News
28 July 2010
07:00
Interim results for the period ended 30 June 2010
| For the period ended 30 June | 2010 | 2009 | ∆ |
|---|---|---|---|
| Revenue‡ | £11.7bn | £11.7bn | 0% |
| Adjusted operating profit*‡ | £1,563m | £945m | 65% |
| Effective tax rate◊‡ | 37% | 39% | 2 ppts |
| Earnings^ | £886m | £537m | 65% |
| Adjusted basic earnings per share^ | 17.2p | 10.5p | 64% |
| Interim dividend per share | 3.84p | 3.66p | 4.9% |
Operating and financial overview:
- Strong first half performance:
- includes first time contributions from Venture, British Energy and newly commissioned Langage power station
- strong downstream performance, with the impact of reduced retail prices offset by lower commodity costs and higher volumes in one of the coldest winters on record
- 2010 results expected to be heavily weighted towards the first half and in line with current market expectations for the full year
- 223,000 residential energy customer accounts added following industry-leading price reduction
- Maintained high levels of service during record level of winter callouts
- Continued growth in business energy supply
- Higher upstream production and generation volumes offset by lower gas and power prices
- Encouraging progress in North American business, with underlying operating profit* up 25%∂
“Centrica has performed well in the year to date, with strong results underpinned by improved operational performance in each area of our business. We have a sound platform for growth with significant optionality in our investment programme. We are therefore well positioned to deliver long-term value for our shareholders while maintaining a competitive, high quality service for our customers.”
Sam Laidlaw, Chief Executive
Statutory results:
- Operating profit‡: £2,117m (2009: £509m)
- Earnings: £1,386m (2009: £218m)
- Basic earnings per ordinary share: 26.8p (2009: 4.0p)
A definition of the profit measures used throughout these results is provided in the Group Financial Review. A reconciliation between operating profit and adjusted operating profit is provided in note 6(b) and a reconciliation between the earnings measures is provided in note 11.
Earnings and operating profit numbers are stated, throughout the commentary, before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain re-measurements where applicable – see note 3 for definitions. The Directors believe this measure assists with better understanding the underlying performance of the Group. Exceptional items and certain re-measurements are described in note 7.
All current financial results listed are for the period ended 30 June 2010. All references to ‘the prior period’, ‘the prior year’, ‘2009’ and ‘last year’ mean the period ended 30 June 2009 unless otherwise specified.
Performance Overview
Centrica has recorded a strong performance in the year to date. The progress we have made in transforming the business, both upstream and downstream, has enabled Centrica to perform well in a competitive market. The strategic priorities we set out in February provide direction for our activities, as we focus on delivering growth and long-term value.
Earnings^ for the first half of the year were considerably ahead of the corresponding position in the same period last year, reflecting a strong downstream performance and first time contributions from Venture, British Energy and the newly commissioned gas-fired power station at Langage.
The United Kingdom experienced one of the coldest winters on record during the first quarter. The country’s infrastructure performed well, satisfying the very high levels of energy demand during this period, with excellent operational performance from our gas fields, gas-fired power generation fleet and from the Rough gas storage facility making an important contribution to this outcome. Residential gas consumption in the United Kingdom rose by 8% in the first half, with additional demand during the cold weather more than offsetting an underlying reduction in consumption through energy efficiency measures.
In February, we were able to reduce our gas prices for British Gas residential customers, the first of the major energy suppliers to do so, making this our third price reduction within 12 months. As a consequence, the average British Gas customer bill has declined slightly from 2009 levels, despite the cold weather, and we achieved a significant increase in residential energy customer accounts. During the first six months of the year, we added 223,000 customer accounts, including over 50,000 additional households taking both energy and services products.
Achieving growth in both residential services and business energy supply and services is a fundamental part of our strategic priority to grow British Gas, and we have made good initial progress to date.
In Services, we experienced record levels of call-outs during the cold weather. Our staff demonstrated great commitment and dedication to provide our customers with help when they needed it most, with our service engineers repairing up to 35,000 boilers a day during the coldest period. Nearly two million of our existing services contracts have now been renewed onto an insurance based product, which provides an opportunity to offer a more flexible and diverse range of products. We continue to achieve good growth in plumbing and drains and electrical cover. We have also achieved a 17% increase in the number of central heating installations undertaken, following a successful move to offer a more competitively priced product with the reassurance offered by the British Gas brand, together with the positive impact of the Government’s boiler scrappage scheme.
Business energy supply and services continues to perform well, delivering substantial growth by offering price and service propositions that meet the needs of our customers.
In our Upstream UK business, the operational performance of our assets was strong, benefiting from additional gas and oil production and power generation volumes from the Venture and British Energy transactions. However the low commodity price environment has continued to impact our returns.
The integration of Venture with our existing business is now complete, greatly enhancing our upstream gas capabilities. We made good progress across our development projects in the first half, bringing a third well onstream at Chiswick and commencing production at Eris and Ceres. Successful appraisal drilling in the Western region of the Cygnus field has now been completed and we also made exploration discoveries at the Olympus, Fogelberg and Maria prospects. In power generation, we successfully commissioned the 885MW gas-fired power station at Langage, which is now one of the most efficient plants on the United Kingdom merit order. At British Energy, output for the existing nuclear fleet has been adversely affected by lower output from Sizewell B power station, which has been shut down since March for inspection and repair.
The Rough storage facility continues to perform extremely well, making an important contribution to the UK system. Continued capital investment in the facility over the past few years has delivered further enhancement of injection capability, enabling the reservoir to be filled and depleted to higher levels than had previously been possible. The differential between summer and winter gas prices has narrowed significantly, currently impacting both the level of underlying returns achievable from the Rough facility and also the economics of our three potential new gas storage projects. The first of these, the Caythorpe onshore project, will be able to achieve substantially faster cycle times than Rough and therefore take advantage of volatility in prices, making it less dependent on the summer/winter price differentials. However, very recently Ofgem have indicated that they are minded to consult on revoking the existing Third Party Access exemption associated with the facility, and as a result of the regulatory uncertainty this creates for the project we have decided not to proceed at the current time. Meanwhile, engineering studies continue on our other two gas storage projects, Baird and Bains. These are complex offshore projects which have slower cycle times than Caythorpe, and significant work is required to ensure that satisfactory returns on investment can be achieved. A decision on both projects is now expected in 2011.
In North America, we have made encouraging progress. Our downstream supply businesses have recorded improved profitability*, achieving rates of return considerably in excess of our cost of capital, although upstream margins continue to be impacted by low wholesale commodity prices. Residential energy supply and business energy supply have both had a good start to the year, with underlying profitability* substantially ahead of the corresponding level in the first half of 2009. This reflects our close focus on the quality of the residential customer base to retain and attract the most valuable customers, while also achieving a reduction in costs and debt levels. We have also recently introduced a prepaid product offering, a new concept in Texas, demonstrating our ability to transfer existing expertise from the United Kingdom to new markets. In business energy supply, we have achieved higher electricity supply volumes which, together with ongoing tight cost control, have enabled us to leverage the scale we have built.
The North American market offers considerable growth opportunity for the Group, and provides important geographic diversity of earnings in chosen de-regulated markets. Our strategy is therefore to invest for growth and value, further developing the integrated energy model in the North American business over time. This will be achieved both by delivering improvements and growth in the existing business, and through carefully selected acquisitions in our target markets. We will therefore consider opportunities upstream, in gas production and power generation, and downstream, to build on our existing positions in key de-regulated markets. In energy services, we announced in June the acquisition of Clockwork Home Services, which completed in July. The transaction allows us to achieve scale in energy services in a cost-effective way, providing a platform for growth through its established franchise model. Leveraging our experience from the UK services business, the transaction marks a further step in the delivery of our strategy, to build a larger, more vertically integrated energy business in North America with a strong energy services offering.
Dividend
The Board of Directors is proposing an interim dividend of 3.84 pence per share to be paid on 17 November 2010 to shareholders on the register on 1 October 2010, in line with our stated dividend policy of paying an interim dividend of 30% of the prior year full year dividend.
Our employees
The Board extends its thanks to all our employees for their hard work, especially their dedication in ensuring that our customers continued to enjoy warm, well-lit homes throughout the exceptionally cold winter weather. Our ability to provide customers with the very highest levels of service, and to be able to respond flexibly to their requirements, is imperative for the business to achieve its maximum potential.
Safety remains paramount, across all areas of our business. In 2009, the Group’s lost time accident rate improved from 1.00 to 0.49 incidents per 100,000 hours worked. Through ongoing attention to safe working practices we have been able to sustain this rate, despite the adverse winter conditions, with 0.48 incidents per 100,000 hours worked recorded in the first half of this year. We continue to work to achieve further improvements in our safety performance across the business. We have therefore implemented a roadmap setting out our journey to a leading performance, and addressing both our culture and processes for all aspects of health, safety, process safety and environment.
The future
It is widely recognised that this is an important time for energy policy, if carbon targets and security of supply needs are to be met. We welcome the proposals the new Coalition Government has put forward in the Queen’s Speech in respect of energy security and helping to decarbonise UK energy – both in power generation and in homes and businesses.
Changes to the power market will be required to ensure that appropriate incentives are in place to enable investment in low carbon generation and, over time, to manage increased levels of intermittent and low marginal cost generation. A stable investment climate will be essential for industry to be able to make the long-term investments that will be required.
The Government’s ‘Green Deal’ will help households and businesses cut their energy usage, create thousands of new jobs and help to meet carbon reduction targets. We welcome the recognition that a new financing mechanism will need to be put in place so that people can pay for a range of energy efficiency upgrades over time through their energy bills from the savings they will make. British Gas aims to take a leadership position in making this policy initative a reality.
In March, we announced our plans to accelerate the roll-out of our smart meter programme, with a target of installing two million smart meters in customers’ homes by the end of 2012. By sharing the details of our smart meter standards with the rest of the industry, we are actively building momentum to deliver smart meters across the country and ahead of the Government’s target date of 2020 for all UK households to have smart meters installed.
In June we announced a £15 million programme to provide free solar panels to schools as part of our long running ‘Generation Green’ campaign to help raise awareness of energy efficiency in schools. In insulation, we have filled 400 of the 1,100 new jobs previously announced as we build a national insulation business. In the last five years alone, we have insulated 1.5 million homes, and see insulation as one of the most important ways for the country to make energy efficiency savings in the years ahead.
2010 outlook
The transformational progress we have delivered, both upstream and downstream, positions the business to perform well in both high and low commodity price environments. We see considerable growth opportunity for each of our businesses, both in the UK and in North America. Combining strong organic cash generation with a range of investment opportunities, aligned to our core competencies, provides a sound platform for growth. Through tight financial discipline, we remain closely focused on delivering long-term value for our shareholders, while maintaining a competitive, high quality service for our customers.
We have achieved strong financial performance in the first half of 2010, with downstream profitability* offsetting the effect of lower commodity prices on the upstream business. Overall, we expect the full year results for 2010 to be heavily weighted towards the first half of the year, and in line with current market earnings consensus, subject to the usual variables of weather patterns and commodity price movements.
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 with respect to the financial condition, results, operations and businesses of Centrica plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
For further information
Centrica will hold its 2010 Interim Results presentation for analysts and institutional investors at 9.30am (UK) on Wednesday 28 July 2010. There will be a live audio webcast of the presentation and slides from 9.30am at www.centrica.com/investors.
A live audio broadcast of the presentation will be available by dialling in using the following number:
+44 (0)20 3059 5754
The call title is “Centrica plc half year results announcement 2010” and the conference password is “Results”.
An archived webcast and full transcript of the presentation and the question and answer session will be available on the website from Friday 30 July.
Enquiries
Investors and Analysts:
Andrew Page, Director of Investor Relations
Telephone: 01753 494 900
email: ir@centrica.com
Media:
Media Relations
Telephone: 0800 107 7014
email: media@centrica.com
Financial Calendar
| Ex-dividend date for 2010 interim dividend | 29 September 2010 | |
| Record date for 2010 interim dividend | 1 October 2010 | |
| 2010 interim dividend payment date | 17 November 2010 | |
| Interim Management Statement | 17 November 2010 | |
| 2010 preliminary results announcement | 24 February 2011 |
Registered Office
Millstream, Maidenhead Road, Windsor, Berkshire SL4 5GD
* including joint ventures and associates stated gross of interest and taxation, and before other costs and depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain re-measurements
^ as above, except after other costs and joint ventures and associates stated net of interest and taxation
‡ from continuing operations
◊ includes tax from joint ventures and associates and before depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain remeasurements
∂ excludes the impact of one-off bad debt charges incurred in the first half of 2009
Download the full 2010 Interim results announcement in PDF format (0.38Mb)
