Company News

Interim Results 2015 and outcome of Strategic Review

 

FIRST HALF RESULTS

Financial summary

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Revenue

 

£15,451m

 

 

£15,748m

 

(2%)

Adjusted operating profit

 

£1,000m

 

 

£1,032m

 

(3%)

Adjusted effective tax rate

 

29%

 

 

37%

 

(8ppt)

Adjusted operating cash flow

 

£1,149m

 

 

£1,286m

 

(11%)

Adjusted earnings

 

£611m

 

 

£530m

 

15%

Adjusted basic earnings per share (EPS)

 

12.3p

 

 

10.5p

 

17%

Interim dividend per share

 

3.57p

 

 

5.10p

 

 (30%)

Group net investment

 

£383m

 

 

£409m

 

(6%)

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Group net debt

 

£4,905m

 

 

£5,196m

 

(6%)

                 

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Statutory operating profit

 

£1,343m

 

 

£1,021m

 

32%

Statutory profit for the period attributable to shareholders

 

£1,050m

 

 

£533m

 

97%

Net exceptional items after tax included in statutory profit

 

£116m

 

 

£140m

 

(17%)

Basic earnings per share

 

21.1p

 

 

10.5p

 

101%

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 12 to 15.

Performance summary

  • Group adjusted operating profit down 3%, with higher profit from customer-facing businesses more than offset by lower profit from upstream gas and power businesses; Group adjusted EPS up 17%, reflecting a lower tax rate due to the change in operating profit mix.
  • British Gas operating profit up:
    • Higher residential energy consumption due to colder weather compared to a warm first half of 2014, falling wholesale gas costs, net lower other costs including ECO; residential energy market share broadly stable.
    • Two reductions in household gas bills totalling 10% this year, saving customers £72 per year on average.
    • Residential services impacted by challenging sales environment; new propositions to be launched in second half of 2015.
    • Business energy supply impacted by issues following the implementation of a new billing and CRM system; actions in place to resolve issues by the end of 2015.
  • Direct Energy operating profit significantly up:
    • Managed extreme cold weather well in residential and business energy supply, with no repeat of additional costs incurred in 2014.
    • Increased bundling of offerings in residential energy supply and restoration of higher margin contracts sold in prior periods now benefitting business energy supply.
    • Accelerated investment for future growth in solar business, resulting in an operating loss in services.
  • Centrica Energy operating profit and earnings down reflecting lower wholesale gas, oil and power prices:
    • Flat year-on-year E&P production and good nuclear operational performance.
    • On track to deliver E&P capital expenditure and cash production cost reductions.
  • Good first contribution from Bord Gáis Energy; Centrica Storage operating profit broadly in line with 2014.        
  • Interim dividend per share down 30%, following the decision earlier in the year to rebase the dividend.
  • Good progress made in strengthening the balance sheet and financial metrics; successful hybrid bond issuance and strong first-time scrip dividend take-up; Group free cash flow positive with net debt reducing by around £300 million since the start of the year.
  • Full year outlook broadly unchanged, but uncertainties include continued low wholesale commodity prices and a competitive environment for our customer-facing businesses, as well as the ongoing resolution of British Gas business energy supply billling issues;  Group adjusted basic EPS expected to be weighted towards the first half of the year.

STRATEGIC REVIEW

In light of significantly changed circumstances a fundamental strategic review was launched in February, focused on:      i) outlook and sources of growth; ii) portfolio mix and capital intensity; iii) operating capability and efficiency; and iv) Group financial framework.  The review has been a thorough and rigorous analysis of the Group’s prospects, led by Centrica’s senior management.  The headline conclusions are:

  • Centrica’s strength lies in being a customer-facing business.  We are an energy and services company.  Our purpose is to “provide energy and services to satisfy the changing needs of our customers”.
  • Our activities and priorities will therefore be focused on meeting the needs of our customers and the shape of the Group will reflect this.  Sources of competitive advantage include strong market shares, good brands, deep energy services capability and the ability to process a high volume of transactions at scale.
  • We will aim to deliver long-term shareholder value through both returns and growth:
  • Operating cash flow growth of 3-5% per annum, underpinned near term through efficiencies.
  • Progressive dividend policy, in line with sustainable operating cash flow growth.  
  • Return on average capital employed of 10-12%.
  • Our long-term growth focus will be on energy supply, services, distributed energy and power, the connected home and energy marketing and trading.  Relative to 2015, we will commit about £1.5 billion of additional operating and capital resources to drive growth in these areas over the next five years.
  • Energy supply a key contributor to Group cash flow. Growth driven through cost efficiency, improved customer service and retention across all markets, and growth in share in the Republic of Ireland and North America, to offset competitive intensity and energy efficiency.
  • Services growth through efficiency and an expansion of our product offering, including propositions for landlords in the UK and protection plans and solar in North America; expect to invest an additional £250 million of operating cost into services growth over the next five years.
  • Distributed energy and power a material opportunity with B2B customers, including energy efficiency, flexible generation and new technologies alongside energy management systems and optimisation; £700 million of additional operating and capital resources expected to be invested in this area over the next five years.
  • Connected homes growth through capitalising internationally on our existing UK market-leading position and end-to-end capabilities; expect to invest £500 million of operating costs and capital expenditure in this area over the next five years, in capacity and capability.
  • Energy marketing and trading growth through leveraging our proven optimisation and risk management capabilities to LNG and route to market services; expect to invest an additional £150 million in operating costs and capital expenditure over the next five years.
  • We will reduce and limit scale in E&P and central power generation, lowering the Group’s capital intensity.  Relative to 2015, resource allocation to these areas will fall by about £1.5 billion over the next five years.
  • Transition to a smaller E&P business of between 40-50mmboe per annum, focused on the North Sea and East Irish Sea, consuming £400-600 million of annual capital expenditure.
  • Limit our emphasis on central thermal power, with skills migrated to distibuted energy and power.
  • Exit our remaining wind joint ventures.
  • Our interest in the UK’s nuclear fleet considered as a financial investment.
  • Aim to release £0.5-1.0 billion of divestment proceeds by 2017 from E&P and wind.
  • In addition to the shift in future resource allocation, we will target cost efficiencies of £750 million per annum by 2020 relative to a 2015 baseline, with about two-thirds of the savings expected to be delivered by the end of 2018.  This excludes the costs of smart meter installation.  Net of inflation, and before additional investment in growth areas, we expect our like-for-like 2020 operating costs to be £300 million below 2015.
  • Activity driven in four areas:  customer-facing businesses; Centrica Energy; Group functions including corporate centre, and; procurement and supply chain optimisation of third party costs.
  • Focus on simplification, consolidation, automation and support function transformation.
  • A common operating model will be established across all customer-facing geographies to leverage international scale and pursue synergies.
  • With additional allocation to growth areas, we would expect our reported operating cost base in 2020 to be at or below 2015 having offset inflation and growth.
  • We expect this programme to reduce like-for-like headcount by about 6,000 roles, with about half through turnover and attrition and about half through redundancies.  With investment in growth areas, we expect the net impact on headcount to be about 4,000 roles.
  • We will manage the Group within a clear financial framework:
  • Compound annual growth rate (CAGR) in operating cash flow of 3-5% per annum until 2020, based on flat real oil and gas prices and normal weather.
  • Operating cost growth below inflation, with the cost efficiency programme more than offsetting inflation in the near term.
  • Capital expenditure limited to £1 billion per annum in the near term and no more than 70% of operating cash flow longer term, to underpin dividend and credit rating.
  • Return on average capital employed of 10-12%.
  • Strong investment grade credit ratings of Baa1/BBB+ or better.
  • Progressive dividend policy, in line with sustainable operating cash flow growth.  

Iain Conn, Centrica Chief Executive

“The conclusion of our strategic review provides a clear direction for the business.  Centrica is an energy and services company.  Our purpose is to provide energy and services to satisfy the changing needs of our customers, and as such we will focus our growth ambitions on our customer-facing activities.  Serving our customers is what we are known for, what we are good at and where we already have distinctive positions and capabilities.  Alongside a major Group-wide efficiency programme, this will underpin long-term shareholder value, as we target operating cash flow growth of 3-5% per year and deliver a progressive dividend policy.  With Centrica delivering solid financial and operational performance in the first half of the year, and making good progress in strengthening its balance sheet and reducing net debt, the Group is well placed to compete materially against the emerging long-term trends in global energy markets.”

Adjusted operating profit/(loss)

Period ended 30 June

 

2015

 

 

2014

 

Change

British Gas

 

 

 

 

 

 

 

Residential energy supply

 

£528m

 

 

£265m

 

99%

Business energy supply and services

 

£3m

 

 

£61m

 

(95%)

Residential services

 

£125m

 

 

£129m

 

(3%)

Total British Gas

 

£656m

 

 

£455m

 

44%

Direct Energy

 

 

 

 

 

 

 

Residential energy supply

 

£67m

 

 

£48m

 

40%

Business energy supply

 

£143m

 

 

(£21m)

 

nm

Residential and business services

 

(£18m)

 

 

£14m

 

nm

Total Direct Energy

 

£192m

 

 

£41m

 

368%

Bord Gáis Energy

 

£23m

 

 

 

nm

Centrica Energy

 

 

 

 

 

 

 

Gas

 

£48m

 

 

£465m

 

(90%)

Power

 

£68m

 

 

£61m

 

11%

Total Centrica Energy

 

£116m

 

 

£526m

 

(78%)

Gas – adjusted operating (loss)/profit after tax

 

(£23m)

 

 

£235m

 

nm

Centrica Storage

 

£13m

 

 

£10m

 

30%

Total adjusted operating profit

 

£1,000m

 

 

£1,032m

 

(3%)

 

Key operational performance indicators

Group

 

 

 

 

 

 

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Lost time injury frequency rate (per 100,000 hours worked) (i)

 

0.14

 

 

0.14

 

0%

 

 

 

 

 

 

 

 

British Gas

 

 

 

 

 

 

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (period end, ’000)

 

14,733

 

 

14,778

 

(0%)

Residential services product holding (period end, ’000)

 

7,837

 

 

7,970

 

(2%)

Business energy supply points (period end, ’000)

 

802

 

 

854

 

(6%)

 

 

 

 

 

 

 

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Total gas volumes (mmth)

 

2,557

 

 

2,375

 

8%

Total electricity volumes (TWh)

 

19.3

 

 

20.2

 

(4%)

 

 

 

 

 

 

 

 

Direct Energy

 

 

 

 

 

 

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (period end, ’000)

 

3,188

 

 

3,256

 

(2%)

Residential services product holding (period end, ’000)

 

904

 

 

897

 

1%

Period ended 30 June

 

2015

 

 

2014

 

Change

Business energy supply gas volumes (mmth)

 

3,364

 

 

3,193

 

5%

Business energy supply electricity volumes (TWh)

 

46.3

 

 

48.9

 

(5%)

 

 

 

 

 

 

 

 

Total gas volumes (mmth)

 

4,574

 

 

4,526

 

1%

Total electricity volumes (TWh)

 

55.0

 

 

58.9

 

(7%)

 

 

 

 

 

 

 

 

Bord Gáis Energy

 

 

 

 

 

 

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (period end, ’000)

 

600

 

 

608

 

(1%)

 

 

 

 

 

 

 

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Total gas volumes (mmth)

 

162

 

 

 

nm

Total electricity volumes (TWh)

 

1.3

 

 

 

nm

Total power generated (TWh)

 

1.1

 

 

 

nm

 

 

 

 

 

 

 

 

Centrica Energy

 

 

 

 

 

 

 

Period ended 30 June

 

2015

 

 

2014

 

Change

Gas production (mmth) (ii)

 

1,928

 

 

1,945

 

(1%)

Liquids production (mmboe) (ii)

 

9.0

 

 

8.7

 

3%

Total gas and liquids production (mmth) (ii)

 

2,471

 

 

2,472

 

(0%)

Total gas and liquids production (mmboe) (ii)

 

40.7

 

 

40.9

 

(0%)

Total UK power generated (TWh)

 

9.8

 

 

10.7

 

(9%)

(i)    2014 lost time injury frequency rate (per 100,000 hours worked) has been restated to reflect additional data assurance activity.

(ii)   Includes 100% share of Canadian assets owned in partnership with Qatar Petroleum.

Enquiries

Investors and Analysts:  Martyn Espley  tel: 01753 494900  email: ir@centrica.com

Media: Sophie Fitton  tel: 0800 107 7014  email: media@centrica.com

 

Interviews with Iain Conn (Chief Executive), Jeff Bell (Chief Financial Officer), Mark Hanafin (Managing Director, Centrica Energy), Mark Hodges (Managing Director, British Gas) and Badar Khan (President and Chief Executive Officer, Direct Energy) are available on www.centrica.com

Overview

During the first six months of the year our focus has been on three things.  Firstly, continuing to deliver on our plans in the areas of safety and compliance.  Secondly, tackling the immediate challenges we face given the changed operating environment.  Thirdly, conducting a fundamental and wide-ranging strategic review to provide clear future direction and priorities for the Group.

In safety, our performance was stable, with injury rates broadly flat compared to 2014.  Focus areas are in driving both safety and process safety, and reducing risks to customers.  In regulatory compliance, the Group has had constructive interactions with our principal regulators, and has continued to contribute to the Competition and Markets Authority review into the functioning of the UK Energy Market.

The external environment heavily influenced our performance in the first half of the year, with lower wholesale gas and oil prices and lower spark spreads impacting the E&P and power businesses and resulting in much reduced profit in these activities.  We also experienced colder than normal weather on both sides of the Atlantic, which positively impacted our customer-facing businesses.  Given the steep fall in wholesale prices at the end of 2014, predicting the future cost of gas was a major focus.  Lower prices did enable us to pass on the benefit to households in the UK and Republic of Ireland, with price reductions in household bills announced in January, and as wholesale prices stabilised, we announced a further price reduction in the UK in July which will take effect at the end of August.

Reflecting all of this, and solid operational performance across much of the Group, adjusted earnings per share increased by 17% compared to the first half of 2014.   

We also made good progress in our actions to improve cash flows and strengthen the balance sheet.  Adjusted operating cash flow was £1.1 billion in the first half and Group net investment was £383 million in the period.  When combined with the re-based dividend and other actions this has resulted in a reduction in net debt of around £300 million since the start of the year and we remain on track to deliver reduced capital expenditure and cash production costs in our E&P business.

We have now completed our strategic review, which we launched in February in the light of significantly changed circumstances.  This has been a thorough and rigorous analysis which looked at Centrica’s i) outlook and sources of growth; ii) portfolio mix and capital intensity; iii) operating capability and efficiency; and iv) Group financial framework.

We have concluded that Centrica is well positioned to succeed against the emerging trends in energy, and our strength lies in being a customer-facing energy and services business, with a purpose to provide energy and services to satisfy the changing needs of our customers.  We see our customer-facing businesses as a real source of competitive advantage given our distinctive positions and capabilities, and these businesses will be our focus areas for growth.  These areas will receive additional operating and capital resources of about £1.5 billion over the next five years.

Alongside this, we will look to reduce the size of the more capital intensive E&P and power businesses.  These areas will see reduced operating and capital resources of about £1.5 billion over the next five years.

In addition to this shift in resource-allocation, resulting in a less capital-intense activity-set, across the Group we will target material improvements in efficiency, delivering a reduction of £750 million per annum by 2020 in our like-for-like 2015 base of operating costs and controllable cost of goods.  Even taking into account our investments for growth and the effects of inflation, we would expect our reported operating cost base in 2020 to be at or below the same level as 2015, allowing growth in gross margin to fall to the bottom-line.  

Bringing this all together, we expect to deliver operating cash flow growth of 3-5% per annum, driven predominantly by efficiencies in the near term.  Over time we would expect to see operating cash flow growth from both efficiency and gross margin expansion.  We will limit capital expenditure to £1 billion per year in the near term with the intent to underpin the dividend and credit rating.  With the further release of £0.5-1.0 billion of capital through disposals by 2017, we expect to strengthen the balance sheet and maintain credit metrics consistent with strong investment grade credit ratings.  We will target post-tax returns on average capital employed of 10-12%.  We expect to deliver a progressive dividend, linked to the sustainable growth in operating cash flow.

In summary, Centrica is well placed to build on its existing strengths and this strategy will establish Centrica as a leading energy and services company, able to serve our customers’ needs and deliver long-term shareholder value through returns and growth.

2015 first half business performance summary

Safety, compliance and market conduct remain the top priorities for the Group.  The lost time injury frequency rate (LTIFR) per 100,000 hours worked in the first half of the year was 0.14, unchanged compared to the 2014 level.  In the first half of the year we experienced one Tier 1 process safety event, the first event of this severity since 2011.  As reported in our 2014 Annual Report, process safety remains a focus for continuous improvement.  We have completed work on updating our framework for managing process safety and are now implementing this to further reduce risk in this area.  Other areas of focus are driving safety and reducing risks of injury to customers.

British Gas

In our UK customer-facing business, British Gas, operating profit increased.  British Gas Residential experienced higher consumption, reflecting colder than normal weather compared to an unusually warm first half of 2014.  With falling wholesale commodity prices and lower ECO environmental costs, predominantly reflecting the phasing of our expenditure on the programme, profitability nearly doubled compared to a weak 2014 figure.  Predicting the future cost of gas was particularly challenging in the first half of 2015.  While market conditions remain intensely competitive, our market share remained broadly flat reflecting the 5% reduction in our residential gas tariffs from 27 February 2015 and our competitive fixed price and collective switch offerings.  In July 2015, with wholesale gas costs having stabilised, we announced a further 5% reduction in our residential gas tariffs, meaning that the average standard British Gas bill will have reduced by £72 per household since the start of the year.  This will be a material benefit to our customers as we enter the coming winter.  Customer service levels improved in the first half of the year, reflected in an energy supply contact net promoter score (NPS) of +29, an increase of 10ppts since the start of the year.  The NPS for our engineers in our UK services business remained high at +70.  Improving our efficiency and service levels is a key focus, and we announced in April that we were dedicating further resource in this area, setting aside an additional investment of £50 million over three years.

The sales environment remains challenging for British Gas Services and the number of accounts fell by 2% in the first half of the year, with operating profit down by 3%.  We have now installed more than 1.5 million residential smart meters in the UK and have sold over 200,000 smart thermostats, mostly under our Hive brand.  In March, we completed the acquisition of the connected homes company AlertMe, giving us control over the technical platform that underpins our activity in this space, and the capability to launch products across the Group.  In July 2015, we launched the next generation of Hive, alongside a suite of new home technology products.

British Gas Business was impacted by issues following the implementation of a new billing and CRM system in 2014, which has resulted in significant delays to issuing customer bills.  As a result, we incurred an increased bad debt charge and additional costs associated with extra resource required to help resolve the issues.  Customer service levels also suffered and in a competitive environment the number of supply points fell by 6% in the first half.  Reflecting all of this, the business only made a small profit in the first half of 2015, significantly lower than in the first half of 2014.  We are currently undertaking an extensive transition recovery programme, including continued investment in additional resource.  Most of the customers affected are now being served normally, and we currently expect to have resolved the issues by the end of 2015. 

Direct Energy

In North America, Direct Energy delivered significantly higher operating profit.  The business experienced much colder than normal weather in the first half of 2015.  However a combination of more stable physical infrastructure, market redesign and management action meant we did not see a repeat of the additional network system charges resulting from the Polar Vortex in 2014.  In addition, Direct Energy Business is now benefitting from a focus on the quality of our portfolio mix and higher unit margins on contracts we sold in prior periods, while the Hess Energy Marketing acquisition is continuing to perform ahead of its investment case.  Market conditions remained competitive for Direct Energy Residential, although underlying margins were broadly maintained.  Direct Energy Services reported an operating loss as we accelerated our investment in Solar to drive future growth.

We continue to make good progress in building our brand in North America.  In March we announced that Direct Energy was joining a range of well-known brands to launch Plenti, the first United States-based coalition loyalty programme, where consumers can earn and use reward points for purchasing a wide range of products.  To date more than 20 million members have signed up to the programme.  We also continue to build our range of innovative offers and propositions for both homes and businesses, targeted at the most valuable customer segments.  An increased number of customers are now taking both energy and services from us with over a third of residential energy customers acquired in the first half of the year also taking a services protection plan or smart thermostat.

Bord Gáis Energy

In the Republic of Ireland, Bord Gáis Energy performed well, having also experienced colder than normal weather which resulted in higher than normal gas consumption.  Energy accounts were broadly flat over the period, with our price reduction in March positioning us with the cheapest standard dual fuel offering amongst major competitors, while we also commenced the roll-out of our Hive smart thermostat.  In power generation, the 445MW Whitegate gas-fired station performed well in the first six months, with strong availability and reliability.

Centrica Energy

In Centrica Energy, first half operating profit and earnings were significantly affected by lower wholesale gas and oil prices.  In addition, our gas midstream business was impacted by losses on flexible gas contracts which were optimised for value during falling prices in 2014, with a consequential impact on 2015.  As a result, the gas midstream business reported an operating loss in the first half, but is expected to be profitable in the second half of the year.  Centrica Energy delivered good operational performance with sustained levels of E&P production and good nuclear operational performance.  However, gas-fired generation operating performance was impacted by an unplanned outage at Langage.  We are progressing plans to close the Killingholme gas-fired power station in 2016, however our Brigg gas-fired power station will now remain open at a reduced capacity and be run as a distributed generation asset.

E&P capital expenditure was down 24% in the first half and we remain on track to reduce expenditure for the full year to around £800 million.  We also remain on track to reduce our full year cash production costs by £100 million in 2016, compared to 2014, with savings expected to have more impact in the second half of this year.

In LNG, Cheniere made a positive final investment decision on the fifth project at Sabine Pass in Louisiana at the end of June, following receipt of Federal Energy Regulatory Commission (FERC) approval and a Non-Free Trade Agreement licence from the Department of Energy (DOE).  Centrica expects to take delivery of its first cargo under its US export contract with Cheniere in late 2018 or in 2019.

Centrica Storage

In Centrica Storage, with seasonal gas price spreads remaining at low levels, the business delivered operating profit broadly in line with the first half of 2014.  However, a potential technical issue was discovered at the Rough asset during a routine inspection in the first quarter of the year, which will limit the capacity at Rough at least until the testing and verification works are completed between September and December 2016.  The impact of the limitation on second half profitability is expected to be broadly offset by additional profit from the sale of cushion gas.  This follows consent from the Oil and Gas Authority to increase the capacity of Rough, going some way to restoring Rough to its previous capacity level before the limitation was imposed.

Strategic review

We concluded our Group-wide strategic review in July, focused on Centrica’s i) outlook and sources of growth; ii) portfolio mix and capital intensity; iii) operating capability and efficiency; and iv) Group financial framework.  A significant amount of management time has been dedicated to the review and it has provided a thorough and rigorous analysis of the Group’s prospects.

Centrica is an energy and services company.  Centrica’s purpose is to provide energy and services to satisfy the changing needs of our customers.  Serving customers is what we are known for, what we are good at, and where we already have distinctive positions.  Our priority will be to deliver for the changing needs of our customers, including the sourcing and optimisation of the energy required to meet these needs.

We intend to deliver long-term shareholder value through returns and growth, creating what we believe will be an attractive investor proposition.  We have concluded that we can grow the Group’s cash flows, with our customer-facing businesses a real source of competitive advantage including strong market shares, good brands, deep capability in energy services and the ability to process a high volume of transactions at scale.  Reflecting this competitive advantage, our long-term focus will be on these customer-facing businesses.

Focus on providing energy and services to satisfy the changing needs of our customers

Our focus for long-term growth will be in five areas: energy supply; services; distributed energy and power; the connected home; and energy marketing and trading.  These areas will receive about £1.5 billion of additional operating and capital resources over the next five years.

Our energy supply businesses will continue to be a key contributor to Group cash flow.  In the UK, given a highly competitive market, our focus for growth will be through significantly improved cost efficiency and improved customer service to underpin better retention levels.  We expect these to offset the impacts of competitive intensity and reducing consumption.  We believe that with less constraint on our current ability to offer different propositions to customers, we can leverage our capability to innovate and compete.  In UK services, we believe we can reverse recent declines in market share in the UK through the development of propositions which appeal to additional customer segments, leveraging our scale of service delivery in such areas as on-demand service and property landlords.  In the Republic of Ireland, a market more recently deregulated than the UK, we will look to increase our electricity supply and energy services share.

Our North America customer-facing businesses are an important part of the Group.  Given our market leading position, but in highly fragmented markets, we see opportunities to increase market share in both energy and services in the region.  In residential energy supply, we are focused on developing a more sustainable business model through the development of improved bundled propositions, greater focus on customer mix and achieving lower churn.  In business energy supply, the acquisition of Hess Energy Marketing in 2013 has provided us with a market leading position and a strong base from which to deliver sustainable returns over the long term.  In services, we are the US market leader, albeit with a small market share in a very fragmented market, and believe there is strong potential for growth from the wide range of products we are able to offer.  We expect to invest an additional £250 million of operating costs into growing services over the next five years.

We believe that connected homes’ offerings will become increasingly important, with propositions linked to our core energy and services products in the UK, the Republic of Ireland and North America.  These propositions will help to underpin better retention levels as well as provide growth opportunities in their own right.  We already have products in the market and have built high quality end-to-end capability in this area, with operating platform design and operation, hardware and software development, data analytics, installation and maintenance.  Given these capabilities, the scale of our existing customer relationships, and our ability to connect physical with digital through our 12,000 direct engineers and technicians worldwide, we will be able to compete meaningfully in this space.  To drive growth, we are investing £500 million in operating costs and capital expenditure in connected homes’ activity over the next five years.

Distributed energy, including energy efficiency, flexible generation and new technologies, alongside energy management and optimisation, is an activity which we believe could provide significant growth potential for Centrica in the long-term.  This activity will be targeted at commercial and industrial (C&I) customers in all the geographies in which we operate, with customers seeking ways to drive energy efficiency.  Although building up our capability in this area will require some additional investment, many of the skills associated with distributed energy already reside in the Group, both in British Gas and Direct Energy, and in the Centrica Energy power business.  We have a good starting position and this is an attractive opportunity for Centrica.  We would expect to invest up to £700 million of additional operating and capital resources to this area over the next five years.

Energy marketing and trading also provides a good opportunity for growth and is an area where we already have strong capabilities.  In LNG, the first commercial delivery under our US gas export contract with Cheniere is expected in late 2018 or in 2019, and we have been actively building both our capability and market presence in LNG.  We will also continue to expand our route to market services and continue to utilise our knowledge of European energy markets to benefit from trading and optimisation activity.  We expect to invest an additional £150 million of operating costs and capital expenditure in this area until 2020.              

Reduced scale and capital intensity in E&P and power

The emphasis on growth will be in our customer-facing businesses and we have clarified the roles of E&P and our central power generation businesses.   We will be reducing resources allocated to these areas by about £1.5 billion over the next five years.  The shift of resources towards the customer-facing businesses will result in a less capital-intense portfolio mix.

To supply energy to our customers requires balance sheet strength, to take on long-term commitments and to manage the margin calls and other working capital requirements associated with risk-managing this exposure.  One way to manage these risks is to own assets producing diversified cash flows, and the E&P business provides such diversification.  We have therefore concluded that in the next phase of Centrica, the role of E&P in the portfolio is to provide diversity of cash flows and the balance sheet strength that goes with this.

We have determined that a stable E&P business which produces around 40-50mmboe per annum, and requires between £400-£600 million of capital expenditure each year, is sized to fulfil this role.  This compares to a business which produced 75-80mmboe and incurred capital expenditure of around £1.1 billion in 2013 and 2014 as we sought to grow E&P.  We may look to supplement our reserves with inorganic non-operated additions to the portfolio, although not before 2017, and only if the additions were of high quality and represented good shareholder value. This inorganic investment is included in the average capital expenditure range of £400-£600 million per annum, although could exceed this slightly in specific years depending upon phasing of inorganic investments.

While we have built an E&P business with good capabilities over the past six years, we are participating in five countries which we believe is too stretching for our scale and capabilities.  As a result we will focus our E&P activity on the North Sea and East Irish Sea, where we are material enough to play a major part in the UK and Netherlands, and have the capability and presence in Norway to allow us to access additional value opportunities.  We will maximise value from our existing operations through a focus on safe and sustainable operations, whilst investing mainly in Norway and increasingly in non-operated opportunities.  As previously signalled, we continue to review options to release capital from our Trinidad and Tobago positions, while we now consider our Canadian E&P business to be non-core.  As such, we will not look to grow our Canadian business and will seek ways to maximise value from our existing position in close coordination with our partner, Qatar Petroleum.

In thermal power, we will continue to operate our existing small gas-fired fleet, maximising optimisation activity and seeking opportunities to make small investments in improving the fleet where economics allow.  We will maintain a watching brief as the capacity market evolves, and will retain sufficient capability to enable us to continue to manage power assets in the future.  However we will not increase our emphasis on central thermal generation, preferring to seek opportunities in peaking units and distributed generation.

Our participation in nuclear power generation is an attractive investment and remains a useful source of baseload power for our UK energy supply businesses.  However our interest provides limited strategic optionality for the Group, and moving forward we will therefore consider our interest in the UK nuclear fleet as a financial investment, and will assess its merits in the portfolio on that basis.

In wind power generation, with total operational capacity of only 245MW and no existing potential developments in the pipeline, we plan to dispose of our interests, continuing to participate to a limited degree through power purchase agreements.

In gas storage, we intend to hold the Rough asset, focusing on safety, compliance and efficiency.  We do not see it as a growth option in the current environment and will focus on completing the assessment of the operating integrity of the asset, implementing the necessary plans arising from the assessment, and continuing to work with the UK Government on any changes necessary to ensure the asset fulfils its role as the main strategic storage asset for the UK.

Cost efficiency

In addition to the shift of resources towards the customer-facing businesses, transforming our cost base and the efficiency with which we go to market is a major strategic opportunity.  Centrica is an international company with scale, with similar customer and market trends in all our markets.  However, we have not yet fully leveraged this scale through shared capabilities, common operating models, and cost efficiency.  We see a significant cost efficiency opportunity over the next five years, which will allow us to more than offset inflation on our current controllable cost base of slightly above £4.5 billion per annum – which includes both operating cost and controllable cost of goods sold.  The controllable cost base excludes energy and distribution costs, and the costs associated with rolling out the mandated smart meter programme in the UK, and will be adjusted for any major acquisitions or disposals.

We will target £750 million per annum of efficiencies from our 2015 like-for-like cost base over the next five years, before inflation and one-off investment to achieve the savings, with about two-thirds of the savings expected to be delivered by the end of 2018.  This excludes the costs of installation of smart meters which has an associated cost-recovery mechanism.  After the effects of inflation, we expect like-for-like operating costs to reduce by around £300 million per annum by 2020.  We expect to be spending around £200 million per annum of additional operating costs to deliver incremental gross margin in the growth areas of services, connected homes, distributed energy and power, and energy marketing and trading by 2020.  As a result, we would expect operating costs in 2020 to be at or below their 2015 level.  We will deliver this efficiency programme without compromising safety, compliance and customer service.  Longer-term, we expect to manage our operating cost growth to be less than inflation.

The efficiency programme will be a major source of near-term cash flow growth.  It will be organised in four areas: the customer-facing businesses; Centrica Energy; Group functions including the corporate centre; and procurement and supply chain optimisation of third party costs.  In our customer-facing businesses, areas of focus will be back and front office simplification, the establishment of shared marketing, sales and network services across all geographies, call centre optimisation and changing the downstream organisational model.  In Centrica Energy, we will focus on the rationalisation of layers, functional simplification, the supply chain and field lifting costs.  At a Group level, we will look to transform the relationship between our corporate centre and the business units through changes to the Group’s functional model, in finance, human resources and information systems.  We will also pursue major procurement efficiencies in all aspects of third party costs and cost of goods sold.  We expect the savings to be evenly split between first and second party costs, and third party costs.

To help deliver the efficiencies, we will look to establish a common operating model and philosophy across the customer-facing geographies.  We estimate that the efficiency programme will cost around £500-£600 million in investment and rationalisation expense to deliver, and is likely to involve a reduction in like-for-like headcount by 2020 of around 6,000 roles.  Taking account of additional headcount in the growth areas, the net reduction should be about 4,000 roles, before growth in the workforce necessary to deliver the roll-out of smart meters in the UK.   We would expect roughly half of the reduction in the 6,000 roles to come from natural attrition and half from redundancies, with most redundancies occurring before the end of 2017.

Financial framework

Bringing this all together, we are targeting operating cash flow growth of 3-5% per annum over the period 2015-2020, assuming flat real commodity prices at $70 per barrel of Brent Crude oil and 50p per therm of UK NBP gas, normal weather and excluding one-off cash expenses to deliver the efficiency programme.  We will limit capital expenditure in the long term to no more than 70% of adjusted operating cash flow although in the short term, to underpin the dividend and credit rating, this will be limited to £1 billion per year.  This is less than 50% of the Group’s expected adjusted operating cash flow in 2015.  This will result in the Group’s net debt figure reducing to levels which will further strengthen the credit metrics currently required by Moody’s and Standard & Poor’s to retain strong investment grade credit ratings – Baa1 with Moody’s and BBB+ with Standard & Poor’s.  

We will maintain controllable cost growth at below inflation, but in the period to 2020 we will deliver a nominal net reduction in costs through our efficiency programme.  Taking into account the expected growth in cash flow and capital expenditure levels, we expect to deliver a sustainable return on average capital employed for the Group of 10-12%.  The shift of reinvestment into less capital-intense activities should underpin higher returns in the longer term.  We intend to deliver a progressive dividend relative to a 2015 base, with growth in line with the sustainable operating cash flow of the business.  Having launched a scrip dividend for the first time earlier this year we will continue to offer this option to our investors in the near term, however we will keep it under review.

Cash flow and balance sheet

Group net debt fell by around £300 million to £4.9 billion in the first half of the year, despite a detrimental impact on working capital as a result of the billing issues we faced in UK business energy supply.  This reflects the actions we announced at the time of our 2014 Preliminary Results in February, including reduced capital expenditure, most significantly in E&P.  It also includes the impact of reduced cash outflow from dividend payments due to our decision to rebase the 2014 final dividend by 30%, and over 40% take-up for our scrip dividend alternative.  In the first half of the year the Group disposed of the portion of the Lincs wind farm project financing debt owned by Centrica, resulting in a cash inflow to Centrica of £180 million.  We also concluded the issuance of €750 million and £450 million hybrid securities, helping underpin the Group’s financial metrics.

Centrica requires strong investment grade credit ratings to undertake its procurement, hedging and optimisation activity. On 19 March 2015, Moody’s Investors Service downgraded the issuer rating and senior unsecured ratings for Centrica plc to Baa1 (stable outlook) from A3 (negative outlook), primarily as a result of the financial impact of the fall in energy prices and the continuing political, regulatory and competitive risks in the UK energy supply business.  Standard & Poor’s Rating Services currently has Centrica plc on an A- (negative outlook) credit rating, with their annual review due to be concluded shortly.  Both ratings are consistent with the Company’s target to maintain strong investment grade credit ratings.

Competition and Markets Authority Investigation

The Competition and Markets Authority (CMA) investigation into the UK energy market is ongoing and following the publication of their updated statement of issues on 18 February 2015, the CMA’s provisional findings and notice of possible remedies were published on 7 July 2015.  We welcome the CMA’s wide-ranging review, which recognises the realities and difficulties of implementing policy, pricing and regulation in a complex marketplace, and their provisional findings look to be a comprehensive and thorough assessment.  We also welcome the possibility that this review will have a constructive and positive influence on competition in the energy market.  We have questions and concerns about some of the findings and proposals, including the potential introduction of a transitional ‘safeguard regulated tariff’ for ‘disengaged’ domestic and microbusiness customers, while we do not agree with their conclusions on profitability and returns.  However we look forward to engaging with the CMA in the next phase of this process.

Management update

In April, it was announced that Mark Hodges would become Managing Director, British Gas with effect from 1 June 2015.  With a background in insurance, Mark brings a strong understanding of the UK consumer market and a track record in improving business performance.  He is experienced in working in a regulated environment, driving significant improvements in customer service and efficiency, innovation, and in major IT and change projects.

In July 2015, it was announced that Jeff Bell had been appointed Chief Financial Officer, with effect from 1 August 2015.  Jeff brings extensive experience in driving financial performance and has a strong track record in developing and leading finance teams both in the UK and in North America.

2015 full year outlook

We continue to plan on the basis of current low wholesale prices persisting for the rest of 2015.  The full year outlook remains broadly unchanged but uncertainties include continuing low wholesale commodity prices and a competitive environment for our customer-facing businesses, as well as the ongoing resolution of British Gas business energy supply billling issues.  As a result, 2015 full year Group adjusted basic earnings per share are expected to be weighted towards the first half of the year, with full year margins in UK residential energy supply expected to be broadly in line with recent years.  In addition to commodity prices, the outlook remains subject to weather conditions and asset performance over the rest of 2015.

Following the removal of the requirement for UK listed companies to publish an Interim Management Statement (IMS), announced by the Financial Conduct Authority in November 2014, Centrica has decided to cease publication of IMSs.  Centrica will instead provide two trading updates, the first to coincide with its Annual General Meeting in the Spring and the second in mid-December, in advance of the Company entering its Preliminary Results close period.

Summary

During the first half of the year, the Group delivered solid financial and operational performance, while we also made good progress in strengthening the balance sheet and reducing net debt.

Looking ahead, the conclusion of our strategic review provides a clear direction for the Group.  With a renewed focus on our customer-facing activities, I am convinced that Centrica is well-placed to build on its existing strengths and able to compete materially against the emerging long-term trends in global energy markets.  This revised strategy will establish Centrica as a leading energy and services company, able to satisfy the changing needs of our customers and deliver long-term shareholder value through returns and growth.

 

Iain Conn

Chief Executive
30 July 2015

 

Group revenue

Group revenue decreased by 2% to £15,451 million (2014: £15,748 million).  British Gas gross revenue remained broadly flat at £6.9 billion.  Residential energy supply gross revenue increased by 3%, with the impact of a 9% increase in total residential gas consumption reflecting colder weather than the previous year, partially offset by lower unit prices due to a reduction in household gas tariffs at the end of February.  Residential services gross revenue was broadly flat, with the impact of lower product holdings offset by inflationary price increases.  Business energy supply and services gross revenue fell by 10%, reflecting a lower number of supply points.

Direct Energy gross revenue decreased by 9%.  Residential energy supply gross revenue decreased by 14%, reflecting lower customer accounts and reduced unit prices in a lower commodity price environment.  Business energy supply gross revenue decreased 7%, also reflecting reduced unit prices.  Residential and business services gross revenue fell by 13%, with the impact of the Ontario home services disposal in the second half of 2014 partially offset by additional revenues from our solar business.  Bord Gáis Energy reported gross revenue of £400 million in the first six months of the year. 

Centrica Energy gross revenue fell by 8%.  Gas gross revenue fell by 8% and power gross revenue fell by 9%, primarily reflecting lower achieved prices in the current low commodity price environment.  Centrica Storage gross revenue remained broadly flat.

Operating profit

Throughout the statement, reference is made to a number of different profit measures, which are shown below:

 

 

 

 

2015

 

 

2014

Period ended 30 June

Notes

Business performance
£m

Exceptional
items and certain
re-measurements
£m

Statutory result
£m

Business
performance
£m

Exceptional
items and certain
re-measurements
£m

Statutory result
£m

Adjusted operating profit

 

 

 

 

 

 

 

British Gas

 

656

 

 

455

 

 

Direct Energy

 

192

 

 

41

 

 

Bord Gáis Energy

 

23

 

 

 

 

Centrica Energy

 

116

 

 

526

 

 

Centrica Storage

 

13

 

 

10

 

 

Total adjusted operating profit

4b

1,000

 

 

1,032

 

 

Depreciation of fair value uplifts from Strategic Investments (nuclear post-tax)

4b

(24)

 

 

(40)

 

 

Interest and taxation on joint ventures and associates

4b

(51)

 

 

(63)

 

 

Group operating profit

4b

925

418

1,343

929

92

1,021

Net finance cost

7

(135)

(135)

(131)

(131)

Taxation

8

(221)

45

(176)

(281)

  (59)

(340)

Profit for the period

 

569

463

1,032

517

33

550

Attributable to non-controlling interests

 

18

 

 

(17)

 

 

Depreciation of fair value uplifts from Strategic Investments, after taxation

9

24

 

 

30

 

 

Adjusted earnings

 

611

 

 

530

 

 

 

 

British Gas operating profit increased by 44%.  Residential energy supply operating profit increased, primarily reflecting the higher revenue from increased customer demand and lower environmental supply obligation costs associated with delivery of the ECO programme.  Residential services profit fell by 3% with inflationary cost increases mostly offset by a one-time credit relating to the implementation of a Pension Increase Exchange (PIE) for our defined benefit scheme members.  Business energy supply and services operating profit fell 95%, reflecting additional costs and a higher bad debt charge relating to the transition to a new billing and CRM system, and the reduction in revenue caused by lower customer accounts.

Direct Energy operating profit increased significantly.  Similar to 2014, weather in the first half of the year was colder than normal in much of North America, but a combination of more stable physical infrastructure, market redesign and management action meant we did not see a repeat of the additional Polar Vortex related costs of $110 million (£65 million) incurred in 2014.  Reflecting this, residential energy supply profit increased by 40% as unit margins returned to a more normalised level.  Business energy supply profit also benefited from increased unit margins sold in prior periods and strong results from optimising transportation and gas storage positions.  Residential and business services reported an operating loss, reflecting costs related to an accelerated investment in our solar business and the sale of the Ontario home services business in the second half of 2014.

Bord Gáis Energy made an operating profit of £23 million in the first six months of the year.

Centrica Energy operating profit fell by 78%.  In gas, operating profit fell 90% reflecting the impact of a lower wholesale price environment and an operating loss in midstream gas.  Power profitability increased by 11%, with the impact of lower wholesale prices and a lower power midstream profit more than offset by the absence of a £40 million write-off in 2014 associated with renewables projects.

Centrica Storage operating profit increased by 30% to £13 million, reflecting additional space sales in the 2014/15 storage year and lower fuel gas costs with a later start to the injection season.

Group finance charge and tax

Net finance costs increased slightly to £135 million (2014: £131 million), reflecting a higher interest cost on bonds following the issuance of £1 billion equivalent of hybrid securities.  The taxation charge reduced to £221 million (2014: £281 million) and after taking account of tax on joint ventures and associates, and the impact of fair value uplifts, the adjusted tax charge was £240 million (2014: £318 million).  The resultant adjusted effective tax rate for the Group was 29% (2014: 37%), predominantly reflecting a shift in the mix of profit towards the lower taxed downstream businesses.  An effective tax rate calculation, showing the UK and non-UK components, is shown below:

 

 

 

2015

 

 

 

2014

 

Period ended 30 June

UK
£m

Non-UK
£m

Total
£m

 

UK
£m

Non-UK
£m

Total
£m

Adjusted operating profit

766

234

1,000

 

779

253

1,032

Share of joint ventures/associates interest

(32)

(32)

 

(36)

(36)

Net finance cost

(74)

(61)

(135)

 

(81)

(50)

(131)

Adjusted profit before taxation

660

173

833

 

662

203

865

Taxation on profit

110

111

221

 

137

144

281

Tax impact of depreciation on Venture fair value uplift

 

10

10

Share of joint ventures’/associates’ taxation

19

19

 

27

27

Adjusted tax charge

129

111

240

 

174

144

318

Adjusted effective tax rate

20%

64%

29%

 

26%

71%

37%

 

Group earnings and dividend

Reflecting all of the above, profit for the year increased to £569 million (2014: £517 million) and after adjusting for losses attributable to non-controlling interests and fair value uplifts, adjusted earnings were £611 million (2014: £530 million).  Adjusted basic earnings per share (EPS) was 12.3 pence (2014: 10.5 pence).

The statutory profit attributable to shareholders for the period was £1,050 million (2014: £533 million).  The reconciling items between Group profit for the period from business performance and statutory profit are related to exceptional items and certain re-measurements.  The increase compared to 2014 is principally due to a net gain from certain re-measurements of £347 million compared to a net loss of £107 million in 2014.  The Group reported a statutory basic EPS of 21.1 pence (2014: 10.5 pence).

An interim dividend of 3.57 pence per share, 30% lower than the 2014 comparative of 5.10 pence per share, will be paid on 26 November 2015 to shareholders on the register on 2 October 2015.

Group cash flow, net debt and balance sheet

Group operating cash flow before movements in working capital was broadly flat at £1,502 million (2014: £1,495 million).  After working capital adjustments, tax, and payments relating to exceptional charges, net cash flow from operating activities was £1,340 million (2014: £1,054 million).  This includes the impact of a net inflow of £298 million (2014: outflow of £127 million) of cash collateral, as a portion of the £776 million of cash collateral posted at the start of the year unwound in a more stable commodity price environment.

Adjusted operating cash flow, reconciled to operating cash flow in the table below, reduced to £1,149 million (2014: £1,286 million).

 

Period ended 30 June

 

2015

 

 

2014

 

Net cash flow from operating activities

 

£1,340m

 

 

£1,054m

 

Add back/(deduct):

 

 

 

 

 

 

    Net margin and cash collateral (inflow) / outflow

 

(£298m)

 

 

£127m

 

    Payments relating to exceptional charges

 

£42m

 

 

£62m

 

    Dividends received

 

£65m

 

 

£43m

 

Adjusted operating cash flow

 

£1,149m

 

 

£1,286m

 

               

 

The net cash outflow from investing activities decreased to £310 million (2014: £355 million), with lower organic capital expenditure and the £180 million cash inflow from the disposal of the portion of the Lincs wind farm project financing debt owned by Centrica broadly offsetting reduced proceeds from disposals.

The net cash outflow from financing activities was £575 million (2014: £587 million).  The impact of lower cash dividends resulting from our decision to rebase the dividend by 30% and high take-up of our scrip dividend alternative, combined with no repurchase of shares, offset the impact of a net repayment of borrowings of £191 million compared to net inflow from borrowings of £300 million in 2014.

Reflecting all of the above, the net increase in cash and cash equivalents in the first half was £455 million and the Group’s net debt at 30 June 2015 was £4,905 million (31 December 2014: £5,196m), which includes cash collateral posted or received in support of wholesale energy procurement.

During the first half of the year net assets increased to £3,470 million (31 December 2014: £3,071 million) primarily reflecting the level of retained earnings for the period.

Exceptional items

On 18 March 2015, the Government announced a further 10% reduction in the UK Supplementary Corporation Tax (SCT) rate to the 2% reduction previously announced, resulting in an overall reduction from 32% to 20% with effect from 1 January 2015, and a 15% reduction in the Petroleum Revenue Tax (PRT) rate from 50% to 35% with effect from 1 January 2016.  These changes resulted in a reduction in deferred tax liabilities and a £116 million exceptional tax credit.

In 2014, a £140 million post-tax gain was recognised following the disposal of the Group’s Texas gas-fired power stations.

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 IAS 39.  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 gain of
£418 million (2014: net loss of £127 million) relating to these re-measurements, as a result of the commodity price environment.  The Group recognises the realised gains and losses on these contracts in business performance when the underlying transaction occurs.  The 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.  See note 6 for further details.

Acquisitions and disposals

On 17 March 2015, the Group acquired control of AlertMe, a UK-based connected homes business that provides innovative energy management products and services.  Prior to this date, the Group held a 21% interest in the company and this transaction acquired the remaining share capital for a gross purchase consideration of £58 million, with a net consideration of £42 million.  

Further details on acquisitions, plus details of asset purchases, disposals and disposal groups are included in notes 4(d) and 11.

Events after the balance sheet date

There are no significant post balance sheet events.

Risks and capital management

The Group’s principal risks and uncertainties are largely unchanged from those set out in its 2014 Annual Report and Accounts.  Details of how the Group has managed financial risks such as liquidity and credit risk are set out in note 18.  Details on the Group’s capital management processes are provided under sources of finance in note 12(a).

Accounting policies

UK listed companies are required to comply with the European regulation to report consolidated financial statements in conformity with International Financial Reporting Standards (IFRS) as adopted by the European Union.  The Group’s specific accounting measures are explained in note 3.

British Gas

Period ended 30 June

 

2015

 

 

2014

 

Change

Residential energy supply operating profit (BGR)

 

£528m

 

 

£265m

 

99%

Residential services operating profit (BGS)

 

£125m

 

 

£129m

 

(3%)

Business energy supply and services operating profit (BGB)

 

£3m

 

 

£61m

 

(95%)

Total British Gas operating profit

 

£656m

 

 

£455m

 

44%

BGR post-tax margin

 

9.0%

 

 

4.5%

 

4.5ppts

BGR average gas consumption per customer (therms) (i)

 

263

 

 

237

 

11%

BGR average electricity consumption per customer (kWh) (i)

 

1,815

 

 

1,784

 

2%

British Gas total gas consumption (mmth)

 

2,557

 

 

2,375

 

8%

British Gas total electricity consumption (TWh)

 

19.3

 

 

20.2

 

(4%)

Lost time injury frequency rate (per 100,000 hours worked) (ii)

 

0.17

 

 

0.14

 

21%

                 

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (’000)

 

14,733

 

 

14,778

 

(0%)

Residential services product holding (’000)

 

7,837

 

 

7,970

 

(2%)

Business energy supply points (’000)

 

802

 

 

854

 

(6%)

(i)    2014 average gas and electricity consumption per customer have been restated to reflect a restatement of residential energy customer accounts as indicated in the 2014 Preliminary Results.

(ii)   2014 lost time injury frequency rate (per 100,000 hours worked) has been restated to reflect additional data assurance activity.

 

British Gas operating profit increased by 44% in the first half of the year compared to the same period in 2014.  Higher residential gas and electricity consumption, and lower costs associated with the ECO programme following the acceleration of delivery in the first half of 2014, led to higher residential energy supply operating profit.  In BGS, operating profit fell, as new sales proved challenging and the impact of a 2% decline in product holdings was only partially mitigated by a continued focus on cost management and lower pension costs.  In BGB, operating profit was significantly lower than last year, reflecting issues following the implementation of a new integrated billing and CRM system, and competitive pressures leading to lower margins and supply points.  British Gas operating costs excluding bad debt charges were 5% higher in the first half than in the same period in 2014, reflecting a higher depreciation charge following investment in new billing and CRM systems, alongside continued investment in smart metering and connected homes.  Costs will be a key area of focus as we target increased efficiencies and improved customer service across British Gas.

Customer service and digital

The NPS in our residential energy contact centres increased by 10 points to +29 in the first half, while the NPS for our service engineers increased to a new record high of +70 during the first half.  Our nationwide network of around 8,000 highly trained service engineers with trusted access to customers’ homes remains a key competitive advantage for British Gas.  Improving our levels of customer service remains a key focus and in April we announced we were dedicating further resource in serving our residential energy customers, investing an additional £50 million over the next three years.  To date, we have recruited 300 additional agents, and plan to recruit a further 50 agents in the third quarter of the year to provide a more resilient service in the lead up to winter.

Around two thirds of our customer interactions are made through digital channels, with more than half of those now initiated from a mobile or tablet device.  Customer downloads of our mobile app have reached around 1.7 million, with online bookings for breakdown visits nearly 50% higher than last year.  Over 40% of residential energy and services sales this year have been made through digital channels.

Innovation and smart connected homes

We continue to lead the UK energy sector in technology, innovation, smart and connected homes.  We have installed more than 1.5 million residential smart meters in the UK, significantly more than any of our competitors.  Over 600,000 of our smart meter customers now regularly receive our unique smart energy report, ‘my energy’, which provides a comprehensive analysis of their energy consumption including a breakdown by type of use, benchmarking against similar homes, personalised energy saving tips and access to an online tool.  The report is helping to improve levels of customer satisfaction and the overall perception of British Gas, with a +9 NPS improvement for customers engaging with the report.  We are also trialling ‘my energy live’ which allows customers to access many of the in-home display functions on their smart phones, and we have significant enhancements planned for both of these products over 2015 and 2016.

We strongly support the 2020 mandate for full smart meter roll-out and we plan to continue leading the industry in the installation of compliant meters, maintaining an appropriate balance between additional cost and the benefit to customers.  We continue to trial our smart prepayment meter which will enable us to commence the roll-out to our customers by the end of 2015.

In March 2015 we completed the acquisition of AlertMe, the provider of the technical platform that underpins our existing connected homes activity, including Hive, and have now successfully completed its integration into our Connected Homes division.  The acquisition gives British Gas ownership and control over a scalable technology platform, software development capability and data analytics, and makes us the only UK connected homes provider with control over the end to end customer experience.

We have now sold over 200,000 smart thermostats, through our call centres and engineers, online and our retail partnerships, and have the largest installed base of connected thermostats in the UK.  More than 90% of Hive customers say they have recommended the product and 96% say they feel more in control of their heating than before. In July we launched Hive Active Heating 2, the next generation of our Hive smart thermostat, alongside the ability to pre-register for our suite of new home technology products including smart lights, motion sensors and smart plugs.  We have a strong development pipeline of further innovative products planned for 2015 and 2016, including our ‘connected boiler’, which is currently on commercial trial.

British Gas Residential

British Gas Residential operating profit increased in the first half of the year compared to the same period in 2014.  This reflects an 11% increase in average gas consumption and a 2% increase in average electricity consumption, as a result of colder than normal weather in the UK compared to warmer than normal temperatures in the same period in 2014.  In addition, the costs associated with delivery of the ECO programme were lower in the first half of 2015 than in the same period in 2014, predominantly reflecting the phasing of expenditure on the programme.  In the first half of last year, we had accelerated delivery to ensure we met our obligations under Phase 1 of the programme, completing around twice as many measures than in the first half of 2015, and helping us complete our obligation three months earlier than the March 2015 deadline.  We have helped more than 400,000 households under the ECO programme to date.

Our residential energy market share was broadly flat during the first half, reflecting our 5% reduction in residential gas tariffs from 27 February 2015, and British Gas adapting to the changing market with competitive fixed price and collective switch offerings.  Our fixed-price Sainsbury’s tariff delivered particularly strong sales, generating new to brand customers.

British Gas is committed to offering competitively priced products.  On 15 July 2015, we announced a further 5% reduction in our residential gas tariffs, effective from 27 August 2015.  The reduction reflects lower projected costs for the rest of 2015 and 2016, and our commitment to offering competitive prices.  This is the second gas price reduction in 2015, and combined with the 5% reduction in February brings a total annual average saving of £72 for British Gas customers.

British Gas Services

British Gas Services operating profit was down 3% in the first half of the year, with the impact of lower contract holdings partly offset by a continued focus on cost management, including a £23 million credit relating to changes in our defined benefit pension schemes.

While customer retention remains strong, the sales environment is challenging, with a continued shift in customer demand towards cheaper on-demand and home emergency products.  Against this backdrop, we are focused on improving sales performance through enhancing the online journey and we are launching a simplified product portfolio in the second half of the year to better meet this changing customer demand.  The market for central heating installations is also proving challenging and the number of boilers installed was 4% lower in the first half of the year compared to the same period in 2014.  With market demand changing towards simpler and faster installations, we are launching new propositions targeted at these customer segments in the second half of the year.

British Gas Business

British Gas Business operating profit was significantly lower in the first half of the year compared to the same period in 2014.  This reflects additional costs associated with issues following the migration of customer accounts onto a new billing and CRM system from multiple legacy systems, and margin pressures resulting from a competitive market environment.

All of our business customer accounts have now been migrated onto the new system, although we have faced issues related to producing timely customer bills.  Reflecting the increased risk associated with these billing issues, the bad debt charge was higher in the first half compared to the same period last year, while we have also recruited additional resource to help resolve customer service issues.  We are currently undertaking an extensive transition recovery programme, including continued investment in additional resource.  Most of our customers are now being served normally, and we currently expect to have resolved the issues by the end of 2015.

Once fully functioning, we expect the new system to deliver improved service levels at reduced cost.  This will help to offset lower margins, in part reflecting our commitment to increase customer fairness and lead the industry in ending the auto-rollover of contracts at renewal.  The number of business supply points fell by 52,000 to 802,000 in the first half of the year, with our focus on resolving the billing issues for existing customers limiting the opportunity for new sales in a competitive market.

Business services continues to be a key source of differentiation and will help us retain existing customers and acquire new ones, as well as providing growth opportunities in its own right.  We have good capabilities in this space, and are seeing continued growth in the market for energy efficiency services and for distributed energy.

Direct Energy

Period ended 30 June

 

2015

 

 

2014

 

Change

Residential energy supply operating profit (DER)

 

£67m

 

 

£48m

 

40%

Business energy supply operating profit/(loss) (DEB)

 

£143m

 

 

(£21m)

 

nm

Residential and business services operating (loss)/profit (DES)

 

(£18m)

 

 

£14m

 

nm

Total Direct Energy operating profit

 

£192m

 

 

£41m

 

368%

Total Direct Energy operating profit (excluding impact of Polar Vortex related charges)

 

£192m

 

 

£106m

 

81%

DER average gas consumption per customer (therms)

 

784

 

 

836

 

(6%)

DER average electricity consumption per customer (kWh)

 

5,205

 

 

5,500

 

(5%)

DEB total gas volumes (mmth)

 

3,364

 

 

3,193

 

5%

DEB total electricity volumes (TWh)

 

46.3

 

 

48.9

 

(5%)

Direct Energy total gas volumes (mmth)

 

4,574

 

 

4,526

 

1%

Direct Energy total electricity volumes (TWh)

 

55.0

 

 

58.9

 

(7%)

Lost time injury frequency rate (per 100,000 hours worked)

 

0.02

 

 

0.09

 

(78%)

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (’000)

 

3,188

 

 

3,256

 

(2%)

Residential services product holding (’000)

 

904

 

 

897

 

1%

 

Direct Energy performed very well in the first half of 2015, with operating profit significantly higher than in the same period in 2014.  The business experienced much colder than normal weather in the first quarter of 2015, however a combination of a more stable physical infrastructure, market redesign and management action meant we did not see a repeat of the additional network system charges resulting from the Polar Vortex in 2014.  After excluding the impact of these charges from the 2014 comparative, underlying operating profit increased by 81% with our C&I business now benefitting from the actualisation of higher unit margins on contracts sold in prior periods.

We continue to develop and build our capabilities to deliver enhanced and innovative customer propositions, including the bundling of products enabling customers to control their energy usage, aimed at retaining and attracting the highest value customers.  We also made good progress in building the Direct Energy brand across North America, including the rebranding of our recently acquired solar business as Direct Energy Solar.  In March, we announced that Direct Energy was joining a range of well-known brands to launch Plenti, the first United States-based coalition loyalty programme, where customers can earn and use reward points for purchasing a wide range of products.  To date more than 20 million members have signed up to the programme.

Building on our successful cost reduction programme in 2014, we continue to invest in programmes that drive efficiency and enhance our customers’ experience.  This includes the consolidation of our operating platforms to enable an enhanced customer experience and drive growth through simplified cross-sell and innovation.

Direct Energy Residential

Direct Energy Residential operating profit increased in the first half of the year compared to the same period last year, predominantly reflecting the absence of the Polar Vortex costs incurred in 2014.  We delivered organic growth in Texas, although this was more than offset by the expected decline in Ontario, with the Energy Consumer Protection Act (ECPA) continuing to make retention of customers difficult, and competitive market pressures in the US North East.  As a result, the number of customer accounts declined by 68,000 in the first half of 2015.

We are focussed on expanding our range of customer propositions targeted at the most valuable customer segments.  We continue to increase the bundling of energy and services products, with 42% of residential customers acquired in the first half of the year also taking a services protection plan or smart thermostat, up from 10% in the same period in 2014.  Our partnership with Nest is helping our customers benefit from an innovative product which helps them to reduce and better control their energy consumption, while our investment in the ‘Direct Your Energy’ insight tool, launched in July, will allow customers to customise their energy usage to their unique needs.  In July we also launched ‘Direct Your Plan’, a personalised service enabling residential customers to build their own energy plan from a number of options such as length of contract, energy type, energy efficiency tools, reward programmes and home services.  The service enables customers to see how their choices affect the cost of their energy plan.

We continue to drive digital customer interactions, with 21% of customers acquired in the first half of 2015 coming through digital channels, an increase of 2 percentage points in comparison to the same period in 2014.  We remain focussed on delivering high levels of customer service, including resolving a higher proportion of customer queries first time, and are on track to deliver a 9% year on year reduction in cost to serve per customer.

Direct Energy Business

Direct Energy Business benefited in the first half of 2015 from higher margins, strong asset optimisation and lower amortisation costs related to the Hess Energy Marketing acquisition, resulting in significantly higher underlying operating profit, even after taking into account the absence of the one-off Polar Vortex costs in 2014.  The Hess Energy Marketing acquisition continues to perform ahead of its investment case and has improved the balance of the business between power and gas.

Unit margins on new C&I gas and power sales have remained broadly at the levels achieved in 2014, with increased margins on power sales and lower margins on gas sales.  The business also utilised its natural gas pipeline and storage capacity contracts in cold weather during the first quarter of the year, to deliver strong optimisation performance.  Overall gas and electricity volumes delivered to customers were broadly flat compared to the first half of 2014, maintaining Direct Energy’s position as the largest C&I gas supplier on the East Coast of the United States and the second largest C&I power supplier.

We continue to partner with companies that enhance our offerings to our C&I customers.  In July 2015, Direct Energy Business, in partnership with Xpress Natural Gas, opened the Manheim compressed natural gas (CNG) facility in New York.  The facility has a capacity of 5.8 billion cubic feet per year and enables the transportation of CNG to customers without access to distributed natural gas.  In solar, we have deployed an initial $125 million fund with Solar City.  We have also built a successful partnership with Panoramic Power to offer wireless energy sensors and web based software to enable consumers to better understand their energy consumption.

Direct Energy Services

Direct Energy Services made an operating loss of £18 million in the first half of the year.  This predominantly reflects an accelerated investment of £14 million in Direct Energy Solar.  This investment is expected to drive improvements to operating profit and cash flow in 2016.  Excluding the impact of solar investment and last year’s contribution from the Ontario Home Services business, which was sold in October 2014, operating profit was broadly flat.

Contract relationships across North America have experienced organic growth and now exceed 900,000.  In June 2015 we announced the acquisition of 14,000 new home services customers in the US North East, and the acquisition completed in July 2015.  In addition we have expanded our HVAC leasing propositions and franchise reach to new states.

Bord Gáis Energy

Period ended 30 June

 

2015

 

 

2014

 

Change

Total Bord Gáis Energy operating profit

 

£23m

 

 

 

nm

Residential average gas consumption per customer (therms)

 

227

 

 

 

nm

Residential average electricity consumption per customer (kWh)

 

2,328

 

 

 

nm

Total gas volumes (mmth)

 

162

 

 

 

nm

Total electricity volumes (TWh)

 

1.3

 

 

 

nm

Total power generated (TWh)

 

1.1

 

 

 

nm

 

Period ended

 

30 Jun 2015

 

 

31 Dec 2014

 

Change

Residential energy customer accounts (period end, ’000)

 

600

 

 

608

 

(1%)

Business energy services customer supply points (period end, ’000)

 

33

 

 

31

 

6%

 

Bord Gáis Energy has performed well in the 12 months since its acquisition on 30 June 2014 and reported an operating profit of £23 million in the first half of 2015.  In energy supply, colder weather resulted in higher than normal gas consumption, while the number of residential and business energy accounts remained broadly flat.

In January, Bord Gáis Energy was the first energy provider to announce a reduction in prices in the Republic of Ireland, with residential gas prices falling by 3.5% and residential electricity tariffs falling by 2.5%.  This positioned us with the cheapest standard dual fuel offering amongst major competitors.  Bord Gáis Energy is also leveraging Centrica’s expertise in deregulated energy markets, having launched the first residential fixed price tariff in the Republic of Ireland and also introduced Hive Active Heating, with a full launch scheduled for the third quarter before customers traditionally turn their heating on.

In power generation the 445MW Whitegate gas-fired station performed well in the first six months, with strong availability and reliability protecting our customers from power price volatility during peak times, and offering us further profit opportunity.

 

Centrica Energy

Period ended 30 June

 

2015

 

 

2014

 

Change

Gas operating profit

 

£48m

 

 

£465m

 

(90%)

Power operating profit/(loss)

 

£68m

 

 

£61m

 

11%

Gas-fired

 

(£62m)

 

 

(£70m)

 

nm

Renewables (operating assets)

 

£18m

 

 

£23m

 

(22%)

Renewables (one off write-off)

 

 

 

(£40m)

 

nm

Nuclear

 

£108m

 

 

£125m

 

(14%)

Midstream

 

£4m

 

 

£23m

 

(83%)

Total Centrica Energy operating profit

 

£116m

 

 

£526m

 

(78%)

Gas operating (loss)/profit after tax

 

(£23m)

 

 

£235m

 

nm

Gas production (mmth) (i)

 

1,928

 

 

1,945

 

(1%)

Liquids production (mmboe) (i)

 

9.0

 

 

8.7

 

3%

Total gas and liquids production (mmth) (i)

 

2,471

 

 

2,472

 

(0%)

Total gas and liquids production (mmboe) (i)

 

40.7

 

 

40.9

 

(0%)

Total UK power generated (TWh)

 

9.8

 

 

10.7

 

(9%)

Lost time injury frequency rate (per 100,000 hours worked)

 

0.14

 

 

0.19

 

(26%)

(i)    Includes 100% share of Canadian assets owned in partnership with Qatar Petroleum.

 

Centrica Energy reported significantly reduced operating profit in the first half of 2015 compared to the same period in 2014, predominantly reflecting the impact of lower wholesale prices.  The business delivered strong operational performance, with consistent E&P production across the first half and only slightly lower nuclear generation volumes despite the Heysham 1 and Hartlepool power stations operating at reduced power.  We remain on track to reduce our E&P capital expenditure and cash production costs in line with our stated targets, as we look to deliver a broadly neutral free cash flow E&P business over the period 2015-16.

Gas

Our E&P business delivered production consistency across its asset base in the first half of the year.  Total gas and liquids production was broadly flat compared to the first half of 2014, at 40.7mmboe, with gas volumes down 1% and liquids volumes up 3%.

In Europe, production from our UK and Netherlands assets decreased by 16% reflecting the natural decline from producing fields.  However we saw recovery in flow rates from our Greater Markham Area fields, having worked to reduce the gas export constraints encountered in 2014, while production rates from our York field also improved with a fourth well having come on-stream in the second half of 2014.  In Norway, production increased by 10% with consistent production from Kvitebjorn and Statfjord, and first gas from the large-scale Valemon project in the North Sea which came on-stream in January 2015.

Production in the Americas increased by 9%, with new wells drilled in Canada and assets acquired from Shell in 2014 producing ahead of expectations.

Against a backdrop of low wholesale prices, we made good progress in scaling back our development and exploration activity across the portfolio.  We remain on track to deliver our reduced E&P capital expenditure plan of around £800 million for the full year, more than 25% below 2014 levels, with reduced expenditure in both Europe and the Americas.  Given this level of capital expenditure, we continue to expect to deliver full year gas and liquids production of around 75mmboe in 2015.  On development projects, the large-scale Cygnus project is now due to come on-stream in the first half of 2016, slightly later than originally planned.  On exploration, three out of five wells drilled in Europe were successful in finding hydrocarbons, although none were classified as commercial discoveries.

We have also made good progress on our target to reduce cash production costs by 10%, or £100 million, in 2016 compared to 2014 levels.  This includes the impact of absorbing the incremental costs of Valemon and Cygnus, which should both be on-stream by next year.  We have delivered a number of initiatives to help meet this target, including management action to renegotiate contractor rates on more favourable terms, headcount reductions in support roles, and the planned cessation of production at A Fields.  With cost saving initiatives likely to have more of an impact in the second half of the year, total cash production costs in the first half of 2015 were broadly unchanged compared to the first half in 2014.  In Europe, total cash production costs were broadly flat, although they were 7% higher on a unit basis reflecting lower production levels.  This was offset by lower total cash production costs in the Americas, in part reflecting lower royalty rates in Canada as a result of low gas prices.

In LNG, the Federal Energy Regulatory Commission (FERC) issued authorisation in April to allow Sabine Pass Liquefaction LLC to construct and operate the fifth train expansion at their LNG facility in Louisiana.  At the end of June, the project received a Non-Free Trade Agreement licence from the Department of Energy (DOE) and, with a positive final investment decision now having been made on the project, Centrica expects to take delivery of its first cargo under its US export contract in late 2018 or in 2019.  We continue to increase our capabilities and presence in global LNG and in the first half of the year completed a number of “Free On Board” cargoes, including our first delivery to South America.

Gas operating profit for the year was 90% lower than for the same period last year, predominantly reflecting the impact of the lower wholesale price environment on our gas and liquids achieved prices.  In addition, our gas midstream business was impacted by losses on flexible gas contracts which were optimised for value during a period of falling prices in 2014, with a consequential impact on 2015.  As a result, the gas midstream business reported an operating loss, although it is expected to be profitable in the second half of the year.  Reflecting the reduced pre-tax profit from our E&P assets and the loss from our lower taxed midstream operations, the business reported a post-tax loss of £23 million.

Power

Our share of nuclear generation volumes in the first half of the year was 6.1TWh, 2% lower than in the same period in 2014.  This predominantly reflects the impact of four reactors at the Heysham 1 and Hartlepool power stations operating at lower power, as a result of the decision in the second half of last year to reduce operating temperatures following the identification of an issue on one boiler spine at Heysham 1.  Remedial work is being undertaken during 2015 with the intention of allowing the reactors to run at higher power levels subject to regulatory approval, including a return to full power where possible.

Gas-fired power generation volumes were 20% lower in the first half than the same period in 2014, reflecting an unplanned outage at Langage, whilst market clean spark spreads remained relatively low throughout the period.  In February, we announced we were planning to close our Killingholme power station, with the plant not economically viable in current market conditions.  The plant is expected to close in 2016, having been awarded a Special Balancing Reserve (SBR) contract for the coming winter.  In addition, we took the decision to reduce the maximum output from our South Humber Bank plant until March 2017.  South Humber Bank, along with Langage, has a capacity contract starting in October 2018.  We also announced in February that we would be closing our Brigg power station.  However, following a review of alternatives to closure, Brigg will now operate at a reduced capacity as a distributed generation unit.

Our wind assets had good availability across the first half of 2015, but renewable generation volumes were down by 10%, reflecting the sale of our share in the Barrow offshore wind farm in December 2014.

Power operating profit increased by 11% compared to the first half of last year, mainly due to a higher reported renewables profit, with the first half of 2014 including a £40 million charge associated with the write-off of our investment in the Celtic Array Round 3 offshore wind project.  The operating loss from our gas-fired generation business was slightly lower, reflecting a reduced depreciation charge following impairments at the end of 2014.  Nuclear operating profit fell, with lower wholesale power prices and cost increases impacting the result, while midstream profitability was lower in comparison to a strong performance in the first half of 2014.

 

Centrica Storage

Period ended 30 June

 

2015

 

 

2014

 

Change

Total Centrica Storage operating profit

 

£13m

 

 

£10m

 

30%

 

Seasonal gas price spreads remain at low levels, with an abundance of flexible supply across Europe.  Reflecting this, it was announced in April that all SBUs for the 2015/16 storage year had been sold at 21.1p, only marginally higher than the 20.0p achieved in 2014/15, which was the lowest SBU price since Centrica acquired the Rough asset in 2003.  Operating profit in the first half of the year was slightly higher than in the same period in 2014, due to higher additional space sales in the 2014/15 storage year and lower fuel gas costs, with a later start to the injection season.  Health and safety remains a top priority for Centrica Storage.  During the first half of the year there were two lost time incidents, compared to one in the same period last year.

In March Centrica Storage announced that, during a routine inspection of Rough, a potential technical issue had been discovered.  As a result, Centrica Storage decided to limit the maximum operating pressure of the Rough wells to 3,000 psi, the equivalent of limiting the maximum stock in the Rough asset to 29-32TWh.  The maximum level reached in 2014 was 41.1TWh.  It is anticipated that the limitation will remain in place at least until the testing and verification works are completed between September and December 2016.  Centrica Storage sold 32TWh of capacity before the start of the 2015/16 storage year and, considering the curtailment in the reservoir volume, has successfully completed a programme to buy back space from the market.  In addition, with the testing and verification works continuing over the summer injection period there will be no opportunity to sell additional space.  The negative impact on full year profitability resulting from the operating pressure limit is expected to be broadly offset by the sale of cushion gas from the asset.

In June, Centrica Storage requested consent from the Oil and Gas Authority to increase the reservoir size of Rough by 4.5TWh.  Consent was obtained in July 2015 and this increase in volume will go some way to restoring Rough to its previous capacity level before the limitation was imposed, as well as allowing the sale of the cushion gas.

We remain on track to deliver our £15 million of cost reductions by 2017, through operational improvements and capital discipline, excluding any additional costs relating to the testing and recovery of wells.

For further details - https://www.centrica.com/2015-Interim-Results

 

 

 

 

 

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