REG - Centrica PLC - Half-year Report
27/07/2023 07:15
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RNS Number : 3508H Centrica PLC 27 July 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION. Not for release, publication or
distribution in whole or in part, in, into or from any jurisdiction where to
do so would constitute a violation of the relevant laws of such jurisdiction.
Centrica plc Interim Results for the six months ended 30 June 2023
Chris O'Shea, Group Chief Executive
"Nothing is more important than delivering for our customers - its why we are
here. Today's results allow us to increase our customer support package to
more than £100m, and the new green investment strategy we've announced will
see us invest several billion pounds in the energy transition, creating
thousands of new well-paid jobs. Our robust balance sheet has allowed us to
invest heavily in the UK and Ireland's energy security and will make sure that
our customers have cleaner energy at the right price.
Centrica is now a more focused and higher quality business. Our integrated
portfolio of businesses and the relentless focus from our 20,000 amazing
colleagues has enabled us to deliver another strong financial performance,
which includes significant one-off recovery of past costs through the UK price
cap mechanism.
I'm proud of the incredible work our colleagues do every day to help customers
struggling with the cost-of-living crisis. We are doing more than any other UK
energy company - and we will continue to be there when our customers need us."
Strong performance from our balanced portfolio
• Adjusted operating profit (AOP) of £2.1bn (2022: £1.3bn). Adjusted basic
EPS of 25.8p (2022: 11.0p).
• Statutory operating profit of £6.5bn (2022: £1.1bn loss). Statutory
basic EPS of 73.0p (2022: 14.7p loss).
- £4.7bn non-cash pre-tax gain on certain re-measurements (2022: £2.5bn
loss), largely reflecting the unwind of unrealised losses from UK energy
supply hedging positions at the end of 2022.
• Group free cash flow of £1.4bn (2022: £0.6bn), in line with the increase
in AOP.
• Statutory net cash flow from operating activities of £2.5bn (2022:
£0.2bn) includes £1.1bn of margin cash and collateral inflow (2022: £0.5bn
outflow).
• Closing adjusted net cash of £3.1bn compared to £1.2bn at the end of
2022.
• Interim dividend up 33% to 1.33p per share.
• Share buyback programme extended by £450m.
• 2023 full year adjusted earnings and free cash flow expected to be heavily
weighted towards H1.
A refreshed strategy focused on creating value through the energy transition
• A balanced portfolio with leading market positions, where each business
complements, de-risks and adds value to other parts of the portfolio.
• Delivering ~£800m of sustainable AOP from our Retail and Optimisation
businesses, with additional material cash flows from existing Infrastructure
assets over the medium term.
• Strong liquidity and a robust balance sheet, with net debt/EBITDA of
<1x over the medium term.
• A green-focused investment strategy with annualised investment building to
£600m-£800m until 2028, delivering average portfolio post-tax unlevered
returns of 7-10%+, with further Group portfolio benefit. Expect to maintain
Return on Average Capital Employed of at least 20% through the investment
horizon.
• Progressive dividend policy trending to 2x earnings cover over time.
Continuing to deliver for our customers, colleagues and communities
• Investing in strengthening the UK's energy security of supply, with asset
life extensions for nuclear plants and the Morecambe Bay gas field,
doubling gas storage capacity at Rough, opening the Codford solar farm and
exploring hydrogen partnerships.
• Helping customers manage their energy bills by supporting them on over one
million occasions and committing to £100m in additional customer support
since the start of the energy crisis.
• Progressing our ambition to recruit 500 veterans, reservists, spouses and
partners by the end of 2023.
• ~£650m of corporation tax and Upstream levies paid or payable in H1 2023.
Financial summary
Six months ended 30 June 2023 2022
Total Group
Adjusted EBITDA £2,304m £1,660m
Adjusted operating profit £2,083m £1,342m
Adjusted tax charge (£586m) (£581m)
Adjusted effective tax rate 28% 46%
Adjusted earnings attributable to shareholders £1,466m £643m
Adjusted basic earnings per share (EPS) 25.8p 11.0p
Interim dividend per share (DPS) 1.33p 1.0p
Group total free cash flow £1,377m £643m
Group adjusted net cash £3,061m £316m
Statutory operating profit / (loss) £6,462m (£1,099m)
Statutory earnings / (loss) attributable to shareholders £4,150m (£864m)
Statutory basic earnings / (loss) per share 73.0p (14.7p)
Statutory net cash flow from operating activities £2,485m £165m
See notes 3, 4 and 9 to the Financial Statements and pages 71 to 75 for an
explanation of the use of adjusted performance measures.
Group performance indicators
Six months ended 30 June 2023 2022 Change
Total recordable injury frequency rate (per 200,000 hours worked) 1.10 1.12 (2%)
Total customers ('000) (i) 10,234 10,259 (0%)
Group direct headcount (ii) 20,590 20,567 0%
Group colleague engagement (%) 76% 73% 3ppt
All 2022 comparators are as at 31 December 2022.
(i) Includes British Gas Energy, British Gas Services & Solutions and
Bord Gáis Energy households and small and medium business customer sites in
British Gas Energy and Centrica Business Solutions.
(ii) 2022 restated to reflect change in reporting methodology due to using
updated payroll system data.
Investor presentation
Centrica will hold its 2023 Interim Results presentation for analysts and
institutional investors at 10.30am (UK) on Thursday 27 July 2023. There will
be a live audio webcast of the presentation and slides. Please register to
view the webcast at:
https://webcasts.centrica.com/centrica130
(https://webcasts.centrica.com/centrica130)
Enquiries
Investors and Analysts: tel: +44 (0)1753 494900 email: ir@centrica.com
Media: tel: +44 (0)1784 843000 email: media@centrica.com
Unless otherwise stated, all references to the Company shall mean Centrica
plc, and references to the Group shall mean Centrica plc and all of its
subsidiary entities and associate/joint venture undertakings.
The person responsible for arranging the release of this announcement on
behalf of the Company is Raj Roy, the Company Secretary.
Group Overview
Strong operational and financial performance from our balanced portfolio
Over the past three years we have been focused on stabilising our business and
improving operational performance. The significant progress we have made came
through in our performance in the first half of 2023.
In our Retail businesses, we continue to invest in our operations and in
customer service, and saw the benefit flow through in improved performance
metrics in British Gas Energy and British Gas Services & Solutions. In
Optimisation, the breadth and scale of Energy Marketing & Trading's
physical positions and world class capabilities allowed us to create value,
while also adding value to other businesses in the Group. In our Upstream
Infrastructure businesses, we delivered good volumes and availability from
Spirit Energy, Nuclear and Centrica Storage. Importantly, we have also been
able to extend the lives, and therefore cash flows, of assets while helping UK
security of supply. In addition, across the Group we saw a further increase in
colleague engagement, to 76%, 13ppts higher than 12 months ago and 3ppts
higher than at December 2022.
This strong operational performance helped underpin a robust financial result
from our balanced portfolio. Adjusted basic earnings per share (EPS), which
included material recovery of costs incurred in prior periods through the
regulatory price cap mechanism in British Gas Energy, more than doubled to
25.8p compared with H1 2022. Statutory EPS was 73.0p (H1 2022: loss of 14.7p),
with a significant unwind of unrealised losses on hedging positions from the
end of 2022. Reflecting the strong adjusted earnings growth, free cash flow
also more than doubled to £1.4bn, and statutory net cash flow from operating
activities was £2.5bn (H1 2022: £0.2bn), including £1.1bn of margin cash
and collateral inflow.
Having re-commenced cash returns to shareholders last year with a 2022 interim
dividend of 1.0p per share, we are increasing the 2023 interim dividend by 33%
to 1.33p per share. We are also intending to extend our existing share
repurchase programme by £450m to £1bn, to be completed over the next 12
months. We expect our focus by then to be on delivering material investments
as part of our green-focused investment strategy as we look to ensure we
maintain balance in our portfolio, and any further surplus capital
distributions will be reviewed against our revised capital framework.
Creating value through the energy transition
With the operational turnaround of Centrica now materially complete we are
moving to the next phase of our strategy. We will look to underpin Centrica
for the future, delivering sustainable earnings from our core businesses,
investing for longer-term value and growth and delivering attractive
shareholder returns.
A uniquely integrated energy company
Centrica is a uniquely integrated energy company, with market leading
positions across the energy value chain. Our business model has been designed
to be resilient in all scenarios, able to benefit from the growing complexity
of the evolving energy system.
In Retail we have over 10m customers across British Gas Energy, British Gas
Services & Solutions, Bord Gáis Energy and Centrica Business Solutions.
We have strong brands and the UK's largest energy services workforce, which we
believe will play an important role in the UK's decarbonisation journey. Our
Infrastructure businesses bring gas and electricity to the market every day
through Spirit Energy and our stake in the UK's existing nuclear fleet. Over
the past 12 months we have been able to extend asset lives and they will
remain important parts of our portfolio over the medium term. We also have
Centrica Storage's unique Rough gas storage asset, which provides more than
half the UK's gas storage capacity.
Our existing gas production and nuclear assets will decline naturally over
time, so to maintain balance in our portfolio we need to invest to replace
this with new infrastructure. We already have a growing number of flexible and
renewable power assets in Centrica Business Solutions and Bord Gáis, and have
plans to materially increase investment over the coming years as part of our
green-focused investment strategy.
At the centre of our Retail and Infrastructure energy flows sits our Energy
Marketing & Trading Optimisation business. This is the glue that binds the
Group together, and has demonstrated its ability to add significant value to
the Group over the past 18 months.
Each of our businesses complements, de-risks and adds value to other parts of
the portfolio, with our strong positions and capabilities meaning we are
ideally placed to create value from the Energy Transition.
Strong tailwinds from market dynamics offering a broad range of investment
opportunities
UK Electricity demand is set to grow materially over the coming years, while
the electricity mix is also becoming greener and more intermittent with a
growing penetration of renewables. These market dynamics provide us with
material, attractive investment opportunities across the energy value chain,
aligned to capabilities we have today.
In customer activities, we will continue to invest in energy management and
demand response capabilities, while we will also start our own smart meter
asset provision. In addition, we will invest in new renewable and flexible
power assets, which could be our own projects or by investing with partners.
Our strong optimisation capabilities will allow us to capture additional value
from these investments.
Longer term, we also retain optionality for potential hydrogen and carbon
capture investments through our Rough and Spirit Energy assets. While still at
an early stage, and dependent on government regulatory mechanisms, these
provide us with long-term net zero aligned optionality. We may also be
interested in investing in new nuclear, dependent on how the regulatory
framework develops.
These opportunities are aligned to our net zero ambitions, and through our
green-focused investment strategy we will build investment levels to
£600m-£800m per year until at least 2028. Over 50% of our capital
expenditure is expected to go into green taxonomy eligible projects, compared
to only 5% two years ago. This will help us meet our targets to achieve net
zero by 2045, and help our customers reach net zero by 2050.
Leading market positions and growth potential in Retail
We have enviable positions in British Gas Services & Solutions, with 7,000
directly employed engineers, a wide product range and our in-house training
academies. In our core protection offering, improved operational foundations,
in addition to ongoing planning and supply chain projects, will improve
efficiency and help further improve customer retention. We are also taking a
different approach to customer acquisitions, with improved digital channels
and regular refreshing of our propositions aimed at driving a return to
customer growth.
In addition, on-demand services is a market in which we have only 1% share
today, providing us with a large growth opportunity. Recent recruitment and
productivity improvements mean we now have the capacity to focus on growing in
this area, leveraging our brand, our scale and our supply chain capabilities.
We also see an opportunity to grow in the boiler installation market, where we
have less than 10% market share, as we focus on improving our digital channels
and our customer journeys.
Over time, the residential heating technology mix is expected to transition
away from gas boilers towards newer technology such as heat pumps. We are
uniquely placed to support this transition with the UK's largest energy
services workforce.
In UK residential energy supply, the market has been challenging for all
suppliers including British Gas Energy. We have been the only major supplier
to consistently make a profit since the default tariff cap came into effect in
2019, delivering an average adjusted operating profit margin of 1.1% between
2019 and 2022. When normalising for costs incurred over this period that were
recovered in H1 2023, this
margin would have been over 2%, which compares with the 1.9% margin the price
cap is currently designed to give the average supplier. This reflects our
relative strength, in particular our energy procurement and risk management
capabilities.
The regulatory environment has also changed, with greater focus on capital
adequacy requirements largely in response to supplier failures over the past
two years. Ofgem are also consulting on changes to the price cap structure,
which at current prices would allow an increased 2.4% margin for the average
supplier.
Against this backdrop, we are focused on delivering a simple customer
experience and reducing our cost per customer, which is being enabled through
migration of customers on to our modern, more efficient 'Software as a
Service' IT platform. We have now migrated around 3 million residential
customers, with the NPS for customers on the new platform nearly double that
of customers on the legacy platform. In addition, we have driven an average 8%
reduction per year in cost per customer since 2019, and we see the possibility
for this to reduce by a further 10-15% over time as our processes continue to
improve and all customers migrate onto the new platform.
Sustainable EM&T profitability and growth potential utilising our world
class capabilities
Energy Marketing & Trading (EM&T) plays a critical role for the Group,
supporting both our Retail and Infrastructure activities. Its primary purpose
is to procure and deliver physical gas and electricity for our energy supply
businesses, while it also provides a route-to-market for the output from our
infrastructure assets, helping to optimise these and add additional returns.
In addition to the role it plays for the Group, EM&T's other lines of
business are all anchored around physical assets. In Gas & Power Trading,
we have over 10TWh of European gas storage capacity, alongside substantial
cable and pipeline capacity. We are now active in over 25 countries, giving us
distinctive insights into energy markets, with scope to expand through
disciplined new market entries.
We have almost 16GW of third party renewable and flexible assets in our
Renewable Trading & Optimisation (or Route-to-Market) business, providing
market access and balancing services for customer owned assets. This is a key
capability aligned to the energy transition and our ambition is to double
capacity over the next five years, with a corresponding increase in gross
margin compared to a 2021 base.
In LNG, a business built up over the past 15 years, we have tremendous
capabilities and a valuable and flexible global portfolio of contracts and
positions. With three new flexible contracts coming on stream in the coming
years, including the recently announced Delfin contract, we are incredibly
well placed to capture additional value through optimisation.
Infrastructure will continue to deliver significant cash flows
Over the past 12 months, Centrica Storage, Nuclear and Spirit Energy have all
seen significant developments that will extend lives of their assets. Rough
returned to gas storage activities last year, and in H1 2023 we announced an
increase in capacity to 54bcf from 30bcf. We now have exclusive use of the
asset until at least 2030. The Heysham 1 and Hartlepool nuclear power stations
have been extended by two years to 2026, with a plus or minus one year window.
We now expect Spirit Energy's Morecambe Bay gas fields to run until the end of
this decade, having originally planned to stop production around the middle of
this decade. Our Infrastructure assets are expected to continue to deliver
material cash flows for the Group in the medium term.
In addition, Centrica Storage and Spirit Energy retain net zero optionality
given their favourable locations close to major demand clusters. Ultimately
Rough could store up to 200bcf of hydrogen and Morecambe could play a key role
in carbon capture, utilisation and storage (CCUS), having been awarded a
carbon capture licence in May 2023.
We also plan to invest in flexible and renewable power assets, supporting the
UK's security of supply while helping to maintain balance in our portfolio as
existing infrastructure assets naturally decline over this decade. We are
already accelerating spend in this area, developing a pipeline of projects
with around 600MW in the detailed planning or delivery phase in addition to
around 600MW of operational assets. We also have around 2GW of early phase
prospects that will continue to evolve as we assess options and new
opportunities come to light.
Delivering sustainable operating profit
Having simplified our portfolio and improved operational performance, we
remain focused on delivering sustainable profitability from our portfolio. We
expect to deliver around £800m of adjusted operating profit on average each
year over the medium term from our Retail and Optimisation activities,
equivalent to around 11-12 pence of adjusted earnings per share given current
tax rates and expected share count. The exact profit number may flex with
market conditions in any given year.
Of the £800m we expect:
• UK residential energy supply to make £150m-£250m of adjusted operating
profit per year on average, supported by our work to improve customer
experience and reduce cost per customer and utilisation of our world class
energy procurement and risk management capabilities. This assumes current
regulations, including proposed Ofgem changes to the default price cap
methodology.
• British Gas Services & Solutions to continue to recover, underpinned
by improved operations, new technology and refreshed customer offerings. Over
the next three years, we would expect adjusted operating profit to build to
£100m-£200m per year.
• Energy Marketing & Trading to deliver adjusted operating profit of
£250m-£350m per year on average from the current portfolio, with potential
upside in favourable market conditions as we saw in 2022 and H1 2023.
• UK business energy supply and Bord Gáis Energy to deliver combined
adjusted operating profit of £100m-£200m, with continued good delivery of
margins and sales performance from UK business energy supply, and Bord Gáis
Energy continuing to demonstrate the value of its integrated energy model.
In addition, and reflecting recent life extensions, we expect our existing
Infrastructure businesses, Spirit Energy, Nuclear and Centrica Storage, to
continue to contribute material medium-term cash flows. Over time, these cash
flows will be replaced by a contribution from assets we are developing as part
of our green-focused investment plan. Earnings from these assets should be
more stable, helping provide a more reliable, rateable earnings stream over
the longer term.
A strong balance sheet
Our balance sheet has been transformed, with adjusted net cash of more than
£3bn at June 2023 compared to adjusted net debt of £3bn at the end of 2020.
In addition, decommissioning liabilities and the technical pension deficit in
total combined have halved over the same period to around £2bn.
A strong balance sheet and investment grade credit ratings are essential for
the efficient running of the Group. As a responsible energy supplier, we
manage the risk of providing energy to our customers by hedging our commodity
exposures through financial derivatives and other contracts, and as a supplier
to nearly a quarter of the UK's households those positions are significant. We
also hedge our electricity generation and gas production rateably, which again
leverages our strong credit ratings.
Maintaining material liquidity is also important for the Group, with energy
system volatility leading to potentially large movements in margin cash.
Having material liquidity means we are able to capture value from market
disconnects, as seen in the 2022 Energy Marketing & Trading result.
We believe the appropriate medium-term leverage for the Group is up to 1x Net
Debt to EBITDA. This provides us with enough headroom to manage volatility in
the energy system, to continue to invest for the future and to maintain and
grow shareholder distributions.
Compelling shareholder returns
We announced the re-commencement of cash returns to shareholders at the 2022
Interim Results, with a 1.0p per share interim dividend. Given our continued
positive progress and strong financial position, we are declaring a 33%
increase in the interim dividend to 1.33p per share.
We maintain a progressive dividend policy and expect dividend cover to move to
around two times adjusted earnings over the coming years, supported by the
core sustainable earnings of the Group.
In November 2022, we commenced a £250m share repurchase programme, which we
subsequently extended to £550m in February 2023. As at 26 July 2023 we had
repurchased over £400m of shares.
Now we have set out our investment plans and capital framework, including our
balance sheet priority to retain strong investment grade credit ratings, we
intend to return current surplus capital to investors once the current share
repurchase programme is completed in October 2023, subject to market
conditions at that time. This will be through a £450m extension to the
current share repurchase programme, which would take the total buyback amount
since November 2022 to £1bn. We expect the programme to complete over the
coming 12 months.
Following this, our focus will be on delivering on our investment plans, with
any further additional distributions on top of the dividend reviewed against
our revised capital framework and our future outlooks.
Investing for growth and creating value from our strong capabilities
As part of our green-focused investment plan, we expect capital expenditure to
build to an annualised run rate of £600m-£800m until 2028 at least. We
expect 2023 and 2024 to be towards the bottom end of this range as we build
our pipeline and our capability, and the actual spend in any given year is
likely to differ, as it will depend on our development funnel and what
projects make it through our robust investment framework. We are not assuming
any material spend on Rough redevelopment or Morecambe within this range.
As part of our investment framework we are targeting average portfolio
post-tax unlevered returns of at least 7-10%+. For investment in customer
energy assets, such as smart meter asset provision, we would expect to make a
post-tax unlevered return of at least 8%, with negligible pre-productive
capital given the nature of the investments. For renewables, we expect
post-tax unlevered returns of at least 6-9%, with projects that have lower
risk towards the bottom end of the range. Investments in flexibility assets
are expected to make post-tax unlevered returns of at least 7-10%, with the
precise hurdle rate again dependent on the risk profile. At a portfolio level,
despite the expected ramp up in investment over the coming years, we would
expect Group Return on Average Capital Employed to remain above 20% over the
investment horizon.
For our potential larger scale infrastructure projects such as Rough or
Morecambe, we would only invest in these if government regulatory support was
in place.
We are also targeting Group portfolio benefit including from optimisation of
up to 2%, with additional investments complementing the Group's overall
capabilities, positions and exposures.
A compelling investment case creating value through the Energy Transition
Centrica is very well placed to create value through the Energy Transition. We
are a uniquely integrated energy company, with a balanced portfolio where each
component complements, de-risks and adds value to other businesses. We are
well positioned for the future of energy.
We expect to deliver around £800m of sustainable operating profit from Retail
and Optimisation each year, with incremental growth potential and additional
strong medium-term cash flows from Infrastructure.
We are commencing a green-focused growth and investment strategy, creating
value for shareholders and delivering net zero for Centrica and our customers.
We plan to invest £600m-£800m per year at least until 2028, making
attractive returns with additional portfolio benefits on top. We will do this
while maintaining balance sheet strength, strong liquidity and capital
discipline.
We will aim to deliver compelling shareholder returns, including through our
progressive dividend policy and returning surplus capital to shareholders when
appropriate. Centrica is well set up for the future, and well positioned to
create value from the energy transition.
Acting responsibly through the energy crisis
Supporting customers
We remain very aware of the difficult environment that many customers continue
to face against the backdrop of high energy bills and wider inflationary
pressures. Having announced we would contribute 10% of energy supply profits
in the UK and Ireland to help customers for the duration of the energy crisis,
we committed £50m of support last year, including help for small business and
prepayment customers. We have now committed a further £50m to take the total
to £100m since the start of 2022.
Protecting vulnerable customers is a priority for us and therefore we were
extremely disappointed by the allegations from February surrounding one of our
third-party contractors and their approach to pre-payment customers. We
undertook our own investigation, overseen by an independent regulatory
compliance consultancy, which concluded that there were no systemic failings
in the way British Gas handled the fitting of prepayment meters under warrant.
However, it did find evidence that in a small number of cases, things had gone
wrong, or we could have acted differently. We have already taken proactive
action to address this, including stopping the use of third party contractors
to carry out the installation of prepayment meters under warrant, and
committing to Ofgem's voluntary Code of Practice on prepayment installations
under warrant.
We also continue to look for other ways to help our customers, and in June we
launched 'Summer Sundays', a 'PeakSave' initiative which offers smart meter
customers half price electricity between 11am and 4pm on Sundays until the end
of September. We will continue to launch new and innovative tariffs, to help
our customers manage their energy usage and save money on their bills.
Supporting colleagues
We continue to support our colleagues through these challenging times. In
addition to a cost of living payment made in December 2022 to all colleagues,
we chose to back-date colleague annual pay rises normally awarded in April to
January, giving colleagues 3 months additional benefit. We have also been
increasing the number of mental health first aiders in the business,
recognising the need to support colleagues' emotional wellbeing, and helping
to destigmatise talking about mental health at work. In June, we launched the
Centrica Colleague Support Foundation, which will provide colleagues with
financial support when they need it most.
As well as supporting our existing staff, we continue to create new skilled
jobs, with our Diversity & Inclusion Action Plans intended to attract,
promote and retain more diverse talent within the business. We are also
progressing our ambition to recruit 500 veterans, reservists, spouses and
partners by the end of 2023.
Supporting communities
We continue to take our responsibilities to communities seriously. Over the
past winter we provided over £100m of support to vulnerable customers through
the Warm Homes Discount. In addition, the British Gas Energy Trust supports
those who are struggling to pay their bills, regardless of their energy
supplier. Currently it funds 45 local money and energy advice projects
allowing communities to access the help and support they need.
Colleagues donated 1,661 volunteering days in the first six months of 2023,
more than treble the figure from H1 2022, and we committed £2m to local
causes that our colleagues care passionately about.
We have also announced new partnerships with the Scottish Football Association
and Scottish Rugby to support grassroot activities and to support them in
reducing energy bills and their decarbonisation plans.
Business unit operational, commercial and financial performance
Fixing the operational foundations in British Gas Services & Solutions to
enable growth
British Gas Services & Solutions 2023 2022 Change
Services customers ('000) (closing) (i) (ii) 2,915 3,141 (7%)
On-demand jobs ('000) (iii) 93 65 43%
Boiler installs ('000) 49 49 0%
Services complaints per customer (%) (iv) 4.7% 6.5% (1.8ppt)
Services Engineer NPS (i) (v) 70 64 6pt
Adjusted operating profit (£m) 20 7 186%
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June
unless otherwise stated.
(i) 2022 comparator at 31 December 2022.
(ii) Services customers are defined as single households having a contract
with British Gas Services & Solutions.
(iii) On-demand jobs are defined as Services & Repair one off on-demand
repairs, home improvements & maintenance.
(iv) Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
(v) Measured independently, through individual questionnaires, the
customer's willingness to recommend British Gas following a gas engineer
visit.
Our focus in British Gas Services & Solutions for the past two years has
been on improving the operational foundations of the business and we have made
good progress. Key operational metrics are the best they have been since 2019
and the business returned to profitability in H1 2023 having been loss-making
in H2 2022.
Following our focus on recruitment over the past two years we have greater
engineer capacity which, combined with reduced absence levels and improved
engineer productivity, meant we were better able to meet customer demand. This
translated into a reduction in the number of rescheduled appointments to 3%
(H1 2022: 7%), while we also resolved 75% of call outs on the first visit, a
3ppt improvement on H1 2022. These improvements were reflected in higher
levels of customer satisfaction, with a 1.8ppt reduction in complaints per
customer compared to H1 2022 and a 6pts increase in engineer NPS over the
first six months of the year to +70. There is more to do operationally, but we
now have the confidence in our foundations to focus on growth.
Customer numbers fell by 226,000, or 7%, over the first half of the year,
which reflects the challenging inflationary backdrop, cost of living pressures
and the final roll-off of 'free product' customers from the portfolio.
However, our improved operational foundations, combined with ongoing
improvements to our digital sales channels and refreshed propositions, mean we
are targeting a return to customer growth. Our increased capacity and
productivity also allows us to focus more on the significant opportunity that
exists in the on-demand market. The total number of on-demand jobs in H1 2023
increased by 43% compared with the same period in 2022. In addition, boiler
installations remain an important product, with the number of installs flat
despite a declining market, although we achieved a higher margin per
installation through improved operations and a more targeted commercial
offering.
British Gas Services & Solutions adjusted operating profit increased to
£20m in H1 2023 (H1 2022: £7m).
• H1 2022 included £25m of one-off, largely Covid-19 related, costs which
did not repeat in H1 2023. These included higher customer compensation, the
impact of higher absence rates and increased workload resulting from contract
customers having non-urgent jobs completed that they had chosen to have
delayed during the pandemic.
• We saw a negative impact of lower customer numbers on adjusted operating
profit, however this was offset by the positive impact of improved margin
focus and higher productivity in the boiler installation business.
• We also continue to see the impact of inflationary cost pressures, on both
direct labour as we supported our colleagues through the cost of living
crisis, and on third party costs. Having chosen not to fully pass these
through in pricing to our customers in 2022 and 2023, this resulted in a
negative impact on adjusted operating profit of approximately £25m in H1
2023.
• We also saw a £25m reduction in pension costs reflecting the impact of
higher interest rates on the pension discount rate, partially offset by
incremental costs due to further investment in the business.
Improved operational foundations and strong financial performance in British
Gas Energy
British Gas Energy 2023 2022 Change
Residential energy customers ('000) (closing) (i) (ii) 7,492 7,516 (0%)
Small business customer sites ('000) (closing) (i) 529 480 10%
Energy complaints per customer (%) (iii) 7.7% 6.6% 1.1ppt
Energy Touchpoint NPS (i) (iv) 16 13 3pt
Annualised cost per residential energy customer (excl. bad debt) (£) (i) 86 83 4%
Adjusted operating profit (£m) 969 98 889%
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June
unless otherwise stated.
(i) 2022 comparator at 31 December 2022.
(ii) Residential energy customers are defined as single households buying
energy from British Gas Energy.
(iii) Total complaints, measured as an expression of dissatisfaction in line
with submissions made to Ofgem, as a percentage of average customers over the
year.
(iv) Measured independently, through individual questionnaires, the customer's
willingness to recommend British Gas Energy following contact.
British Gas Energy continues to focus on delivering a simple, more efficient
customer experience, enabled by the migration of customers onto our new energy
platform. The new platform also allows us to be more agile in launching new
customer propositions, including initiatives such as 'PeakSave'. Nearly 1m
customers were migrated over the first six months of 2023, taking total
residential and small business customers on the platform to over 3m.
Energy Touchpoint NPS improved to +16 overall. This improvement came despite a
backdrop of continued high commodity prices, with customers focused on the
level of their bills and direct debit payments and customer contact remaining
elevated as a result. Reflecting this, we experienced a higher number of
complaints than in H1 2022. However, having invested heavily in customer
service over the past year, including the recruitment of an additional 700
UK-based contact centre colleagues, we have been able to take swift action to
close complaints and resolved around two thirds of cases on the same day.
Residential energy customer numbers were broadly flat as market switching
rates remained low. The number of small business customers increased by 10% to
529,000, reflecting our reputation as a trusted and reliable company able to
offer customers attractive tariffs and support at a time of price volatility.
Annualised cost per residential energy customer (excluding bad debt) increased
by £3 over the first six months to £86, although this would have been flat
when excluding a £3 impact from dual running IT costs. This reflects the
phasing of costs relating to incremental investment in customer service in H2
2022. We continue to target reductions in cost per customer, and would expect
reductions in future years as the phasing of this investment unwinds and
customer migration continues to progress, with the new platform lower cost
than our legacy systems.
British Gas Energy adjusted operating profit increased by £871m to £969m (H1
2022: £98m).
• The increase was mainly due to one-off factors relating to the default
standard variable tariff (SVT) cap which we would not expect in a normal
reporting period. In total, the positive impact of recovery of prior period
costs through price cap allowances in H1 2023 was approximately £500m. The
most material elements of the recovery relate to the impact of increasing and
volatile commodity prices from 2021 onwards, which meant the SVT was cheaper
than nearly all fixed price tariffs and, as a result, more customers were on
the SVT than forecast. This meant all suppliers had to purchase a portion of
their electricity and gas at levels above the price cap. Allowances to recover
this cost were introduced into the price cap from April 2022, with recovery
continuing into H1 2023. In addition, commodity curves through 2022 showed
lower prices in future periods, which meant suppliers were unable to match the
commodity cost element of the price cap. This impact was particularly
pronounced in Q4 2022, and recovery of this also continued into H1 2023. There
were also some other less material adjustments. This £500m of cost recovery
in H1 2023 compares to approximately £250m of negative impact from unexpected
additional SVT demand in H1 2022.
• Profits were also impacted by a number of other factors. We delivered
effective risk management and optimisation, while higher commodity prices
naturally also drove higher unit margins. These factors were partially offset
by the impacts of a reduction in underlying customer consumption, an increase
in the bad debt charge, further investment in transforming our customer
service and a commitment to make an additional £50m donation to help support
customers struggling with their energy bills.
Bord Gáis Energy posts a loss as it continues to absorb higher energy costs
Bord Gáis Energy 2023 2022 Change
Customers ('000) (closing) (i) 514 526 (2%)
Complaints per customer (%) (ii) 1.1% 1.0% 0.1ppt
Journey NPS (i) (iii) 13 19 (6pt)
Adjusted operating (loss)/profit (£m) (27) 33 nm
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June
unless otherwise stated.
(i) 2022 comparator at 31 December 2022.
(ii) Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
(iii) Weighted NPS for the main customer interaction channels.
Bord Gáis Energy reported an adjusted operating loss of £27m (H1 2022:
profit of £33m). This reflected continuing pricing pressure in the retail
supply market, partially offset by the impact of continued strong availability
from the Whitegate CCGT and a solid trading performance.
We continue to help customers where we can, and last year Bord Gáis Energy
established an energy support fund to help vulnerable customers, with £2m
spent on this fund in H1 2023.
Customer numbers fell by 2% in H1 2023, as the business reduced its focus on
customer acquisition against the challenging market backdrop. There was a
small increase in customer complaints, and Journey NPS fell 6pts over the
first half, reflecting continuing market-wide customer concerns over higher
bills. Against this backdrop we continue to invest in customer service and saw
improvements in complaint levels as we moved through the period, with Q2 2023
complaints almost half those in Q1 2023.
As part of the push for increased security of supply and decarbonisation in
Ireland, and consistent with our refreshed strategy, we have begun work on our
two, hydrogen ready, 100MW flexible gas peaking plants in Athlone and Dublin,
with an expected total investment of over €300m.
Further strong performance managing a diverse range of physical positions in
EM&T
Energy Marketing & Trading (EM&T) 2023 2022 Change
Renewable capacity under management (GW) (i) 11.7 11.6 1%
Adjusted operating profit (£m) 384 278 38%
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June
unless otherwise stated.
(i) 2022 comparator at 31 December 2022.
Our EM&T business delivered further strong performance in H1 2023,
demonstrating the benefit of its diverse portfolio of physical contracted
positions and in-depth understanding of energy markets to manage system
complexity. In addition, EM&T also continued to add value through its core
role of risk management and commodity procurement for our Retail energy supply
businesses and wholesale market access for our Infrastructure assets.
In Gas & Power Trading, our comprehensive physical portfolio of contracted
pipeline, interconnector and gas storage positions across Europe continued to
allow us to move gas and power between markets to capture any price arbitrage.
Our portfolio, by design, is set up to capture value in all commodity
environments, but particularly during periods of market price volatility.
Commodity markets were not as volatile overall in H1 2023 as they were in H1
2022, however we were still able to capture value through optimising positions
well, particularly in the first quarter of the year.
In Renewable Energy Trading and Optimisation we remain focused on growing our
capacity under management as more renewable assets come online across Europe.
Renewables and optimisation capacity under management was broadly flat at
15.2GW over H1 2023, of which around 75% is renewable technology, with a
further 0.7GW signed but not yet operational. The diverse range of markets we
serve and technologies we offer are proving increasingly valuable, as more
intermittent generation comes online across Europe.
Our LNG business was profitable in H1 2023, having been loss-making in H1
2022, as we captured value from opportunities created last year and continued
to optimise our range of base contractual positions such as the Sabine Pass
export contract and our Isle of Grain regassification capacity. We continue to
build on these contractual positions to further diversify and de-risk our
portfolio and underpin future profitability. In July 2023, we announced the
execution of a 15-year Sale and Purchase agreement with Delfin to take 1
million tonnes of LNG, free on board, from their floating facility in the Gulf
of Mexico. Operations are expected to commence in 2027. This is in addition to
the existing Mozambique purchase contract and Shenergy sales contract, which
we also currently expect to commence in the second half of this decade.
EM&T adjusted operating profit increased to £384m (H1 2022: £278m)
despite the less volatile market conditions, with higher profit in LNG and
Renewable Energy Trading & Optimisation. The EM&T result included a
loss of £39m from the remaining Sole Pit legacy gas contract compared to a
profit of £25m in H1 2022. At current forward prices we expect adjusted
operating losses from the contract to total around £50m across the balance of
2023 until 2025, which is when the contract ends.
Energy Supply in Centrica Business Solutions driving improved financial
results
Centrica Business Solutions (CBS) 2023 2022 Change
Energy supply total gas and electricity volume (TWh) 11.7 11.8 (1%)
Energy supply complaints per customer (%) (i) 7.2% 4.0% 3.2ppt
Energy supply Touchpoint NPS (ii) (iii) 25 31 (6pt)
Services order intake (£m) 102 114 (11%)
Services order book (£m) (ii) 663 670 (1%)
Adjusted operating profit (£m) 87 20 335%
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June
unless otherwise stated.
(i) Total complaints, measured as any oral or written expression of
dissatisfaction, as a percentage of average customers over the year.
(ii) 2022 comparator at 31 December 2022.
(iii) Measured independently, through individual questionnaires, the
customer's willingness to recommend.
CBS delivered good performance across its three main activities of energy
supply to large and medium-sized businesses, business services, and assets.
In energy supply, volumes remained broadly flat at 11.7TWh compared with H1
2022. We saw a significant increase in the volume delivered to medium-sized
businesses, with organic growth alongside the acquisition of the customer book
of Avantigas ON Limited in H2 2022. This was offset by the impact of our
continued planned shift in focus away from large-scale Commercial and
Industrial customers.
We continue to focus on delivering high levels of customer service. Despite
stable operational metrics, customer complaints increased by 3.2ppt to 7.2%
which reflects ongoing customer concerns around higher energy prices and
challenges relating to the government support schemes. Touchpoint NPS also
reduced by 6pts to +25.
In services, order intake of £102m was 11% lower than in H1 2022, although
after adjusting for the impact of the disposal of our North America
optimisation activity during H2 2022, like-for-like services order intake was
slightly up. The services order book of £663m was broadly flat compared to
December 2022.
In assets, we continue to ramp up the deployment of capital in low carbon and
flexible assets, which will play an important role for UK security of supply
and decarbonisation, especially in times of high demand or reduced system
availability. CBS now has over 300MW of assets in the detailed plans and
delivery phase, in addition to operational capacity of 119MW. This includes
our first solar farm, at Codford in Wiltshire, with its 18MW of capacity
commencing operations in June 2023.
CBS adjusted operating profit increased to £87m (H1 2022: £20m). Energy
supply reported a significant improvement in adjusted operating profit to
£107m (H1 2022: £33m), mostly driven by strong risk management and commodity
procurement performance, supported by customer growth in medium-sized
businesses. Services and assets reported an increased combined adjusted
operating loss of £20m (H1 2022: loss of £13m) reflecting the impact of
lower market volatility on the profitability of flexible assets and the loss
of contribution from North America optimisation following the disposal of that
part of the business in H2 2022.
Strong asset availability in Upstream helping to offset lower commodity prices
Upstream 2023 2022 Change
Spirit Energy total production volumes (mmboe) (i) 8.4 9.3 (10%)
Nuclear power generated (GWh) 3,648 4,648 (22%)
Adjusted operating profit (£m) 654 906 (28%)
All 2023 metrics and 2022 comparators are for the 6 months ended 30 June.
(i) 2022 excludes production from the disposed Spirit Energy Norwegian and
Statfjord UK oil and gas assets of 6.3mmboe.
Please note that profit and inventory from Rough operations are reported under
Centrica Storage Limited for presentational purposes only. Centrica Storage
Limited does not produce, supply or trade gas, except to the extent necessary
for the efficient operation of the storage facility. In accordance with the
Gas Act 1986, such production, supply and trading of gas is carried out wholly
independently of Centrica Storage Limited by other Centrica group companies.
Total volumes from the retained Spirit Energy assets were down 10% to
8.4mmboe. Liquid volumes were only a small contributor following the sale of
the Spirit Energy Norwegian assets in 2022 and gas production volumes
decreased by 8% to 471mmth. This reflects good performance at Morecambe,
which was more than offset by the expected natural decline across the rest of
the portfolio.
Centrica Storage's Rough field returned to gas storage operations in H2 2022,
having been operating as a gas production asset since 2017. Asset reliability
was very strong over H1 2023 and in June we announced that capacity at Rough
had been increased to 54bcf from 30bcf, with sole use granted until at least
2030.
Centrica's share of nuclear generation volumes of 3.6TWh was 22% lower than
2022. This reflects the impact of the Hinkley Point B closure in August 2022
and a planned refuelling outage at Sizewell B in 2023, which was partially
offset by good generation volumes across the remaining fleet. It was announced
in March 2023 that the Heysham 1 and Hartlepool expected closure dates had
been extended by two years to March 2026, with a plus or minus 1 year window
either side of this date.
Excluding £485m of adjusted operating profit relating to the disposed Spirit
Energy Norwegian assets in H1 2022, Upstream adjusted operating profit
increased to £654m (H1 2022: £421m).
• The retained Spirit Energy business reported adjusted operating profit of
£108m (2022: £59m), with higher achieved gas prices underpinned by our
rateable hedging strategy and lower depreciation charges, which more than
offset the impact of lower production volumes.
• Centrica Storage adjusted operating profit was £251m (2022: £76m). This
reflects the return to gas storage operations in H2 2022, as we captured high
seasonal gas price spreads over the Winter period and delivered incremental
optimisation of the asset.
• Nuclear adjusted operating profit was £295m (2022: £286m), with higher
achieved power prices reflecting our rateable hedging strategy offset by the
lower volumes and impact from the introduction of the Electricity Generator
Levy.
A strong first half financial performance
Strong adjusted operating profit and earnings
Adjusted Group EBITDA increased to £2,304m (2022: £1,660m) and adjusted
operating profit increased to £2,083m (2022: £1,342m), reflecting the
movements in business unit adjusted operating profit as described in the
previous section. Adjusted operating costs increased by £322m to £1,292m.
The majority of this related to a £173m increase in the bad debt charge,
while we also committed another £50m donation to support customers in British
Gas Energy, made incremental investment in customer service and saw
inflationary impacts across the Group.
The net finance charge fell to £36m (2022: £78m) and the effective tax rate
on adjusted operating profit decreased to 28% (2022: 46%), with a change in
profit mix away from the more highly taxed upstream businesses towards Retail
and Optimisation activities.
Reflecting the above, adjusted earnings attributable to shareholders increased
to £1,466m (2022: £643m) and adjusted basic EPS was 25.8p (2022: 11.0p).
Increase in statutory profit reflects the changing commodity price environment
Total exceptional items recognised after tax generated a loss of £320m
(2022: profit of £182m), driven predominantly by a £312m impairment of our
nuclear investment as a result of lower forecast forward commodity prices
which more than offset the positive impact from life extensions at Heysham 1
and Hartlepool.
A gain from certain re-measurements after tax of £3,082m (2022: loss of
£1,876m) was recognised in the first half, largely relating to the unwind of
out-of-the-money contracts delivered in the period, together with net
unrealised mark-to-market derivative gains from our wider portfolios and the
release of the onerous energy supply contract provision, both as a result of
falling commodity prices.
Reflecting these exceptional items and certain remeasurements, a statutory
profit after taxation of £4,245m was recognised (2022: loss of £1,001m).
After non-controlling interests, the statutory profit was £4,150m (2022: loss
of £864m) with a basic EPS of 73.0p (2022: loss per share of 14.7p).
Robust cash flow generation and continued balance sheet strength
Group free cash flow was £1,377m (2022: £643m), reflecting the strong
adjusted EBITDA performance. There was a net working capital outflow of £360m
(2022: £438m). This included a £1,555m outflow in British Gas Energy, mainly
reflecting the settlement of elevated December 2022 commodity costs in January
2023, and the pass through to customers of Government support scheme payments
received in December 2022. Partially offsetting this was a £765m working
capital inflow in EM&T driven by the cash conversion of 2022 profits.
Statutory net cash flow from operating activities was £2,485m, an increase of
£2,320m compared to 2022, reflecting the higher free cash flow and a £1,113m
inflow of margin cash (2022: £519m outflow), which reflects the fall in
commodity prices over the first half of 2023.
Interest and pension deficit payments were both lower in 2023 than in 2022,
while we returned £340m to shareholders through share buybacks in H1 2023,
having commenced shareholder returns in H2 2022.
Reflecting these movements, the Group had adjusted net cash of £3,061m at the
end of June 2023 compared to adjusted net cash of £1,199m at the end
of 2022.
Pensions triennial valuation
The Group's IAS 19 net pension surplus was £20m at 30 June 2023, compared to
a £40m surplus at 31 December 2022.
The technical provisions deficit is based on more conservative assumptions and
is used to determine the agreed level of cash contributions into the schemes.
In September 2022, we reached agreement with the pension trustees on a March
2021 technical provisions deficit of £944m, with annual deficit contributions
remaining unchanged at £175m until 2026. On a roll-forward basis using the
same methodology, consequent assumptions and contributions paid, the technical
provision deficit would be in the region of £800m at 30 June 2023, compared
to £850m as at 31 December 2022.
2023 outlook heavily weighted to the first half
We expect seasonality to drive lower underlying profits in the second half of
this year, a normal dynamic for the markets we are in.
As usual, uncertainties remain over the balance of the year, including the
impacts of weather, commodity prices, the economic and regulatory backdrop and
the competitive environment. This results in a range of possible outcomes for
the full year.
We currently expect 2023 full year adjusted EPS and free cash flow to be
heavily weighted towards the first half of the year, consistent with what we
said in our AGM Statement in June.
As at 30 June 2023, Spirit Energy had sold forward 292mmth of gas for H2 2023
at an average price of 139p/therm, 401mmth of gas forward for 2024 at an
average price of 179p/therm and 111mmth of gas forward for 2025 at an average
price of 157p/therm.
As at the same date, in Nuclear we had sold 3.1TWh of electricity forward for
H2 2023 at an average price of £181/MWh, 3.6TWh forward for 2024 at an
average price of £174/MWh, and 0.5TWh forward for 2025 at an average price of
£137/MWh.
Group Financial Review
Revenue
Group statutory revenue increased by 60% to £16.5bn (2022: £10.3bn). Group
revenue included in business performance, which includes revenue arising on
contracts in scope of IFRS9 (see note 4(b) for further details), increased by
43% to £20.5bn (2022: £14.3bn).
Gross segment revenue, which includes revenue generated from the sale of
products and services between segments, increased by 36% to £21.7bn (2022:
£16.0bn). This was driven largely by the impact of commodity prices on retail
tariffs in British Gas Energy, Bord Gáis Energy and Centrica Business
Solutions, partially offset by the impact of lower commodity volatility on
revenue in Energy Marketing & Trading.
A table reconciling the different revenue measures is shown in the table
below:
2023 2022
Gross Less inter-segment revenue Group Gross Less inter-segment revenue Group
segment £m revenue segment £m revenue
revenue £m revenue £m
£m £m
Six months ended 30 June
British Gas Services & Solutions 780 (27) 753 744 (22) 722
British Gas Energy 11,889 - 11,889 5,090 - 5,090
Bord Gáis Energy 1,037 - 1,037 784 - 784
Centrica Business Solutions 1,977 (3) 1,974 1,295 (11) 1,284
Energy Marketing & Trading 4,402 (290) 4,112 6,355 (113) 6,242
Upstream 1,606 (885) 721 1,695 (1,515) 180
Group revenue included in business performance 21,691 (1,205) 20,486 15,963 (1,661) 14,302
Less: revenue arising on contracts in scope of IFRS 9 included in business (3,971) (3,987)
performance
Group Revenue 16,515 10,315
Operating profit / (loss)
Adjusted operating profit increased to £2,083m (2022: £1,342m, or £857m
when excluding the disposed Spirit Energy assets). The statutory operating
profit was £6,462m (2022: loss of £1,099m). The difference between the two
measures of profit relates to exceptional items and certain remeasurements,
which are explained on pages 19-21. A table reconciling the different profit
measures is shown below:
2023 2022
Business performance Exceptional items and certain re-measurements Results for the year Business performance Exceptional items and certain re-measurements Results for the year
£m £m £m £m £m £m
Six months ended 30 June Notes
British Gas Services & Solutions 20 7
British Gas Energy 969 98
Residential energy supply 913 55
Business energy supply 56 43
Bord Gáis Energy (27) 33
Centrica Business Solutions 87 20
Energy Marketing & Trading 384 278
Core EM&T 423 253
Legacy gas contract (39) 25
Upstream 654 421
Spirit Energy (retained) 108 59
Centrica Storage 251 76
Nuclear 295 286
Profit share (4) -
Adjusted operating profit excl. disposed Spirit Energy assets 2,083 857
Spirit Energy disposed assets - 485
Group operating profit/(loss) 4(c) 2,083 4,379 6,462 1,342 (2,441) (1,099)
Net finance cost 8 (36) - (36) (78) - (78)
Taxation 9 (564) (1,617) (2,181) (571) 747 176
Profit/(loss) from operations 1,483 2,762 4,245 693 (1,694) (1,001)
Less: (Profit)/loss attributable to non-controlling interests (17) (78) (95) (50) 187 137
Adjusted earnings/(loss) attributable to shareholders 1,466 2,684 4,150 643 (1,507) (864)
Adjusted earnings attributable to shareholders excluding disposed Spirit 1,466 598
Energy assets
Profit and inventory from Rough operations are reported under Centrica Storage
Limited for presentational purposes only. Centrica Storage Limited does not
produce, supply or trade gas, except to the extent necessary for the efficient
operation of the storage facility. In accordance with the Gas Act 1986, such
production, supply and trading of gas is carried out wholly independently of
Centrica Storage Limited by other Centrica group companies.
Group operating profit from business performance (adjusted operating profit)
The increase in adjusted operating profit was primarily due to an increase in
British Gas Energy, including industry-wide cost recovery through default
price cap allowances relating to prior period costs.
Additionally, Energy Marketing & Trading delivered higher adjusted
operating profit as it continued to manage volatile market conditions well,
and Upstream adjusted operating profit increased, reflecting Centrica
Storage's Rough asset returning to gas storage operations in the second half
of 2022.
More detail on specific business unit adjusted operating profit performance is
provided in the Group Overview on pages 9-14.
Group finance charge and taxation
Finance costs
Net finance costs decreased to £36m (2022: £78m), largely due to an increase
in interest income on cash balances reflecting higher UK interest rates, which
was partially offset by an increase in interest costs on floating debt.
Taxation
Business performance taxation on profit decreased to £564m (2022: £571m).
After taking account of tax on joint ventures and associates, the adjusted tax
charge was £586m (2022: £581m).
The resultant adjusted effective tax rate for the Group was 28% (2022: 46%),
reflecting the profit mix moving away from more highly-taxed E&P
activities.
A provisional amount of Electricity Generator Levy of £180m is included in
the Group's cost of sales and our share of the results of joint venture and
associates operating profits. The Levy is not an income tax and is not
deductible for corporation tax purposes (see note 3(a), 3(d) and 8 in the
accounts). If this had been treated as a tax, the Group's adjusted effective
tax rate would have been 34%.
The adjusted effective tax rate calculation is shown below:
Six months ended 30 June 2023 2022
£m £m
Adjusted operating profit before impacts of taxation 2,083 1,342
Add: JV/associate taxation included in adjusted operating profit 22 10
Net finance cost (36) (78)
Adjusted profit before taxation 2,069 1,274
Taxation on profit (564) (571)
Share of JV/associate taxation (22) (10)
Adjusted tax charge (586) (581)
Adjusted effective tax rate (inc. JV) 28% 46%
Exceptional items and certain re-measurements
Total certain re-measurements and exceptional items included within Group
operating profit generated a pre-tax profit of £4,379m (2022: loss of
£2,441m), made up of a profit on certain re-measurements of £4,702m (2022:
loss of £2,536m) and an exceptional loss of £323m (2022: profit of £95m).
Total certain re-measurements and exceptional items generated a tax credit of
£1,617m (2022: £747m charge), with a credit of £1,620m (2022: £660m
charge) related to certain re-measurements and a charge of £3m (2022: £87m)
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.
The operating profit in the statutory results includes a net pre-tax profit of
£4,702m (2022: loss of £2,536m) relating to re-measurements, comprising of:
• A net gain of £3,812m on the re-measurement of derivative energy
contracts. This predominantly reflects the unwind of 2022 out-of-the-money
energy supply contract hedge purchases, while there was also an unwind of
Upstream and Energy Marketing & Trading out-of-the-money positions from
December 2022. The net positive impact of these two factors was £3,220m. In
addition, we saw a net unrealised mark-to-market gain of £592m from our wider
portfolio as we were in a net sell position as commodity prices fell.
• A £891m release of the onerous energy supply contract provision. At the
2022 year-end, an onerous provision was held on the balance sheet relating to
our non-domestic customers on longer-term fixed contracts agreed at levels
below the forward commodity prices in December 2022. This was because,
although the Group is predominantly hedged and so does not expect to make a
true economic loss on these contracts, the hedges are generally market trades
which are reflected as derivatives and are marked-to-market through the middle
column as certain re-measurements. At 2022 year-end, the unrealised hedges
were still in-the-money and this led to retaining an onerous contract
provision. However, following the fall in commodity prices seen in the first
half of 2023, the supply hedges were out-of-the-money as at the end of June
2023 and as a result, the remaining onerous provision has been fully released.
• There was also a £1m net loss arising on re-measurement of certain
associates' contracts (net of taxation).
These re-measurements generated a taxation charge of £1,620m (2022: credit of
£660m). As a result, the total gain from net re-measurements after taxation
was £3,082m (2022: loss of £1,876m).
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 charge of £323m was included within the statutory
Group operating profit in the first half of 2023 (2022: £95m gain), made up
of:
• A £312m impairment of the nuclear investment, as a result of lower
forecast commodity prices, partially offset by the positive effect of life
extensions at Heysham 1 and Hartlepool.
• An £11m impairment in Centrica Business Solutions predominantly related
to a battery storage asset and a gas engine, also following the reduction in
forecast commodity prices.
The taxation credit on exceptional items was £3m (2022: £87m) relating to
the impairment in Centrica Business Solutions.
As a result, the total post-tax exceptional loss after taxation was £320m
(2022: profit of £182m).
Further details on exceptional items, including on impairment accounting
policy, process and sensitivities can be found in notes 6(b) and 6(c).
Group earnings
Adjusted earnings
Profit for the year from business performance after taxation was £1,483m
(2022: £693m). After adjusting for non-controlling interests relating to
Spirit Energy, adjusted earnings were £1,466m (2022: £643m). Excluding the
disposed Spirit Energy assets, adjusted earnings were £1,466m (2022: £598m).
Adjusted basic EPS was 25.8p (2022: 11.0p, or 10.2p excluding the disposed
Spirit Energy assets).
Statutory earnings
After including exceptional items and certain re-measurements, the statutory
profit attributable to shareholders for the period was £4,150m (2022: loss of
£864m).
The Group reported a statutory basic EPS profit of 73.0p (2022: loss of
14.7p).
Dividend
The proposed interim dividend is 1.33p per share (2022: 1.0p per share).
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 2023 2022
£m £m
Statutory cash flow from operating activities 2,485 165
Statutory cash flow from investing activities 13 (139)
Statutory cash flow from operating and investing activities 2,498 26
Add back/(deduct):
Purchase of securities 17 1
Interest received (105) (8)
Movements in collateral and margin cash (1,113) 519
Defined benefit pension deficit payments 80 105
Free cash flow 1,377 643
Net cash flow from operating activities increased to £2,485m (2022: £165m),
with the impact of higher adjusted EBITDA and margin cash inflows partially
offset by negative working capital movements.
We saw a £1,113m inflow of collateral and margin cash during the first half
of 2023, as wholesale commodity prices reduced from their elevated levels last
year.
Working capital was a net outflow of £360m (2022: £438m). This included a
£1,555m outflow in British Gas Energy, reflecting settlement of elevated
December 2022 commodity costs in January, and also the pass through to
customers of £600m of Government support scheme payments which we received in
December 2022. Partially offsetting this was a £765m working capital inflow
in EM&T driven by the cash conversion of 2022 profits, and other net
working capital inflows of £430m largely driven by lower debtor balances due
to falling commodity prices in Centrica Business Solutions, the payable
relating to the
Electricity Generator Levy in Nuclear and Centrica Storage's settlement of
gas-in-store sales following return to storage operations in September 2022.
Net cash flow from investing activities increased to a £13m inflow (2022:
£139m outflow), with a £97m increase in interest received and £60m
dividends received from associates (2022: £nil).
Reflecting all this, Group total free cash flow was £1,377m (2022: £643m),
as reconciled to statutory cash flow measures in the table above.
Net cash outflow from financing activities was lower at £531m (2022: £695m)
with a reduced distribution of £17m (2022: £233m) to Spirit Energy's
minority partner relating to the disposal of Spirit Energy's Norway assets,
and £270m lower net repayment of borrowings in the first half of 2023,
partially offset by a £340m outflow relating to the buyback of shares as part
of the Group's share repurchase programme (2022: £nil).
Group adjusted net cash
The above resulted in a £1,967m increase in cash and cash equivalents over
the period, accordingly the Group's adjusted net cash position as at 30 June
2023 was £3,061m, compared to £1,199m on 31 December 2022.
Further details on the Group's sources of finance and net cash are included in
note 12.
Pension deficit
The Group's IAS19 net pension position reduced to a £20m surplus as at 30
June 2023, from a £40m surplus at 31 December 2022, with the impact of
pension deficit contributions and an increase in the high quality corporate
bond yields used to discount the pension liabilities being broadly offset by a
reduction in the scheme asset values and an actuarial adjustment due to
inflation experience.
Further details on post-retirement benefits are included in note 13.
Balance sheet
Net assets increased to £4,918m (31 December 2022: £1,280m), predominantly
driven by the unwinding of large out-of-the-money derivatives positions
largely related to our downstream energy purchases. As a result of derivative
movements, we saw a reduction in the deferred tax asset to £274m (31 December
2022: £1,709m).
2023 acquisitions, disposals and disposal groups classified as held for sale
All acquisitions and disposals undertaken by the Group during the period were
immaterial, both individually and in aggregate.
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 a headline consideration of $50 million (£37
million). During the period to 30 June 2023, deferred consideration of £55
million was received, reflecting an increase in the gas price since the
transactions were agreed.
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 largely
unchanged from those set out in its 2022 Annual Report. However, we have seen
intensifying regulatory scrutiny, with the Group's top three Principal Risks
now being Political, Legal and Regulatory risk, Credit & Liquidity Risk
and Market Risk (including the outage risk of financial loss due to impact of
lost asset production). This reflects current intense levels of scrutiny from
regulators and governments, as well as the potential impacts of continued
higher gas and electricity price and market volatility as we head towards the
next winter period.
The Group has actively responded to these risks. Centrica's approach to risk
management includes agile hedging policies and effective demand forecasting
processes. The extent to which the Group may continue to be impacted by the
consequences of the high level of commodity prices will, in part, depend on
further government and regulatory policy, including setting of future levels
of default tariff caps, levies on profits, consultations on energy supply
margins and financial resilience, as well as any significant regulatory change
in our trading businesses.
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.
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 2023 2022 Change
Nuclear power generated (GWh) 3,648 4,648 (22%)
Nuclear achieved power price (£/MWh) 187 110 70%
Spirit Energy
Six months ended 30 June 2023 2022 Change
Gas production volumes (mmth)
Retained 471 514 (8%)
Disposed - 178 nm
Total gas production volumes (mmth) 471 692 (32%)
Liquids production volumes (mmboe)
Retained 0.5 0.7 (29%)
Disposed - 3.5 nm
Total liquids production volumes (mmboe) 0.5 4.2 (88%)
Total production volumes (mmboe)
Retained 8.4 9.3 (10%)
Disposed - 6.3 nm
Total production volumes (mmboe) 8.4 15.6 (46%)
Average achieved gas sales prices (p/therm)
Retained 84.0 74.8 12%
Disposed - 191.0 nm
Total Average achieved gas sales prices (p/therm) 84.0 104.0 (19%)
Average achieved liquid sales prices (£/boe)
Retained 46.5 44.0 6%
Disposed - 64.0 nm
Total average achieved liquid sales prices (£/boe) 46.5 60.0 (23%)
Lifting and other cash production costs (£/boe) (i)
Retained 21.4 20.1 6%
Disposed - 16.7 nm
Total average lifting and other cash production costs (£/boe) (i) 21.4 18.7 14%
Gas and liquids realisations (£m) (ii)
Retained 427 427 0%
Disposed - 549 nm
Total Gas and liquids realisations (£m) (ii) 427 976 (56%)
Unit DDA rate (£/boe)
Retained 18.4 20.0 (8%)
Disposed - 0.0 nm
Average Unit DDA rate (£/boe) 18.4 12.0 53%
(i) 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.
(ii) Realisations are total revenues from sales of gas and liquids including
hedging and net of Spirit NTS costs.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Results for the six
month period ended 30 June 2023 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 26 July 2023
Chris O'Shea Russell O'Brien
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 2023 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 2023 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 (ISRE (UK) 2410). 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 are
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
ISRE (UK) 2410, 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
statements 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 ISRE (UK) 2410.
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
26 July 2023
Group Income Statement
2023 2022
Six months ended 30 June Notes Business performance Exceptional items and certain re-measurements Results for the period Business performance Exceptional items and certain re-measurements Results for the period
£m £m £m £m £m £m
Group revenue 4,6 20,486 (3,971) 16,515 14,302 (3,987) 10,315
Cost of sales (i) 6 (17,179) 12,077 (5,102) (12,039) 2,991 (9,048)
Re-measurement and settlement of derivative energy contracts 6 - (3,403) (3,403) - (1,541) (1,541)
Gross profit/(loss) 4,6 3,307 4,703 8,010 2,263 (2,537) (274)
Operating costs before exceptional items and credit losses on financial assets (983) - (983) (830) - (830)
Credit losses on financial assets 14 (309) - (309) (140) - (140)
Exceptional items - (impairment)/write-back of power assets 6 - (323) (323) - 424 424
Exceptional items - net loss on significant disposals 6 - - - - (329) (329)
Operating costs (1,292) (323) (1,615) (970) 95 (875)
Share of profits/(losses) of joint ventures and associates, net of interest 5 68 (1) 67 49 1 50
and taxation
Group operating profit/(loss) 4 2,083 4,379 6,462 1,342 (2,441) (1,099)
Financing costs 7 (143) - (143) (87) - (87)
Investment income 7 107 - 107 9 - 9
Net finance cost 7 (36) - (36) (78) - (78)
Profit/(loss) before taxation 2,047 4,379 6,426 1,264 (2,441) (1,177)
Taxation on profit/(loss) 6,8 (564) (1,617) (2,181) (571) 747 176
Profit/(loss) for the period 1,483 2,762 4,245 693 (1,694) (1,001)
Attributable to:
Owners of the parent 1,466 2,684 4,150 643 (1,507) (864)
Non-controlling interests 17 78 95 50 (187) (137)
Earnings per ordinary share Pence Pence
Basic 9 73.0 (14.7)
Diluted 9 72.0 (14.7)
Dividend paid per ordinary share 10 - -
Dividend proposed per ordinary share 10 1.33 1.00
(i) Cost of sales includes a £891 million credit (2022: £1,869 million
charge) relating to a reversal of the onerous energy supply contract provision
within the certain remeasurements column. See note 6.
The notes on pages 32 to 70 form part of these condensed interim Financial
Statements.
Group Statement of Comprehensive Income
2023 2022
£m £m
Six months ended 30 June
Profit/(loss) for the period 4,245 (1,001)
Other comprehensive income
Items that will be or have been reclassified to the Group Income Statement:
Impact of cash flow hedging (net of taxation) (15) (22)
Exchange differences on translation of foreign operations (i) (51) (62)
Exchange differences reclassified to Group Income Statement on disposal - 274
Items that will not be reclassified to the Group Income Statement:
Net actuarial (losses)/gains on defined benefit pension schemes (net of (89) 497
taxation)
Gains/(losses) on revaluation of equity instruments measured at fair value 3 (1)
through other comprehensive
income (net of taxation)
Share of other comprehensive loss of associates, net of taxation (44) (19)
Other comprehensive (loss)/income, net of taxation (196) 667
Total comprehensive income/(loss) for the period 4,049 (334)
Attributable to:
Owners of the parent 3,955 (197)
Non-controlling interests 94 (137)
(i) Exchange differences on translation of foreign operations includes £50
million (2022: £62 million) of losses attributable to the equity holders of
the parent, and £1 million of losses (2022: £nil of losses) attributable to
non-controlling interests.
The notes on pages 32 to 70 form part of these condensed interim Financial
Statements.
Group Statement of Changes in Equity
Share Share Retained Earnings Other Total Non-controlling Interests Total
Capital Premium £m Equity £m £m Equity
£m £m £m £m
1 January 2023 365 2,394 (466) (1,276) 1,017 263 1,280
Profit for the period - - 4,150 - 4,150 95 4,245
Other comprehensive loss - - - (195) (195) (1) (196)
Total comprehensive income/(loss) - - 4,150 (195) 3,955 94 4,049
Employee share schemes and other share transactions - - - 19 19 - 19
Share buyback programme (note 3) - - - (300) (300) - (300)
Dividends payable to equity holders (note 10) - - (113) - (113) - (113)
Distributions to non-controlling interests - - - - - (17) (17)
30 June 2023 365 2,394 3,571 (1,752) 4,578 340 4,918
Share Share Retained Earnings Other Total Non-controlling Interests Total
Capital Premium £m Equity £m £m Equity
£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 2 17 (2) (17) - - -
Distributions to non-controlling interests - - - - - (233) (233)
30 June 2022 365 2,394 (489) (102) 2,168 15 2,183
The notes on pages 32 to 70 form part of these condensed interim Financial
Statements.
Group Balance Sheet
30 June 31 December 2022
2023 £m
£m
Notes
Non-current assets
Property, plant and equipment 1,712 1,748
Interests in joint ventures and associates 1,211 1,580
Other intangible assets 3 418 707
Goodwill 404 409
Deferred tax assets 274 1,709
Trade and other receivables, and contract-related assets 14 120 129
Derivative financial instruments 15 967 1,393
Retirement benefit assets 13 146 150
Securities 12, 15 543 525
5,795 8,350
Current assets
Trade and other receivables, and contract-related assets 14 5,067 8,450
Other intangible assets 3 578 -
Inventories 706 1,269
Derivative financial instruments 15 3,109 6,034
Current tax assets 110 93
Cash and cash equivalents 12 7,039 4,842
16,609 20,688
Total assets 22,404 29,038
Current liabilities
Derivative financial instruments 15 (3,058) (8,841)
Trade and other payables, and contract-related liabilities (6,579) (10,176)
Current tax liabilities (554) (472)
Provisions for other liabilities and charges (242) (1,213)
Bank overdrafts, loans and other borrowings 12 (1,320) (1,009)
(11,753) (21,711)
Non-current liabilities
Deferred tax liabilities (245) (8)
Derivative financial instruments 15 (708) (1,310)
Trade and other payables, and contract-related liabilities (360) (165)
Provisions for other liabilities and charges (1,320) (1,446)
Retirement benefit obligations 13 (126) (110)
Bank loans and other borrowings 12 (2,974) (3,008)
(5,733) (6,047)
Total liabilities (17,486) (27,758)
Net assets 4,918 1,280
Share capital 365 365
Share premium 2,394 2,394
Retained earnings 3,571 (466)
Other equity (1,752) (1,276)
Total shareholders' equity 4,578 1,017
Non-controlling interests 340 263
Total shareholders' equity and non-controlling interests 4,918 1,280
The notes on pages 32 to 70 form part of these condensed interim Financial
Statements.
Group Cash Flow Statement
Six months ended 30 June Notes 2023 2022
£m £m
Group operating profit/(loss) including share of results of joint ventures and 6,462 (1,099)
associates
Deduct share of profits of joint ventures and associates, net of interest and 5 (67) (50)
taxation
Group operating profit/(loss) before share of results of joint ventures and 6,395 (1,149)
associates
Add back/(deduct):
Depreciation and amortisation 4 287 367
Write-downs, impairments and write-backs 4,6 325 (424)
Loss on disposals - 329
(Decrease)/increase in provisions (1,035) 1,845
Cash contributions to defined benefit schemes in excess of service cost income (96) (85)
statement charge
Employee share scheme costs 15 3
Unrealised (gains)/losses arising from re-measurement of energy contracts (3,074) 1,224
Operating cash flows before movements in working capital relating to business 2,817 2,110
performance and payments relating to taxes, exceptional charges and operating
interest paid
Decrease/(increase) in inventories 560 (488)
Decrease in trade and other receivables and contract-related assets relating 3,328 155
to business performance
Decrease in trade and other payables and contract-related liabilities relating (3,806) (1,222)
to business performance
Operating cash flows before payments relating to taxes, exceptional charges 2,899 555
and operating interest paid
Taxes paid (402) (367)
Operating interest paid 7 (8) -
Payments relating to exceptional charges in operating costs 6 (4) (23)
Net cash flow from operating activities 2,485 165
Purchase of businesses, net of cash acquired (5) (5)
Sale of businesses, including receipt of deferred consideration 11 55 82
Purchase of property, plant and equipment and intangible assets 4 (176) (223)
Sale of property, plant and equipment and intangible assets - 1
Investments in joint ventures and associates (9) (1)
Dividends received from joint ventures and associates 60 -
Interest received 105 8
Purchase of securities 12 (17) (1)
Net cash flow from investing activities 13 (139)
Payments for own shares - (1)
Share buyback programme (340) -
Cash inflow from short-term borrowings 12 886 -
Distributions to non-controlling interests (17) (233)
Financing interest paid 12 (108) (125)
Cash outflow from repayment of short-term borrowings and capital element of 12 (952) (336)
leases
Net cash flow from financing activities (531) (695)
Net increase/(decrease) in cash and cash equivalents 1,967 (669)
Cash and cash equivalents including overdrafts, and cash classified as held 4,242 4,328
for sale at 1 January
Effect of foreign exchange rate changes 12 (79) 111
Cash and cash equivalents including overdrafts at 30 June 12 6,130 3,770
Included in the following line of the Group Balance Sheet:
Cash and cash equivalents 12 7,039 4,093
Overdrafts included within current bank overdrafts, loans and other borrowings 12 (909) (323)
The notes on pages 32 to 70 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 2022.
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
2023 included in this announcement were authorised for issue in accordance
with a resolution of the Board of Directors on 26 July 2023.
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 2022 were approved by the
Board of Directors on 15 February 2023 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 2023, the Group Balance Sheet as at 30 June
2023, and the related notes have been reviewed by the auditors and their
report to the Company is set out on page 26.
2. Basis of preparation
These condensed interim Financial Statements for the six months ended 30 June
2023 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 2022, which were prepared in accordance with
UK-adopted International Accounting Standards and, if relevant, 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 2023 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 2022, 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.
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Company and Group have adequate resources to
continue in operational existence for the foreseeable future, and have
performed a going concern assessment at 30 June 2023 encompassing a period of
more than twelve months from the date of approval of these accounts. Cash
forecasts for the Group have been stress-tested for different scenarios
including reasonably possible increases/decreases in commodity prices and the
risk scenarios assessed in the going concern assessment, evaluating reasonably
possible combinations of risks, the largest of which is the increased margin
outflows in our trading and upstream businesses. Risks considered also include
the impact of significant adverse weather events, increased bad debt charges
due to the cost of living crisis, the risk of financial loss due to
counterparty default and production falls in the Group's upstream business.
The Group has established enhanced processes in the trading business and in
respect of Upstream to plan for and manage possible increases in margin cash
requirements. The level of undrawn committed bank facilities and available
cash resources has enabled the Directors to conclude that there are no
material uncertainties relating to going concern. As a result, the Group
continues to adopt the going concern basis of accounting in preparing the
financial statements. Further information on the Group's strong liquidity
position, including its indebtedness and available committed facilities is
provided in notes 12 and 19.
3. Accounting policies
This section details new accounting policies, standards, amendments and
interpretations, whether these are effective in 2023 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.
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 2022, as
described in those annual Financial Statements, with the exception of
policies, standards, amendments and interpretations effective as of 1 January
2023 and other changes detailed below.
(a) New accounting policies, standards, amendments and interpretations
effective or adopted in 2023
From 1 January 2023, the following standards and amendments are effective in
the Group's consolidated Financial Statements:
• IFRS 17 'Insurance Contracts', and associated amendments;
• Amendment to IAS 1 'Presentation of Financial Statements' and IFRS
Practice Statement 2, disclosure of accounting policies and materiality
judgements;
• Amendment to IAS 8 'Accounting policies, Change in Accounting Estimates
and Errors', definition of an accounting estimate; and
• Amendments to IAS 12 'Income Taxes', relating to the International Tax
Reform Pillar Two Model Rules and separately, an amendment clarifying the
accounting for deferred tax related to assets and liabilities arising from a
single transaction.
These changes and other amendments effective during the year did not
materially impact the Group's consolidated Financial Statements.
Electricity Generator Levy
At the end of 2022, the Government announced the implementation of the
Electricity Generator Levy, a new, temporary levy applicable to receipts that
the Group has realised from electricity generation in the UK from nuclear and
renewable sources from 1 January 2023. It was legislated in the Finance (No
2) Act 2023. The levy is temporary and applies a 45% charge on receipts
generated from the production of wholesale electricity sold at an average
price in excess of £75/MWh, exceeding an annual threshold of £10 million.
It applies to generators whose generation exceeds 50GWh annually, as well as
off-take arrangements with significant minority shareholders in such
generators (e.g. generation within our Nuclear associate and our off-take from
that associate).
The Group has determined that the accounting for the levy falls within the
scope of IAS 37 'Provisions, contingent liabilities, and contingent assets'
and IFRIC 21 'Levies' on the basis that the levy represents a legislative
liability imposed by the Government, calculated with reference to revenue
generated. The Group recognises the levy progressively over time, as the
related electricity is sold. See note 3(d) for further details.
Renewable certificates
The Group purchases both renewable certificates and carbon dioxide emissions
allowances in order to comply with, and meet its obligations under a number
of UK and EU renewable energy schemes. These items are initially recognised
at cost within intangible assets and were previously presented as non-current
on the basis that the Group had the ability and intention to utilise
certificates over a period greater than twelve months. Recognising that
there is divergence in industry practice, the Group has assessed the expected
submission dates of certificates currently held. Where they are expected to be
surrendered within a year of purchase they are presented as current assets,
otherwise they are presented as non-current. At 30 June 2023 these amounted to
£578 million and £41 million respectively.
IFRS 17 'Insurance Contracts'
IFRS 17 became effective on 1 January 2023. The Group currently has
fixed-fee service contracts that it previously accounted for as insurance
contracts under IFRS 4 'Insurance Contracts'. These contracts 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 is applying 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. No material impact from the
application of IFRS 17 has been recognised in the Group's
consolidated Financial Statements.
(b) Standards and amendments that are issued but not yet applied by the Group
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', classification
of liabilities as current or non-current;
• Amendments to IFRS 16 'Leases', lease liabilities in a sale and leaseback;
effective from 1 January 2024; and
• Amendments to IAS 7 'Statement of Cash Flows' and IFRS 7 'Financial
Instruments - Disclosures', disclosures in relation to supplier finance
arrangements.
Management does not expect other issued but not effective amendments or
standards, or standards not discussed above to have a material impact on the
consolidated Financial Statements.
3. Accounting policies
(c) Centrica specific accounting measures
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.
Use of adjusted performance 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. Similarly, for Segmental adjusted operating profit, the impact of
the Group's profit share is excluded because management considers it unrelated
to Segmental 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 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 adjusted net cash/(debt) measure and are therefore viewed by the
Directors as related to the manner in which the Group finances its operations.
Adjusted net cash/(debt) is used by management to assess the underlying
indebtedness of the business. Adjusted net cash/(debt) is defined as cash and
cash equivalents, net of bank overdrafts, borrowings, leases, interest
accruals and related derivatives. This is adjusted for:
• securities; and
• sub-lease assets.
3. Accounting policies
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 our 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 and onerous contracts 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 within the 'Re-measurement
and settlement of derivative energy contracts' line item. The Group's result
for the period presents the unrealised onerous supply contract provision
movements within the 'Cost of sales' 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, 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 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.
3. Accounting policies
(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 2022.
Critical accounting judgements
Electricity Generator Levy
As detailed in note 3(a), the Electricity Generator Levy became effective on 1
January 2023 and is applicable to receipts that the Group has realised from
electricity generation in the UK from nuclear and renewable sources.
The Group has determined that the accounting for the Levy falls within the
scope of IAS 37 'Provisions, contingent liabilities and contingent assets' and
is specifically subject to the requirements of IFRIC 21 'Levies' on the basis
that the levy represents a legislative liability imposed by the Government.
The Group recognises the levy as a cost of sale progressively over time, as
the related electricity is sold. The Group also considered the applicability
of IAS 12 'Income Taxes', however the Electricity Generator Levy is based on
revenue generated, and not taxable profit and is therefore outside the scope
of IAS 12. Whilst the legislation was substantively enacted on 20 June 2023
and received Royal Assent on 11 July 2023, there remain some uncertainties in
how it should be interpreted in certain areas. It is currently expected to
remain in effect until 31 March 2028.
During the period a provisional amount of £180 million has been reflected
within cost of sales as a result of this levy. £nil is recorded within the
share of profit after tax from the Nuclear associate (as the generator average
price threshold of £75/MWh was not reached).
Share buyback programme
On 10 November 2022, the Group announced an intention to undertake a share
buyback of £250 million and the Group entered into contracts with third
parties to undertake this repurchase programme which has now completed. In
2023, the Group increased the share buyback by an additional £300 million
which is expected to complete during the second half of the year. The Group
judges that the terms and conditions of the contracts meant that, at the 30
June 2023, it was unable to cancel the remaining obligation. Accordingly, the
Group has recorded a financial liability at 30 June 2023 of £167 million (31
December 2022: £207 million) for this remaining obligation, in accordance
with IFRS 9: 'Financial Instruments'. This liability is included within the
Other equity reserve.
The monthly breakdown of all shares purchased and the average price paid per
share (excluding expenses) in relation to the financial liability of £207
million recognised at 31 December 2022 were as follows:
Period Number Average price paid Total cost Authorised
of shares Pence £m purchases
purchased under unutilised at
share buyback month end
programme £m
January 2023 44,926,039 95.4 43 164
February 2023 51,825,628 100.7 52 112
March 2023 108,017,252 103.7 112 -
Total 204,768,919 101.1 207 -
The monthly breakdown of all shares purchased and the average price paid per
share (excluding expenses) in relation to the additional £300 million
programme for the period ended 30 June 2023 were as follows:
Period Number Average price paid Total cost Authorised
of shares Pence £m purchases
purchased under unutilised at
share buyback month end
programme £m
April 2023 43,184,077 112.7 49 251
May 2023 29,309,742 116.5 34 217
June 2023 42,623,172 118.4 50 167
Total 115,116,991 115.8 133 167
Key sources of estimation uncertainty
Credit provisions for trade and other receivables
The macroeconomic environment continues to be challenging with high inflation,
low growth projections and higher interest rates all contributing to
cost-of-living pressures which may impact the ability of the Group's customers
to pay amounts due. Leading debt indicators, including the number of customers
going into debt and direct debit cancellation rates in the Group's residential
portfolio have continued to deteriorate in 2023. The Group also suspended all
debt recovery field activity during the first half of the year, and this has
resulted in a deterioration of debt performance for affected cohorts of
customers during the period. Customer support schemes, implemented by the
Government in 2022 and benefiting gas and electricity customers, largely ended
on 30 June 2023 and despite declining commodity prices during the period,
prices are still significantly higher than in previous years.
These factors all result in the assessment and adequacy of credit provisions
for trade and other receivables to continue to be a key source of estimation
uncertainty.
The Group utilises a range of factors, including both internal and external,
historic and forward-looking, to assess the adequacy of the Group's credit
provisions. Whilst the Group utilises a matrix output model to record
provision coverage, management recognises that the model does not adequately
capture scenarios where there is a delayed impact on customer payments, such
as the ending of Government support schemes, and forward-looking macroeconomic
challenges. The Group has therefore recorded an additional macroeconomic
credit provision of £212 million (31 December 2022: £125 million) which
results in a total credit provision for trade and other receivables at 30 June
2023 of £1,127 million (31 December 2022: £872 million).
A detailed methodology for determining provisions for credit losses on trade
and other receivables and the level of such provision, along with associated
sensitivities, is 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.
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 and losses 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. As a result, the Group recognised an
onerous supply contract provision of £999 million in the consolidated Group
Financial Statements for the year ended 31 December 2022.
During the first half of 2023, commodity costs have declined and as a result,
fair value movements on energy purchase contracts entered to meet the future
needs of both British Gas Energy residential customers and the Group's
non-domestic customers have resulted in losses rather than gains being
recognised as certain re-measurements in the Group's Income Statement. As a
result, the Group determined that at the reporting date, the future costs to
fulfil both British Gas residential and the Group's non-domestic customer
contracts fell below charges recoverable from customers and the onerous supply
contract provision previously recognised in relation to the fulfilment of the
Group's customer contracts has been reversed in full. £891 million of this
reversal has been reflected in certain re-measurements, where it was
originally recorded. The remainder, which was recognised on the balance
sheet as part of the Avanti Gas acquisition in 2022, has been reversed in the
business performance column to match the unwind of the related derivatives
also acquired. Note that cumulatively, over time, the onerous contract
provision certain re-measurements movement in the Group's Income Statement
will total £nil.
The key sources of estimation uncertainty previously related to the expected
future tenure of the Group's customer portfolio, and the estimated gross
margin attributable to them. Due to the fair value losses recognised on
energy purchase contracts at 30 June 2023, no onerous supply contract arises
and the estimation of tenure and gross margin is no longer required.
Therefore, there is no longer a key source of estimation uncertainty. If
commodity prices increase, a further provision may be required in the
future. Further disclosures relating to movements in certain re-measurements
are provided in note 6.
Impairment of long-lived assets
The Group makes judgements in considering whether the carrying amounts of its
long-lived assets (principally Upstream gas 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.
Forward commodity prices have declined in the first half of 2023, both in
terms of observable market prices and forecast forward prices. This follows
significant year-on-year increases in both 2021 and 2022. Predominantly as a
result of the declining prices the recoverable amounts of certain assets have
been affected and an impairment of £323 million has been recorded. See note
6(b) for details.
Upstream gas assets
Forward prices for gas are a key input in the determination of the recoverable
amount of the Group's gas assets (including storage asset). The first half of
2023 has seen declines in the prices of this commodity, both in terms of
observable market prices and forecast forward prices. Despite this, impairment
headroom remains for all significant fields at the period end. As at 30 June
2023, this remains a key source of estimation uncertainty due to potential
future price decreases. As a sensitivity, were gas prices in the liquid
period (2023-2027) to fall by 50% a post-tax impairment of £98 million would
arise. Potential future price increases give rise to less estimation
uncertainty, as the recoverable amounts of the Group's gas assets are capped
at depreciated historic cost.
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. During the period,
the recoverable amount has decreased, predominantly due to falling forecast
commodity prices, partially offset by the positive impact of life extensions
at Heysham and Hartlepool stations. This has resulted in an impairment of
£312 million (31 December 2022: impairment reversal of £195 million).
The key source of estimation uncertainty is commodity price forecasts; other
input assumptions include production levels and station lives. Further details
of these uncertainties, together with the methodology, assumptions and
impairment booked during the period are provided in note 6, together with
related sensitivities.
Decommissioning provisions
The estimated cost of decommissioning at the end of the producing lives of gas
fields (including gas storage assets) is reviewed periodically and is based on
reserves, price levels and technology at the balance sheet date. Provision
is made for the estimated cost of decommissioning at the balance sheet date.
The payment dates of total expected future decommissioning costs are uncertain
and dependent on the lives of the facilities, but are currently anticipated to
be predominantly incurred by 2035.
The level of provision held is also sensitive to the discount rate used to
discount the estimated decommissioning costs. During the period, the real
discount rate used to discount the decommissioning liabilities at 30 June 2023
increased to 2% (31 December 2022: 1%). There are a number of variable
inputs into the calculation of discount rates including risk-free interest
rates and debt and equity risk premium. As a result of changes in yields on
government gilts appropriate to the forecast profile of the decommissioning
expenditure, it has been deemed appropriate to implement this increase in
rates. A 1% increase in rates reduces the decommissioning liability by
approximately £75 million. This is independent of any change in cost
estimate.
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, 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.
Bord Gáis Energy (i) The supply of gas and electricity to residential, 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).
Centrica Business Solutions (i) The supply of gas and electricity to business customers in the UK (i); and
(ii) the supply of energy services and solutions to large organisations in all
geographies in which the Group operates, and the development and operation of
large-scale power assets in the UK.
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 liquids principally within Spirit
Energy (i);
(ii) the sale of power generated from nuclear assets in the UK; and
(iii) gas storage in the UK.
(i) Where income is generated from contracts in the scope of IFRS 9, this is
included in re-measurement and settlement of derivative energy contracts.
4. Segmental analysis
(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.
2023 2022
Gross Less inter-segment revenue Group Gross Less inter-segment revenue Group
segment £m revenue segment £m revenue
revenue £m revenue £m
£m £m
Six months ended 30 June
British Gas Services & Solutions 780 (27) 753 744 (22) 722
British Gas Energy 11,889 - 11,889 5,090 - 5,090
Bord Gáis Energy 1,037 - 1,037 784 - 784
Centrica Business Solutions 1,977 (3) 1,974 1,295 (11) 1,284
Energy Marketing & Trading 4,402 (290) 4,112 6,355 (113) 6,242
Upstream 1,606 (885) 721 1,695 (1,515) 180
Group revenue included in business performance 21,691 (1,205) 20,486 15,963 (1,661) 14,302
Less: revenue arising on contracts in scope of IFRS 9 included in business (3,971) (3,987)
performance
Group Revenue 16,515 10,315
The tables below show 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.
2023
Revenue from contracts with customers in scope of IFRS 15 (i) Revenue from fixed-fee service and insurance contracts in scope of IFRS 17, Group revenue Revenue in business performance arising from contracts in scope of IFRS 9 (i) Group revenue included in business performance
and leasing contracts in scope of IFRS 16
Six months ended 30 June £m £m £m £m £m
Energy services and solutions 350
British Gas Services & Solutions 350 403 753 - 753
Energy supply- UK 11,889
British Gas Energy 11,889 - 11,889 - 11,889
Energy supply- Republic of Ireland 809
Bord Gáis Energy 809 - 809 228 1,037
Energy supply- UK 1,200
Energy services 107
Centrica Business Solutions 1,307 3 1,310 664 1,974
Energy sales to trading and energy procurement counterparties 1,671
Energy Marketing & Trading 1,671 13 1,684 2,428 4,112
Gas and liquid production 70
Upstream 70 - 70 651 721
16,096 419 16,515 3,971 20,486
(i) The Group has recognised £3,729 million of revenue from the Government in
relation to the Energy Price Guarantee scheme for domestic customers in the
British Gas Energy segment. A further £449 million of revenue has been
recognised in respect of the Energy Bill Relief Scheme. £319 million of this
total relates to Centrica Business Solutions customers and £130 million
relates to non-domestic customers in the British Gas Energy segment.
2022
Revenue from contracts with customers in scope of IFRS 15 Revenue from fixed-fee service and insurance contracts in scope of IFRS 17, Group revenue Revenue in business performance arising from contracts in scope of IFRS 9 Group revenue included in business performance
and leasing contracts in scope of IFRS 16
Six months ended 30 June £m £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- Republic of Ireland 571
Bord Gáis Energy 571 - 571 213 784
Energy supply- UK 609
Energy services 142
Centrica Business Solutions 751 9 760 524 1,284
Energy sales to trading and energy procurement counterparties 2,777
Energy Marketing & Trading 2,777 8 2,785 3,457 6,242
Gas and liquid production 387
Upstream 387 - 387 (207) 180
9,869 446 10,315 3,987 14,302
4. Segmental analysis
(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
their statutory equivalents.
Adjusted gross margin Adjusted operating profit
Six months ended 30 June 2023 2022 2023 2022
£m £m £m £m
British Gas Services & Solutions 287 255 20 7
British Gas Energy (i) 1,677 551 969 98
Bord Gáis Energy 46 97 (27) 33
Centrica Business Solutions 178 113 87 20
Energy Marketing & Trading 474 337 384 278
Upstream 647 910 654 906
Segmental adjusted gross margin/adjusted operating profit 3,309 2,263 2,087 1,342
Reconciling items to Group Income Statement:
Profit share (ii) (2) - (4) -
Total Group adjusted gross margin/adjusted operating profit 3,307 2,263 2,083 1,342
Certain re-measurements:
Onerous energy supply contract provision movement 891 (1,869) 891 (1,869)
Derivative contracts 3,812 (668) 3,812 (668)
Share of re-measurement of certain associates' energy contracts (net of - - (1) 1
taxation)
Gross profit/(loss) 8,010 (274)
Exceptional items in operating profit (323) 95
Operating profit/(loss) after exceptional items and certain re-measurements 6,462 (1,099)
(i) Included within British Gas Energy adjusted operating profit is a £50
million charge related to expected future donations to the British Gas Energy
Trust, supporting downstream customers.
(ii) The impact of the Group's profit share is excluded because management
considers it unrelated to segmental business performance.
4. Segmental analysis
(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 and impairments of property, plant and equipment Amortisation, write-downs and impairments of intangibles
Six months ended 30 June 2023 2022 2023 2022
£m £m £m £m
British Gas Services & Solutions (18) (15) (5) (7)
British Gas Energy (1) (1) (29) (40)
Bord Gáis Energy (4) (4) (6) (7)
Centrica Business Solutions (5) (6) (11) (13)
Energy Marketing & Trading (15) (15) (11) (5)
Upstream (160) (227) - -
Other (i) (14) (14) (10) (13)
(217) (282) (72) (85)
(i) The Other segment includes corporate functions, subsequently recharged.
Write-downs and impairments of intangible assets
During 2023, £2 million of other intangible assets were impaired within
business performance (2022: £nil).
4. Segmental analysis
(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, plant and equipment Capital expenditure on intangible assets other than goodwill
Six months ended 30 June 2023 2022 2023 2022
£m £m £m £m
British Gas Services & Solutions 28 25 17 13
British Gas Energy - - 249 112
Bord Gáis Energy 29 - 4 3
Centrica Business Solutions 44 22 88 43
Energy Marketing & Trading - - 3 8
Upstream 52 48 12 6
Other 46 6 - -
Capital Expenditure 199 101 373 185
Capitalised borrowing costs (1) - - -
Inception of new leases and movements in payables and prepayments related to (46) (23) 1 1
capital expenditure
Capital expenditure cash outflow subsequent to transfer to held for sale - 109 - 10
Purchases of emissions allowances and renewable obligation certificates (i) - - (350) (160)
Net cash outflow 152 187 24 36
(i) Purchases of emissions allowances and renewable obligation certificates of
£249 million (2022: £108 million) in British Gas Energy, £88 million (2022:
£41 million) in Centrica Business Solutions, £12 million (2022: £6 million)
in Upstream, and £1 million (2022: £5 million) in Energy Marketing &
Trading.
4. Segmental analysis
(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 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 is used by management as an adjusted measure of the
cash generation of the business. Free cash flow excludes investing cash flows
that are related to adjusted net debt/cash. This measure is reconciled to the
net cash flow from operating and investing activities.
Six months ended 30 June 2023 2022
£m £m
British Gas Services & Solutions (16) (54)
British Gas Energy (i) (556) (507)
Bord Gáis Energy (135) 66
Centrica Business Solutions 232 124
Energy Marketing & Trading (ii) 1,170 218
Upstream (iii) 1,090 1,151
Other (iv) (6) 12
Segmental free cash flow excluding tax 1,779 1,010
Taxes paid (i) (402) (367)
Total free cash flow 1,377 643
UK Pension deficit payments (80) (105)
Movements in variation margin and collateral (note 19) 1,113 (519)
Interest received 105 8
Purchase and settlement of securities (17) (1)
2,498 26
Net cash flow from operating activities 2,485 165
Net cash flow used in investing activities 13 (139)
Total cash flow from operating and investing activities 2,498 26
(i) British Gas Energy free cash flow includes significant working capital
outflows on settling December 2022 commodity costs.
(ii) Energy Marketing & Trading free cash flow includes conversion of
2022 profits to cash.
(iii) Upstream free cash flow in 2023 includes inflows of £55 million
relating to deferred consideration received from the 2022 Spirit Norway
disposal, and realised hedge cash outflows of £29 million (2022: £89
million) have been incurred relating to the Norwegian assets, but were held
outside the disposal groups. £650 million of free cash flow excluding tax in
2022 relates to the Norwegian disposal groups, including its disposal cash
flows. £286 million of taxes paid in 2022 relate to the Norway disposal
group.
(iv) The Other segment includes corporate functions.
5. Joint ventures and associates
Investments in joint ventures and associates represent businesses where we
exercise joint control or significant influence and generally have an equity
holding of up to 50%. These include the investment in Lake Acquisitions
Limited, which owns the existing EDF UK nuclear power station fleet. 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 principally
arises from its interest in Nuclear - Lake Acquisitions Limited, an associate,
reported in the Upstream segment.
2023 2022
Six months ended 30 June Share of business performance Share of exceptional items and certain re-measurements Share of results for the period Share of business performance Share of exceptional items and certain re-measurements Share of results for the period
£m £m £m £m £m £m
Income 265 - 265 286 - 286
Expenses before exceptional items and certain re-measurements (175) - (175) (226) - (226)
Exceptional items and re-measurement of certain contracts - (1) (1) - 1 1
Operating profit/(loss) 90 (1) 89 60 1 61
Financing costs - - - (1) - (1)
Taxation on profit/(loss) (22) - (22) (10) - (10)
Share of post-taxation results of joint ventures and associates 68 (1) 67 49 1 50
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.
If the future costs to fulfil customer supply contracts, including the
mark-to-market reversal of any energy hedging contracts entered into to meet
this demand, exceed the charges recoverable from customers, an onerous
contract provision will be recognised. If this position reverses, any
onerous contract provision is also reversed. Because the associated hedging
gains or losses, whilst either unrealised or arising on delivery, will be
recognised in certain re-measurements, the movements in the onerous provision
will also be recognised in certain re-measurements.
Six months ended 30 June 2023 2022
£m £m
Certain re-measurements recognised in relation to energy contracts:
Net gains/(losses) arising on delivery of contracts 3,220 (1,658)
Net gains arising on market price movements and new contracts 592 990
Net re-measurements included within gross profit before onerous supply 3,812 (668)
contract provision
Onerous energy supply contract provision movement (i) 891 (1,869)
Net re-measurements included within gross profit 4,703 (2,537)
Net (loss)/gain arising on re-measurement of certain associates' contracts (1) 1
(net of taxation)
Net re-measurements included within Group operating profit 4,702 (2,536)
Taxation on certain re-measurements (note 8) (ii) (1,620) 660
Certain re-measurements after taxation 3,082 (1,876)
(i) The onerous supply contract provision is based on the future costs to
fulfil customer contracts on a current market price basis. During the
period, this provision has been fully reversed. The associated hedging gains
or losses are separately recognised within the gains/losses arising on market
price movements and new contracts.
(ii) Taxation on onerous energy supply contract provision movement amounted to
a £223 million charge (2022: £355 million credit) and taxation on other
certain re-measurements amounted to a £1,397 million charge (2022: £305
million credit).
Six months ended 30 June 2023 2022
£m £m
Total re-measurement and settlement of derivative energy contracts excluding: (3,403) (1,541)
IFRS 9 business performance revenue (3,971) (3,987)
IFRS 9 business performance cost of sales 11,186 4,860
Unrealised certain re-measurements recognised in relation to energy contracts 3,812 (668)
included in gross profit
Onerous contract provision movement (cost of sales) 891 (1,869)
Total certain re-measurements 4,703 (2,537)
The table below reflects the certain re-measurement derivative movements by
business segment:
Six months ended 30 June 2023 2022
£m £m
UK Energy Supply (British Gas Energy and Centrica Business Solutions) 1,512 2,731
Upstream/Energy Marketing & Trading/Bord Gáis 2,300 (3,399)
Unrealised certain re-measurements recognised in relation to energy contracts 3,812 (668)
included in gross profit
6. Exceptional items and certain re-measurements
(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, pension change
costs or credits, significant debt repurchase costs and asset
write-downs/impairments and write-backs.
Six months ended 30 June 2023 2022
£m £m
Loss on disposal of E&P Norway - (329)
(Impairment)/write back of power assets (i) (323) 424
Exceptional items included within Group operating profit (323) 95
Net exceptional item taxation (note 8) 3 87
Total exceptional items recognised after taxation (320) 182
(i) In the Upstream segment, an impairment of the Nuclear investment of £312
million (post-tax £312 million) has been recorded predominantly as a result
of the decrease in forecast commodity prices (offset by the positive effect of
life extensions at Heysham and Hartlepool). In the Centrica Business Solutions
segment, an impairment of £11 million (post-tax £8 million) has been
recorded, predominantly related to a battery storage asset and a gas engine,
also following lower forecast commodity prices. See note 6(c) for further
details and sensitivities associated with the Nuclear investment.
6. Exceptional items and certain re-measurements
(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 during the period.
Exceptional impairment assessments of assets measured on a Value-in-use (VIU)
basis
Segment Asset/CGU Basis for impairment Recoverable amount Impairment
£m £m
Upstream Nuclear The decrease in short-term baseload power prices has more than offset the 1,209 312
impact of life extensions at Heysham 1 and Hartlepool stations
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, and operating and capital expenditure
requirements. Price assumptions are based on liquid market prices for mid-2023
to mid-2027 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 Electricity Generator Levy, applying a 45% tax rate to revenues generated
over £75/MWh until 31 March 2028, based on the above price assumptions, has
also been included in the assessment.
In March 2023, the Nuclear business announced that estimated operating
lifetimes at the Heysham 1 and Hartlepool stations would be extended by two
years to March 2026, with a range of plus or minus one year. The lifetime
extensions increased the value of the Group's investment in Nuclear by £242
million. The plus/minus one year range would impact value by an increase of
£83 million or a decrease of £109 million.
The VIU calculation assumes that the Sizewell station operates until 2055,
reflecting a 20-year extension beyond its original design life. In the absence
of this extension, the carrying value of the Group's investment in Nuclear
would be reduced by £140 million. All other stations' life assumptions are
aligned to lifetime closure dates announced by the operator (being between
March 2026 and March 2028).
The VIU calculation is also sensitive to changes in outage assumptions, and
the base level generation volumes assumed for the fleet were decreased during
the period based on a review of planned and unplanned outages. A reduction of
5% in the unplanned outage rate applied to volumes across the nuclear fleet
would lead to a write-back movement of £130 million.
The future pre-tax cash flows generated by the investment in the associate are
discounted using a pre-tax nominal discount rate of 21.7% (2022: 24.8%). This
equated to a post-tax rate of 8.0% (2022: 8.0%). The post-tax discount rate is
initially derived from the Group weighted average cost of capital as adjusted
for the risks associated with the asset and with reference to comparator
companies. The pre-tax rate is then back-calculated by removing tax cash flows
and assessing the rate that would give the same result as the post-tax rate.
As baseload power prices for the liquid period remain higher than longer term
forecast prices, the near-term cash flows are elevated, which causes the
pre-tax discount rate to remain high. A 2% increase in the post-tax discount
rate would lead to an impairment of £88 million (when compared with the
closing period-end carrying value). Similarly, a 2% reduction in the post-tax
discount rate would lead to a write-back of £116 million.
The asset is particularly sensitive to changes in commodity price and the
table below details average prices for the first 5- and 10-year periods and
associated sensitivities. Note that the asset is valued for its entire
economic life and not just this 15-year period.
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)
2023-2027 2023-2027 2028-2037 2028-2037
30 June 31 December 2022 30 June 31 December 2022 30 June 31 December 2022 30 June 31 December 2022
2023 2023 2023 2023
£/MWh £/MWh £/MWh £/MWh £m £m £m £m
Baseload power 92 150 58 63 163 198 (162) (198)
-50%
Five-year liquid and blended-period only
(398)
(i) Prices are shown in 2022 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 volatility in commodity
prices during recent years, 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 from the
discounting of decommissioning provisions and pensions. An element of
financing cost is capitalised on qualifying projects.
Investment income predominantly includes interest received from short-term
investments in money market funds, bank deposits and government bonds.
2023 2022
Financing Investment Total Financing Investment Total
costs income £m costs income £m
£m £m £m £m
Six months ended 30 June
Cost of servicing net debt:
Interest income - 107 107 - 8 8
Interest cost on bonds, bank loans and overdrafts (127) - (127) (84) - (84)
Interest cost on lease liabilities (5) - (5) (2) - (2)
(132) 107 (25) (86) 8 (78)
Net gains/(losses) on revaluation 1 - 1 (5) - (5)
Notional interest arising from discounting (4) - (4) - 1 1
(135) 107 (28) (91) 9 (82)
Other interest charges (i) (9) - (9) - - -
Capitalised borrowing costs (ii) 1 - 1 4 - 4
Financing (cost)/income (iii) (143) 107 (36) (87) 9 (78)
(i) Other interest charges includes interest charged on cash collateral
and fees for letters of credit. The cash flow associated is £8 million.
(ii) Borrowing costs have been capitalised using an average rate of 7.74%
(2022: 5.13%).
(iii) Investment income has increased significantly during 2023, and as a
result we have amended our Group Income Statement presentation to disclose
investment income and financing costs separately.
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
2023 2022
Six months ended 30 June Business performance Exceptional Results for Business performance Exceptional Results for
items and certain re-measurements (ii)
£m
the period £m £m items and certain re-measurements the period
£m
£m £m
The taxation (charge)/credit comprises
UK corporation tax (498) (1,259) (1,757) (99) 782 683
UK energy profits levy (27) (346) (373) - - -
UK petroleum revenue tax - - - (1) (20) (21)
Non-UK tax (39) (12) (51) (471) (15) (486)
Total taxation on profit/(loss) (i) (564) (1,617) (2,181) (571) 747 176
(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.
The Group's adjusted effective tax rate for the six months ended 30 June 2023
was 28% (2022: 46%). This is reconciled to this note in the Group Financial
Review on page 19.
There was no material movement in the Group's uncertain tax provision during
the period (2022: £15 million).
The UK corporation tax rate reflects the impact of Energy Profits Levy ('EPL')
of £373 million (2022: £nil) on the Group's ring fence profits from gas
production taxed at a rate of 40%, plus EPL of 35% from 1 January 2023 to give
an overall tax rate of 75%. There was no charge to EPL in 2022 interim results
as the legislation introducing the EPL had not been enacted by 30 June 2022.
Other activities in the UK are subject to the standard rate of UK corporation
tax which was 19% up to 31 March 2023 and 25% from 1 April 2023 onwards (2022:
19%).
The main non-UK rates of corporation tax are 12.5% (2022: 12.5%) in Ireland
and 22% (2022: 22%) in Denmark.
The Finance (No 2) Act 2023, which includes the legislation implementing the
Electricity Generator Levy ('EGL') was substantively enacted on 20 June 2023
and received Royal Assent on 11 July 2023. The EGL is a temporary levy
applicable to the revenues generated from renewable and nuclear sources. The
EGL is charged at 45% on the Group's revenues from wholesale sales of
electricity from renewable and nuclear generation, determined by reference to
revenue from sales exceeding a benchmark price of £75/MWh. It is a wholly new
type of levy and there remains some uncertainty over how the provisions are to
be applied.
The EGL, which is not an income tax, is included in the Group's cost of sales
and our share of the results of joint ventures and associates operating
profits, but is not deductible for corporation tax purposes, see notes 3(a)
and 3(d).The EGL amount for the six months ended 30 June 2023 is provisional
based on the revenues arising in the period to date, and the annual EGL impact
will be updated once the full-year results are known.
The legislation implementing the Organisation for Economic Co-operation and
Development's ('OECD') proposals for a global minimum corporation tax rate
('Pillar 2') was substantively enacted into UK law on 20 June 2023. The rules
have effect from 1 January 2024 and therefore the rules do not impact the
Group's results to 30 June 2023.
In Ireland and Denmark, proposals for implementing the Pillar 2 rules are
expected to be enacted by 31 December 2023.
We have applied the mandatory exception to recognising and disclosing
information about the deferred tax assets and liabilities related to Pillar 2
income taxes in the UK in accordance with the amendments to IAS 12 published
by the IASB on 23 May 2023.
The Group does not expect its tax liabilities to be materially increased as a
result of the implementation of the Pillar 2 rules. The Group is currently
assessing their detailed impact.
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 profit
attributable to equity holders of the Company for the period of £4,150
million (2022: loss of £864 million) by the weighted average number of
ordinary shares in issue during the period of 5,686 million (2022: 5,868
million). The number of shares excludes 222 million ordinary shares (2022: 26
million), being the weighted average number of the Company's own shares held
in the employee share trust and treasury shares repurchased during the period
by the Group as part of the share buyback programme.
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 81 million
(2022: 25 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.
Basic to adjusted basic earnings per share reconciliation
2023 2022
Six months ended 30 June £m Pence per ordinary share £m Pence per
ordinary share
Earnings - basic 4,150 73.0 (864) (14.7)
Net exceptional items after taxation (notes 3 and 6) (i) 320 5.6 (166) (2.8)
Certain re-measurement losses after taxation (notes 3 and 6) (i) (3,004) (52.8) 1,673 28.5
Earnings - adjusted basic 1,466 25.8 643 11.0
Earnings - diluted (ii) 4,150 72.0 (864) (14.7)
Earnings - adjusted diluted (ii) 1,466 25.4 643 10.9
(i) Net exceptional items after taxation and certain re-measurement losses
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 2023 (30 June 2022:
£nil). The 2022 final dividend of 2.00 pence per ordinary share was approved
at the Annual General Meeting, and was paid on 20 July 2023 to shareholders on
the register on 9 June 2023. An accrual of £113 million was held on balance
sheet at 30 June 2023 for this liability.
The Directors propose an interim dividend of 1.33 pence per ordinary share
(totalling £74 million) for the six months ended 30 June 2023. The dividend
will be paid on 16 November 2023 to those shareholders registered on 5 October
2023.
11. Acquisitions, disposals and disposal groups classified as held for sale
This section details business combinations, asset acquisitions and disposals
made by the Group.
During the period there have been no material acquisitions or disposals either
individually or in aggregate. There have been no material updates to the fair
value of assets and liabilities recognised for businesses acquired in 2022.
During the period deferred consideration of £55 million was received in
respect of the Spirit Norway disposal in 2022.
12. Sources of finance
(a) Capital structure
The Group seeks to maintain an efficient capital structure with a balance of
adjusted net cash and equity as shown in the table below:
30 June 31 December 2022
2023 £m
£m
Adjusted net cash (3,061) (1,199)
Shareholders' equity 4,578 1,017
Capital 1,517 (182)
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 the 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 Shareholders' equity. The
Group funds its long-term debt requirements through issuing bonds in the
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 to hold a minimum capital
amount under PRA regulations 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.
12. Sources of finance
(b) Adjusted net cash/(debt) summary
Adjusted net cash/(debt) predominantly 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 non-current securities (iii) Sub-lease assets Adjusted net cash/(debt)
£m £m £m £m £m £m £m
Group adjusted net (debt)/cash at 1 January 2023 (3,417) (153) (3,570) 4,242 525 2 1,199
Acquisition of business (iv) (12) - (12) - - - (12)
Cash outflow from purchase of securities - - - (17) 17 - -
Cash outflow for payment of capital element of leases 46 - 46 (46) - - -
Cash outflow for repayment of short-term borrowings (v) 906 - 906 (906) - - -
Net cash inflow from short-term borrowings (v) (886) - (886) 886 - - -
Remaining cash inflow (vi) - - - 2,149 - - 2,149
Revaluation/interest receivable on securities 39 (76) (37) - 11 - (26)
Interest received on securities - - - 9 (9) - -
Financing interest paid 57 21 78 (108) - - (30)
Increase in interest payable and amortisation of borrowings (90) (21) (111) - - - (111)
New lease agreements and re-measurement of existing lease liabilities (88) - (88) - - - (88)
Exchange adjustments 60 - 60 (79) (1) - (20)
Group adjusted net (debt)/cash at 30 June 2023 (3,385) (229) (3,614) 6,130 543 2 3,061
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 non-current securities (iii) Sub-lease assets Adjusted net cash/(debt)
£m £m £m £m £m £m £m
Group adjusted net (debt)/cash at 1 January 2022 (3,899) 93 (3,806) 4,328 156 2 680
Disposal of business 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 (vi) - - - (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
Group adjusted net (debt)/cash at 30 June 2022 (3,529) (51) (3,580) 3,770 124 2 316
(i) Cash and cash equivalents includes £198 million (2022: £377 million)
of restricted cash, of which £83 million relates to cash received from the
Energy Bill Support Scheme. Restricted cash also includes cash totalling £3
million (2022: £5 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 £909 million bank overdrafts
(2022: £323 million).
(iii) Securities balances includes £405 million of loans (including interest
accrued) to the pension schemes, measured at amortised cost, £71 million
(2022: £72 million) of other debt instruments and £67 million (2022: £52
million) of other equity instruments, both measured at fair value. See note 13
for further details on pension loans provided.
(iv) Acquisition of business relates to the recognition of an external loan
due to the step-up of the investment in Greener Ideas Limited from joint
venture to subsidiary during the period.
(v) Repayment of borrowings comprises the repayment of short-term borrowing
obtained during December 2022, as well as repayment of commercial paper taken
out during the period. Bond repayment in 2022 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.
(vi) Remaining cash inflow includes operating cash inflows of £2,485 million
(2022: £165 million), other investing cash inflows of £21 million (2022:
£109 million outflows). Also included are other financing cash outflows of
£17 million (2022: £233 million) of distributions to non-controlling
interests, and £340 million (2022: £nil) related to the share buyback
programme. There is a liability of £167 million recognised at 30 June 2023
related to this programme.
12. Sources of finance
(c) Borrowings, leases and interest accruals summary
30 June 2023 31 December 2022
Coupon rate Principal Current Non-current Total Current Non-current Total
% m £m £m £m £m £m £m
Bank overdrafts (909) - (909) (600) - (600)
Bank loans (> 5 year maturity) - (128) (128) - (143) (143)
Other borrowings - (12) (12) (20) - (20)
Bonds (by maturity date):
16 October 2023 (i) 4.000 US$302 (234) - (234) (246) - (246)
4 September 2026 (i) 6.400 £52 - (47) (47) - (49) (49)
16 April 2027 5.900 US$70 - (55) (55) - (58) (58)
13 March 2029 (i) 4.375 £552 - (454) (454) - (471) (471)
5 January 2032 (ii) Zero € 50 - (69) (69) - (69) (69)
19 September 2033 (i) 7.000 £770 - (671) (671) - (684) (684)
16 October 2043 5.375 US$367 - (284) (284) - (299) (299)
12 September 2044 4.250 £550 - (539) (539) - (539) (539)
25 September 2045 5.250 US$50 - (39) (39) - (41) (41)
10 April 2075 (i) (iii) 5.250 £450 - (410) (410) - (418) (418)
(234) (2,568) (2,802) (246) (2,628) (2,874)
Obligations under lease arrangements (95) (266) (361) (88) (237) (325)
Interest accruals (82) - (82) (55) - (55)
(1,320) (2,974) (4,294) (1,009) (3,008) (4,017)
(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 Closed to new members in 2022 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.
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 2021 and the Bord Gáis Energy Company Defined Benefit
Pension Scheme at 1 January 2020. These valuations have been updated to 30
June 2023 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 £944 million at the date of the last agreed actuarial valuation
as at 31 March 2021. 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 £175 million in 2021 (of which £99 million was after 31 March) and
£204 million in 2022; and will amount to £175 million per annum from 2023 to
2025, with a balancing payment in 2026. During the period, £76 million of the
above amount was paid to the schemes, alongside a pension strain payment of
£4 million associated with historic employee redundancies.
On a pure roll-forward basis, from March 2021, using the same methodology and
consequent assumptions, the technical provisions deficit (funding basis) would
be c.£800 million on 30 June 2023. Note that the valuation methodology and
assumptions used for future assessments may differ from those previously used.
In previous years, the Registered Pension Schemes also held a security package
over the Group's equity shareholding in the Direct Energy business, amounting
to £1,235 million, enforceable in the unlikely event the Group was unable to
meet its obligations. In January 2021, as part of the Direct Energy
disposal, the security package was released by the Pension Trustees. In
exchange, the Group provided replacement security of £745 million of letters
of credit and £250 million cash in escrow. In October 2022, a £400 million
loan arrangement was put in place from Centrica plc to the Registered Pension
Schemes and the security was reduced such that only £450 million of letters
of credit remained. This loan remains outstanding at the period end. When
the loan arrangement is ultimately repaid, replacement security may be
required (dependent on the funding position) and the form of security will be
at the Group's discretion.
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 seven directors: two
independent directors (including the Chairman), two directors appointed by
Centrica plc 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 2021 valuation.
13. Post-retirement benefits
(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
2023 2022
% %
Rate of increase in employee earnings:
Subject to 2% cap 1.5 1.5
Other not subject to cap 2.9 2.9
Rate of increase in pensions in payment 3.3 3.3
Rate of increase in deferred pensions:
In line with CPI capped at 2.5% 2.5 2.5
In line with RPI 3.1 3.0
Discount rate 5.2 4.7
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. 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 2023 31 December 2022
Increase/ decrease in assumption Indicative effect on scheme liabilities % Increase/ decrease in assumption Indicative
effect on scheme liabilities %
Rate of increase in employee earnings subject to 2% cap 1.00% +/-1 1.00% +1/-2
Rate of increase in pensions in payment and deferred pensions 1.00% +13/-11 1.00% +14/-12
Discount rate 1.00% -15/+19 1.00% -15/+19
Inflation assumption 1.00% +14/-11 1.00% +15/-12
Longevity assumption 1 year +/-2 1 year +/-2
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
2023 2022
£m £m
Fair value of plan assets 6,051 6,312
Present value of defined benefit obligation (6,031) (6,272)
Recognised in the Group Balance Sheet 20 40
Presented in the Group Balance Sheet as:
Retirement benefit assets 146 150
Retirement benefit liabilities (126) (110)
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 in the
consolidated Financial Statements.
Included in the Group Balance Sheet within non-current securities are £95
million (31 December 2022: £95 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, £47 million (31 December
2022: £49 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 expected credit losses. 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 2023 31 December 2022
Current Non-current Current Non-current
£m £m £m £m
Financial assets:
Trade receivables 2,916 - 2,207 -
Unbilled downstream energy income 877 - 1,281 -
Trading and energy procurement accrued income (i) 987 - 3,179 -
Other accrued energy income 99 - 234 -
Other accrued income 79 - 90 -
Cash collateral posted 207 - 1,154 -
Supplier of Last Resort receivables 136 10 253 22
Government scheme receivables 238 - 284 -
Other receivables (including contract assets) 267 23 346 24
5,806 33 9,028 46
Less: provision for credit losses (1,127) - (872) -
4,679 33 8,156 46
Non-financial assets: prepayments, other receivables and costs to obtain or 388 87 294 83
fulfil a contract with a customer
5,067 120 8,450 129
(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, are settled
in a short period of time and expected credit losses are not significant.
The amounts above include amounts arising from the Group's IFRS 15 contracts
with customers of £3,928 million (31 December 2022: £3,696 million).
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 2023 31 December 2022
Current Non-current Current Non-current
£m £m £m £m
Financial assets by business type:
Residential customers (i) 3,039 10 2,755 22
Business customers 1,336 22 1,750 22
Treasury, trading and energy procurement counterparties 1,431 1 4,523 2
5,806 33 9,028 46
Less: provision for credit losses (1,127) - (872) -
4,679 33 8,156 46
(i) Residential customers include current other receivables of £136 million
(31 December 2022: £253 million) and non-current other receivables of £10
million (31 December 2022: £22 million) in relation to Supplier of Last
Resort (SoLR) claims.
14. Trade and other receivables and contract related assets
Credit loss charge 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.
Gross trade and other receivables 30 June 31 December 2022
2023 £m
£m
Balances that are not past due 4,044 7,414
Balances that are past due (i) 1,762 1,614
5,806 9,028
(i) The majority of balances that are past due relate to residential and
business customers, ageing of these receivables is included in the credit risk
tables in the sections below.
The IFRS 9 impairment model is applicable to the Group's financial assets
including trade receivables, contract assets and other financial assets using
the simplified approach. 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 continues to recover amounts receivable under the Last Resort
Supplier Payment mechanism which was triggered when the Group was appointed as
a Supplier of Last Resort to a number of energy suppliers who ceased to trade
during 2021 and 2022. In accordance with Ofgem licence conditions, the Group
submitted two claims for incremental costs reasonably incurred to supply
affected customers. The first of these claims has now been settled, and the
second is being settled in twelve monthly payments ending in April 2024. A
further smaller claim is in process and expected to be settled by April 2025.
The receivable outstanding at 30 June 2023 is £146 million (31 December 2022:
£275 million). The claims are settled by network operators, to whom the Group
separately pays transmission and distribution charges. The risk of default is
considered low. In addition, Ofgem has 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 decreased to £207 million in 2023 (31
December 2022: £1,154 million) as a result of lower commodity prices.
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.
14. Trade and other receivables and contract related assets
British Gas Energy credit risk
Of the Group total of £2,916 million (31 December 2022: £2,207 million)
billed trade receivables, the British Gas Energy reporting segment contributes
£2,289 million (31 December 2022: £1,531 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 these British Gas Energy residential customers amount to
£1,647 million (31 December 2022: £992 million) and are analysed below.
Trade receivables due from British Gas residential energy customers as at (i)
30 June 2023 31
Decem
ber
2022
Days beyond invoice date (ii) < 30 days 30-90 days >90 days Total Percentage of credit risk < 30 days 30-90 days >90 days Total Percentage of credit risk
£m £m £m £m £m £m £m £m
Risk profile
Direct debits (iii)
Gross receivables 155 238 279 672 216 51 66 333
Provision - (1) (13) (14) - - (23) (23)
Net 155 237 266 658 2% 216 51 43 310 7%
Payment on receipt of bill (iii)
Gross receivables 99 85 531 715 118 54 286 458
Provision (4) (11) (341) (356) (4) (7) (180) (191)
Net 95 74 190 359 50% 114 47 106 267 42%
Final bills (iv)
Gross receivables 37 26 197 260 12 13 176 201
Provision (8) (12) (159) (179) (3) (6) (140) (149)
Net 29 14 38 81 69% 9 7 36 52 74%
Total net British Gas residential energy customers trade receivables 279 325 494 1,098 33% 339 105 185 629 37%
(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 2023 are £197 million (31 December 2022: £203
million), against which a provision of £128 million is held (31 December
2022: £138 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
£467 million (31 December 2022: £336 million) and are analysed below.
Trade receivables due from British Gas small business energy customers as at
30 June 2023 31
Decem
ber
2022
Days beyond invoice date (i) < 30 days 30-90 days >90 days Total Percentage of credit risk < 30 days 30-90 days >90 days Total Percentage of credit risk
£m £m £m £m £m £m £m £m
Risk profile
Small businesses
Gross receivables 91 39 337 467 64 21 251 336
Provision (4) (7) (252) (263) (1) (2) (191) (194)
Total net British Gas small business energy customers trade receivables 87 32 85 204 56% 63 19 60 142 58%
(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 2023 includes gross balances of
£643 million in respect of British Gas energy customers (31 December 2022:
£880 million), against which a provision of £25 million is held (31 December
2022: £36 million).
14.Trade and other receivables and contract related assets
Centrica Business Solutions energy credit risk
Of the Group total of £2,916 million (31 December 2022: £2,207 million)
billed trade receivables, the Centrica Business Solutions reporting segment
contributes £325 million (31 December 2022: £390 million). As described
above, credit risk is concentrated in receivables from business energy
customers who pay in arrears, the remaining balances being immaterial in
disaggregation. Gross receivables from these customers amount to £290 million
(31 December 2022: £346 million) and are analysed below.
Trade receivables due from Centrica Business Solutions business energy
customers as at
30 June 2023 31
Decem
ber
2022
Days beyond invoice date (i) < 30 days 30-90 days >90 days Total Percentage of credit risk < 30 days 30-90 days >90 days Total Percentage of credit risk
£m £m £m £m £m £m £m £m
Risk profile
Commercial and industrial (ii)
Gross receivables 105 12 26 143 170 9 31 210
Provision - (1) (17) (18) - - (15) (15)
Net 105 11 9 125 13% 170 9 16 195 7%
Medium-sized entities (ME)
Gross receivables 43 16 88 147 47 15 74 136
Provision (1) (2) (57) (60) - - (49) (49)
Net 42 14 31 87 41% 47 15 25 87 36%
Total net Centrica Business Solutions business energy customers trade 147 25 40 212 27% 217 24 41 282 18%
receivables
(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 2023 includes gross balances of
£212 million in respect of Centrica Business Solutions business energy
customers (31 December 2022: £349 million), against which a provision of £12
million is held (31 December 2022: £14 million).
The remaining reporting segments which are not shown above are not considered
to have material credit risk.
14.Trade and other receivables and contract related assets
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.
Customers are facing increases in their cost of living, including increased
energy bills, higher inflation and higher interest rates. The Group has
considered macroeconomic forecasts and sensitivities, as well as disposable
income analysis from a credit rating agency, to model and determine the level
of provisions for credit losses.
During the period, the Group recognised impairment charges of £309 million
(2022: £140 million) in respect of financial assets, representing 1.9%
of Group revenue (2022: 1.4%) and 1.5% of Group revenue from business
performance (2022: 1.0%). 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 Services. Credit losses in respect of these
assets amounted to £300 million (2022: £132 million). This represents 2.2%
(2022: 2.1%) of total UK downstream energy supply revenue from these segments
of £13,753 million (2022: £6,223 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 2022
2023 £m
£m
Trade receivables (i) 2,916 2,207
Provision (1,091) (822)
Net balance 1,825 1,385
30 June 31 December 2022
2023 %
%
Provision coverage 37 37
Sensitivity £m £m
Impact on billed receivables/operating profit from 1 percentage point (29)/29 (22)/22
(increase)/decrease in provision coverage (ii)
(i) Excludes the Government receivables under the Energy Price Guarantee (EPG)
and Energy Bill Relief Scheme (EBRS) schemes of £238 million (31 December
2022: £284 million) which are not provided for.
(ii) Credit risk in the Group is impacted by a large number of interacting
factors.
.
14.Trade and other receivables and contract related assets
Overall billed debt levels have increased significantly, in part due to
seasonality, and the recovery rates have deteriorated as cash collections
relative to billings decline, particularly within the residential and small
business segments. Provision rates for customers in the Group's downstream
operations have not changed materially. This reflects the expectations of
lower recoverability resulting from the suspension of all debt field activity,
offset by favourable mix of lower risk customer debt. The mix of customer debt
is driven largely by a higher proportion of direct debit debt in the
residential portfolio which is considered lower risk and attracts a lower rate
of bad debt provision, largely associated with normal seasonal billing
patterns.
The macroeconomic environment continues to be challenging with high inflation,
low growth projections, higher interest rates and customer mortgage rates,
with the effects not fully known. There remains significant uncertainty around
the possible increase in bad debt as a result of these factors and leading
debt indicators including the number of new customers going into debt and
direct debit cancellation rates in residential have continued to deteriorate
during 2023. There is a delayed impact on customer payments and lower
commodity prices are tempered by more limited government support measures for
customer bill values, meaning the impact has yet to be fully reflected in the
underlying matrix output model used to record provision coverage. Therefore,
as part of management's assessment of adequacy of bad debt provisions, an £87
million increase to the macroeconomic provision has been recorded, the
provision now totals £212 million across billed and unbilled debt and is
included in the tables both above and below (31 December 2022: £125 million).
Management has considered the impact of specific cohorts of customers when
making this assessment, recognising the different credit terms and different
risk profiles that exist. This assessment also utilises a range of factors,
both internal and external, historic and forward-looking, and considers the
sensitivities of these to help management estimate the likely recovery of
debt. It remains uncertain as to when and how these factors will reduce the
collectability of debt and at what scale. The table above and the unbilled
section below provide details of the sensitivity of moving the 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 2023, 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 2022
2023 £m
£m
Gross unbilled receivables 877 1,281
Provision (37) (50)
Net balance 840 1,231
30 June 31 December 2022
2023 %
%
Provision coverage 4 4
Sensitivity £m £m
Impact on unbilled receivables/operating profit from 1 percentage point (9)/9 (13)/13
(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 very 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 2023 31 December 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 - 3,795 121 3,916 - 6,486 592 7,078
Interest rate derivatives - 3 - 3 - 37 - 37
Foreign exchange derivatives - 157 - 157 - 312 - 312
Debt instruments 65 - 1 66 66 - 1 67
Equity instruments 29 20 18 67 29 9 17 55
Contingent consideration receivable - - - - - 26 - 26
Cash and cash equivalents - 5,841 - 5,841 - 2,978 - 2,978
Total financial assets at fair value 94 9,816 140 10,050 95 9,848 610 10,553
Financial liabilities
Derivative financial instruments:
Energy derivatives - (2,916) (441) (3,357) - (8,806) (850) (9,656)
Interest rate derivatives - (252) - (252) - (221) - (221)
Foreign exchange derivatives - (157) - (157) - (274) - (274)
Contingent consideration payable - - (115) (115) - - (96) (96)
Total financial liabilities at fair value - (3,325) (556) (3,881) - (9,301) (946) (10,247)
The reconciliation of the Level 3 fair value measurements during the period is
as follows:
2023 2022
Period ended 30 June Financial Financial liabilities Financial Financial
assets £m assets liabilities
£m £m £m
Level 3 financial instruments
1 January 610 (946) 501 (290)
Total realised and unrealised (losses)/gains:
Recognised in Group Income Statement (316) 166 779 (944)
Net movement in contingent consideration liability - (19) - (81)
Purchases, sales, issuances and settlements (net) (47) 111 - -
Transfers from Level 3 to Level 2 (i) (105) 132 - -
Foreign exchange movements (2) - - -
30 June 140 (556) 1,280 (1,315)
Total (losses)/gains for the year for Level 3 financial instruments (316) 166 779 (944)
held at the end of the reporting period
(i) The transfers from Level 3 to Level 2 have arisen following a reassessment
of liquidity in certain European markets.
(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 6% per annum (31 December 2022 average discount rate of 5% 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 6% per annum (31
December 2022 average discount rate of 5% per annum).
Active period of markets Gas Power Coal Emissions Oil
UK (years) 4 4 3 3 3
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.
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 in to 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 2023 2022
£m £m
1 January 304 90
Net gains deferred on transactions in the period 62 152
Net amounts recognised in Group Income Statement (140) (54)
Exchange differences (9) 4
30 June 2023 217 192
(c) Fair value of financial assets and liabilities held at amortised cost
The carrying value 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 2023 31 December 2022
Notes Carrying value Fair value Fair value hierarchy Carrying value Fair value Fair value hierarchy
£m £m £m £m
Bonds Level 1 12 (2,733) (2,787) Level 1 (2,805) (2,840) Level 1
Level 2 12 (69) (79) Level 2 (69) (79) 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 decreased by £24 billion since
31 December 2022 to £46 billion, predominately as a result of forecast
decreased prices.
Other commitments, including the acquisition of property, plant and equipment
and intangible assets, have remained at £8 billion since 31 December 2022.
(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 2023 and the date
of this report.
On 10 July 2023 the Company signed a Sale and Purchase Agreement with Delfin
Midstream Inc. The agreement, due to start in 2027, is to purchase one million
tonnes of LNG per annum over 15 years on a Free on Board ("FOB") basis at the
Delfin Deepwater Port, located 40 nautical miles off the coast of Louisiana.
On 26 July 2023 the Directors approved an interim dividend of 1.33p per
share. See note 10. The Group also announced an intention to extend the
existing share buyback programme by an additional £450 million.
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:
2023 2022
Purchase of goods and services (i) Amounts Purchase of goods and services (i) Amounts
£m owed to (ii) £m owed to (iii)
£m £m
Associates:
Nuclear (254) (46) (274) (102)
Joint Ventures (1) - - -
(255) (46) (274) (102)
(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.
At the balance sheet date, the Group had committed facilities to the Lake
Acquisition Group totalling £120 million (31 December 2022: £120 million),
although nothing has been drawn down at 30 June 2023 (31 December 2022:
£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 2022.
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 system of risk management and internal control is
set out in the 2022 Annual Report and Accounts.
Global wholesale energy prices have put pressure on the energy market, with
gas and electricity prices reaching record levels during 2022, exacerbated by
the war in Ukraine and cessation of supply to Europe from the Nord Stream 1
pipeline. Higher price levels and extreme volatility severely increases the
credit and liquidity, commodity price and weather risks, which the Group
manages through agile hedging policies and effective demand forecasting. The
investment to increase capacity at the Rough gas storage facility will further
strengthen the UK's energy resilience. The long-term aim is to turn Rough into
the world's largest methane and hydrogen storage facility. The Group will
reallocate capital investment to bolster the UK's energy security, decarbonise
the UK's industrial clusters and help reinstate the UK as a net exporter of
energy.
Compliance with the many requirements proposed in the Government's paper on
Restoring Trust in Audit and Corporate Governance is flagged as an emerging
risk and there are projects in progress to understand, design and implement
our responses.
Risks are assessed at a Business Unit (BU) level to determine the impact and
likelihood. During the BU and Group level risk reviews, the adequacy of
mitigating actions are considered given the net residual risk scores in
comparison to the Group risk appetite.
Bi-annually, the Group Principal Risks are presented to the Centrica
Leadership Team (CLT) for review and challenge. These include the aggregate
risk assessments from the BU 'bottom-up' process and any Group-level risk
assessments. All Group Principal Risks including financial risks as updated by
the CLT are presented to the Audit and Risk Committee for review.
The four main areas of financial risk are managed as follows:
(i) Commodity price risk management is carried out in accordance with the
individual BU policies and directives including appropriate escalation routes,
as approved by the Group Hedging Policy Committee;
(ii) 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;
(iii) Wholesale credit risks associated with commodity trading and treasury
positions are managed in accordance with the Group's Credit Risk Policy,
including appropriate escalation routes as approved by the Group Chief
Financial Officer; and
(iv) Downstream customer credit risk management is carried out in accordance
with individual BU 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 relevant counterparty credit limits and
updates these as necessary. It continues to operate within its limits. In
respect of trading activities across Europe there is an effort to maintain 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 capital market and to
maintain an average term to maturity in the recourse long-term debt portfolio
greater than five years.
At 30 June 2023 the Group had undrawn committed credit facilities of £3,804
million (31 December 2022: £3,951 million) and £5,932 million (31 December
2022: £3,687 million) of unrestricted cash and cash equivalents, net of
outstanding overdrafts. 84% (31 December 2022: 82%) of the Group's gross debt
has been raised in the long-term debt market and the average term to maturity
of the long-term debt portfolio was 9.4 years (2022: 9.9 years).
The Group's liquidity is impacted by the cash posted or received under margin
and collateral agreements. The terms and conditions of these agreements depend
on the counterparty and the specific details of the transaction.
Margin/collateral is generally posted or received to support energy trading
and procurement activities. It is posted when contracts with marginable
counterparties are out of the money and received when contracts are in the
money. Cash is generally returned to the Group or by the Group within two days
of trade settlement. At 30 June 2023 the collateral position was as follows:
30 June 31 December 2022
2023 £m
£m
Collateral (received)/posted included within:
Trade and other payables (370) (601)
Trade and other receivables 207 1,154
Collateral (received)/posted extinguishing:
Net derivative liabilities (i) (124) 270
Net collateral (received)/posted (ii) (287) 823
(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.
(ii) In-year movements of net collateral (received)/posted include exchange
adjustments of £(3) million (2022: £61 million).
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 2023 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.
Explanatory Notes
Definitions and reconciliation of adjusted performance measures
Centrica's 2023 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 and free cash flow have been defined and reconciled separately in
notes 3, 4 and 9 to the Financial Statements where further explanation of the
measures is given. Additional performance measures are used within these
Financial Statements to help explain the performance of the Group and these
are defined and reconciled below. Further information has been provided to
help readers when reconciling between different parts of the consolidated
Group Financial Statements, and when reconciling cash flow measures to the
Group Cash Flow Statement.
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. Further, a reconciliation excluding Spirit
Energy disposed assets is provided.
Six months ended 30 June Notes 2023 2022 Change
£m £m
Group operating profit/(loss) I/S 6,462 (1,099)
Exceptional items included within Group operating profit/loss and certain 6 323 (95)
re-measurements
before taxation
Certain re-measurements before taxation 6 (4,702) 2,536
Share of profits of joint ventures and associates, net of interest and I/S (68) (49)
taxation (i)
Depreciation and impairments of PP&E (i) 4 217 282
Amortisation, write-downs and impairments of intangibles (i) 4 72 85
Group total adjusted EBITDA 2,304 1,660 39%
(i) These line items relate to business performance only.
Adjusted EBITDA excluding Spirit Energy disposed assets
Six months ended 30 June 2023 2022 Change
£m £m
Group total adjusted EBITDA 2,304 1,660
Less: disposed assets adjusted EBITDA (including associated hedges) - (485)
Adjusted EBITDA excluding Spirit Energy disposed assets 2,304 1,175 96%
Adjusted operating profit excluding Spirit Energy disposed assets
Six months ended 30 June Notes 2023 2022 Change
£m £m
Group total adjusted operating profit I/S 2,083 1,342
Less: disposed assets adjusted operating profit (including associated hedges) - (485)
Adjusted operating profit excluding Spirit Energy disposed assets 2,083 857 143%
The below table shows how adjusted EBITDA reconciles to free cash flow:
Six months ended 30 June Notes 2023 2022
£m £m
Adjusted EBITDA 2,304 1,660
Group operating profit/(loss) including share of joint ventures and I/S 4,379 (2,441)
associates, from exceptional items and certain re-measurements
Share of losses/(profits) of joint ventures and associates, net of interest I/S 1 (1)
and taxation, from exceptional items and certain re-measurements
Depreciation, amortisation, write downs, impairments and write-backs, from I/S 323 (424)
exceptional items and certain re-measurements
Loss on disposals C/F - 329
(Decrease)/increase in provisions C/F (1,035) 1,845
Cash contributions to defined benefit schemes in excess of service cost income C/F (96) (85)
statement charge
Employee share scheme costs C/F 15 3
Unrealised (gains)/losses arising from re-measurement of energy contracts C/F (3,074) 1,224
Net movement in working capital C/F 82 (1,555)
Taxes paid C/F (402) (367)
Operating interest paid C/F (8) -
Payments relating to exceptional charges in operating profit C/F (4) (23)
Net cash flow from operating activities 2,485 165
Purchase of businesses, net of cash acquired C/F (5) (5)
Sale of businesses C/F 55 82
Purchase of property, plant and equipment and intangible assets C/F (176) (223)
Sale of property, plant and equipment and intangible assets C/F - 1
Investments in joint ventures and associates C/F (9) (1)
Dividends received from joint ventures and associates C/F 60 -
UK Pension deficit payments 4 80 105
Movements in variation margin and collateral 4 (1,113) 519
Group total free cash flow 4 1,377 643
Adjusted earnings attributable to shareholders excluding Spirit Energy
disposed assets
Six months ended 30 June Notes 2023 2022 Change
£m £m
Adjusted earnings attributable to shareholders I/S 1,466 643
Less: disposed assets adjusted earnings attributable to shareholders - (45)
(including associated hedges)
Adjusted earnings attributable to shareholders excluding Spirit Energy 1,466 598 145%
disposed assets
Adjusted basic earnings per share excluding Spirit Energy disposed assets
Six months ended 30 June Notes 2023 2022 Change
£m £m
Adjusted earnings attributable to shareholders excluding Spirit Energy 1,466 598
disposed assets (£m)
Weighted average of ordinary shares in issue during the period (million 9 5,686 5,868
shares)
Adjusted basic earnings per share excluding Spirit Energy disposed assets 25.8p 10.2p 153%
Definitions and reconciliation of adjusted performance measures
Loss on disposals
Six months ended 30 June Notes 2023 2022
£m £m
Loss on disposals C/F - 329
Less: Exceptional loss on disposals 6 - (329)
Loss on disposals relating to business performance - -
Group net investment
With an increased focus on cash generation, capital discipline and managing
net debt/cash, 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 2023 2022 Change
£m £m
Capital expenditure (including small acquisitions) (i) 190 228
Net disposals (ii) (55) (82)
Group net investment 135 146 (8)%
Dividends received from joint ventures and associates C/F (60) -
Interest received C/F (105) (8)
Net purchase of securities C/F 17 1
Net cash flow from investing activities C/F (13) 139 (109)%
(i) Capital expenditure is the net cash flow on capital expenditure, purchases
of businesses and investments in joint ventures and associates (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, and disposals 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 2023 2022 Change
£m £m
Purchase of property, plant and equipment and intangible assets C/F 176 223
Purchase of businesses, net of cash acquired C/F 5 5
Investment in joint ventures and associates C/F 9 -
Less: material acquisitions (>£100 million) - -
Capital expenditure (including small acquisitions) 190 228 (17)%
(b) Net disposals
Six months ended 30 June Notes 2023 2022 Change
£m £m
Sale of businesses C/F (55) (82)
Sale of property, plant and equipment and intangible assets C/F - (1)
Investment in joint ventures and associates C/F - 1
Net disposals (55) (82) (33)%
Definitions and reconciliation of adjusted performance measures
The following tables provide additional information to help readers when
reconciling between different parts of the consolidated Group Financial
Statements, and the Group Cash Flow Statement.
Reconciliation from free cash flow to change in adjusted net cash
Six months ended 30 June Notes 2023 2022
£m £m
Group total free cash flow 4 1,377 643
Financing interest paid C/F (108) (125)
Interest received C/F 105 8
UK Pension deficit payments 4 (80) (105)
Share buyback programme C/F (340) (1)
Distributions to non-controlling interests C/F (17) -
Dividends paid C/F - (233)
Movements in variation margin and collateral 4 1,113 (519)
Cash flows affecting adjusted net cash 2,050 (332)
Non-cash movements in adjusted net cash (188) (32)
Change in adjusted net cash 1,862 (364)
Opening adjusted net cash 12 1,199 680
Closing adjusted net cash 12 3,061 316
Reconciliation of adjusted net cash to net cash
Adjusted net cash is a business performance measure used by management to
assess the underlying indebtedness of the business.
Six months ended 30 June Notes 2023 2022
£m £m
Adjusted net cash 12 3,061 316
Less: current and non-current securities 12 (543) (124)
Less: sub-lease assets 12 (2) (2)
Net cash 2,516 190
Payments relating to exceptional charges in operating costs
Six months ended 30 June Notes 2023 2022
£m £m
Utilisation of prior year restructuring liabilities 4 23
Payments relating to exceptional charges in continuing operating costs C/F 4 23
Depreciation, amortisation, write-downs, impairments and write-backs
Six months ended 30 June Notes 2023 2022
£m £m
Movement from depreciation, amortisation, write-downs, impairments and 6 323 (424)
write-backs, from exceptional
items included in the Group Cash Flow Statement
Made up of:
Impairment/(write-back) of power assets 6 323 (424)
Movement from depreciation, amortisation, write-downs, impairments and 289 367
write-backs, from business performance included in the Group Cash Flow
Statement
Made up of:
Business Performance PP&E depreciation 4 216 282
Business Performance intangibles amortisation 4 71 85
Business Performance intangibles impairments and write-downs 4 2 -
Movement from depreciation, amortisation, write-downs, impairments and 612 (57)
write-backs included in the Group Cash Flow Statement
Definitions and reconciliation of adjusted performance measures
Reconciliation of receivables and payables to Group Cash Flow Statement
Six months ended 30 June Notes 2023 2022
£m £m
Receivables opening balance B/S 8,579 6,114
Less receivables closing balance B/S (5,187) (6,055)
Payables opening balance B/S (10,341) (7,633)
Less payables closing balance B/S 6,939 6,611
Net reduction in receivables and payables (10) (963)
Non-cash changes, and other reconciling items:
Movement in share buyback liability 40 -
Dividend creditor (113) -
Business disposals (55) 9
Movement in capital creditors 22 -
Movement in ROCS and emission certificate intangible assets (337) (138)
Other movements (including foreign exchange movements) (25) 25
Non-cash changes, and other reconciling items (468) (104)
Movement in trade and other receivables, trade and other payables and contract C/F (478) (1,067)
related assets relating to business performance
Pensions
Six months ended 30 June Notes 2023 2022
£m £m
Cash contributions to defined benefit schemes in excess of service cost income C/F (96) (85)
statement charge
Ordinary employer contributions (28) (21)
UK Pension deficit payments (80) (105)
Contributions by employer in respect of employee salary sacrifice arrangements (12) (11)
Total current service cost 24 52
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
'intend', 'aim', 'project', 'anticipate', 'estimate', 'plan', 'believe',
'expect', 'forecasts', 'may', 'could', '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, of the Company 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.
At any time subsequent to the publication of this announcement, neither the
Company nor any other person assumes responsibility for the accuracy and
completeness or undertakes any obligation, to update or revise any of these
forward-looking statements to reflect any new information or any changes in
events, conditions or circumstances on which any such forward-looking
statement is based save in respect of any requirement under applicable law or
regulation.
Past performance is no guide to future performance and persons needing advice
should consult an independent financial adviser.
When considering the information contained in, or referred to in this
announcement, please note that profit and inventory from Rough operations are
reported under Centrica Storage Limited for presentational purposes only.
Centrica Storage Limited does not produce, supply or trade gas, except to the
extent necessary for the efficient operation of the storage facility. In
accordance with the Gas Act 1986, such production, supply and trading of gas
is carried out wholly independently of Centrica Storage Limited by other
Centrica group companies.
For further information
Centrica will hold its 2023 Interim Results presentation for analysts and
institutional investors at 10.30am (UK) on Thursday 27 July 2023. There will
be a live audio webcast of the presentation and slides. Please register to
view the webcast at:
https://webcasts.centrica.com/centrica130
(https://webcasts.centrica.com/centrica130)
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/centrica130/vip_connect
(https://webcasts.centrica.com/centrica130/vip_connect)
An archived webcast and full transcript of the presentation and question and
answer session will be available on the Centrica website on Monday 31 July
2023.
Enquiries
Investors and analysts: Investor Relations
Telephone: +44(0)1753 494900
Email: ir@centrica.com
Media: Media Relations
Telephone: +44 (0)1784 843000
Email: media@centrica.com
Financial calendar
Ex-dividend date for 2023 interim dividend Thursday 5 October 2023
Record date for 2023 interim dividend Friday 6 October 2023
Payment of 2023 interim dividend Thursday 16 November 2023
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
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AnnouncementREG - Centrica PLC - Transaction in Own Shares
AnnouncementREG - Centrica PLC - AGM Statement
Announcement