2016 Preliminary Results announcement

IAIN CONN, Group CHIEF EXECUTIVE

“2016 was a year of robust performance and progress in implementing our customer-focused strategy.  We delivered our key objectives including improved customer service and more innovative offerings and solutions – while repositioning the portfolio, building capability and driving significant cost efficiencies.  2016 was a busy year for the team, but we have delivered a lot, and Centrica enters 2017 a stronger company – with encouraging underlying momentum and positioned to deliver longer-term returns and growth.”

HEADLINES

Customer-led strategic repositioning on track

• Shift in investment towards customer-facing activities from E&P and Central Power Generation.
• New offers in energy and services focused on delivering choice, improved engagement and loyalty.
• Investment in customer service resulting in lower complaints and improved NPS.
• UK energy supply accounts broadly flat in H2 2016 after a 3% reduction in H1 2016.
• In Connected Home 527,000 hubs installed at the end of 2016.  Hive brand introduced into North America.
• B2B acquisitions have added leading capabilities and are performing ahead of expectations.
• Establishment of ‘Centrica Innovations’ to drive growth and access new technology and innovation.
• E&P capital expenditure down 28% to £518m, within the £400m-£600m targeted range.
• Exit from wind power generation ownership completed with sale of Lincs windfarm; Trinidad & Tobago E&P divestment announced; Canada E&P sale targeted for 2017.

 Robust financial performance

• Adjusted operating profit and adjusted earnings both up 4%, adjusted EPS of 16.8p.
• Adjusted operating cash flow up 19% to £2,686m, including £357m working capital inflow in UK Business.
• Underlying adjusted operating cash flow growth of 14%.
• Efficiency programme delivery of £384m of cost savings and over 3,400 like-for-like reduction in direct headcount in 2016, both ahead of target.  A further £250m of efficiency programme delivery expected in 2017.
• E&P £166m free cash flow positive reflecting reduced capex and lower cash production costs.
• Net debt down 27% to under £3.5bn.

Outlook and 2017 targets – returns and growth

• Continued confidence in at least 3-5% per annum underlying adjusted operating cash flow growth on average 2015-20, underpinned by strong delivery in 2016.
• Adjusted operating cash flow expected to exceed £2bn in 2017; capital expenditure to be limited to £1bn.
• Having built base capabilities, around £100m of incremental revenue investment in growth expected in 2017.
• Full year dividend of 12.0p.  In the prevailing environment, restoration of a progressive dividend currently expected when Group net debt is in the range £2.5-£3.0bn, a level targeted by the end of 2017.
• Global Consumer and Business divisions formed to enable a more coherent approach to the end-customer.
• Capital Markets Day on 21 June 2017 to provide additional insight into Consumer and Business strategies.

Group financial summary

Year ended 31 December	2016	2015	Change
Revenue	£27.1bn	£28.0bn	(3%)
Adjusted operating profit	£1,515m	£1,459m	4%
Adjusted earnings	£895m	£863m	4%
Adjusted basic earnings per share (EPS)	16.8p	17.2p	(2%)
Full year dividend per share	12.0p	12.0p	0%
Adjusted operating cash flow	£2,686m	£2,253m	19%
Group net debt	£3,473m	£4,747m	(27%)
ROACE (post-tax)	16%	12%	4ppt
Statutory operating profit / (loss)	£2,486m	(£857m)	nm
Statutory profit / (loss) for the year attributable to shareholders	£1,672m	(£747m)	nm
Net exceptional items after taxation included in statutory profit / (loss)	£27m	(£1,846m)	nm
Basic earnings per share	31.4p	(14.9p)	nm

Unless otherwise stated, all references to operating profit or loss, taxation, cash flow, earnings and earnings per share throughout the announcement are adjusted figures, reconciled to their statutory equivalents in the Group Financial Review on pages 8 to 10. See also notes 2, 5 and 10 to the Financial Statements and pages 71 to 72 for an explanation of the use of adjusted performance measures.

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