2018 Preliminary Results announcement

Iain Conn, Group Chief Executive

“Centrica’s financial performance in 2018 was mixed against a challenging external backdrop. At the headline level, adjusted operating profit was up 12% and adjusted operating cash flow and net debt were within our target ranges. However, volumes in Spirit Energy and Nuclear were disappointing and recovery in North America Business was slower than expected. Our 2019 financial performance will be impacted by the UK default tariff cap and continuing lower volumes in E&P and Nuclear, meaning our 2018-20 target range for average adjusted operating cash flow is under some pressure. We are taking actions to strengthen the company in 2019 and improve underlying performance in 2020, including driving cost efficiency hard and delivering further divestments, and as a result net debt levels remain underpinned. We have developed material new customer-facing capabilities in both Consumer and Business, exposing Centrica to an expanding opportunity-set, with encouraging indications of stabilisation and growth potential. Our focus is on performance delivery and financial discipline as we satisfy the changing needs of our customers”.

Headlines

Key financial messages

• Adjusted gross margin up 5% and EBITDA up 15% relative to 2017. Adjusted operating cash flow of £2,245m up 9%, within targeted £2.1-£2.3bn range. Group net debt of £2,656m, within 2018 targeted range of £2.5-£3.0bn. 
• 2018 full year dividend per share of 12.0p.
• Adjusted operating profit up 12% to £1,392m, with higher commodity prices and strong Rough gas production benefiting E&P despite disappointing volumes in Spirit Energy.
• £248m of in-year efficiency savings in 2018, taking total cumulative savings since 2015 to £940m. 2018 exceptional restructuring charge of £170m taking total exceptional restructuring costs 2016-18 to £486m.
• Adjusted EPS of 11.2p, down 10% compared to 2017, including a higher adjusted tax rate of 41%.   
• 2019 AOCF impacted by the UK default tariff cap, continued lower E&P and Nuclear volumes, and cash tax phasing. Targeting 2019 AOCF in the range £1.8bn-£2.0bn.  
• 2019 net debt expected to be in the range £3.0bn-£3.5bn, consistent with the mid-point of our 2018-20 range when adjusted to reflect the adoption of IFRS 16.

Further actions to improve performance and maintain a strong balance sheet

• Targeting £500m of non-core divestments in 2019, with the £230m sale of Clockwork Home Services business in North America already agreed, in line with intention to drive channel and brand rationalisation across the Group. 
• Capital reinvestment in 2019 expected to be £1bn.
• A further £250m of efficiency savings expected in 2019 and an additional £500m targeted beyond 2019 which will take annualised total savings to £1.75bn relative to a 2015 baseline.

Strategic development

• Material new capabilities in Centrica Consumer and Centrica Business with encouraging signs of stabilisation and growth potential. Total Consumer account holdings down 1% in 2018. Customer growth in Ireland, UK and North America Services, Connected Home and Distributed Energy & Power.
• Portfolio simplification continues including through Nuclear sale process and £500m divestment programme. 
• Spirit Energy focus on performance and strengthening the portfolio, while limiting Centrica exposure and creating options for the future.

Group Financial Summary

Year ended 31 December	2018	2017	Change
Revenue	£29.7bn	£28.0bn	6%
Adjusted gross margin	£4,253m	£4,037m	5%
EBITDA	£2,447m	£2,137m	15%
Adjusted operating profit	£1,392m	£1,247m	12%
Adjusted effective tax rate	41%	22%	19ppt
Adjusted earnings for the period attributable to shareholders	£631m	£693m	(9%)
Adjusted basic earnings per share (EPS)	11.2p	12.5p	(10%)
Full year dividend per share	12.0p	12.0p	0%
Adjusted operating cash flow	£2,245m	£2,069m	9%
Underlying adjusted operating cash flow growth	(0.2%)	(13.0%)	nm
Group net debt	£2,656m	£2,596m	2%
Statutory operating profit	£987m	£481m	105%
Statutory profit for the period attributable to shareholders	£183m	£328m	(44%)
Statutory net cash flow from operating activities	£1,934m	£1,840m	5%
Net exceptional items after taxation included in statutory profit	(£235m)	(£476m)	51%
Basic earnings per share	3.3p	5.9p	(44%)

Group Metrics

Year ended 31 December	2018	2017	Change
Total recordable injury frequency rate (per 200,000 hours worked) *	1.02	0.98	4%
Brand Net Promoter Score (NPS)
Consumer
UK Home	1	1	0pt
North America Home	32	33	(1pt)
Business
UK Business	(12)	(11)	(1pt)
North America Business	28	33	(5pt)
Customer account holdings (period end)
Consumer
Energy supply and services (‘000s)	23,723	24,416	(3%)
Connected Home cumulative customers (‘000s)	1,344	900	49%
Business
Energy supply (‘000s)	1,203	1,268	(5%)
DE&P active customer sites	5,560	4,778	16%
Total customer energy consumption
Gas (mmth)	12,465	11,630	7%
Electricity (GWh)	130,350	133,869	(3%)
Energy use per Home energy customer (kWh)
UK	8,481	8,367	1%
North America	24,760	24,487	1%
Annualised cost per Home customer (£) **
UK	99	90	10%
North America	170	177	(4%)
Growth revenue (Connected Home, DE&P) (£m) ***	276	225	23%
European E&P total production volumes (mmboe)	57.9	48.3	20%
Controllable operating costs (£m) **	2,438	2,443	(0%)
Controllable operating costs as a % of underlying adjusted gross margin ****	60%	62%	(2ppt)
Direct Group headcount (period end) *****	30,520	33,138	(8%)
Adjusted operating cash flow (£m)	2,245	2,069	9%
Underlying adjusted operating cash flow growth ****	(0.2%)	(13.0%)	nm
Group net investment (£m) ****
Capital expenditure and acquisitions	1,014	949	7%
Net disposals and cash acquired through Spirit Energy transaction	(46)	(903)	95%
Total Group net investment (£m)	968	46	2,004%
ROACE (post-tax) ****	13%	14%	(1ppt)
Adjusted gross margin (£m)
Centrica Consumer	2,606	2,776	(6%)
Centrica Business	933	904	3%
E&P	714	357	100%
Total adjusted gross margin (£m)	4,253	4,037	5%
Adjusted operating profit (£m)	1,392	1,247	12%
Adjusted earnings (£m)	631	693	(9%)
Adjusted earnings per share (pence)	11.2p	12.5p	(10%)

* Group and business unit total recordable injury frequency rate (per 200,000 hours worked) is on a 12 month rolling basis. ** Annualised cost per Home customer is controllable operating costs and controllable cost of sales (costs which management deem can be directly influenced and excluding items such as commodity costs and transmission and distribution costs) per the total of holdings, installs and on demand jobs. North America 2017 restated for foreign exchange movements. *** Growth revenue is gross revenue for both Connected Home and Distributed Energy & Power. **** See pages 77 to 80 for an explanation of the use of adjusted performance measures. ***** Direct Group headcount excludes contractors, agency and outsourced staff.

• Investors and Analysts (Martyn Espley):

  T: +44 (0)1753 494900

  E: ir@centrica.com

• Media (Sophie Fitton):

  T: +44 (0)1784 843000

  E: media@centrica.com

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