784 - 784 484 - 484
Energy Marketing & Trading 6,355 (113) 6,242 1,991 (151) 1,840
Upstream 1,695 (1,515) 180 838 (400) 438
Group revenue included in business performance 15,963 (1,661) 14,302 8,746 (592) 8,154
Less: revenue arising on contracts in scope of IFRS 9 included in business (3,987) (1,236)
performance
Group statutory revenue 10,315 6,918
OPERATING PROFIT / (LOSS)
· Adjusted operating profit increased to £1,342m (H1 2021: £262m).
Excluding the disposed Spirit Energy assets, adjusted operating profit
increased to £857m (2021: £140m). The statutory operating loss from
continuing operations was £1,099m (H1 2021: profit of £1,003m). The
difference between the two measures of profit relates to exceptional items and
certain remeasurements. A table reconciling the different profit measures is
shown below:
2022 2021
Six months ended 30 June Notes Business performance Exceptional Statutory result Business Exceptional Statutory result
£m
items and certain
£m
performance
items and certain
£m
re-measurements
£m
re-measurements
£m
£m
Continuing operations
British Gas Services & Solutions 7 60
British Gas Energy 98 172
Centrica Business Solutions 20 (24)
Bord Gáis Energy 33 19
Energy Marketing & Trading 278 (40)
Core EM&T 253 17
Legacy gas contract 25 (57)
Upstream 421 (47)
Spirit Energy (retained) 59 (18)
CSL 76 9
Nuclear 286 (38)
Total Group excluding Spirit Energy disposed assets 857 140
Spirit Energy disposed assets 485 122
Group operating profit/(loss) 4(c) 1,342 (2,441) (1,099) 262 741 1,003
Net finance cost 7 (78) - (78) (96) - (96)
Taxation 8 (571) 747 176 (57) (97) (154)
Profit/(loss) from continuing operations 693 (1,694) (1,001) 109 644 753
Profit attributable to non-controlling interests (50) 187 137 (11) 1 (10)
Adjusted earnings from continuing operations 643 (1,507) (864) 98 645 743
Discontinued operations - - - - 608 608
Adjusted earnings attributable to shareholders 643 (1,507) (864) 98 1,253 1,351
Adjusted earnings excluding disposed Spirit Energy assets 598 74
Group operating profit from business performance (adjusted operating profit)
· The increase in adjusted operating profit was primarily driven by the
Upstream businesses, reflecting strong production and generation volumes and
the impact of higher commodity prices. Additionally, Energy Marketing &
Trading managed the more volatile commodity price environment well and
delivered higher adjusted operating profit. Offsetting this, higher customer
energy bills and an uncertain economic outlook resulted in British Gas Energy
booking an increased bad debt charge, while inflationary pressures and
investment in customer service and pricing reduced adjusted operating profit
in British Gas Services & Solutions.
· More detail on specific business unit adjusted operating profit
performance is provided in the Group Overview on pages 6 to 10.
GROUP FINANCE CHARGE AND TAXATION
Finance costs
· Net finance costs from continuing operations decreased to £78m
(2021: £96m). Higher interest rates resulted in increased investment income,
while interest cost on bonds, bank loans and overdrafts reduced with the full
period impact of the redemption of the €750m hybrid bond at its first call
date of April 2021 and two further bond repayments totaling £282m made in the
first half of 2022.
Taxation
· Business performance taxation on profit from continuing operations
increased to £571m (2021: £57m). After including tax on joint ventures and
associates, the adjusted tax charge was £581m (2021: £59m).
· The resultant adjusted effective tax rate for the Group was 46%
(2021: 35%), due to a change in the profit mix towards more highly taxed
E&P activities, combined with £42m of tax credits from one-off increases
in deferred tax balances in 2021 not recurring.
· The adjusted effective tax rate calculation is shown below:
Six months ended 30 June 2022 2021
£m
£m
Adjusted operating profit before impacts of taxation 1,342 262
Add: JV/associate taxation included in adjusted operating profit 10 2
Net finance cost from continuing operations (78) (96)
Adjusted profit before taxation 1,274 168
Taxation on profit from continuing operations (571) (57)
Share of JV/associate taxation (10) (2)
Adjusted tax charge (581) (59)
Adjusted effective tax rate 46% 35%
EXCEPTIONAL ITEMS AND CERTAIN RE-MEASUREMENTS
· Total certain re-measurements and exceptional items from continuing
operations generated a pre-tax loss of £2,441m (2021: gain of £741m), made
up of a pre-tax loss on certain re-measurements of £2,536m (2021: gain of
£368m) and a pre-tax gain on exceptional items of £95m (2021: £373m). Total
certain re-measurements and exceptional items from continuing operations
generated a tax credit of £747m (2021: charge of £97m), with a credit of
£660m (2021: £28m) related to certain-remeasurements and a credit of £87m
(2021: charge of £125m) related to exceptional items.
Certain re-measurements
· The Group enters into a number of forward energy trades to protect
and optimise the value of its underlying production, generation, storage and
transportation assets (and similar capacity or off-take contracts), as well as
to meet the future needs of our customers. A number of these arrangements are
considered to be derivative financial instruments and are required to be fair
valued under IFRS 9.
· The Group has shown the fair value adjustments on these commodity
derivative trades separately as certain re-measurements, as they do not
reflect the underlying performance of the business because they are
economically related to our upstream assets, capacity/off-take contracts or
downstream demand, which are typically not fair valued.
· As a result of the significant commodity price movements, the Group
has also recognised an onerous contract provision for its UK downstream energy
supply contract portfolio. Although gains on the commodity derivative hedge
trades are already separately recognised in the income statement, the Group
must assess whether downstream customer contracts have become onerous taking
into account the reversal of these mark to market gains. Movement in the
amount provided has also been recognised in certain re-measurements, as the
supply contracts are economically related to both the hedges and forecast
future profitability of supply and therefore do not reflect underlying
performance.
· The operating profit in the statutory results includes a net pre-tax
loss of £2,536m (2021: gain of £368m) relating to re-measurements,
comprising:
· A net loss of £667m on the re-measurement of derivative energy
contracts (including certain associates' contracts net of taxation). With the
Group generally a net purchaser of commodity, we saw a positive revaluation of
energy supply contract hedge purchases due for delivery in future periods as
commodity prices rose over the first half of 2022, partially offset by an
unwind of in-the-money hedge positions for the UK downstream energy supply
business from December 2021. The net positive impact of these two factors was
£2,731m. However, this was offset by a negative revaluation predominantly
from Upstream and Energy Marketing & Trading sell trades due for delivery
in future periods, less the unwind of their out-the-money positions from
December 2021. The net negative impact of these two factors was £3,398m.
· An increase in an onerous energy supply contract provision of
£1,869m. Although the Group has purchased the commodity required for future
supply in advance, without these hedges the future costs of fulfilling
downstream customer contracts would exceed the fixed/capped charges
recoverable from customers, due to commodity price increases in the first half
of 2022. The gain from releasing this provision will offset losses from the
unwinding of in-the-money hedge positions, without affecting the ultimate
profitability of the underlying transactions.
· These re-measurements generated a taxation credit of £660m (2021:
£28m). As a result, the total loss from net re-measurements after taxation
for continuing operations was £1,876m (2021: profit of £396m).
· The Group recognises the realised gains and losses on commodity
derivative and onerous supply contracts when the underlying transaction
occurs. The business performance profits arising from the physical purchase
and sale of commodities during the year, which reflect the prices in the
underlying contracts, are not impacted by these re-measurements.
· Further details can be found in note 6(a).
Exceptional items
· An exceptional pre-tax gain of £95m was included within the
statutory Group operating profit from continuing operations in the first half
of 2022 (2021: £373m) including:
· A credit of £424m relating to the write-back of the Group's nuclear
investment, predominantly due to an increase in near-term liquid commodity
prices. The write-back takes the book value of the nuclear investment back to
its historic depreciated cost.
· A loss of £329m on the Spirit Energy Norwegian E&P and Statfjord
disposal. The disposal had a commercial effective date of 1 January 2021, with
headline consideration of approximately £800m to be reduced by the net
post-tax cashflows generated by the disposal businesses after that date (less
any remaining tax payable on those cashflows). The loss on disposal offsets
the profits of the disposal businesses recognised in business performance
across 2021 and 2022.
· The Group recognised an exceptional taxation credit of £87m (2021:
charge of £125m), associated with the recognition of a net deferred tax asset
related to E&P, due to the increase in forecast commodity prices.
· Further details on exceptional items, including on impairment
accounting policy, process and sensitivities can be found in notes 6(b) and
6(c).
DISCONTINUED OPERATIONS
· There was no adjusted operating profit or adjusted earnings from
discontinued operations in the first half of 2021 or 2022. Statutory earnings
of £608m from discontinued operations in 2021 are entirely related to the
profit on disposal and release of a tax provision related to the disposal of
Direct Energy.
GROUP EARNINGS
Adjusted earnings
· Profit for the period from business performance after taxation was
£693m (2021: £109m). After adjusting for non-controlling interests relating
to Spirit Energy, adjusted earnings were £643m (2021: £98m). Excluding the
disposed Spirit Energy assets, adjusted earnings were £598m (2021: £74m).
· Adjusted basic EPS was 11.0p (2021: 1.7p). Excluding the disposed
Spirit Energy assets, adjusted basic EPS was 10.2p (2021: 1.3p).
Statutory earnings
· After including exceptional items, certain re-measurements and
earnings from discontinued operations, the statutory loss attributable to
shareholders for the period was £864m (2021: profit of £1,351m).
· The Group reported a statutory basic EPS loss of 14.7p (2021: profit
of 23.2p of which 12.8p related to continuing operations).
Dividend
· An interim dividend of 1.0p per share will be paid on 17 November
2022 to shareholders on the register on 7 October 2022.
GROUP CASH FLOW, NET DEBT AND BALANCE SHEET
Group cash flow
· Free cash flow is the Group's primary measure of cash flow as
management believe it provides relevant information to show the cash
generation of the business after taking account of the need to maintain its
capital asset base. Free cash flow is reconciled to statutory net cash flow
from operating and investing activities in the table below. See the
explanatory note in note 4(f) for further details.
Six months ended 30 June 2022 2021
£m £m
Statutory cash flow from operating activities 165 558
Statutory cash flow from continuing investing activities (139) (146)
Statutory cash flow from continuing operating and investing activities 26 412
Add back/(deduct):
Purchase of securities 1 -
Interest received (8) (2)
Movements in collateral and margin cash 519 (129)
Defined benefit pension deficit payment 105 243
Free cash flow from continuing operations 643 524
Discontinued operations free cash flow (related to Direct Energy sale - 2,582
proceeds)
Free cash flow 643 3,106
· Net cash flow from operating activities reduced to £165m (2021:
£558m), as higher adjusted EBITDA was more than offset by higher tax payments
and working capital and margin cash outflows, compared to inflows in 2021.
· Net cash outflow from continuing investing activities was broadly
unchanged at £139m (2021: £146m), with higher capital expenditure offset by
higher business sale proceeds.
· Group total free cash flow from continuing operations was £643m
(2021: £524m), as reconciled to statutory cash flow measures in the table
above.
· Net cash outflow from financing activities decreased to £695m in
2022 (2021: £740m) with lower bond repayments due to lower levels of debt
maturity, partially offset by a £233m distribution to Spirit Energy's
non-controlling interests in respect of the net proceeds from the disposed
assets.
Net debt/cash
· The above resulted in a £669m decrease in cash and cash equivalents
over the period, and when including the impact of reduced gross debt resulting
from the bond repayments, non-cash movements and exchange adjustments, the
Group's net cash position at the end of June 2022 was £316m, compared to
£680m on 31 December 2021.
· Further details on the Group's sources of finance and net debt are
included in note 12.
Pension deficit
· The Group had an IAS 19 net pension surplus of £747m at the end of
June 2022, compared to a net deficit of £nil on 31 December 2021,
predominantly due to the effect of rising interest rates leading to an
increase in the discount rate and decreasing obligations.
· Further details on the post-retirement benefits are included in note
13.
Balance sheet
· Net assets decreased to £2,183m (31 December 2021: £2,750m). This
reflects the impact of the statutory loss for the period, in particular the
movement in the onerous energy supply contract provision, and the minority
dividend payment, partially offset by the increase in the IAS19 net pension
surplus.
· The higher commodity price environment resulted in a significant
increase in derivative financial instrument assets which are used to manage
the risk largely arising from fluctuations in the value of assets associated
with energy sales and procurement and trading. However, it also resulted in a
related increase in derivative financial instrument liabilities which are used
to manage the risk largely arising from fluctuations in the value of
liabilities associated with energy sales and procurement and trading.
2022 ACQUISITIONS, DISPOSALS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE
· On 8 December 2021, Centrica announced that the Spirit Energy Group,
of which Centrica owns 69%, had agreed to dispose of its Norwegian oil and gas
E&P business and its interests in the Statfjord field for headline
consideration of $1,076m (approximately £800m) on a debt-free cash-free basis
plus a deferred commodity price-linked contingent payment. The commercial
effective date of the transaction was 1 January 2021. The transaction was
approved by Centrica shareholders at a General Meeting on 13 January 2022 and
completed on 31 May 2022.
· After adjustments for the net post-tax cash flows generated by the
sale business and interests after the commercial effective date, less any
remaining tax payable on these cash flow, net consideration was £104m,
including a deferred commodity price-linked receivable and a tax indemnity
provided to Sval Energi. In June 2022, Spirit Energy distributed the net cash
flow generated since 1 January 2021 and the net consideration to Centrica and
its joint venture partners in proportion to their ownership, with £233m
distributed to Centrica's non-controlling interest in June 2022.
· Further details on assets purchased, acquisitions and disposals are
included in notes 4(e) and 11.
EVENTS AFTER BALANCE SHEET DATE
· Details of events after the balance sheet date are described in note
17.
RISKS AND CAPITAL MANAGEMENT
· The nature of the Group's principal risks and uncertainties are
broadly unchanged from those set out in its 2021 Annual Report. Our top three
Principal Risks are Commodity Risk, Weather Risk and Asset Production, with
Commodity Risk further heightened by the impact the war in Ukraine is having
on global commodity prices.
· The Group has also actively responded to those risks heightened by
the record levels of global wholesale energy prices. Centrica's approach to
risk management has enabled the implementation of agile hedging policies and
effective demand forecasting processes. The extent to which the Group may
continue to be impacted by the consequences of the current high level of
commodity prices, including the onboarding of around 700,000 customers through
the SOLR process since the start of 2021, will in part depend on government
and regulatory policy, including the setting of future levels of default
tariff caps, which could also be a factor in the level of customer bad debt we
see.
· Details of how the Group has managed financial risks such as
liquidity and credit risk are set out in note 19. Details of the Group's
capital management processes are provided under sources of finance in note
12(a).
ACCOUNTING POLICIES
· The Group's accounting policies and specific accounting measures,
including changes of accounting presentation and selected key sources of
estimation uncertainty, are explained in notes 1, 2 and 3.
Appendix: Upstream performance metrics
Nuclear
Six months ended 30 June 2022 2021 Change
Nuclear power generated (GWh) 4,648 4,171 11%
Nuclear achieved power price (£/MWh) 110.4 46.5 137%
Exploration & Production
Six months ended 30 June 2022 2021 Change
Total recordable injury frequency rate (per 200,000 hours worked) 0.14 0.22 (36%)
Process safety incident rate - tier 1 & 2 (per 200,000 hours worked) 0.19 0.09 111%
Gas production volumes (mmth)
Spirit Energy 692 637 9%
CSL 136 84 62%
Total gas production volumes (mmth) 828 721 15%
Liquids production volumes (mmboe)
Spirit Energy 4.2 6.7 (37%)
CSL 0.09 0.05 80%
Total liquids production volumes (mmboe) 4.3 6.8 (37%)
Total production volumes (mmboe)
Spirit Energy 15.6 17.1 (9%)
CSL 2.4 1.4 71%
Total production volumes (mmboe) 18.0 18.5 (3%)
Average achieved gas sales prices (p/therm)
Spirit Energy 104.4 44.4 135%
CSL 134.3 55.9 140%
Average achieved liquid sales prices (£/boe)
Spirit Energy 59.9 38.7 55%
CSL 88.5 26.8 230%
Lifting and other cash production costs (£/boe) (1)
Spirit Energy 18.7 16.4 14%
CSL 8.4 20.4 (59%)
Gas and liquids realisations (£m) (2) 1,152 575 100%
Unit DDA rate (£/boe)
Spirit Energy 12.0 11.5 4%
CSL 16.6 5.4 207%
Net investment (£m) (3)
Capital expenditure (including small acquisitions) 155 122 27%
Net disposals (82) - nm
Net investment (£m) 73 122 (40%)
Free cash flow (£m) (3) 942 266 254%
1. Lifting and other cash production costs are total operating costs and
cost of sales excluding depreciation and amortisation, dry hole costs,
exploration costs and profit on disposal.
2. Realisations are total revenues from sales of gas and liquids including
hedging and net of Spirit NTS costs.
3. See pages 69 to 73 for an explanation of the use of adjusted performance
measures.
Financial Statements
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Results for the
six-month period ended 30 June 2022 in accordance with applicable law,
regulations and accounting standards. In preparing the condensed interim
Financial Statements, the Directors are responsible for ensuring that they
give a true and fair view of the state of affairs of the Group at the end of
the period and the profit or loss of the Group for that period.
The Directors confirm that the condensed interim Financial Statements have
been prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting", and that the Interim
Results includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
· an indication of the important events that have occurred during
the first six months and their impact on the condensed interim Financial
Statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related party transactions in the first six months of
the year and any material changes in the related party transactions described
in the last annual report.
A list of current Directors is maintained on the Centrica plc website which
can be found at www.centrica.com.
On behalf of the Board on 27 July 2022
Chris O'Shea Kate Ringrose
Group Chief Executive Group Chief Financial Officer
Independent Review Report to Centrica plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the Group Income Statement, the Group Statement of
Comprehensive Income, the Group Balance Sheet, the Group Statement of Changes
in Equity, the Group Cash Flow Statement and related notes 1 to 20.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted International Accounting
Standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE (UK), however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
27 July 2022
Group Income Statement
2022 2021
Six months ended 30 June Notes Business Exceptional Results for Business Exceptional Results for
performance
items and certain re-measurements
the period
performance
items and certain re-measurements
the period
£m
£m
£m
£m
£m
£m
Continuing operations
Group revenue 4, 6 14,302 (3,987) 10,315 8,154 (1,236) 6,918
Cost of sales ((i)) 6 (12,039) 2,991 (9,048) (7,000) 2,244 (4,756)
Re-measurement and settlement of derivative energy contracts
6 - (1,541) (1,541) - (640) (640)
Gross profit/(loss) 4, 6 2,263 (2,537) (274) 1,154 368 1,522
Operating costs before exceptional items and credit losses on financial assets
(830) - (830) (790) - (790)
Credit losses on financial assets 14 (140) - (140) (66) - (66)
Exceptional items - net impairment reversals 6 - 424 424 - 366 366
Exceptional items - net loss on significant disposals 6 - (329) (329) - - -
Exceptional items - net restructuring cost reversals 6 - - - - 7 7
Operating costs (970) 95 (875) (856) 373 (483)
Share of profits/(losses) of joint ventures and associates, net of interest
and taxation
5 49 1 50 (36) - (36)
Group operating profit/(loss) 4 1,342 (2,441) (1,099) 262 741 1,003
Net finance cost 7 (78) - (78) (96) - (96)
Profit/(loss) from continuing operations
before taxation
1,264 (2,441) (1,177) 166 741 907
Taxation on profit/(loss) from continuing operations 6, 8 (571) 747 176 (57) (97) (154)
Profit/(loss) from continuing operations
after taxation
693 (1,694) (1,001) 109 644 753
Discontinued operations ((ii)) 6 - - - - 608 608
Profit/(loss) for the period 693 (1,694) (1,001) 109 1,252 1,361
Attributable to:
Owners of the parent 643 (1,507) (864) 98 1,253 1,351
Non-controlling interests 50 (187) (137) 11 (1) 10
Earnings per ordinary share Pence Pence
From continuing and discontinued operations
Basic 9 (14.7) 23.2
Diluted 9 (14.7) 22.9
From continuing operations
Basic 9 (14.7) 12.8
Diluted 9 (14.7) 12.6
Interim dividend proposed per ordinary share 10 1.0 -
(i) Costs of sales includes a movement of £1,869 million (2021: £nil)
relating to the onerous energy supply contract provision within the certain
re-measurements column. See notes 3 and 6.
(ii) Profit from discontinued operations is entirely attributable to equity
holders of the parent.
The notes on pages 30 to 68 form part of these condensed interim Financial
Statements.
Group Statement of Comprehensive Income
Six months ended 30 June Notes 2022 2021
£m
£m
(Loss)/profit for the period (1,001) 1,361
Other comprehensive income
Items that will be or have been reclassified to the Group Income Statement:
Impact of cash flow hedging (net of taxation) (22) (8)
Exchange differences on translation of foreign operations (62) (32)
Exchange differences reclassified to Group Income Statement on disposal 11 274 (20)
Net investment hedging (net of taxation) reclassified to the Group Income - (40)
Statement on disposal
Items that will not be reclassified to the Group Income Statement:
Net actuarial gains on defined benefit pension schemes (net of taxation) 497 184
(Losses)/gains on revaluation of equity instruments measured at fair value 1
through other comprehensive income (net of taxation)
(1)
Share of other comprehensive (loss)/income of joint ventures and associates (19) 42
(net of taxation)
Other comprehensive income (net of taxation) 667 127
Total comprehensive (loss)/income for the period (334) 1,488
Attributable to:
Owners of the parent (197) 1,481
Non-controlling interests (137) 7
Total comprehensive (loss)/income attributable to owners of the parent arises
from:
Continuing operations (197) 933
Discontinued operations - 548
The notes on pages 30 to 68 form part of these condensed interim Financial
Statements.
Group Statement of Changes in Equity
Share Share Retained Other Total Non-controlling Total
capital
premium
earnings
equity
£m
interests
equity
£m
£m
£m
£m
£m
£m
1 January 2022 363 2,377 377 (752) 2,365 385 2,750
Loss for the period - - (864) - (864) (137) (1,001)
Other comprehensive income - - - 667 667 - 667
Total comprehensive (loss)/income - - (864) 667 (197) (137) (334)
Employee share schemes and other share transactions 17 (2) (17) - - -
2
Distributions to non-controlling interests (note 11) - - - - - (233) (233)
30 June 2022 365 2,394 (489) (102) 2,168 15 2,183
Share Share Retained Other Total Non-controlling Total
capital
premium
earnings
equity
£m
interests
equity
£m
£m
£m
£m
£m
£m
1 January 2021 361 2,347 (836) (915) 957 425 1,382
Profit for the period - - 1,351 - 1,351 10 1,361
Other comprehensive income/(loss) - - - 130 130 (3) 127
Total comprehensive income - - 1,351 130 1,481 7 1,488
Employee share schemes and other share transactions 30 1 (25) 8 - 8
2
30 June 2021 363 2,377 516 (810) 2,446 432 2,878
The notes on pages 30 to 68 form part of these condensed interim Financial
Statements.
Group Balance Sheet
Notes 30 June 31 December 2021
2022
£m
£m
Non-current assets
Property, plant and equipment 1,819 1,985
Interests in joint ventures and associates 2,084 1,628
Other intangible assets 836 760
Goodwill 405 401
Deferred tax assets 8 1,340 823
Trade and other receivables, and contract-related assets 14 241 233
Derivative financial instruments 15 1,463 1,005
Retirement benefit assets 13 801 231
Securities 12, 15 124 135
9,113 7,201
Current assets
Trade and other receivables, and contract-related assets 14 5,814 5,881
Inventories 1,141 644
Derivative financial instruments 15 10,444 6,545
Current tax assets 105 83
Cash and cash equivalents 12 4,093 5,060
21,597 18,213
Assets of disposal groups classified as held for sale 11 - 1,672
21,597 19,885
Total assets 30,710 27,086
Current liabilities
Derivative financial instruments 15 (9,565) (4,929)
Trade and other payables, and contract-related liabilities (6,299) (7,513)
Current tax liabilities (94) (333)
Provisions for other liabilities and charges (4,578) (2,769)
Bank overdrafts, loans and other borrowings 12 (490) (1,204)
(21,026) (16,748)
Liabilities of disposal groups classified as held for sale 11 - (1,228)
(21,026) (17,976)
Non-current liabilities
Deferred tax liabilities (23) (36)
Derivative financial instruments 15 (2,275) (1,080)
Trade and other payables, and contract-related liabilities (312) (120)
Provisions for other liabilities and charges (1,475) (1,454)
Retirement benefit obligations 13 (54) (231)
Bank loans and other borrowings 12 (3,362) (3,439)
(7,501) (6,360)
Total liabilities (28,527) (24,336)
Net assets 2,183 2,750
Share capital 365 363
Share premium 2,394 2,377
Retained earnings (489) 377
Other equity (102) (752)
Total shareholders' equity 2,168 2,365
Non-controlling interests 15 385
Total shareholders' equity and non-controlling interests 2,183 2,750
The notes on pages 30 to 68 form part of these condensed interim Financial
Statements.
Group Cash Flow Statement
Six months ended 30 June Notes 2022 2021
£m
£m
Continuing operations:
Group operating (loss)/profit including share of results of joint ventures and (1,099) 1,003
associates
(Deduct)/add back share of (profits)/losses of joint ventures and associates, 5 (50) 36
net of interest and taxation
Group operating (loss)/profit before share of results of joint ventures and (1,149) 1,039
associates
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments and write-backs (57) (13)
Loss on disposals 11 329 27
Increase/(decrease) in provisions 1,845 (47)
Cash contributions to defined benefit schemes in excess of service cost income (85) (243)
statement charge
Employee share scheme costs 3 3
Unrealised losses/(gains) arising from re-measurement of energy contracts 1,224 (239)
Exceptional charges reflected directly in operating profit - 5
Operating cash flows before movements in working capital relating to business
performance and payments relating to taxes and exceptional charges
2,110 532
(Increase)/decrease in inventories (488) 2
Decrease/(increase) in trade and other receivables and contract-related assets 155 (122)
relating to business performance
(Decrease)/increase in trade and other payables and contract-related (1,222) 153
liabilities relating to business performance
Operating cash flows before payments relating to taxes and exceptional charges 555 565
Taxes (paid)/refunded (367) 41
Payments relating to exceptional charges in operating costs (23) (48)
Net cash flow from continuing operating activities 165 558
Net cash flow from discontinued operating activities - -
Net cash flow from operating activities 165 558
Continuing operations:
Purchase of businesses, net of cash acquired (5) (13)
Sale of businesses 11 82 4
Purchase of property, plant and equipment and intangible assets (including 4 (223) (174)
disposal group purchases)
Sale of property, plant and equipment and intangible assets 1 32
(Investments in)/disposal of joint ventures and associates (1) 2
Dividends received from joint ventures and associates - 1
Interest received 8 2
Purchase of securities 12 (1) -
Net cash flow from continuing investing activities (139) (146)
Net cash flow from discontinued investing activities - 2,582
Net cash flow from investing activities (139) 2,436
Continuing operations:
Payments for own shares (1) -
Proceeds from sale of forfeited share capital - 1
Distributions to non-controlling interests 11 (233) -
Financing interest paid 12 (125) (111)
Repayment of borrowings and capital element of leases 12 (336) (630)
Net cash flow from continuing financing activities (695) (740)
Net cash flow from discontinued financing activities - -
Net cash flow from financing activities (695) (740)
Net (decrease)/increase in cash and cash equivalents (669) 2,254
Cash and cash equivalents including overdrafts, and including cash classified 4,328 1,393
as held for sale at 1 January
Effect of foreign exchange rate changes 12 111 (10)
Cash and cash equivalents including overdrafts at 30 June 12 3,770 3,637
Included in the following line of the Group Balance Sheet:
Cash and cash equivalents 4,093 3,733
Overdrafts included within current bank overdrafts, loans and other borrowings (323) (96)
The notes on pages 30 to 68 form part of these condensed interim Financial
Statements.
Notes to the condensed interim Financial Statements
Notes to the condensed interim Financial Statements provide additional
information required by statute, accounting standards or Listing Rules to
explain a particular feature of the condensed interim Financial Statements.
These condensed interim Financial Statements should be read in conjunction
with the information that was released in the Group's consolidated Financial
Statements for the year ended 31 December 2021.
1. General information
Centrica plc (the 'Company') is a public company limited by shares, domiciled
and incorporated in the UK, and registered in England and Wales. The address
of the registered office is Millstream, Maidenhead Road, Windsor, Berkshire,
SL4 5GD. The Company has its listing on the London Stock Exchange. The
Company, together with its subsidiaries comprise the 'Group'.
The condensed interim Financial Statements for the six months ended 30 June
2022 included in this announcement were authorised for issue in accordance
with a resolution of the Board of Directors on 27 July 2022.
These condensed interim Financial Statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2021 were approved by the
Board of Directors on 23 February 2022 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified and
did not contain an emphasis of matter paragraph and did not contain any
statement under Section 498 of the Companies Act 2006. The financial
information contained in these condensed interim Financial Statements is
unaudited. The Group Income Statement, Group Statement of Comprehensive
Income, Group Statement of Changes in Equity, Group Cash Flow Statement for
the interim period to 30 June 2022, the Group Balance Sheet as at 30 June
2022, and the related notes have been reviewed by the auditors and their
report to the Company is set out on page 24.
2. Basis of preparation
These condensed interim Financial Statements for the six months ended 30 June
2022 have been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and with IAS 34: 'Interim financial
reporting', as adopted by the United Kingdom.
These condensed interim Financial Statements should be read in conjunction
with the Group's consolidated Financial Statements for the year ended 31
December 2021, which were prepared in accordance with the United Kingdom
adopted International Accounting Standards, with International Financial
Reporting Standards as issued by the IASB and in conformity with the
requirements of the Companies Act 2006. The Group's consolidated Financial
Statements for the year ending 31 December 2022 will be prepared in accordance
with the United Kingdom adopted International Financial Reporting Standards.
Preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expense. Actual
amounts may differ from these estimates. In preparing these condensed interim
Financial Statements, the significant judgements, estimates and assumptions
made by management in applying the Group's accounting policies were consistent
with those applied in the Group's consolidated Financial Statements for the
year ended 31 December 2021, unless amended by the application of new
accounting policies, standards or interpretations, or as a result of changes
in estimation uncertainty or judgements as described in note 3.
Taxes on income in the interim period are accrued using tax rates that would
be applicable to expected total annual earnings for each relevant source of
income.
In the context of the continuing economic uncertainty caused by commodity
price volatility and energy market uncertainty, the Directors have updated
their going concern assessment performed to support the December 2021 Annual
Report and Accounts, which were approved by the Board of Directors on the 23
February 2022. That going concern assessment included the impact on the Group
of a reduction in commodity prices, adverse weather events, higher bad debt,
reduced asset production and increased margin requirements. The Directors have
updated their going concern assessment to factor in the Group's updated
principal risks, strategy and forecasts, together with modelling downside
sensitivities. The going concern assessment has considered the financial
impact on the Group's credit and liquidity headroom of certain stress events
impacting the Group's key risks over a 12-18 month horizon, including the
risks noted above.
The Group's forecasts (including reasonable worst case forecasting) show that
the Group will maintain sufficient headroom, underpinned by unrestricted cash
and cash equivalents, net of bank overdrafts, of c.£3.4 billion as at 30 June
2022, and c.£2.9 billion of undrawn committed facilities, which remain
committed until at least 2024. Accordingly, the Directors continue to believe
it is appropriate to adopt the going concern basis of accounting in preparing
the condensed interim Financial Statements.
3. Accounting policies
This section details new accounting policies, standards, amendments and
interpretations, whether these are effective in 2022 or later years, and if
and how these are expected to impact the financial position and performance of
the Group. In addition, this section sets out the Group's specific accounting
measures applied in the preparation of the condensed interim Financial
Statements. These measures enable the users of the accounts to understand the
Group's underlying and statutory business performance separately.
The accounting policies applied in these condensed interim Financial
Statements are consistent with those used in the preparation of the Group's
consolidated Financial Statements for the year ended 31 December 2021, as
described in those annual Financial Statements, with the exception of
policies, standards, amendments and interpretations effective as of 1 January
2022 and other changes detailed below.
(a) New accounting policies, standards, amendments and interpretations
effective or adopted in 2022
From 1 January 2022, the following standards and amendments are effective in
the Group's consolidated Financial Statements:
· Amendments to IAS 16: 'Property, Plant and Equipment' regarding
proceeds before intended use. The amendments specified that proceeds from
selling items produced while bringing an asset into the location and condition
necessary for it to be capable of operating in the manner intended should be
included in profit or loss;
· Amendments to IAS 37: 'Provisions, contingent assets and
contingent liabilities'. The amendments specify which costs an entity should
include when assessing whether a contract is onerous and therefore requires a
provision; and
· Annual Improvements to IFRS 2018-2020.
None of the changes to IFRS described above have a material impact on the
Group's consolidated Financial Statements.
(b) Standards, amendments and interpretations that are issued but not yet
applied by the Group
The following standards and amendments have been issued, endorsed and will be
applied to the Group in future periods:
IFRS 17: 'Insurance Contracts', effective from 1 January 2023.
The following standards and amendments have been issued and will be applied to
the Group in future periods, subject to UK endorsement:
· Amendments to IAS 1: 'Presentation of Financial Statements'
relating to the classification of financial liabilities are effective from 1
January 2023. The amendments clarify the meaning of settlement in the context
of liabilities, and the circumstances in which liabilities are classified as
current or non-current;
· Amendments to IAS 12: 'Income Taxes' relating to deferred tax on
assets and liabilities arising from a single transaction effective from 1
January 2023;
· Amendments to IAS 1 relating to the disclosure of accounting
policy and materiality judgements, effective from 1 January 2023; and
· Amendments to IAS 8: 'Accounting policies, change in accounting
estimates and errors' relating to the definition of accounting estimates,
effective from 1 January 2023.
IFRS 17 will be effective from 1 January 2023. The Group currently has
fixed-fee service contracts that it accounts for as insurance contracts under
IFRS 4, 'Insurance Contracts'. The Group has substantially completed its
assessment of IFRS 17 and expects these contracts to fall within the scope of
IFRS 17 where the Group reflects an assessment of the risk associated with an
individual customer in setting the price of the contract. The Group plans to
apply the simplified 'Premium Allocation Approach' to its contracts on the
basis that the coverage period of the Group's insurance contracts is not
greater than one year. The Group does not expect a material impact from the
application of this standard.
Management does not expect other issued but not effective amendments of
standards, or standards not discussed above to have a material impact on the
Group's financial statements.
(c) Centrica specific accounting measures
The Directors believe that reporting adjusted measures (revenue, margin,
profit, earnings per share and cash flow) provides additional useful
information on business performance and underlying trends. These measures are
used for internal performance purposes, are not defined terms under IFRS and
may not be comparable with similarly titled measures reported by other
companies.
Management uses adjusted revenue, adjusted gross margin and adjusted operating
profit to evaluate segment performance. They are defined as revenue/gross
margin/operating profit before:
· exceptional items; and
· certain re-measurements.
Exceptional items and certain re-measurements are excluded because these items
are considered by the Directors to distort the Group's underlying business
performance.
Adjusted earnings is defined as earnings before:
· exceptional items net of taxation; and
· certain re-measurements net of taxation.
A reconciliation of adjusted earnings and adjusted earnings per share is
provided in note 9.
Free cash flow is used by management to assess the cash generating performance
of each segment. Segmental free cash flow is defined as net cash flow from
operating and investing activities before:
· deficit reduction payments made to the UK defined benefit pension
schemes;
· movements in variation margin and collateral;
· interest received;
· sale, settlement and purchase of securities; and
· taxes paid and refunded.
Segmental free cash flow as assessed by management excludes cash flows
relating to tax. This is because the effect of group relief and similar
reliefs could distort the measure of segment performance. As a Group-wide
measure, free cash flow includes taxes paid and refunded.
Free cash flow gives a measure of the cash generation performance of the
business after taking account of the need to maintain its capital asset base.
By excluding pension deficit reduction payments and movements in variation
margin and collateral, which are predominantly triggered by wider market
factors and, in the case of collateral and margin movements, represent timing
differences, free cash flow gives a measure of the underlying performance of
the Group.
Interest received and cash flows from the sale, settlement and purchase of
securities are excluded from free cash flow as these items are included in the
Group's net debt measure, and are therefore viewed by the Directors as related
to the manner in which the Group finances its operations.
Exceptional items and certain re-measurements
The Group reflects its underlying financial results in the business
performance column of the Group Income Statement. To be able to provide users
with this clear and consistent presentation, the effects of 'certain
re-measurements' of financial instruments, and 'exceptional items', are
reported in a different column in the Group Income Statement.
The Group is an integrated energy business. This means that it utilises its
knowledge and experience across the gas and power (and related commodity)
value chains to make profits across the core markets in which it operates. As
part of this strategy, the Group enters into a number of forward energy trades
to protect and optimise the value of its underlying production, generation,
storage and transportation assets and contracts (and similar capacity or
off-take arrangements), as well as to meet the future needs of its customers
(downstream demand). These trades are designed to reduce the risk of holding
such assets, contracts or downstream demand and are subject to strict risk
limits and controls.
Primarily because some of these trades include terms that permit net
settlement, they are prohibited from being designated as 'own use' and
so IFRS 9: 'Financial instruments' requires them to be individually fair
valued.
Fair value movements on these commodity derivative trades do not reflect the
underlying performance of the business because they are economically related
to the Group's upstream assets, capacity/off-take contracts or downstream
demand, which are typically not fair valued. Similarly, where our downstream
customer supply contracts have become onerous as a result of significant
market price movements (and the fact any associated commodity hedges have
separately been recognised at fair value under IFRS 9 and therefore the
onerous supply contract assessment must reflect the reversal of those gains in
subsequent periods), movements in the required provision are also reflected as
a certain re-measurement in the 'Cost of sales' line item and separately
disclosed in note 6. Movements in this provision do not reflect the underlying
performance of the business because they are economically related to both the
hedges and forecast future profitability of the supply contracts. Therefore,
these certain re-measurements are reported separately and are subsequently
reflected in business performance when the underlying transaction or asset
impacts profit or loss.
The effects of these certain re-measurements are presented within either
revenue or cost of sales when recognised in business performance depending on
the nature of the contract. They are managed separately from proprietary
energy trading activities where trades are entered into speculatively for the
purpose of making profits in their own right. These proprietary trades are
included in revenue in the business performance column of the Group Income
Statement.
The Group's result for the period presents both realised and unrealised fair
value movements on all derivative energy contracts, including those within the
'Re-measurement and settlement of energy contracts' line item.
Exceptional items are those items that, in the judgement of the Directors,
need to be disclosed separately by virtue of their nature, size or incidence.
Again, to ensure the business performance column reflects the underlying
results of the Group, these exceptional items are also reported in the
separate column in the Group Income Statement. Items that may be considered
exceptional in nature include disposals of businesses or significant assets,
business restructurings (including property rationalisation costs),
significant onerous contract charges/releases, debt repurchase costs, certain
pension past service credits/costs, asset impairments/write-backs, the tax
effects of these items and the effect of changes in UK upstream tax rates.
The Group distinguishes between business performance asset
impairments/write-backs and exceptional impairments/write-backs on the basis
of the underlying driver of the impairment, as well as the magnitude of the
impairment. Drivers that are deemed to be outside of the control of the Group
(e.g. commodity price changes) give rise to exceptional impairments.
Additionally, impairment charges or write-backs that are of a one-off nature
(e.g. reserve downgrades or one-time change in intended use of an asset) and
significant enough value to distort the underlying results of the business are
considered to be exceptional. Other impairments that would be expected in the
normal course of business, such as unsuccessful exploration activity (dry
holes), are reflected in business performance.
(d) Key sources of estimation uncertainty and critical accounting judgements
With the exception of the items noted below which have been updated during the
reporting period, key areas of critical accounting judgement and estimation
uncertainty that have the most significant effect on the consolidated Group
Financial Statements remain as disclosed in note 3(a) and 3(b) of the Annual
Report and Accounts for the year ended 31 December 2021.
Supplier of Last Resort (SoLR)
During 2021, the Group was appointed as the Supplier of Last Resort to eight
suppliers who ceased trading during the year and one further appointment was
made in January 2022. Under Ofgem's licence conditions, the Group is entitled
to make a Last Resort Supplier Payment (LRSP) claim for the shortfall between
costs reasonably incurred in supplying gas and electricity to premises under
the Last Resort Supply Direction, and the charges recovered from customers.
Ofgem published a decision setting out temporary changes to the process for
claiming the LRSP and as a result, the Group submitted an initial claim for
£361 million covering a six month period from the date of appointment, and
received confirmation of Ofgem's acceptance in December 2021. The claim
primarily covers incremental commodity costs, incurred as a result of
procuring gas and electricity to supply affected customers. The six month SoLR
period has now ended for all appointments made in 2021 and the related claim
is being settled in monthly instalments between April 2022 and April 2023;
£107 million has been received during the period to 30 June 2022. The Group
will submit a second claim, estimated to be £159m, to Ofgem by Autumn 2022.
This is expected to include a true-up to the initial claim for incremental
costs incurred, the inclusion of customer credit balances where the Group has
not waived the right to do so, and a claim for costs incurred in relation to
the Group's further SoLR appointment made in January 2022. The second claim is
expected to be settled between April 2023 and April 2024 and remains subject
to Ofgem validation.
The total receivable recognised at 30 June 2022 in respect of both claims is
£413 million (31 December 2021: £234 million).
The Group concluded that the LRSP process represents an Ofgem support
mechanism, enabling energy suppliers to provide stability to the customers of
failed suppliers. The Group determines that the critical accounting judgement
is that the LRSP falls within the scope of IAS 20 'Government Grants' and
amounts receivable under the mechanism are recognised as an asset, and a
credit within cost of sales and operating costs, as the related expenses are
incurred.
British Gas Energy and Centrica Business Solutions Onerous Supply Contracts
The Group operates and manages a hedging strategy to ensure that the future
costs of supplying customers of the British Gas Energy and Centrica Business
Solutions portfolios are appropriately managed.
Hedges are measured at fair value under IFRS 9 and are recognised as certain
re-measurements in the Group's income statement until the point at which the
related costs to purchase electricity and gas are incurred. Fair value
movements on energy purchase contracts entered to meet the future needs of
customers are economically related to customer demand; the supply contracts
for which are measured on an accrual basis.
Gains arising from hedges have been recognised in the income statement (within
certain re-measurements) in accordance with the requirements of IFRS 9.
Because of this hedge value recognition, the assessment of whether the supply
contracts are onerous must include the contracted energy purchase costs and
those mark to market reversals. The Group determines that at the reporting
date, the future costs to fulfil customer contracts, including those mark to
market reversals, will exceed the charges recovered from customers because the
associated hedging gains have already been recognised in the income
statement.
The Group has recognised an onerous supply contract provision of £4,399
million at 30 June 2022 (31 December 2021: £2,530 million). This has been
calculated by estimating the expected margins from energy supply customers and
deducting from this margin the expected costs to fulfil those arrangements,
including energy purchase costs reflecting the mark to market gains, and
directly attributable overhead costs. For customers where this results in a
loss, an onerous contract provision is recorded.
The change in commodity prices significantly impacts the value of the
provision and has resulted in a material increase since year end. This
increase is partially offset by the corresponding gains on the related
derivatives recognised in certain re-measurements. Further disclosures
relating to movements in certain re-measurements are provided in note 6.
Further key sources of estimation uncertainty relate to the expected future
tenure of the Group's customer portfolio at 30 June 2022, and the estimated
gross margin attributable to them. Estimations are based on historic
experience, adjusted to reflect non-recurring costs. At 30 June 2022, the
Group has determined that the assumptions in relation to customer tenure made
at December 2021 continue to be applicable; the ability of customers to change
suppliers is currently restricted due to market conditions, and the Group
therefore determines that customer tenure assumptions at year end are the best
measure of customer behaviour in normal market conditions. Gross margin
assumptions have been updated in relation to the British Gas Energy
residential portfolio to reflect changes to the price cap methodology during
the period, and certain operating cost assumptions have also been revised.
The British Gas Energy residential element of the provision is particularly
sensitive to movements in these assumptions. The model indicates that a
customer tenure of eight years or more is not expected to be onerous. The
gross margin for 30 June 2022 can be found in note 4. The element of the
provision relating to business customers is much less sensitive to the
assumptions made.
Sensitivities for residential customers are provided in the table below:
30 June 2022 31 December 2021
Assumption Decrease/ Decrease/
(increase) in provision
(increase) in provision
£m
£m
Customer tenure one year longer/(shorter) 241/(190) 170/(124)
Gross margin 10% increase/(decrease) 138/(174) 111/(150)
Impairment and impairment reversals of long-lived assets
The Group makes judgements in considering whether the carrying amounts of its
long-lived assets (principally Upstream gas and oil assets, Nuclear investment
(20% economic interest accounted for as an investment in associate) and
goodwill) or cash generating units (CGUs) are recoverable and estimates their
recoverable amounts.
2021 and 2022 have seen significant increases in forward commodity prices,
both in terms of observable market prices and forecast forward prices. As a
result, impairment reversals have been booked related to our retained assets.
Impairment reversals cannot exceed the depreciated historic cost value of an
asset and as a result, all material long-lived assets now have headroom where
the estimated recoverable value is higher than depreciated historic
cost. Accordingly, these are no longer subject to significant estimation
uncertainty as at 30 June 2022.
Upstream gas and oil assets
Forward prices for gas and liquids are a key input in the determination of the
recoverable amount of the Group's gas and oil assets. The first half of 2022
has seen continued increases in the prices for such commodities, both in terms
of observable market prices and forecast forward prices. The recoverable
amounts of the Group's gas and oil assets are capped at depreciated historic
cost; no material impairment reversals have been recorded during the period.
Nuclear investment
The recoverable amount of the Nuclear investment is based on the value of the
existing UK nuclear fleet operated by EDF. The existing fleet value is
calculated by discounting pre-tax cash flows derived from the stations based
on forecast power generation and power prices, whilst taking account of
outages and the likely operational lives of the stations.
Further details of the methodology, assumptions, impairment reversals booked
during the year and related sensitivities are provided in note 6.
Credit provisions for trade and other receivables
The economic effects of the significant increase in wholesale gas and
electricity costs, and resultant increase in consumer tariffs alongside wider
inflationary and cost of living pressures may impact the ability of the
Group's customers to pay amounts due. The level of estimation uncertainty in
determining the credit provisions required for customers is heightened.
The methodology for determining provisions for credit losses on trade and
other receivables and the level of such provision, along with associated
sensitivities, are set out in note 14. Although the provisions recognised are
considered appropriate, the use of different assumptions or changes in
economic conditions could lead to movements in the provisions and therefore
impact the Group Income Statement.
4. Segmental analysis
The Group's reporting segments are those used internally by management to run
the business and make decisions. The Group's segments are based on products
and services as well as the major factors that influence the performance of
these products and services across the geographical locations in which the
Group operates.
(a) Segmental structure
The types of products and services from which each reportable segment derived
its income during the period are detailed below. Income sources are reflected
in Group revenue unless otherwise stated:
Segment Description
British Gas Services & Solutions (i) The installation, repair and maintenance of domestic central heating and
related appliances, installation of smart meters, and the provision of
fixed-fee maintenance/breakdown service and insurance contracts in the UK; and
(ii) the supply of new technologies and energy efficiency solutions in the UK.
British Gas Energy (i) The supply of gas and electricity to residential and small business
customers in the UK.
Centrica Business Solutions (i) The supply of gas and electricity and provision of energy-related services
to medium and large business customers
in the UK ((i)); and
(ii) the supply of energy efficiency solutions, flexible generation, and new
technologies to commercial and industrial customers in all geographies in
which the Group operates. Flexible merchant generation is also provided to the
UK system operator.
Bord Gáis Energy (i) The supply of gas and electricity to residential and commercial and
industrial customers in the Republic of Ireland;
(ii) the installation, repair and maintenance of domestic central heating and
related appliances in the Republic of Ireland; and
(iii) power generation in the Republic of Ireland ((i)).
Energy Marketing & Trading (i) The procurement, trading and optimisation of energy in the UK and Europe
((i)); and
(ii) the global procurement and sale of LNG.
Upstream (i) The production and processing of gas and oil, principally within Spirit
Energy ((i)); and
(ii) the sale of power generated from nuclear assets in the UK ((i)).
Direct Energy (Discontinued operation) (i) The supply of gas and electricity, and provision of energy-related
services to residential and business customers in North America;
(ii) the installation, repair and maintenance of domestic central heating and
cooling systems and related appliances, and the provision of fixed-fee
maintenance/breakdown service and insurance contracts in North America; and
(iii) the procurement, trading and optimisation of energy in North America
((i)).
(i) Where income is generated from contracts in the scope of IFRS 9, this is
included in re-measurement and settlement of energy contracts.
(b) Revenue
Gross segment revenue includes revenue generated from the sale of products and
services to other reportable segments of the Group. Group revenue reflects
only the sale of products and services to third parties. Sales between
reportable segments are conducted on an arm's length basis.
2022 2021
Six months ended 30 June Gross Less Group Gross Less Group
segment
inter-
revenue
segment
inter-
revenue
revenue
segment
£m
revenue
segment
£m
£m
revenue
£m
revenue
£m
£m
British Gas Services & Solutions 744 (22) 722 722 (32) 690
British Gas Energy 5,090 - 5,090 3,840 - 3,840
Centrica Business Solutions 1,295 (11) 1,284 871 (9) 862
Bord Gáis Energy 784 - 784 484 - 484
Energy Marketing & Trading 6,355 (113) 6,242 1,991 (151) 1,840
Upstream 1,695 (1,515) 180 838 (400) 438
Group revenue included in business performance 15,963 (1,661) 14,302 8,746 (592) 8,154
Less: revenue arising from contracts in scope of IFRS 9 included in business (1,236)
performance
(3,987)
Group revenue 10,315 6,918
The table below shows the Group revenue arising from contracts with customers,
and therefore in the scope of IFRS 15, and revenue arising from contracts in
the scope of other standards. The key economic factors impacting the nature,
timing and uncertainty of revenue and cash flows are considered to be driven
by the type and broad geographical location of the customer. The analysis of
IFRS 15 revenue below reflects these factors.
2022
Six months ended 30 June Revenue from contracts with customers in scope of IFRS 15 Revenue from fixed-fee service and insurance contracts in scope of IFRS 4, and Group revenue Revenue in business performance arising from contracts in scope of IFRS 9 Group revenue included in business performance
£m leasing contracts in scope of IFRS 16
£m
£m £m £m
Energy services and solutions 293
British Gas Services & Solutions 293 429 722 - 722
Energy supply - UK 5,090
British Gas Energy 5,090 - 5,090 - 5,090
Energy supply - UK 609
Energy services and solutions 142
Centrica Business Solutions 751 9 760 524 1,284
Energy supply - Republic of Ireland 571
Bord Gáis Energy 571 - 571 213 784
Energy sales to trading and energy procurement counterparties 2,777
Energy Marketing & Trading 2,777 8 2,785 3,457 6,242
Gas and oil production 387
Upstream 387 - 387 (207) 180
9,869 446 10,315 3,987 14,302
2021
Six months ended 30 June Revenue from contracts with customers in scope of IFRS 15 Revenue from fixed-fee service and insurance contracts in scope of IFRS 4, and Group revenue Revenue in business performance arising from contracts in scope of IFRS 9 Group revenue included in business performance
£m leasing contracts in scope of IFRS 16
£m
£m £m £m
Energy services and solutions 240
British Gas Services & Solutions 240 450 690 - 690
Energy supply - UK 3,840
British Gas Energy 3,840 - 3,840 - 3,840
Energy supply - UK 484
Energy services and solutions 129
Centrica Business Solutions 613 1 614 248 862
Energy supply - Republic of Ireland 406
Bord Gáis Energy 406 - 406 78 484
Energy sales to trading and energy procurement counterparties 1,042
Energy Marketing & Trading 1,042 7 1,049 791 1,840
Gas and oil production 319
Upstream 319 - 319 119 438
6,460 458 6,918 1,236 8,154
(c) Adjusted gross margin and adjusted operating profit
The measure of profit used by the Group is adjusted operating profit. Adjusted
operating profit is operating profit before exceptional items and certain
re-measurements. This includes business performance results of
equity-accounted interests.
This note also details adjusted gross margin. Both measures are reconciled to
the reported results.
Adjusted gross margin Adjusted operating profit
Six months ended 30 June 2022 2021 2022 2021
£m
£m
£m
£m
British Gas Services & Solutions 255 266 7 60
British Gas Energy 551 530 98 172
Centrica Business Solutions 113 75 20 (24)
Bord Gáis Energy 97 69 33 19
Energy Marketing & Trading 337 26 278 (40)
Upstream 910 188 906 75
Adjusted gross margin/adjusted operating profit 2,263 1,154 1,342 262
Certain re-measurements:
Onerous energy supply contract provision (1,869) - (1,869) -
Derivatives contracts (668) 368 (668) 368
Share of re-measurement of certain associates' contracts (net of taxation) - - 1 -
Gross (loss)/profit (274) 1,522
Exceptional items in operating profit 95 373
Operating (loss)/profit after exceptional items and certain re-measurements (1,099) 1,003
(d) Included within adjusted operating profit
Presented below are certain items included within adjusted operating profit,
including a summary of impairments of property, plant and equipment and
write-downs relating to exploration and evaluation assets.
Depreciation of PP&E Amortisation, write-downs and impairments of intangibles
Six months ended 30 June 2022 2021 2022 2021
£m
£m
£m
£m
British Gas Services & Solutions (15) (15) (7) (7)
British Gas Energy (1) (3) (40) (45)
Centrica Business Solutions (6) (6) (13) (19)
Bord Gáis Energy (4) (2) (7) (6)
Energy Marketing & Trading (15) (20) (5) (6)
Upstream (227) (204) - (21)
Other ((i)) (14) (15) (13) (15)
(282) (265) (85) (119)
(i) The Other segment includes corporate functions, subsequently recharged.
Impairments and impairment reversals of PP&E
No impairments or impairment reversals of PP&E were recognised within
business performance during the six months ended 30 June 2022 or 30 June 2021.
Write-downs and impairments of intangible assets
During the six months ended 30 June 2022, no write-downs (2021: £21 million)
relating to exploration and evaluation assets were recognised in the Upstream
segment. All such current and prior period write-downs were recognised within
business performance as they were not deemed exceptional in nature. During the
six months ended 30 June 2022, no other intangible assets were impaired within
business performance (2021: £3 million).
(e) Capital expenditure
Capital expenditure represents additions, other than assets acquired as part
of business combinations, to property, plant and equipment and intangible
assets. Capital expenditure has been reconciled to the related cash outflow.
Capital expenditure on property, Capital expenditure on intangible
plant and equipment
assets other than goodwill
Six months ended 30 June 2022 2021 2022 2021
£m
£m
£m
£m
British Gas Services & Solutions 25 11 13 9
British Gas Energy - - 112 97
Centrica Business Solutions 22 6 43 46
Bord Gáis Energy - - 3 4
Energy Marketing & Trading - - 8 3
Upstream 48 129 6 10
Other 6 2 - -
Capital expenditure 101 148 185 169
Capitalised borrowing costs - (4) - -
Inception of new leases and movements in payables and prepayments related
to capital expenditure
(23) (13) 1 13
Capital expenditure cash outflow subsequent to transfer to held for sale 109 - 10 -
Purchases of emissions allowances and renewable obligation certificates ((i)) - - (160) (139)
Net cash outflow 187 131 36 43
(i) Purchases of emissions allowances and renewable obligation certificates
of £86 million (2021: £97 million) in British Gas Energy, £63 million
(2021: £42 million) in Centrica Business Solutions, £5 million (2021: £nil)
in Energy Marketing & Trading and £6 million (2021: £nil) in Upstream.
(f) Free cash flow
Free cash flow is used by management to assess the cash generating performance
of each segment, after taking account of the need to maintain its capital
asset base. By excluding pension deficit reduction payments and movements in
collateral and margin cash, which are predominantly triggered by wider market
factors, and in the case of collateral and margin movements, represent timing
movements, free cash flow gives a measure of the underlying cash generation of
the business. Free cash flow excludes investing cash flows that are related to
net debt. This measure is reconciled to the net cash flow from operating and
investing activities.
Six months ended 30 June 2022 2021
£m
£m
Continuing operations
British Gas Services & Solutions (54) 46
British Gas Energy (507) (58)
Centrica Business Solutions 124 72
Bord Gáis Energy 66 (7)
Energy Marketing & Trading 218 121
Upstream ((i)) 1,151 255
Other ((ii)) 12 54
Segmental free cash flow excluding tax 1,010 483
Discontinued operations
Direct Energy - 2,582
Group total segmental free cash flow excluding tax 1,010 3,065
Taxes (paid)/refunded from continuing operations ((i)) (367) 41
Group total free cash flow 643 3,106
Less discontinued operations free cash flow (including tax) - (2,582)
Free cash flow from continuing operations 643 524
UK Pension deficit payments (105) (243)
Movements in variation margin and collateral (519) 129
Interest received 8 2
Purchase of securities (1) -
26 412
Net cash flow from continuing operating activities 165 558
Net cash flow used in continuing investing activities (139) (146)
Total cash flow from continuing operating and investing activities 26 412
(i) Upstream free cash flow excluding tax in 2022 includes inflows of £650
million relating to the Norwegian disposal groups. Realised hedge cash
outflows of £(89) million have been incurred relating to the Norwegian assets
but were held outside the disposal groups. £(286) million of taxes paid
relate to the Norway disposal group.
(ii) The Other segment includes corporate functions.
5. Joint ventures and associates
Share of results of joint ventures and associates represents the results of
businesses where we exercise joint control or significant influence and
generally have an equity holding of up to 50%.
Share of results of joint ventures and associates
The Group's share of results of joint ventures and associates for the six
months ended 30 June 2022 principally arises from its interest in Nuclear -
Lake Acquisitions Limited, an associate, reported in the Upstream segment.
2022 2021
Six months ended 30 June Share of business Share of exceptional Share of Share of Share of Share of
performance
items and certain re-measurements
results for
business
exceptional
results for
£m
£m
the period
performance
items and
the period
£m
£m
certain re-measurements
£m
£m
Income 286 - 286 208 - 208
Expenses before exceptional items and certain re-measurements
(226) - (226) (241) - (241)
Exceptional items and re-measurement of certain contracts - 1 1 - - -
Operating profit/(loss) 60 1 61 (33) - (33)
Financing costs (1) - (1) (1) - (1)
Taxation on profit/(loss) (10) - (10) (2) - (2)
Share of post-taxation results of joint ventures
and associates
49 1 50 (36) - (36)
6. Exceptional items and certain re-measurements
(a) Certain re-measurements
Certain re-measurements are the fair value movements on energy contracts
entered into to meet the future needs of our customers or to sell the energy
produced from our upstream assets. These contracts are economically related to
our upstream assets, capacity/off-take contracts or downstream demand, which
are typically not fair valued, and are therefore separately identified in the
current period and reflected in business performance in future periods when
the underlying transaction or asset impacts the Group Income Statement.
Six months ended 30 June 2022 2021
£m
£m
Certain re-measurements recognised in relation to energy contracts:
Net losses arising on delivery of contracts (1,658) (232)
Net gains arising on market price movements and new contracts 990 600
Net re-measurements included within gross profit before onerous supply (668) 368
contract provision
Onerous energy supply contract provision movement ((i)) (1,869) -
Net re-measurements included within gross profit (2,537) 368
Net gains arising on re-measurement of certain associates' contracts (net of 1 -
taxation)
Net re-measurements included within Group operating profit (2,536) 368
Taxation on certain re-measurements (note 8) ((ii)) 660 28
Net re-measurements after taxation (1,876) 396
Six months ended 30 June 2022 2021
£m
£m
Re-measurement and settlement of derivative energy contracts (1,541) (640)
excluding:
IFRS 9 business performance revenue (3,987) (1,236)
IFRS 9 business performance cost of sales 4,860 2,244
Unrealised certain re-measurements recognised in relation to energy contracts (668) 368
included in gross profit
Onerous contract provision movement (cost of sales) (1,869) -
Total certain re-measurements (2,537) 368
(i) The onerous supply contract provision represents the future costs to
fulfil customer contracts on a current market price basis. The associated
hedging gains are separately recognised within the gains arising on market
price movements and new contracts.
(ii) Taxation on onerous energy supply contracts amounted to a £355 million
credit (2021: £nil) and taxation on other certain re-measurements amounted to
a £305 million credit (2021: £28 million).
The table below reflects the certain re-measurement derivative movements
between UK energy supply net purchases, and trades related to other business
units:
Six months ended 30 June 2022 2021
£m
£m
UK Energy Supply (British Gas Energy and Centrica Business Solutions) 2,731 1,145
Upstream/Energy Marketing & Trading/Bord Gáis (3,399) (777)
Unrealised certain re-measurements recognised in relation to energy contracts (668) 368
included in gross profit
(b) Exceptional items
Exceptional items are those items that, in the judgement of the Directors,
need to be disclosed separately by virtue of their nature, size or incidence.
Items which may be considered exceptional in nature include disposals of
businesses or significant assets, business restructurings, significant onerous
contract charges and releases, pension change costs or credits, significant
debt repurchase costs and asset write-downs/impairments and write-backs.
Six months ended 30 June 2022 2021
£m
£m
Exceptional items recognised in continuing operations
Write-back of power assets ((i)) 424 -
Write-back of exploration and production assets ((ii)) - 366
Loss on disposal of E&P Norway ((iii)) (329) -
Restructuring credit - 7
Exceptional items included within Group operating profit 95 373
Net taxation on exceptional items ((iv)) (note 8) 87 (125)
Net exceptional items recognised in continuing operations after taxation 182 248
Net exceptional items recognised in discontinued operations after taxation - 608
Total exceptional items recognised after taxation 182 856
Exceptional items recognised in discontinued operations
Profit on disposal of Direct Energy - 597
Exceptional items before taxation - 597
Net taxation on exceptional items - 11
Net exceptional items recognised in discontinued operations after taxation - 608
(i) In the Upstream segment, an impairment write-back of the nuclear
investment of £424 million (post-tax £424 million) has been recorded as a
result of increase in near-term liquid commodity prices and this has reached
historic depreciated cap. See note 6c.
(ii) Despite the increase in near-term liquid commodity prices, no material
impairment write-backs have been recorded for exploration and production
assets because field carrying values have now reached depreciated historic
cost. In 2021, impairment write-backs of £366 million (post-tax £194
million) were booked.
(iii) The disposal of E&P Norway completed on 31 May 2022. See note 11
for further details.
(iv) Taxation on exceptional items relates to a credit of £87 million (2021:
£49 million) associated with net deferred tax asset recognition related to
exploration and production tax losses, investment allowance and
decommissioning carrying back, due to the increase in forecast commodity
prices. In 2021, a taxation charge of £2 million was also recognised in
association with the restructuring credit (alongside the tax impact of the
exploration and production write-backs referenced in footnote (ii)).
(c) Impairment accounting policy, process and sensitivities
The information provided below relates to the assets and CGUs (or groups of
CGUs) that have been subject to impairment write-backs during the period.
Exceptional impairments/write-back assessments of assets measured on a value
in use (VIU) basis
Segment Asset/CGU (or group of CGUs) Basis for impairment/write-back assessment Recoverable amount Carrying value (closing) Write-back
£m
£m
£m
Upstream Nuclear Increase in short-term baseload power prices 3,202 2,081 424
Nuclear
A VIU calculation has been used to determine the recoverable amount of the
Group's investment in Nuclear. The cash flows incorporated in the valuation
are based on detailed business forecasts in the short term, extrapolated to
future years to account for the expected generation profile of the fleet for
its remaining life. Assumptions include forward commodity prices, capacity
rates, fuel and network costs, operating and capital expenditure requirements.
Price assumptions are based on liquid market prices for mid-2022 to mid-2026
which are then blended over a one-year period to long-term price forecasts.
Long-term price assumptions derived from third-party market comparator median
curves are used due to alignment with pricing that a reasonable market
participant would use. The VIU calculation assumes that the Sizewell plant
operates until 2055, reflecting a 20-year extension beyond its original design
life.
The future pre-tax cash flows generated by the investment in the associate are
discounted using a pre-tax nominal discount rate of 18.0% (2021: 9.2%). This
equated to a post-tax rate of 6.5% (2021: 5.7%).
During the period the impairment write-back has been restricted to the
depreciated historic cost of the investment and therefore significant
impairment headroom remains over the closing carrying value. As a consequence,
the asset carrying value is not particularly sensitive to the above
assumptions, with the exception of changes in short-term commodity price. The
table below details average prices for the relevant periods and associated
sensitivities.
Change in pre/post-tax write-back/(impairment) (ii)
Five-year liquid and blended-period price (i) Ten-year long-term +10% -10%
average price (i)
2022-2026 2022-2026 2027-2036 2027-2036
30 June 2022 31 December 2021 30 June 2022 31 December 2021 30 June 2022 £m 31 December 2021 30 June 2022 £m 31 December 2021
£/MWh
£/MWh
£/MWh
£/MWh
£m
£m
Baseload power 177 93 63 49 - 319 - (317)
-50%
Five-year liquid and blended-period only
(554)
(i) Prices are shown in 2021 real terms.
(ii) A 10% change was historically deemed to represent a reasonably possible
variation across the entire period covered by the liquid market and comparator
curves used in the nuclear impairment test. Given the increases in commodity
prices during 2022, a further sensitivity has been included based on a 50%
fall in liquid and blend-period commodity prices only.
7. Net finance cost
Financing costs mainly comprise interest on bonds and bank debt, the results
of hedging activities used to manage foreign exchange and interest rate
movements on the Group's borrowings, and notional interest arising on
discounting of decommissioning provisions and pensions. An element of
financing cost is capitalised on qualifying projects.
Investment income predominantly includes interest received on short-term
investments in money market funds, bank deposits and government bonds.
Continuing operations
2022 2021
Six months ended 30 June Financing Investment Total Financing Investment Total
costs
income
£m
costs
income
£m
£m
£m
£m
£m
Cost of servicing net debt:
Interest income - 8 8 - 4 4
Interest cost on bonds, bank loans and overdrafts (84) - (84) (93) - (93)
Interest cost on lease liabilities (2) - (2) (4) - (4)
(86) 8 (78) (97) 4 (93)
Net losses on revaluation (5) - (5) (4) - (4)
Notional interest arising from discounting - 1 1 (3) - (3)
(91) 9 (82) (104) 4 (100)
Capitalised borrowing costs ((i)) 4 - 4 4 - 4
Financing (cost)/income (87) 9 (78) (100) 4 (96)
(i) Borrowing costs have been capitalised using an average rate of 5.13%
(2021: 4.37%).
8. Taxation
The taxation note details the different tax charges arising in the Group. This
tax charge excludes the Group's share of taxation on the results of joint
ventures and associates.
The tax charge for the period has been calculated based on an estimate of the
annual effective tax rate expected for the full financial year applied to the
interim pre-tax accounting profits for each relevant source of income.
Analysis of tax charge
2022 2021
Six months ended 30 June Business Exceptional Results for Business Exceptional Results for
performance
items and certain re-measurements ((ii))
the period
performance
items and certain
the period
£m
£m
£m
£m
re-measurements
£m
£m
Continuing operations:
The taxation (charge)/credit comprises
UK corporation tax (99) 782 683 26 (41) (15)
UK petroleum revenue tax (1) (20) (21) 5 - 5
Non-UK tax (471) (15) (486) (88) (56) (144)
Total taxation on profit/(loss) ((i)) (571) 747 176 (57) (97) (154)
(i) Total taxation on profit/(loss) excludes taxation on the Group's share
of profits of joint ventures and associates.
(ii) Exceptional item and certain re-measurement movements predominantly
relate to deferred tax, resulting in significantly increased deferred tax
assets in 2022.
The Group's adjusted effective tax rate for the six months ended 30 June 2022
was 46% (2021: 35%). This is reconciled to this note in the Group Financial
Review on page 18.
The tax charge in respect of the business performance was increased by £15
million as a result of a net increase in the Group's uncertain tax provision
in respect of the Group's tax disputes primarily relating to transfer pricing.
On 26 May 2022, the UK Government announced the introduction of an Energy
Profits Levy ('EPL') on the UK ring fence profits of oil and gas producers
with effect from 26 May 2022. The legislation introducing the EPL was
substantively enacted on 11 July 2022. The EPL is charged at the rate of 25%
on taxable profits in addition to ring fence corporation tax of 30% and
Supplementary Charge of 10%, making a total rate on ring fence profits of 65%.
The Group's profits from Spirit and Rough will be impacted by the EPL and the
results for the year will reflect the additional tax.
The interim tax charge does not reflect an EPL charge as the legislation was
not substantively enacted at 30 June 2022. An EPL tax charge of £4 million is
expected to arise from business performance in the period 26 May 2022 to 30
June 2022. Based on the temporary differences at 30 June 2022, a net deferred
tax asset would also be recognised of £325 million in respect of EPL, mainly
due to derivative balances. These amounts are provisional and the overall
current and deferred tax impact will be updated once the full-year results are
known.
9. Earnings per ordinary share
Earnings per share (EPS) is the amount of profit or loss attributable to each
share. Basic EPS is the amount of profit or loss for the period divided by the
weighted average number of shares in issue during the period. Diluted EPS
includes the impact of outstanding share options.
Basic earnings per ordinary share has been calculated by dividing the loss
attributable to equity holders of the Company for the period of £864 million
(2021: profit of £1,351 million) by the weighted average number of ordinary
shares in issue during the period of 5,868 million (2021: 5,825 million). The
number of shares excludes 26 million ordinary shares (2021: 37 million), being
the weighted average number of the Company's own shares held in the employee
share trust and treasury shares purchased by the Group as part of share
repurchase programmes.
The Directors believe that the presentation of adjusted basic earnings per
ordinary share, being the basic earnings per ordinary share adjusted for
certain re-measurements and exceptional items, assists with understanding the
underlying performance of the Group, as explained in note 3.
Information presented for diluted and adjusted diluted earnings per ordinary
share uses the weighted average number of shares as adjusted for 25 million
(2021: 74 million) potentially dilutive ordinary shares as the denominator,
unless it has the effect of increasing the profit or decreasing the loss
attributable to each share.
Continuing and discontinued operations
2022 2021
Six months ended 30 June £m Pence per ordinary share £m Pence per
ordinary share
Earnings - basic (864) (14.7) 1,351 23.2
Net exceptional items after taxation (notes 3 and 6) ((i)) (166) (2.8) (780) (13.4)
Certain re-measurement losses/(gains) after taxation (notes 3 and 6) ((i)) 1,673 28.5 (473) (8.1)
Earnings - adjusted basic 643 11.0 98 1.7
Earnings - diluted ((ii)) (864) (14.7) 1,351 22.9
Earnings - adjusted diluted ((ii)) 643 10.9 98 1.7
Continuing operations
2022 2021
Six months ended 30 June £m Pence per ordinary share £m Pence per
ordinary share
Earnings - basic (864) (14.7) 743 12.8
Net exceptional items after taxation (notes 3 and 6) ((i)) (166) (2.8) (172) (3.0)
Certain re-measurement losses/(gains) after taxation (notes 3 and 6) ((i)) 1,673 28.5 (473) (8.1)
Earnings - adjusted basic 643 11.0 98 1.7
Earnings - diluted ((ii)) (864) (14.7) 743 12.6
Earnings - adjusted diluted ((ii)) 643 10.9 98 1.7
Discontinued operations
2022 2021
Six months ended 30 June £m Pence per ordinary share £m Pence per
ordinary share
Earnings - basic - - 608 10.4
Net exceptional items after taxation (notes 3 and 6) - - (608) (10.4)
Earnings - adjusted basic - - - -
Earnings - diluted ((ii)) - - 608 10.3
Earnings - adjusted diluted ((ii)) - - - -
(i) Net exceptional items after taxation and certain re-measurement
losses/(gains) after taxation are adjusted to reflect the share attributable
to non-controlling interests.
(ii) Potential ordinary shares are not treated as dilutive when they would
decrease a loss per share.
10. Dividends
Dividends represent the return of profits to shareholders. Dividends are paid
as an amount per ordinary share held. The Group retains part of the profits
generated to meet future investment plans or to fund share repurchase
programmes.
No dividends were paid during the period to 30 June 2022 (30 June 2021:£nil).
The Directors propose an interim dividend of 1.0 pence per ordinary share
(totalling £59 million) for the six months ended 30 June 2022. The dividend
will be paid on 17 November 2022 to those shareholders registered on 7 October
2022.
11. Acquisitions, disposals and disposal groups classified as held for sale
This section details business combinations, asset acquisitions and disposals
made by the Group.
(a) Business combinations and asset acquisitions
During the period, the Group were appointed by Ofgem as the Supplier of Last
Resort (SOLR) to one energy company who had ceased trading during the period.
This was in addition to the eight appointments that were made in 2021. SOLR
appointments are not accounted for as business combinations or asset
acquisitions as the incremental costs associated with supplying the affected
customers are recoverable through the established Last Resort Supplier Payment
(LRSP) claim mechanism under Ofgem supplier licence conditions. A customer
intangible asset of £10 million was recognised in 2021 in respect of certain
customer credit balances that the Group did not include in their LRSP claims.
There have been no material acquisitions during the period. No material
measurement period adjustments have been made to acquisitions completed in
prior periods.
(b) Disposals
On 8 December 2021 the Group announced that it had agreed to sell Spirit
Energy's entire Norwegian portfolio excluding the Statfjord fields to Sval
Energi for a headline consideration of $1,026 million (£758 million), and the
Statfjord fields to Equinor for headline consideration of $50 million (£37
million).
The sales had a commercial effective date of 1 January 2021, and the
consideration receivable at legal completion of 31 May 2022 has been reduced
by the net cash flows generated by the business being disposed and interest
since 1 January 2021. Net consideration receivable on completion (including
costs to dispose) reduced to £222 million from Sval Energi, with a net
consideration payable to Equinor of £(118) million. This includes a deferred
commodity price linked receivable, and a tax indemnity provided by Spirit
Energy Norway. The deferred commodity price linked receivable is currently
valued at £55 million from Sval Energi and £38 million from Equinor. The tax
indemnity provided to Sval Energi is currently valued at £(136) million.
Distribution of the net consideration and net cash flows generated will be
pro-rata to the ownership share, with 31% attributable to the non-controlling
interests. In the period ended 30 June 2022, £233 million (2021: £nil) was
distributed to SWM Bayerische E&P Beteiligungsgesellschaft mbH upon
completion of the Spirit Energy Norway sale.
In applying IFRS 5: 'Non-current assets held for sale and discontinued
operations', the Group has judged that there are two separate disposal groups
being the Statfjord fields and the remainder of the Norwegian portfolio. The
assets and liabilities comprising the disposal groups were classified as held
for sale as at 8 December 2021. This is on the basis that at that point, the
disposal groups were available for immediate sale, subject only to terms that
are customary for sales of such assets, and the sale was highly probable.
However, the disposal groups do not represent a separate major line of
business or geographical operations and hence the Group has concluded that
they do not constitute discontinued operations.
Details of the assets and liabilities of the disposal group at 31 May 2022 are
shown below.
Statfjord Norway portfolio excluding Statfjord Total
£m £m £m
Non-current assets
Property, plant and equipment 315 975 1,290
Other intangible assets - 69 69
Goodwill ((i)) 19 191 210
Deferred tax assets ((ii)) 71 - 71
Other non-current financial assets - 8 8
405 1,243 1,648
Current assets
Trade and other receivables, and contract-related assets 5 149 154
Inventories 17 14 31
Cash and cash equivalents - 30 30
22 193 215
Assets of disposal groups classified as held for sale 427 1,436 1,863
Current liabilities
Trade and other payables, and contract-related liabilities (61) (129) (190)
Current tax liabilities (60) (393) (453)
Provisions for other liabilities and charges (3) (1) (4)
Lease liabilities - (3) (3)
(124) (526) (650)
Non-current liabilities
Deferred tax liabilities ((ii)) 140 (425) (285)
Provisions for other liabilities and charges (527) (239) (766)
Lease liabilities - (3) (3)
(387) (667) (1,054)
Liabilities of disposal groups classified as held for sale (511) (1,193) (1,704)
Net (liabilities)/assets of disposal groups classified as held for sale (84) 243 159
Consideration (payable)/receivable (net of transaction costs of £14 million) (118) 222 104
Loss on disposal before recycling of foreign currency translation reserve (34) (21) (55)
Recycling of foreign currency translation reserve on disposal (274)
Loss on disposal before and after taxation (329)
(i) The proposed divestment of the entire Norwegian portfolio, and
attributing exploration and production goodwill of £408 million, resulted in
an impairment of £198 million in 2021, before transfer of the remaining
balance of £210 million to assets of disposal groups classified as held for
sale.
(ii) Deferred tax assets of £71 million represents tax attributable to
Statfjord UK, part of a UK tax group. Deferred tax liabilities are categorised
between Statfjord Norway, and the portfolio excluding Statfjord purely for
presentational purposes.
The results of the disposal groups during 2022 reported in business
performance are as follows:
Statfjord Norway portfolio excluding Statfjord Total
£m £m £m
Operating profit 142 416 558
Taxation on profit (87) (351) (438)
Profit after taxation 55 65 120
Commodity derivatives previously entered into outside of the disposal group to
hedge the future production of the disposal group assets, have been
volumetrically closed prior to the completion date. These derivatives have
previously been recognised as a loss of £121 million within certain
re-measurements. In accordance with the Group's policy, these losses will not
be subsequently reflected in the business performance column of the income
statement because the underlying performance to which they relate (i.e. the
asset production disposal group) will no longer occur. Cash flows associated
with these derivatives will occur through to September 2023.
In the five month period to legal completion of 31 May 2022, £73 million
pre-tax (£48 million post-tax) realised losses were recognised in business
performance.
Breakdown of consideration:
Statfjord Norway portfolio excluding Statfjord Total
£m £m £m
December 2021 payment - 39 39
May 2022 completion payment (156) 278 122
2022 contingent consideration (including tax indemnity) 38 (81) (43)
Total consideration (118) 236 118
Less cost to dispose - (14) (14)
(118) 222 104
A reconciliation of the completion amounts received in 2022 to the cash flow
statement is presented below:
Statfjord Norway portfolio excluding Statfjord Total
£m £m £m
May 2022 completion payment (156) 278 122
Cash and cash equivalents included with disposal group - (30) (30)
Disposal fees incurred - (10) (10)
Cash flow statement (156) 238 82
Additionally, within the Other segment a minority investment made by the
former Centrica Innovations business unit in Driivz (an electric vehicle
charging software provider) has completed, with cash flow of £21 million
expected in the second half of the year.
All other disposals undertaken by the Group were immaterial, both individually
and in aggregate.
12. Sources of Finance
(a) Capital structure
The Group seeks to maintain an efficient capital structure with a balance of
net debt and equity as shown in the table below:
30 June 31 December 2021
2022 £m
£m
Net (cash)/debt (316) (680)
Shareholders' equity 2,168 2,365
Capital 1,852 1,685
Debt levels are restricted to limit the risk of financial distress and, in
particular, to maintain a strong credit profile. The Group's credit standing
is important for several reasons: to maintain a low cost of debt, limit
collateral requirements in energy trading, hedging and decommissioning
security arrangements, and to ensure the Group is an attractive counterparty
to energy producers and long-term customers.
The Group monitors its current and projected capital position on a regular
basis, considering a medium-term view of at least three years, and different
stress case scenarios, including the impact of changes in the Group's credit
ratings and significant movements in commodity prices.
A number of financial ratios are monitored, including those used by credit
rating agencies.
The level of debt that can be raised by the Group is restricted by the
Company's Articles of Association. Borrowing is limited to the higher of £10
billion and a gearing ratio of three times capital and reserves. The Group
funds its long-term debt requirements through issuing bonds in capital markets
and taking bank debt. Short-term debt requirements are met primarily through
commercial paper or short-term bank borrowings.
The Group maintains substantial committed facilities and uses these to provide
liquidity for general corporate purposes, including short-term business
requirements and back-up for commercial paper.
British Gas Insurance Limited (BGIL) is required under PRA regulations to hold
a minimum capital amount and has complied with this requirement since its
inception. BGIL's capital management policy and plan are subject to review and
approval by the BGIL board. Reporting processes provide relevant and timely
capital information to management and the board. A medium-term capital
management plan forms part of BGIL's planning and forecasting process,
embedded into approved timelines, management reviews and board approvals.
(b) Net debt summary
Net debt includes capital market borrowings offset by cash, securities and
certain hedging financial instruments used to manage interest rate and foreign
exchange movements on borrowings.
Presented in the derivatives and current and non-current borrowings, leases
and interest accruals columns shown below are the assets and liabilities that
give rise to financing cash flows.
Other assets and liabilities
Current and non-current borrowings, leases and interest accruals Derivatives Gross debt Cash and cash equivalents, net of bank overdrafts (i) (ii) Current and Sub-lease assets Net cash/ (debt)
£m
£m £m £m non-current securities (iii) £m £m
£m
1 January 2022 (3,899) 93 (3,806) 4,328 156 2 680
Disposal of business ((iv)) 6 - 6 (30) (21) - (45)
Net cash outflow from purchase of securities - - - (1) 1 - -
Cash outflow for payment of capital element of leases 54 - 54 (54) - - -
Cash outflow for repayment of borrowings ((v)) 282 - 282 (282) - - -
Remaining cash outflow ((iv)) - - - (177) - - (177)
Revaluation 135 (177) (42) - (13) - (55)
Financing interest paid 72 33 105 (125) - - (20)
Interest payable and amortisation of borrowings (84) - (84) - - - (84)
New lease agreements and re-measurement of existing lease liabilities (10) - (10) - - - (10)
Exchange adjustments (85) - (85) 111 1 - 27
30 June 2022 (3,529) (51) (3,580) 3,770 124 2 316
Other assets and liabilities
Current and non-current borrowings, leases and interest accruals Derivatives Gross debt Cash and cash equivalents, net of bank overdrafts (i) (ii) Current and Sub-lease assets Net cash/ (debt)
£m
£m £m £m non-current securities (iii) £m £m
£m
1 January 2021 (4,877) 346 (4,531) 1,393 138 2 (2,998)
Disposal of business ((iv)) 36 - 36 (132) (4) - (100)
Cash outflow for payment of capital element of leases 86 - 86 (86) - - -
Cash outflow for repayment of borrowings 650 (106) 544 (544) - - -
Remaining cash inflow - - - 3,127 - - 3,127
Revaluation 74 (93) (19) - 1 - (18)
Financing interest paid 93 (8) 85 (111) - - (26)
Interest payable and amortisation of borrowings (100) - (100) - - - (100)
New lease agreements and re-measurement of existing lease liabilities (7) - (7) - - - (7)
Exchange adjustments 39 - 39 (10) - - 29
30 June 2021 (4,006) 139 (3,867) 3,637 135 2 (93)
(i) Cash and cash equivalents includes £377 million (2021: £400 million)
of restricted cash, of which £250 million relates to cash on escrow in favour
of the UK defined benefit pension schemes. Restricted cash also includes £5
million (2021: £8 million) within the Spirit Energy business that is not
restricted by regulation, but is managed by Spirit Energy's own treasury
department.
(ii) Cash and cash equivalents are net of £323 million bank overdrafts
(2021: £96 million).
(iii) Securities balances include £72 million (2021: £83 million) of debt
instruments and £52 million (2021: £52 million) of equity instruments, all
measured at fair value.
(iv) Disposal of business in 2022 represents the net debt items disposed of as
part of the sale of the Norway and Driivz businesses, and the cash received
for the sale is shown as part of remaining cash outflow. Disposal of business
in 2021 represents the net debt items disposed of as part of the sale of
Direct Energy.
(v) Bond repayment comprises £36 million repayment of a 3.68% HKD bond repaid
on 22 February 2022, and £246 million repayment of a 6.375% GBP bond repaid
on 10 March 2022.
(c) Borrowings, leases and interest accruals summary
30 June 2022 31 December 2021
Coupon rate Principal Current Non-current Total Current Non-current Total
%
m
£m
£m
£m
£m
£m
£m
Bank overdrafts (323) - (323) (750) - (750)
Bank loans (> 5 year maturity) - (139) (139) - (137) (137)
Bonds (by maturity date):
22 February 2022 3.680 HK$450 - - - (43) - (43)
10 March 2022 6.375 £246 - - - (241) - (241)
16 October 2023 ((i)) 4.000 US$302 - (246) (246) - (228) (228)
4 September 2026 ((i)) 6.400 £52 - (52) (52) - (55) (55)
16 April 2027 5.900 US$70 - (57) (57) - (51) (51)
13 March 2029 ((i)) 4.375 £552 - (512) (512) - (559) (559)
5 January 2032 ((ii)) Zero €50 - (66) (66) - (63) (63)
19 September 2033 ((i)) 7.000 £770 - (728) (728) - (788) (788)
16 October 2043 5.375 US$367 - (297) (297) - (267) (267)
12 September 2044 4.250 £550 - (538) (538) - (538) (538)
25 September 2045 5.250 US$50 - (40) (40) - (36) (36)
10 April 2075 ((i) (iii)) 5.250 £450 - (433) (433) - (455) (455)
- (2,969) (2,969) (284) (3,040) (3,324)
Obligations under lease arrangements (85) (254) (339) (102) (262) (364)
Interest accruals (82) - (82) (68) - (68)
(490) (3,362) (3,852) (1,204) (3,439) (4,643)
(i) Bonds or portions of bonds maturing in 2023, 2026, 2029, 2033 and 2075
have been designated in a fair value hedge relationship.
(ii) €50 million of zero coupon notes have an accrual yield of 4.2%, which
will result in a €114 million repayment on maturity.
(iii) The Group has the right to repay at par on 10 April 2025 and every
interest payment date thereafter.
13. Post-retirement benefits
The Group manages a number of final salary and career average defined benefit
pension schemes. It also has defined contribution schemes. The majority of
these schemes are in the UK.
(a) Summary of main post-retirement benefit schemes
Name of scheme Type of benefit Status Country
Centrica Engineers Pension Scheme Defined benefit final salary pension Closed to new members in 2006 UK
Defined benefit career average pension Open to service engineers only UK
Centrica Pension Plan Defined benefit final salary pension Closed to new members in 2003 UK
Centrica Pension Scheme Defined benefit final salary pension Closed to new members in 2003 UK
Defined benefit career average pension Closed to new members in 2008 UK
Defined contribution pension Open to new members UK
Bord Gáis Energy Company Defined Benefit Pension Scheme Defined benefit final salary pension Closed to new members in 2014 Republic
of Ireland
Bord Gáis Energy Company Defined Contribution Pension Plan Defined contribution pension Open to new members Republic
of Ireland
The Centrica Engineers Pension Scheme (CEPS), Centrica Pension Plan (CPP) and
Centrica Pension Scheme (CPS) form the significant majority of the Group's
defined benefit obligation and are referred to below as the 'Registered
Pension Schemes'. The other schemes are individually, and in aggregate,
immaterial.
Independent valuations
The Registered Pension Schemes are subject to independent valuations at least
every three years, on the basis of which the qualified actuary certifies the
rate of employer contributions, which together with the specified
contributions payable by the employees and proceeds from the schemes' assets,
are expected to be sufficient to fund the benefits payable under the
schemes. These valuations are known as technical provisions (funding basis)
and differ to the IAS 19 accounting basis recognised on the Group's balance
sheet.
The latest full actuarial valuations agreed and finalised with the Pension
Trustees were carried out at the following dates: the Registered Pension
Schemes at 31 March 2018 and the Bord Gáis Energy Company Defined Benefit
Pension Scheme at 1 January 2020. For the Registered Pension Schemes, a full
actuarial valuation as at 31 March 2021 has been undertaken but is in the
process of being finalised. These valuations (including insights from the
current in-progress valuation) have been updated to 30 June 2022 for the
purpose of meeting the requirements of IAS 19. Investments held in all schemes
have been valued for this purpose at market value.
The technical provisions deficit (funding basis) for the Registered Pension
Schemes was £1,402 million at the date of the last agreed actuarial valuation
as at 31 March 2018. The Group remains committed to additional annual cash
contributions to fund this pension deficit. The overall deficit contributions,
including the previously disclosed asset-backed contribution arrangements,
totalled £235 million in 2019, £175 million in 2020 and 2021, and will
amount to an average of £175 million per annum from 2022 to 2025, with a
balancing payment of £93 million in 2026. A further £193 million was paid in
2021 in relation to a previous pension strain deferral agreement. The Group
has also provided security to the Trustees in the form of £745 million of
letters of credit and £250 million cash in escrow.
The technical provisions deficit for the Registered Pension Schemes as at 31
March 2021 has been agreed in principle with the Pension Trustees at £944
million but work continues to finalise the overall arrangement. If the
technical provisions deficit was rolled forward to 30 June 2022, using the
same assumptions and allowing for contributions paid and investment market
movements since the valuation date, it would be c.£600 million.
Governance
The Registered Pension Schemes are managed by trustee companies whose boards
consist of both company-nominated and member-nominated Directors. Each scheme
holds units in the Centrica Combined Common Investment Fund (CCCIF), which
holds the majority of the combined assets of the Registered Pension Schemes.
The board of the CCCIF is currently comprised of nine directors: three
independent directors, three directors appointed by Centrica plc (including
the Chairman) and one director appointed by each of the three Registered
Pension Schemes.
Under the terms of the Pensions Act 2004, Centrica plc and each trustee board
must agree the funding rate for its defined benefit pension scheme and a
recovery plan to fund any deficit against the scheme-specific statutory
funding objective. This approach was first adopted for the triennial
valuations completed at 31 March 2006, and has been reflected in subsequent
valuations, including the 31 March 2018 valuation.
(b) Accounting assumptions
The accounting assumptions for the Registered Pension Schemes are given below:
Major assumptions used for the actuarial valuation 30 June 31 December 2021
2022
%
%
Rate of increase in employee earnings:
Subject to 2% cap 1.8 1.8
Other not subject to cap 2.5 2.6
Rate of increase in pensions in payment 3.0 3.1
Rate of increase in deferred pensions:
In line with CPI capped at 2.5% 2.3 2.4
In line with RPI 3.0 3.1
Discount rate 3.7 1.8
The assumptions relating to longevity underlying the pension liabilities at
the balance sheet date have been based on a combination of standard actuarial
mortality tables, scheme experience and other relevant data, and include an
allowance for future improvements in mortality.
For the Registered Pension Schemes, marginal adjustments to the assumptions
used to calculate the pension liability, or significant swings in bond yields
or stock markets, can have a large impact in absolute terms on the net assets
of the Group. Historic reasonably possible changes as at 30 June to one of the
actuarial assumptions would have affected the scheme liabilities as set out
below:
Impact of changing material assumptions 30 June 2022 31 December 2021
Increase/ Indicative effect Increase/ Indicative effect
decrease in assumption
on scheme liabilities
decrease in assumption
on scheme liabilities
%
%
Rate of increase in employee earnings subject to 2% cap 0.25% +/-0 0.25% +/-0
Rate of increase in pensions in payment and deferred pensions 0.25% +/-4 0.25% +/-4
Discount rate 0.25% -/+5 0.25% -/+5
Inflation assumption 0.25% +/-4 0.25% +/-5
Longevity assumption 1 year +/-4 1 year +/-4
Given the movement in discount rate during the period, the following
additional sensitivity has been provided: a 1% increase in the discount rate
would reduce the scheme liabilities by 16%, and a 1% decrease in the discount
rate would increase scheme liabilities by 21%.
The indicative effects on scheme liabilities have been calculated by changing
each assumption in isolation and assessing the impact on the liabilities. For
the reasonably possible change in the inflation assumption, it has been
assumed that a change to the inflation assumption would lead to corresponding
changes in the assumed rates of increase in uncapped pensionable pay, pensions
in payment and deferred pensions.
(c) Amounts included in the Group Balance Sheet
30 June 31 December 2021
2022
£m
£m
Fair value of plan assets 8,100 10,666
Present value of defined benefit obligation (7,353) (10,666)
Net asset recognised in the Group Balance Sheet 747 -
Pension asset presented in the Group Balance Sheet as:
Retirement benefit assets 801 231
Retirement benefit liabilities (54) (231)
The Trust Deed and Rules for the Registered Pension Schemes provide the Group
with a right to a refund of surplus assets assuming the full settlement of
scheme liabilities. No asset ceiling restrictions have been applied.
Included in the Group Balance Sheet within non-current securities are £98
million (31 December 2021: £111 million) of investments, held in trust on
behalf of the Group as security in respect of the Centrica Unfunded Pension
Scheme. Of the pension scheme liabilities above, £52 million (31 December
2021: £66 million) relates to this scheme.
14. Trade and other receivables, and contract-related assets
Trade and other receivables include accrued income and are amounts owed by our
customers for goods we have delivered or services we have provided. These
balances are valued net of provisions for bad debt. Other receivables include
payments made in advance to our suppliers. Contract-related assets are
balances arising as a result of the Group's contracts with customers in the
scope of IFRS 15.
30 June 2022 31 December 2021
Current Non-current Current Non-current
£m
£m
£m
£m
Financial assets:
Trade receivables 1,883 - 1,546 -
Unbilled downstream energy income 748 - 726 -
Trading and energy procurement accrued income ((i)) 1,617 - 2,546 -
Other accrued energy income 98 - 175 -
Other accrued income 109 - 108 -
Cash collateral posted 1,280 - 888 -
Other receivables (including loans and contract assets) ((ii)) 560 147 333 135
6,295 147 6,322 135
Less: provision for credit losses (739) - (633) -
5,556 147 5,689 135
Non-financial assets: prepayments, other receivables and costs to obtain or 192 98
fulfil a contract
with a customer 258 94
5,814 241 5,881 233
(i) Trading and energy procurement counterparty receivables are typically
with customers with external, published credit ratings. Such receivables have
typically much lower credit risk than downstream counterparties and expected
credit losses are not significant.
(ii) Other receivables include £413 million (31 December 2021: £234
million) of Supplier of Last Resort (SoLR) claims, see note 3 for further
details.
The amounts above include gross amounts arising from the Group's IFRS 15
contracts with customers of £1,746 million (31 December 2021: £1,419
million). Additionally, accrued income of £1,016 million (31 December 2021:
£797 million) arising under IFRS 15 contracts is included.
Trade and other receivables include financial assets representing the
contractual right to receive cash or other financial assets from residential
customers, business customers and treasury, trading and energy procurement
counterparties as follows:
30 June 2022 31 December 2021
Current Non-current Current Non-current
£m
£m
£m
£m
Financial assets by class:
Residential customers ((i)) 2,255 127 1,664 110
Business customers 1,063 19 1,019 21
Treasury, trading and energy procurement counterparties 2,977 1 3,639 4
6,295 147 6,322 135
Less: provision for credit losses (739) - (633) -
5,556 147 5,689 135
(i) Residential customers include current other receivables of £286 million
(31 December 2021: £124 million) and non-current other receivables of £127
million (31 December 2021: £110 million) in relation to SoLR claims, see note
3(a) for further details.
Credit losses and provisions for Trade and other receivables
Receivables from residential and business customers are generally considered
to be credit impaired when the payment is past the contractual due date. The
Group applies different definitions of default for different groups of
customers, ranging from sixty days past the due date to six to twelve months
from the issuance of a final bill. Receivables are generally written off only
once a period of time has elapsed since the final bill. Contractual due dates
range from falling due upon receipt to falling due in thirty days from
receipt.
The table below shows credit impaired balances in gross receivables (those
that are past due) and those that are not yet due and therefore not considered
to be credit impaired.
Gross trade and other receivables 30 June 31 December 2021 (i)
2022 £m
£m
Balances that are not past due 4,912 5,155
Balances that are past due 1,383 1,167
6,295 6,322
(i) The prior year has been re-presented to reclassify £123 million of
balances that are past due to balances that are not past due.
The IFRS 9 impairment model is applicable to the Group's financial assets
including trade receivables and other financial assets. As the majority of the
relevant balances are trade receivables and contract assets to which the
simplified model applies, this disclosure focuses on these balances.
The provision for credit losses for trade receivables and contract assets is
based on an expected credit loss model that calculates the expected loss
applicable to the receivable balance over its lifetime. Expected credit losses
on receivables due from treasury, trading and energy procurement
counterparties are not significant. For residential and business customers
default rates are calculated initially by considering historical loss
experience and applied to trade receivables within a provision matrix. The
matrix approach allows application of different default rates to different
groups of customers with similar characteristics. These groups are determined
by a number of factors including; the nature of the customer, the payment
method selected and where relevant, the sector in which they operate. The
characteristics used to determine the groupings of receivables are the factors
that have the greatest impact on the likelihood of default. The rate of
default increases once the balance is thirty days past due.
Concentration of credit risk in Trade and other receivables
Treasury, trading and energy procurement counterparty receivables are
typically with customers with external, published credit ratings. Such
receivables have typically much lower credit risk than downstream
counterparties, and that risk is assessed primarily by reference to the credit
ratings rather than to the ageing of the relevant balance.
The Group was appointed as a Supplier of Last Resort to a number of energy
suppliers who have ceased to trade. Under Ofgem licence conditions, the Group
is entitled to make a Last Resort Supplier Payment claim for incremental costs
reasonably incurred to supply affected customers; a total of £413 million (31
December 2021: £234 million) has been recognised in other receivables at 30
June 2022. This is being recovered as part of a two-step claim process. An
initial levy claim, based on expected commodity costs, was submitted and
approved by Ofgem, and is being settled in monthly instalments between April
2022 and April 2023. A second claim, truing up the initial claim to reflect
both actual costs incurred and customer credit balances will be submitted in
Autumn 2022 and recovered between April 2023 and April 2024. The second claim
will also include costs arising from the Group's additional SoLR appointment
made in January 2022. The claims are settled by network operators who have
strong credit ratings, therefore risk of default is considered low. In
addition, Ofgem have the power under licensing conditions to take enforcement
action against default in accordance with its statutory duties and its
Enforcement Guidelines.
The Group's cash collateral balance has increased to £1,280 million in 2022
(31 December 2021: £888 million) as a result of higher commodity prices. The
related liability for collateral received has decreased, see note 19.
Collateral counterparties typically have strong credit ratings and accordingly
have low credit risk; the Group does not expect credit losses to arise on
these balances.
The majority of the Group's credit exposure arises in the British Gas Energy
and Centrica Business Solutions segments and relates to residential and
business energy customers. The credit risk associated with these customers is
assessed as described above, using a combination of the age of the receivable
in question, internal ratings based on a customer's payment history, and
external data from credit rating agencies and wider macroeconomic information.
The disclosures below reflect the information that is reported internally for
credit risk management purposes in these segments.
British Gas Energy credit risk
Of the Group total of £1,883 million (31 December 2021: £1,546 million)
billed trade receivables, the British Gas Energy reporting segment contributes
£1,395 million (31 December 2021: £1,033 million). British Gas Energy
includes small business customers on the basis that their profile closely
matches those of residential customers. As described above, credit risk is
concentrated in receivables from energy customers who pay in arrears. Gross
receivables from British Gas Energy residential customers amount to £894
million (31 December 2021: £601 million) and are analysed below.
Trade receivables due from British Gas residential energy customers as at 30 June 2022 31 December 2021
((i))
Days beyond invoice date ((ii)) < 30 days 30-90 days >90 days Total < 30 days 30-90 days >90 days Total
£m £m £m £m £m £m £m £m
Risk profile
Direct debits ((iii))
Gross receivables 109 100 120 329 55 28 53 136
Provision - (1) (17) (18) - - (2) (2)
Net 109 99 103 311 55 28 51 134
Payment on receipt of bill ((iii))
Gross receivables 93 39 257 389 87 22 194 303
Provision (4) (7) (126) (137) (3) (4) (102) (109)
Net 89 32 131 252 84 18 92 194
Final bills ((iv))
Gross receivables 9 11 156 176 7 8 147 162
Provision (2) (5) (126) (133) (2) (4) (122) (128)
Net 7 6 30 43 5 4 25 34
Total net British Gas residential energy customers trade receivables 144 50 168 362
205 137 264 606
(i) The receivables information presented in this table relates to downstream
customers who pay energy bills using the methods presented. It excludes low
residual credit risk amounts, such as balances in the process of recovery
through pay-as-you-go energy (PAYGE) arrangements and amounts receivable from
PAYGE energy vendors. Gross amounts in the process of recovery through PAYGE
arrangements at 30 June 2022 are £208 million (31 December 2021: £201
million), against which a provision of £139 million is held (31 December
2021: £136 million).
(ii) This ageing analysis is presented relative to invoicing date, and
presents receivables according to the oldest invoice outstanding with the
customer. There are a range of payment terms extended to residential energy
customers. Amounts paid on receipt of a bill (PORB), which are settled using
bank transfers, cash or cheques are typically due within fourteen days of
invoicing. Direct debit customers typically pay in equal instalments over a
twelve-month period.
(iii) Receivables settled by direct debit are deemed to present a lower credit
risk than PORB amounts. This is reflected in the relative level of provision
held for these types of receivables.
(iv) Final bill customers are those who are no longer customers of the Group
and have switched energy supplier. These balances are deemed to have the
highest credit risk.
Gross receivables from British Gas Energy small business customers amount to
£289 million (31 December 2021: £232 million) and are analysed below.
Trade receivables due from British Gas small business energy customers as at 30 June 2022 31 December 2021
Days beyond invoice date ((i)) < 30 days 30-90 days >90 days Total < 30 days 30-90 days >90 days Total
£m £m £m £m £m £m £m £m
Risk profile
Small businesses
Gross receivables 49 24 216 289 48 18 166 232
Provision - (2) (157) (159) - (1) (128) (129)
Total net British Gas small business energy customers trade receivables 48 17 38 103
49 22 59 130
(i) This ageing analysis is presented relative to invoicing date, and
presents receivables according to the oldest invoice outstanding with the
customer. There are a range of payment terms extended to business energy
customers. Average credit terms for small business customers are ten working
days.
Unbilled downstream energy income at 30 June 2022 includes gross balances of
£607 million in respect of British Gas Energy customers (31 December 2021:
£535 million), against which a provision of £22 million is held (31 December
2021: £21 million).
Centrica Business Solutions energy credit risk
Of the Group total of £1,883 million (31 December 2021: £1,546 million)
billed trade receivables, the Centrica Business Solutions reporting segment
contributes £288 million (31 December 2021: £299 million). As described
above, credit risk is concentrated in receivables from business energy
customers who pay in arrears. Gross receivables from these customers amount to
£247 million (31 December 2021: £251 million) and are analysed below.
Trade receivables due from Centrica Business Solutions business energy 30 June 2022 31 December 2021
customers as at
Days beyond invoice date ((i)) < 30 days 30-90 days >90 days Total < 30 days 30-90 days >90 days Total
£m £m £m £m £m £m £m £m
Risk profile
Commercial and industrial ((ii))
Gross receivables 110 3 40 153 116 3 47 166
Provision - - (19) (19) - - (18) (18)
Net 110 3 21 134 116 3 29 148
Medium-sized entities (ME)
Gross receivables 18 10 66 94 22 7 56 85
Provision - - (43) (43) - - (36) (36)
Net 18 10 23 51 22 7 20 49
Total net Centrica Business Solutions business energy customers trade 138 10 49 197
receivables
128 13 44 185
(i) This ageing analysis is presented relative to invoicing date, and
presents receivables according to the oldest invoice outstanding with the
customer. There are a range of payment terms extended to business energy
customers. Average credit terms for ME customers are ten working days. Credit
terms for Commercial and Industrial customers are bespoke and are set based on
the commercial agreement with each customer.
(ii) This category includes low credit risk receivables, including those
from public sector and customers with high turnover (greater than £100
million).
Unbilled downstream energy income at 30 June 2022 includes gross balances of
£146 million in respect of Centrica Business Solutions business energy
customers (31 December 2021: £193 million), against which a provision of £4
million is held (31 December 2021: £5 million).
Sensitivity to changes in assumptions
Typically, the most significant assumption included within the expected credit
loss provisioning model that gives rise to estimation uncertainty is that
future performance will be reflective of past performance and that there will
be no significant change in the payment profile or recovery rates within each
identified group of receivables. To address this risk, the Group reviews and
updates default rates, by group, on a regular basis to ensure they incorporate
the most up to date assumptions along with forward-looking information where
available and relevant. The Group also considers regulatory changes and
customer segment specific factors that may have an impact, now or in the
future, on the recoverability of the balance.
The specific consideration of forward-looking information in the impairment
model does not usually give rise to significant changes in the levels of
credit losses. However, inflationary pressures and increasing wholesale gas
and electricity costs continue to cause uncertainty in economic outlook. The
economic recovery remains vulnerable and there remains a level of estimation
uncertainty inherent in determining credit loss provisions for the Group's
trade receivables.
Where customers experience difficulties in settling balances, the increased
ageing of these amounts results in an increase in provisions held in respect
of them under the provision matrix approach employed. The Group has also
considered changes in customer payment patterns, the specific circumstances of
the customers and the economic impacts of the factors identified above, on the
sectors in which they operate. Whilst economic recovery is expected, a level
of unpredictability remains apparent.
The Group has considered macroeconomic forecasts in determining the level of
provisions for credit losses. Customers are facing increases to their cost of
living, including increased energy bills, higher inflation and higher interest
rates.
During the period, the Group recognised impairment charges of £140 million
(2021: £66 million) in respect of financial assets, representing 1.4% of
Group revenue (2021: 1.0%) and 1.0% of Group revenue from business performance
(2021: 0.8%). As described above, the majority of the Group's credit exposure
arises in respect of downstream energy receivables in British Gas Energy and
Centrica Business Solutions. Credit losses in respect of these assets amounted
to £132 million (2021: £63 million). This represents 2.1% (2021: 1.4%) of
total UK downstream energy supply revenue from these segments of £6,223
million (2021: £4,572 million). Further details of segmental revenue are
provided in note 4.
Due to the different level of risks presented by billed and unbilled
receivables, these asset groups are considered separately in the analysis
below.
Billed trade receivables
30 June 31 December 2021
£m
2022
£m
Gross billed receivables 1,883 1,546
Provision (713) (607)
Net balance 1,170 939
30 June 31 December 2021
2022 %
%
Provision coverage 38 39
Sensitivity £m £m
Impact on billed receivables/operating profit from 1 percentage point (19)/19 (16)/16
(increase)/decrease in provision coverage ((i))
(i) Credit risk in the Group is impacted by a large number of interacting
factors.
Cash collection relative to billing has remained largely stable throughout the
first half of 2022, driven by continued high levels of Business collections.
Provision rates by customers in the Group's downstream operations have fallen
marginally, driven by higher customer bill amounts which, being less aged,
attract a lower rate of bad debt provision. However, the macroeconomic
environment is deteriorating with higher inflation, higher interest rates and
lower growth projections leading to a more challenging outlook. There remains
significant uncertainty around the possible increase in bad debt as a result
of these factors, and some leading debt indicators including the number of new
customers going into debt have deteriorated. Owing to recent changes in Price
Cap levels and the delayed impact on customer payments, these factors are yet
to be reflected fully in the underlying matrix output model used to book
provision coverage. Therefore, as part of management's assessment of the
adequacy of bad debt provisions, a £32 million increase to the macroeconomic
provision has been booked, which now totals £62 million (31 December 2021:
£30 million). It remains highly uncertain when and how these factors will
reduce the collectability of debt and what impact future Government
intervention, including for the Energy Bills Support Scheme (EBSS), may limit
the impact of these. The table above and the unbilled section below provides
details of the sensitivity of moving the bad debt provision by a further 1%.
The Group's services, upstream and trading operations are less susceptible to
credit risk. No significant deterioration of credit risk has been experienced
or is expected in the relevant segments in respect of billed trade receivables
recognised at 30 June 2022, taking into account cash collection cycles in
those areas of the Group and credit rating information.
Unbilled downstream energy income
The table below shows the IFRS 15 unbilled downstream energy income for the
Group as a whole.
30 June 31 December 2021
£m
2022
£m
Gross unbilled receivables 748 726
Provision (26) (26)
Net balance 722 700
30 June 31 December 2021
2022 %
%
Provision coverage 4 4
Sensitivity £m £m
Impact on unbilled receivables/operating profit from 1 percentage point (7)/7 (7)/7
(increase)/decrease in provision coverage ((i))
(i) Credit risk in the Group is impacted by a large number of interacting
factors.
Unbilled downstream energy income is typically provided at a significantly
lower rate than billed debt. This is because a large proportion of this debt
once billed will be subject to the historically short cash collection cycles
of the Group's downstream energy supply businesses.
15. Financial instruments
The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Group has documented
internal policies for determining fair value including methodologies used to
establish valuation adjustments required for credit risk.
(a) Fair value hierarchy
Financial assets and financial liabilities measured and held at fair value are
classified into one of three categories, known as hierarchy levels, which are
defined according to the inputs used to measure fair value as follows:
· Level 1: fair value is determined using observable inputs that
reflect unadjusted quoted market prices for identical assets and liabilities;
· Level 2: fair value is determined using significant inputs that
may be directly observable inputs or unobservable inputs that are corroborated
by market data; and
· Level 3: fair value is determined using significant unobservable
inputs that are not corroborated by market data and may be used with
internally developed methodologies that result in management's best estimate
of fair value.
30 June 31 December 2021
2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m
£m
£m
£m £m £m £m £m
Financial assets
Derivative financial instruments:
Energy derivatives - 10,475 1,259 11,734 - 6,906 480 7,386
Interest rate derivatives - 20 - 20 - 71 - 71
Foreign exchange derivatives - 153 - 153 - 93 - 93
Debt instruments 71 - 1 72 82 - 1 83
Equity instruments 28 4 20 52 29 3 20 52
Contingent consideration receivable - 38 - 38 - - - -
Cash and cash equivalents - 3,084 - 3,084 - 3,670 - 3,670
Total financial assets at fair value 99 13,774 1,280 15,153 111 10,743 501 11,355
Financial liabilities
Derivative financial instruments:
Energy derivatives - (10,401) (1,234) (11,635) - (5,662) (290) (5,952)
Interest rate derivatives - (97) - (97) - - - -
Foreign exchange derivatives - (108) - (108) - (57) - (57)
Contingent consideration payable - - (81) (81) - - - -
Total financial liabilities at fair value - (10,606) (1,315) (11,921) - (5,719) (290) (6,009)
The reconciliation of the Level 3 fair value measurements during the period is
as follows:
2022 2021
Period ended 30 June Financial Financial liabilities Financial Financial
assets
£m
assets
liabilities
£m
£m
£m
Level 3 financial instruments
1 January 501 (290) 120 (129)
Total realised and unrealised gains/(losses):
Recognised in Group Income Statement 779 (944) 36 75
Contingent consideration payable recognised on disposal - (81) - -
Purchases, sales, issuances and settlements (net) ((i)) - - (53) 20
30 June 1,280 (1,315) 103 (34)
Total gains/(losses) for the period for Level 3 financial instruments 36 75
held at the end of the reporting period
779 (944)
(i) During 2021, Level 3 financial assets and financial liabilities of £53
million and £20 million respectively were disposed as part of the Direct
Energy sale.
(b) Valuation techniques used to derive Level 2 and Level 3 fair values and
Group valuation process
Level 2 interest rate derivatives and foreign exchange derivatives comprise
interest rate swaps and forward foreign exchange contracts. Interest rate
swaps are fair valued using forward interest rates extracted from observable
yield curves. Forward foreign exchange contracts are fair valued using forward
exchange rates that are quoted in an active market, with the resulting market
value discounted back to present value using observable yield curves.
Level 2 energy derivatives are fair valued by comparing and discounting the
difference between the expected contractual cash flows for the relevant
commodities and the quoted prices for those commodities in an active market.
The average discount rate applied to value this type of contract during the
period was 2% per annum (31 December 2021: 1% per annum).
For Level 3 energy derivatives, the main input used by the Group pertains to
deriving expected future commodity prices in markets that are not active as
far into the future as some of the Group's contractual terms. This applies to
certain contracts within Europe. Fair values are then calculated by comparing
and discounting the difference between the expected contractual cash flows and
these derived future prices using an average discount rate of 2% per annum (31
December 2021: 1% per annum).
Active period of markets Gas Power Coal Emissions Oil
UK (years) 4 4 3 3 4
Because the Level 3 energy derivative valuations involve the prediction of
future commodity market prices, sometimes a long way into the future,
reasonably possible alternative assumptions for gas, power, coal, emissions or
oil prices may result in a higher or lower fair value for Level 3 financial
instruments. Given the relative size of the volumetric exposures and these
fair values, it is unlikely that the impact of these reasonably possible
changes would be significant when judged in relation to the Group's profit and
loss or total asset value because of the level of hedging related to these
exposures.
It should be noted that the fair values disclosed in the tables above only
concern those contracts entered into that are within the scope of IFRS 9. The
Group has numerous other commodity contracts that are outside of the scope of
IFRS 9 and are not fair valued. The Group's actual exposure to market rates is
constantly changing as the Group's portfolio of energy contracts changes.
The Group's valuation process includes specific teams of individuals that
perform valuations of the Group's derivatives for financial reporting
purposes, including Level 3 valuations. The Group has an independent team that
derives future commodity price curves based on available external data and
these prices feed into the energy derivative valuations, subject to
adjustments to ensure they are compliant with IFRS 13: 'Fair value
measurement'. The price curves are subject to review and approval by the Group
Financial Controller and the Group Chief Financial Officer. The valuations of
all derivatives, together with other contracts that are not within the scope
of IFRS 9 are also reviewed regularly as part of the overall risk management
process.
Where the fair value at initial recognition for contracts which extend beyond
the active period differs from the transaction price, a day-one gain or loss
will arise. Such gains and losses are deferred and amortised to the Group
Income Statement based on volumes purchased or delivered over the contractual
period until such time as observable market data becomes available. The amount
that has yet to be recognised in the Group Income Statement relating to the
differences between the transaction prices and the amounts that would have
arisen had valuation techniques used for subsequent measurement been applied
at initial recognition, less subsequent releases, is as follows:
Day-one gains deferred 2022 2021
£m
£m
1 January 90 64
Disposal of Direct Energy - (45)
Net gains deferred on transactions in the period 152 3
Net amounts recognised in Group Income Statement (54) 1
Exchange differences 4 (1)
30 June 192 22
(c) Fair value of financial assets and liabilities held at amortised cost
The carrying values of the Group's financial assets and liabilities measured
at amortised cost are approximately equal to their fair value except as listed
below:
30 June 2022 31 December 2021
Notes Carrying value Fair value Fair value hierarchy Carrying value Fair value Fair value hierarchy
£m
£m
£m
£m
Bank loans 12 (139) (145) Level 2 (137) (173) Level 2
Bonds Level 1 12 (2,903) (3,006) Level 1 (3,218) (3,947) Level 1
Level 2 12 (66) (84) Level 2 (106) (136) Level 2
16. Commitments and contingencies
(a) Commitments
Commitments are not held on the Group's Balance Sheet as these are executory
arrangements, and relate to amounts that we are contractually required to pay
in the future as long as the other party meets its contractual obligations.
The Group's commitments primarily relate to the acquisition of property, plant
and equipment and intangible assets, commodity purchase contracts, and
contracts for LNG, transportation and other capacity.
Commodity purchase contract commitments have increased by £24 billion since
31 December 2021 to £68 billion, predominantly as a result of increased
forecast prices.
Other commitments, including the acquisition of property, plant and equipment
and intangible assets, have remained at £8 billion since 31 December 2021.
(b) Contingent liabilities
The Group has no material contingent liabilities.
17. Events after the balance sheet date
The Group updates disclosures in light of new information being received, or a
significant event occurring, in the period between 30 June 2022 and the date
of this report.
On 27 July 2022 the Directors approved an interim dividend of 1.0p per share.
See note 10. There are no other significant post balance sheet events.
18. Related party transactions
The Group's principal related party is its investment in Lake Acquisitions
Limited, which owns the existing EDF UK nuclear fleet. The disclosures below,
including comparatives, only refer to related parties that were related in the
current reporting period.
During the period, the Group entered into the following arm's length
transactions with related parties who are not members of the Group, and had
the following associated balances:
2022 2021
Purchase Amounts Purchase Amounts
owed to (ii)
owed to (iii)
of goods
of goods
£m
£m
and services (i) and services (i)
£m £m
Associates:
Nuclear (274) (56) (191) (40)
(274) (56) (191) (40)
(i) Six months ended 30 June.
(ii) As at 30 June.
(iii) As at 31 December.
During the period there were no material changes to commitments in relation to
joint ventures and associates. No provision for bad or doubtful debts relating
to amounts owed from related parties was required in any of the periods
disclosed above.
At the balance sheet date, the Group had committed facilities to the Lake
Acquisitions Group totalling £120 million (31 December 2021: £120 million),
although nothing has been drawn down at 30 June 2022 (31 December 2021:
£nil).
19. Financial Risk Management
The Group's normal operating, investing and financing activities expose it to
a variety of financial risks: market risk (including commodity price risk,
currency risk, and interest rate risk), credit risk and liquidity risk. These
condensed interim Financial Statements do not include all financial risk
management information and disclosures included in note S3 of the Group's
consolidated Financial Statements for the year ended 31 December 2021.
The Group's normal operating, investing and financing activities expose it to
a variety of risks. Risk management is fundamental to the way the Group is
governed and managed. The Group's system of risk management and internal
control is set out in the 2021 Annual Report and Accounts.
The Group's financial performance and price competitiveness is dependent upon
its ability to manage exposure to wholesale commodity prices for gas, oil,
carbon and power, interest rates for long-term borrowing, fluctuations in
various foreign currencies, and environmental factors. Financial risk is
reviewed quarterly by the senior Finance stakeholders and the executive
Centrica Leadership Team to review Group financial exposures and assess
compliance with risk limits.
The four main areas of financial risk are managed as follows:
· commodity price risk management is carried out in accordance with
individual business unit policies and directives including appropriate
escalation routes;
· treasury risk management, including management of currency risk,
interest rate risk and liquidity risk is carried out by a central Group
Treasury function in accordance with the Group's financing and treasury
policy, as approved by the Board;
· wholesale credit risks associated with commodity trading and
treasury positions are managed in accordance with the Group's credit risk
policy; and
· downstream customer credit risk management is carried out in
accordance with individual business unit credit policies.
Credit risk is the risk of loss associated with a counterparty's inability or
failure to discharge its obligations under a contract. The Group continually
reviews its rating thresholds for counterparty credit limits, with reference
to the current situation in Ukraine and forecast macroeconomic impacts of high
inflation and commodity prices, and updates these as necessary based on a
consistent set of principles. It maintains a balance between exchange-based
trading and bilateral transactions. This allows for a reasonable balance
between counterparty credit risk and potential liquidity requirements. In
addition, the Group actively manages the trade-off between credit and
liquidity risks by optimising the use of contracts with collateral obligations
and physically settled contracts without collateral obligations.
The Group has a number of treasury and risk policies to monitor and manage
liquidity risk. Cash forecasts identifying the Group's liquidity requirements
are produced regularly and are stress tested for different scenarios,
including, but not limited to, reasonably possible increases or decreases in
commodity prices and the potential cash implications of a credit rating
downgrade. The Group seeks to ensure that sufficient financial headroom exists
for at least a 12-month period to safeguard the Group's ability to continue as
a going concern.
It is the Group's policy to maintain committed facilities and/or available
surplus cash resources of at least £1,200 million, raise at least 75% of its
gross debt (excluding non-recourse debt) in the debt capital markets, and to
maintain an average term to maturity in the recourse long-term debt portfolio
greater than five years.
At 30 June 2022 the Group had undrawn committed credit facilities of £2,939
million (31 December 2021: £3,006 million) and £3,393 million (31 December
2021: £3,875 million) of unrestricted cash and cash equivalents, net of
outstanding overdrafts. 85% (31 December 2021: 89%) of the Group's gross debt
has been raised in the long-term debt market, and the forecast average term to
maturity of the long-term debt portfolio was 10.4 years (31 December 2021:
10.9 years).
The Group's liquidity is impacted by the cash posted or received under margin
and collateral agreements. The terms and conditions of these depend on the
counterparty and the specific details of the transaction. Cash is generally
returned to the Group or by the Group within two days of trade settlement.
30 June 31 December 2021
2022 £m
£m
Collateral (received)/posted included within:
Trade and other payables (988) (1,185)
Trade and other receivables 1,280 888
Collateral (received)/posted extinguishing:
Net derivative liabilities ((i)) (176) (114)
Net collateral posted/(received) 116 (411)
(i) Variation margin on daily settled derivatives results in the
extinguishment of the net derivative asset/liability. These contracts remain
outstanding until a future delivery date, and therefore the cumulative daily
settlement is considered collateral until that fulfilment date.
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions. As a result of this, amounts reported for the
six-month period ended 30 June 2022 may not be indicative of the amounts that
would be reported for a full year due to seasonal fluctuations in customer
demand for gas, electricity and services, the impact of weather on demand and
commodity prices, and market changes in commodity prices and retail tariffs.
Customer demand for gas in the UK and the Republic of Ireland is driven
primarily by heating load and is generally higher in the winter than in the
summer, and higher from January to June than from July to December. Customer
demand for electricity in the UK and the Republic of Ireland generally follows
a similar pattern to gas, but is more stable.
Customer demand for home services in the UK is generally higher in the winter
than it is in the summer, and higher in the earlier part of the winter as that
is typically when heating systems tend to break down most, so that customer
demand from July to December is higher than from January to June.
Gas production volumes are generally higher in the winter when gas prices are
higher. Gas production volumes are generally higher from January to June than
they are from July to December as outages are generally planned for the summer
months when gas demand and prices are at their lowest.
The impact of seasonality on customer demand and wholesale prices has a direct
effect on the Group's financial performance and cash flows.
Additional Information
Explanatory Notes
Definitions and reconciliation of adjusted performance measures
Centrica's 2022 Interim Results include a number of non-GAAP measures. These
measures are chosen as they provide additional useful information on business
performance and underlying trends. They are also used to measure the Group's
performance against its strategic financial framework. They are not however,
defined terms under IFRS and may not be comparable with similarly titled
measures reported by other companies. Where possible they have been reconciled
to the statutory equivalents from the primary statements (Group Income
Statement ('I/S'), Group Balance Sheet ('B/S'), Group Cash Flow Statement
('C/F')) or the notes to the Financial Statements.
Adjusted revenue, adjusted gross margin, adjusted operating profit, adjusted
earnings, net debt and free cash flow have been defined and reconciled
separately in notes 3, 4, 9 and 13 to the Financial Statements where further
explanation of the measures is given. Additional performance measures are used
within this announcement to help explain the performance of the Group and
these are defined and reconciled below.
Adjusted EBITDA
Adjusted EBITDA is a business performance measure of operating profit, after
adjusting for depreciation and amortisation. It provides a performance measure
in its own right, and provides a bridge between the Income Statement and the
Group's key cash metrics.
Six months ended 30 June Notes 2022 2021 Change
£m £m
Group operating (loss)/profit I/S (1,099) 1,003
Exceptional items included within Group operating (loss)/profit before 6 (95) (373)
taxation
Certain re-measurements before taxation 6 2,536 (368)
Share of (profits)/losses of joint ventures and associates, net of interest I/S (49) 36
and taxation ((i))
Depreciation and impairments of PP&E ((i)) 4 282 265
Amortisation, write-downs and impairments of intangibles ((i)) 4 85 119
Group total adjusted EBITDA 1,660 682 143%
(i) These line items relate to business performance only.
Adjusted EBITDA excluding Spirit Energy disposed assets
Six months ended 30 June Notes 2022 2021 Change
£m £m
Group total adjusted EBITDA 1,660 682
less disposed assets adjusted EBITDA (including associated hedges) (485) (255)
Adjusted EBITDA excluding Spirit Energy disposed assets 1,175 427 175%
Adjusted operating profit excluding Spirit Energy disposed assets
Six months ended 30 June Notes 2022 2021 Change
£m £m
Group total adjusted operating profit I/S 1,342 262
less disposed assets adjusted operating profit (including associated hedges) (485) (122)
Adjusted operating profit excluding Spirit Energy disposed assets 857 140 512%
The below table shows how adjusted EBITDA reconciles to free cash flow:
Six months ended 30 June Notes 2022 2021
£m £m
Adjusted EBITDA 1,660 682
Group operating (loss)/profit including share of joint ventures and I/S (2,441) 741
associates, from exceptional items and certain
re-measurements
Share of profits of joint ventures and associates, net of interest and I/S (1) -
taxation, from exceptional items and certain
re-measurements
Depreciation, amortisation, write downs, impairments and write-backs, from 6 (424) (397)
exceptional items and certain re-measurements
Loss on disposals C/F 329 27
Increase/(decrease) in provisions C/F 1,845 (47)
Cash contributions to defined benefit schemes in excess of service cost income C/F (85) (243)
statement charge
Employee share scheme costs C/F 3 3
Unrealised losses/(gains) arising from re-measurement of energy contracts C/F 1,224 (239)
Exceptional charges reflected directly in operating profit C/F - 5
Net movement in working capital C/F (1,555) 33
Taxes (paid)/refunded C/F (367) 41
Payments relating to exceptional charges in operating profit C/F (23) (48)
Net cash flow from operating activities 165 558
Purchase of businesses, net of cash acquired C/F (5) (13)
Sale of businesses C/F 82 4
Purchase of property, plant and equipment and intangible assets C/F (223) (174)
Sale of property, plant and equipment and intangible assets C/F 1 32
(Investments in)/disposal of joint ventures and associates C/F (1) 2
Dividends received from joint ventures and associates C/F - 1
UK Pension deficit payments 4 105 243
Movements in variation margin and collateral 4 519 (129)
Free cash flow from continuing operations 4 643 524
Adjusted earnings attributable to shareholders excluding Spirit Energy
disposed assets
Six months ended 30 June Notes 2022 2021 Change
£m £m
Adjusted earnings attributable to shareholders I/S 643 98
less disposed assets adjusted earnings attributable to shareholders (including (45) (24)
associated hedges)
Adjusted earnings attributable to shareholders excluding Spirit Energy 598 74 708%
disposed assets
Adjusted basic earnings per share excluding Spirit Energy disposed assets
Six months ended 30 June Notes 2022 2021 Change
Adjusted earnings attributable to shareholders excluding Spirit Energy 598 74
disposed assets (£m)
Weighted average of ordinary shares in issue during the period (million 9 5,868 5,825
shares)
Adjusted basic earnings per share excluding Spirit Energy disposed assets 10.2p 1.3p 685%
Loss on disposals
Six months ended 30 June Notes 2022 2021
£m £m
Loss on disposal 11 329 27
Less: Exceptional loss on disposal 6 (329) (31)
Profit on disposals relating to business performance - (4)
Group net investment
With an increased focus on cash generation, capital discipline and reducing
net debt, Group net investment provides a measure of the Group's capital
expenditure from a cash perspective and allows the Group's capital discipline
to be assessed.
Six months ended 30 June Notes 2022 2021 Change
£m £m
Capital expenditure (including small acquisitions) ((i)) 228 187
Net disposals ((ii)) (82) (38)
Group net investment 146 149 (2)%
Dividends received from joint ventures and associates C/F - (1)
Interest received C/F (8) (2)
Purchase and sale of securities C/F 1 -
Net cash flow used in continuing investing activities C/F 139 146 (5)%
(i) Capital expenditure is the net cash flow on capital expenditure and
purchases of businesses (less than £100 million). See table (a).
(ii) Net disposals is the net cash flow from sales of businesses, property,
plant and equipment and intangible assets, net of investments in joint
ventures and associates. See table (b).
Group net investment is capital expenditure including acquisitions less net
disposals. It excludes cash flows from investing activities not associated
with capital expenditure as detailed in the table above.
(a) Capital expenditure (including small acquisitions)
Six months ended 30 June Notes 2022 2021 Change
£m £m
Purchase of property, plant and equipment and intangible assets C/F 223 174
Purchase of businesses, net of cash acquired C/F 5 13
Less: material acquisitions (>£100 million) - -
Capital expenditure (including small acquisitions) 228 187 22%
(b) Net disposals
Six months ended 30 June Notes 2022 2021 Change
£m
£m
Sale of businesses C/F (82) (4)
Sale of property, plant and equipment and intangible assets C/F (1) (32)
Investment in/(disposal of) joint ventures and associates C/F 1 (2)
Net disposals (82) (38) 116%
Reconciliation from free cash flow to change in net debt
The following tables provide additional information to help readers when
reconciling between different parts of the consolidated Financial Statements,
and the Group Cash Flow Statement.
Six months ended 30 June Notes 2022 2021
£m £m
Free cash flow from continuing operations 4 643 524
Discontinued operations free cash flow (including tax) 4 - 2,582
Group total free cash flow 4 643 3,106
Financing interest paid C/F (125) (111)
Interest received C/F 8 2
UK Pension deficit payments 4 (105) (243)
Proceeds from sale of forfeited share capital C/F - 1
Payments for own shares C/F (1) -
Distributions to non-controlling interests C/F (233) -
Movements in variation margin and collateral 4 (519) 129
Cash flows affecting net debt (332) 2,884
Discontinued operations non-cash movements in net debt - 32
Non-cash movements in net debt (32) (11)
Change in net debt (364) 2,905
Opening net debt 12 (680) 2,998
Closing net debt 12 (316) 93
Payments relating to exceptional charges in operating costs
Six months ended 30 June Notes 2022 2021
£m
£m
Restructuring costs incurred during the period and utilisation of prior year (23) (48)
liabilities
Payments relating to exceptional charges in continuing operating costs C/F (23) (48)
Depreciation, amortisation, write-downs, impairments and write-backs
Six months ended 30 June Notes 2022 2021
£m
£m
Depreciation, amortisation, write-downs, impairments and write-backs, from (424) (397)
exceptional
items included in the Group Cash Flow Statement
Made up of:
Write-back of E&P assets 6 - (397)
Write-back of power assets 6 (424) -
Depreciation, amortisation, write-downs, impairments and write-backs, from 384
business performance included in the Group Cash Flow Statement
367
Made up of:
Business Performance PP&E depreciation 4 282 265
Business Performance intangibles amortisation 4 85 95
Business Performance intangibles impairments and write-downs 4 - 3
Business Performance E&E write-downs 4 - 21
Depreciation, amortisation, write-downs, impairments and write-backs included
in the Group Cash Flow Statement
(57) (13)
Definitions and reconciliation of adjusted performance measures
Reconciliation in receivables and payables to Group Cash flow Statement
Six months ended 30 June Notes 2022 2021
£m
£m
Receivables opening balance B/S 6,114 2,946
Less receivables closing balance B/S (6,055) (3,061)
Payables opening balance B/S (7,633) (3,836)
Less payables closing balance B/S 6,611 4,094
Net (reduction)/increase receivables and payables (963) 143
Non-cash changes, and other reconciling items:
Business disposals 9 -
Movement in capital creditors - 20
Movement in ROCS and emission certificate intangible assets (138) (137)
Other movements (including foreign exchange movements) 25 5
Non-cash changes, and other reconciling items (104) (112)
Movement in trade and other receivables, trade and other payables and contract C/F (1,067) 31
related assets relating to continuing business performance
Pensions
Six months ended 30 June Notes 2022 2021
£m
£m
Cash contributions to defined benefit schemes in excess of service cost income C/F (85) (243)
statement charge
Ordinary employer contributions 21 26
UK Pension deficit payments 105 243
Contributions by employer in respect of employee salary sacrifice arrangements 11 11
Total current service cost (52) (54)
Termination benefit - 17
Disclosures
Disclaimers
This announcement does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any Centrica shares or other
securities.
This announcement contains certain forward-looking statements. Forward-looking
statements can be identified by the use of terms such as 'may', 'should',
'will', 'continue' or similar words. Forward-looking statements appear in a
number of places throughout this announcement and include statements regarding
the current intentions, beliefs or expectations of the Directors, Centrica
and/or the Group concerning, among other things, the financial condition,
goals and commitments, prospects, growth, strategies, results, operations and
businesses of Centrica.
Although we make such statements based on assumptions that we believe to be
reasonable, by their nature, these forward-looking statements are subject to
risk and uncertainties because they relate to, and may be impacted by, events
and circumstances that will occur in the future which are beyond Centrica's
ability to control or estimate precisely. There can be no assurance that
Centrica's actual future results, financial condition, performance, operations
and businesses will not differ materially from those express or implied in the
forward-looking statements due to a variety of factors, including, but not
limited to, those set out in this announcement and the 'Our Principal Risks
and Uncertainties' section of the Strategic Report in our Annual Report and
Accounts. Readers are cautioned that these forward-looking statements are not
guarantees or predictions of Centrica's future performance and undue reliance
should not be placed on them when making investment decisions.
Past performance is no guide to future performance and persons needing advice
should consult an independent financial adviser.
For further information
Centrica will hold its 2022 Interim Results presentation for analysts and
institutional investors at 9.30am (UK) on Thursday 28 July 2022. There will be
a live audio webcast of the presentation and slides. Please register to view
the webcast at:
https://webcasts.centrica.com/centrica121
(https://webcasts.centrica.com/centrica121)
You may also listen via conference call. To register for this call and to
receive a unique caller reference number, visit:
https://webcasts.centrica.com/centrica121/vip_connect
(https://webcasts.centrica.com/centrica121/vip_connect)
An archived webcast and full transcript of the presentation and question and
answer session will be available on the Centrica website by Tuesday 2 August
2022.
Enquiries
Investors and analysts: Investor Relations
Telephone: 01753 494 900
Email: ir@centrica.com
Media: Media Relations
Telephone: 01784 843 000
Email: media@centrica.com
Financial calendar
For more information on Centrica's financial calendar please visit:
https://www.centrica.com/investors/financial-calendar/
(https://www.centrica.com/investors/financial-calendar/)
Registered office
Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD.
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