TIDMCNA
RNS Number : 0066U
Centrica PLC
28 July 2022
Centrica plc Interim Results for the six months ended 30 June
2022
CHRIS O'SHEA, GROUP CHIEF EXECUTIVE
"The past year has demonstrated the importance of well-funded,
well-run energy companies. We've made significant progress
de-risking the Group and building a stronger business for the
benefit of all stakeholders. This strength has allowed us to lead
the industry in measures to protect and support customers through
the most challenging energy crisis in living memory and the benefit
of our balanced portfolio can be seen in our first half
performance. We expect this to continue into the second half,
underpinning continued investment in customer service and elsewhere
in our portfolio.
We are very aware of the difficult environment many customers
are facing and we will continue supporting them. We are investing
in our customers and colleagues, creating at least 500 additional
UK-based customer service roles in British Gas Energy and 1,000 new
UK engineering apprenticeships, while through the British Gas
Energy Support Fund we are providing grants to help customers pay
their energy bills .
We have a clear strategy to continue improving operational
performance, to grow our business and to position ourselves to
deliver net zero at a cost which helps the many, not the few. We
are committed to investing in the energy transition which will
improve the security of energy supply in our core markets."
STRONG H1 OPERATIONAL PERFORMANCE AND POSITIVE OUTLOOK
-- Adjusted basic EPS of 11.0p (2021: 1.7p); 10.2p excluding Spirit Energy disposed assets.
-- Strong Upstream volumes against a backdrop of higher commodity prices.
-- Increased commodity volatility handled well in Energy Marketing & Trading.
-- Statutory basic EPS loss of 14.7p (2021: profit of 23.2p)
includes a GBP1.9bn loss on net remeasurements after taxation,
reflecting the high commodity price environment.
-- Group total free cash flow from continuing operations of
GBP643m (2021: GBP524m). Statutory net cash flow from operating
activities of GBP165m (2021: GBP558m) including margin cash outflow
of GBP519m.
-- 2022 full year outlook remains positive.
A SIGNIFICANTLY DE-RISKED PORTFOLIO AND A STRONGER BALANCE
SHEET
-- H1 2022 net cash of GBP316m compared to net debt of GBP93m at H1 2021.
-- Completion of the sale of Spirit Energy Norway and the
Statfjord field in May, resulting in a GBP0.8bn reduction in gross
decommissioning liabilities.
-- March 2021 triennial pensions technical provisions deficit
agreed in principle at GBP944m. GBP0.6bn on a roll-forward basis at
30 June 2022. Cash contributions expected to remain broadly
unchanged.
STABILISING THE BUSINESS AND IMPROVING OPERATIONAL
PERFORMANCE
-- Continued investment in service to stabilise operational
performance and position for growth in British Gas Services &
Solutions. Full financial recovery likely dependent on length of
economic downturn.
-- Improving net promoter scores and delivering organic customer growth in British Gas Energy.
DELIVERING GROWTH AND POSITIONING OURSELVES FOR NET ZERO
-- Strong Retail and Optimisation capabilities and positions
leave us well positioned for growth as our core markets transition
to net zero.
-- Opportunities to invest in the energy transition with a focus
on battery storage, gas-peaking plants, solar farms, hydrogen and
Carbon Capture, Utilisation and Storage (CCUS).
BALANCE SHEET STRENGTH ENABLES GROWTH AND SHAREHOLDER
RETURNS
-- Strong balance sheet - maintain strong investment grade credit ratings.
-- Dividend - reinstate progressive dividend with a 2022 interim
dividend of 1.0p per share. EPS to DPS cover ratio moving to 2x
over time.
-- Value accretive investments - invest for growth in lower
carbon and flexible assets, to accelerate the energy transition and
improve security of supply in our core markets.
-- Efficient use of capital - including returning surplus structural capital to shareholders.
FINANCIAL SUMMARY
Six months ended 30 June 2022 2021
========================================================= =========== =========
Total Group excluding Spirit Energy disposed
assets
Adjusted EBITDA GBP1,175m GBP427m
Adjusted operating profit GBP857m GBP140m
Adjusted earnings attributable to shareholders GBP598m GBP74m
Adjusted basic earnings per share (EPS) 10.2p 1.3p
Total Group
Adjusted EBITDA GBP1,660m GBP682m
Adjusted operating profit GBP1,342m GBP262m
Adjusted tax charge GBP581m GBP59m
Adjusted effective tax rate 46% 35%
Adjusted earnings attributable to shareholders GBP643m GBP98m
Adjusted basic EPS 11.0p 1.7p
Interim dividend per share (DPS) 1.0p -
Group free cash flow from continuing operations GBP643m GBP524m
Group net cash / (debt) GBP316m (GBP93m)
--------------------------------------------------------- ----------- ---------
Statutory operating (loss) / profit (GBP1,099m) GBP1,003m
Statutory (loss) / earnings attributable to shareholders (GBP864m) GBP1,351m
Statutory basic (loss) / earnings per share (14.7p) 23.2p
Statutory net cash flow from operating activities GBP165m GBP558m
---------------------------------------------------------- ----------- ---------
See notes 3, 4 and 9 to the Financial Statements and pages 69 to
73 for an explanation of the use of adjusted performance
measures.
GROUP PERFORMANCE INDICATORS
2022 2021 Change
==================================================== ====== ====== ======
Total recordable injury frequency rate (per 200,000
hours worked) 1.04 1.07 (3%)
Total customers ('000) (1) 10,193 10,067 1%
Group direct headcount 19,899 19,783 1%
Group colleague engagement (%) 63% 55% 8ppt
---------------------------------------------------- ------ ------ ------
All 2021 comparators are as at 31 December 2021.
1. Includes British Gas Energy, British Gas Services and Bord
Gáis Energy households and small and medium business customer sites
in British Gas Energy and Centrica Business Solutions.
INVESTOR PRESENTATION
Centrica will hold its 2022 Interim Results presentation for
analysts and institutional investors at 9.30am (UK) on Thursday 28
July 2022. There will be a live audio webcast of the presentation
and slides. Please register to view the webcast at:
https://webcasts.centrica.com/centrica121
ENQUIRIES
Investors and Analysts: tel: +44 (0)1753 494900 email:
ir@centrica.com
Media: tel: +44 (0)1784 843000 email: media@centrica.com
Group Overview
GOOD OPERATIONAL PERFORMANCE AS THE TURNAROUND OF CENTRICA
CONTINUES
-- Centrica's operational performance was good in the first half
of 2022, against a backdrop of high and volatile commodity prices.
We saw improved performance across much of the Group, with strong
Exploration & Production (E&P) and Nuclear volumes,
effective commodity and risk management in Energy Marketing &
Trading (EM&T) and improving net promoter scores in British Gas
Energy and British Gas Services & Solutions.
-- Underlying financial performance was healthy overall.
Adjusted earnings per share was up from 1.7p to 11.0p. The
statutory loss per share was 14.7p, which includes a GBP1.9bn loss
on net re-measurements after taxation. Free cash flow from
continuing operations increased by GBP119m to GBP643m, and
statutory net cash flow from operating activities reduced by
GBP393m to GBP165m which includes margin cash outflow of GBP519m.
We have declared a 1.0p per share interim dividend, the first
dividend to be paid since 2019, and intend to retain our historic
policy to pay roughly one third of the full year dividend as an
interim.
-- Since 2020, we have been on a major transformational journey
to turn the Company around and rebuild shareholder value. We set
out three overlapping phases of this turnaround:
1. Simplify and de-risk the portfolio and strengthen the balance sheet;
2. Stabilise the business and improve operational performance;
3. Deliver growth and position ourselves for net zero.
-- We have now completed the first phase of the turnaround. The
sale of Spirit Energy's Norwegian and Statfjord UK oil and gas
assets, including the transfer of material decommissioning
liabilities, closed in May 2022. This followed the completion of
the sale of Direct Energy in January 2021. The Group had net cash
of GBP0.3bn at the end of June 2022, compared to net debt of nearly
GBP4bn three years ago, with the reduction reflecting our ongoing
strong focus on capital discipline and cash generation. The
technical pension deficit on a roll-forward basis was approximately
GBP0.6bn at the end of June 2022.
-- The second phase of the turnaround is the continued focus on
stabilising the business and improving operational performance. A
key enabler to this has been the significant Group restructure, now
largely complete, which is resulting in increased colleague
empowerment and customer focus. We have also continued to focus on
improving industrial relations and colleague engagement increased
by 8 points to 63% in the first half of 2022. Although we still
have further to go, a number of other key operational metrics are
improving.
-- The third phase will be for Centrica to deliver growth and
position ourselves for net zero. This phase is underway. We are
continuing to build our capabilities across the Group and build out
our net zero offers to customers. Our strong trading and
optimisation capabilities also mean we are well placed to invest in
the energy transition. We have already started investing in the
construction of flexible distributed power generation assets, while
we continue to investigate energy transition opportunities for our
existing assets, including Rough and Morecambe.
ACTING RESPONSIBLY THROUGH THE ENERGY CRISIS
-- We are very aware of the difficult environment many customers
are facing due to rising energy bills and wider inflationary
impacts and we will continue to do all that we can to support
them.
-- We are investing over GBP100m in customer service, support
and pricing over 2022. This includes providing GBP6m of funds for
our most vulnerable customers in addition to the GBP7m we have
contributed to the British Gas Energy Trust to fund debt charities
and provide grants of up to GBP750 to help any customer struggling
to pay their energy bills. We are also investing in 500 additional
UK based customer service roles in British Gas Energy so we can
handle higher call volumes and be there when our customers need
us.
-- Our Energy Marketing & Trading business has secured
increased volumes of gas and renewable energy to improve the UK and
Europe's security of supply, having announced our intention to exit
gas supply agreements with Russian counterparties in March. This
includes an agreement with Equinor to deliver an additional 1
billion cubic metres of gas supplies to the UK for each of the next
three winters, sufficient to heat a total of 4.5m homes.
-- We also continue to support our colleagues through these
challenging times. We will recruit 1,000 new apprentices across
2021 and 2022, creating skilled, well-paid British jobs, while we
agreed a new pay deal earlier this year which takes current
inflationary pressures in the UK into account.
CONTINUING TO PLAY OUR PART IN THE STABILISATION OF THE UK
ENERGY MARKET
-- In the last year, over half of the UK's energy suppliers have
ceased to trade, impacting over 4m customers and costing energy
consumers billions of pounds. We have continued to play our part in
supporting those affected customers, taking on over 150,000 in 2022
in addition to approximately 550,000 taken on in 2021.
-- Under Ofgem's regulatory framework, relevant costs, including
costs of buying energy incurred by suppliers that they are not able
to recover directly as a result of taking on Supplier of Last
Resort (SOLR) customers, are recoverable through the industry levy.
In December 2021 our claim for an initial GBP361m was accepted by
Ofgem and a further claim will be made later in 2022. Costs
incurred and customer credit balances of GBP413m recoverable
through the SOLR framework have been recognised as a receivable in
the H1 2022 financial statements.
-- We continue to believe we need to see significant change to
address the underlying issues in the UK's complex energy
regulations, by simplifying and strengthening regulations to
protect customers and to ensure a crisis of this sort never happens
again. Consumers ultimately pay for supplier failures through
future energy tariffs or taxation, so we believe the energy retail
market requires stronger prudential regulation to ensure those
involved in the industry are fit and proper, companies have
adequate capital and monitored risk management procedures, and
customer deposits are fully protected. As a responsible supplier,
we have voluntarily separated gross customer deposits and held
GBP189m in a separate account on 30 June 2022. We also asked Ofgem
to make this a requirement for all energy suppliers.
-- Ofgem have addressed a number of issues through a range of
consultations and regulatory changes in the first half of 2022:
-- In February, Ofgem announced the new level of default tariff
caps effective from 1 April 2022, which includes additional
allowances for the recovery of SOLR-related costs and additional
costs incurred by suppliers as a result of rising wholesale prices
and volatility over the 2021/22 winter.
-- In May, a statutory consultation was launched looking at
redesigning the price cap to mitigate the risks associated with
wholesale cost volatility by moving to quarterly updates.
-- In June, Ofgem launched a consultation covering the
protection of customer credit balances and Renewable Obligation
payments, capital adequacy, and protecting the value of hedges if a
supplier ceases to trade.
-- Ofgem have also introduced a Market Stabilisation Charge
(MSC), aimed at protecting well-hedged energy suppliers if
wholesale costs fall by a certain amount. Under the current
parameters set by Ofgem, the MSC is triggered if wholesale prices
fall by at least 10% compared to the cap index. In the event that
the MSC is triggered, and a customer switches supplier, the new
supplier would need to reimburse the previous supplier for 85% of
the hedged cost. Ofgem has proposed to extend the MSC until at
least 31 March 2023.
-- We are supportive of the changes that Ofgem is making,
although we believe there is more to be done to be able to give
customers full confidence in the robustness of the UK energy
market.
-- We will continue to engage constructively with the UK
Government, Ofgem and other industry participants on the future of
retail energy markets in the UK to drive sustainable market reform
and ensure that well run, responsible suppliers can make a fair
return.
SIMPLIFYING & DE-RISKING THE PORTFOLIO AND STRENGTHENING THE
BALANCE SHEET
Sale of Spirit Energy Norway and Statfjord field completed
-- The sales of Spirit Energy's Norwegian E&P business and
its interests in the Statfjord field to Sval Energi and Equinor
completed on 31 May 2022. The transactions resulted in a 98%
reduction in Spirit Energy's 2021 closing oil and liquids proven
and probable (2P) reserves, a 39% reduction in its 2021 closing gas
2P reserves and a reduction in its gross decommissioning
liabilities from GBP2.0bn to GBP1.2bn.
-- The headline consideration was $1,076m (approximately
GBP800m), with a commercial effective date of 1 January 2021, and
included the transfer to the buyers of all related decommissioning
liabilities, which were approximately GBP830m as of the commercial
effective date. The final consideration was GBP104m, including
deferred commodity price linked consideration and a tax indemnity
provided to Sval Energi, having been adjusted to reflect working
capital and debt-like items and reduced by net post-tax cash flows
generated by the sale businesses since 1 January 2021.
-- Centrica owns 69% of Spirit Energy but fully consolidates
Spirit Energy in the Group's financial statements. In June 2022,
Spirit Energy distributed the final consideration and post-tax net
cash flows generated by the sale businesses since 1 January 2021 to
Centrica and its joint venture partners, SWM Group, in proportion
to their ownership. This was after adjusting for certain
transaction taxes and costs, and amounts in respect of certain
liabilities to be retained by the Spirit Energy Group. SWM Group's
share of this distribution from Spirit Energy was GBP233m.
-- There was an estimated GBP65m cost of closing commodity price
hedges related to Statfjord UK borne by Spirit Energy in H1 2022,
in addition to a GBP64m cost in 2021, with a further approximately
GBP100m cost expected across the remainder of 2022 and 2023. There
was also an estimated GBP24m cost of closing commodity price hedges
at a Centrica Group level in H1 2022 in addition to an estimated
GBP27m in 2021 related to its share of Spirit Energy's Norwegian
business and Statfjord interests.
-- Under an amended shareholders' agreement with SWM Group,
Spirit Energy's future strategy will be to realise value from its
remaining portfolio of assets in the UK and the Netherlands while
minimising further investment in oil and gas exploration and
development, and to utilise cash from Spirit Energy's operations to
meet and de-risk decommissioning obligations in respect of its
remaining portfolio. Future cash flows generated from Spirit
Energy's continuing operations will be retained within Spirit
Energy until projected future pre-tax decommissioning costs are 1.5
times covered. Spirit Energy will also be able to pursue potential
opportunities to leverage existing infrastructure for net zero
projects.
Further non-core divestments
-- We will also consider further divestments of smaller assets
or businesses, if they help to simplify and de-risk the Group and
we can realise good value for shareholders.
-- In H1 2022, we sold our interest in Driivz, an electric
vehicle charging software provider, while Centrica Business
Solutions also agreed to exit two small positions in the United
States and Mexico.
A strong balance sheet
-- The Group had net cash of GBP0.3bn at the end of June 2022.
This means we have reduced net debt by GBP4.2bn over the past three
years, from net debt of GBP3.9bn at the end of June 2019,
reflecting our divestments, our focus on cash flow generation and
ongoing capital and cost discipline.
-- Gross decommissioning liabilities have decreased by GBP0.7bn
over the same period, reflecting the sale of the Spirit Norway and
Statfjord assets, while the latest roll-forward valuation of the
technical pension deficit of GBP0.6bn is GBP0.8bn lower than three
years ago having peaked at GBP2.4bn on a roll-forward basis two
years ago. In addition, projected future losses from the remaining
Sole Pit legacy gas contract in Energy Marketing & Trading are
now around GBP150m compared with over GBP500m three years ago.
-- In aggregate, these liabilities have reduced by GBP6.1bn over
the past three years, leaving the Group's balance sheet in a
materially stronger position.
OPERATIONAL, COMMERCIAL AND FINANCIAL PERFORMANCE - STABILISING
THE BUSINESS AND IMPROVING OPERATIONAL PERFORMANCE
Improved operational performance in British Gas Services &
Solutions but negative financial impacts due to a weak economic
backdrop and investment in service and pricing
British Gas Services & Solutions 2022 2021 Change
--------------------------------------------- ----- ----- ------
Services customers ('000) (closing) (1,2) 3,271 3,428 (5%)
Installs and on-demand jobs ('000) 134 148 (9%)
Services complaints per customer (%) (3) 6.5% 6.4% 0.1ppt
Services Engineer net promoter score (NPS)
(1,4) 62 60 2pt
Adjusted operating profit (GBPm) 7 60 (88%)
--------------------------------------------- ----- ----- ------
All 2021 comparators are for the 6 months ended 30 June 2021
unless otherwise stated.
1. 2021 comparator at 31 December 2021.
2. Services customers are defined as single households having a
contract with British Gas.
3. Total complaints, measured as any oral or written expression
of dissatisfaction, as a percentage of average customers over the
year.
4. Measured independently, through individual questionnaires,
the customer's willingness to recommend British Gas following an
engineer visit.
-- British Gas Services & Solutions is focused on fixing
operational delivery following a challenging 2021, in which higher
absence rates and difficulties in recruiting engineers due to UK
labour market pressures resulted in more jobs having to be
rescheduled and an increased use of contractors. These factors
negatively impacted customer satisfaction levels in 2021 and into
2022.
-- We have been focused on recruiting directly-employed
engineers to rebuild capacity, enabling us to complete a greater
proportion of jobs through our own workforce, to improve customer
experience and customer retention and to create the capacity for
growth. We recruited around 600 engineers in the first half of
2022.
-- This investment in recruitment and service led to a lower
number of rescheduled appointments, down to 7% in H1 2022 compared
to 13% in H1 2021, and reflecting this, Engineer NPS increased by 2
points to 62.
-- Customer retention increased to 83% in H1 2022 from 80% in H1
2021, as we remained mindful of price changes that customers can
absorb. However, customer acquisition has been challenging in the
current economic environment and British Gas Services customer
numbers fell by 157,000, or 5%, over the first half. We are also
seeing more customers trade down to lower priced products within
our HomeCare range. The number of services products per customer
was unchanged compared to the start of the year, at 2.23.
-- The total number of installs and on-demand jobs for the half
was down 9% compared to H1 2021. Boiler installations were up 13%,
as we saw recovery from Covid-19 and industrial action impacts in
2021, although the average price was lower with customers tending
to choose lower priced boilers. The number of on-demand jobs fell
19% due to us focusing our attention on serving existing
customers.
-- British Gas Services & Solutions adjusted operating profit fell by 88% to GBP7m.
-- The reversal of a GBP50m Covid-19 and industrial action
impact from H1 2021 was partially offset by an increase in customer
compensation following disappointing service levels over the past
winter, continued higher absence rates earlier in the year, and
increased workload, which we believe is a function of customers
choosing to have non-urgent jobs they had been delaying during the
Covid-19 pandemic completed. These temporary factors negatively
impacted adjusted operating profit by approximately GBP25m.
-- The impacts of lower customer numbers and customers trading
down to lower priced products negatively impacted adjusted
operating profit by approximately GBP20m compared to H1 2021.
-- We are also making a number of choices to improve the
resilience of our business, investing in service and pricing to
ensure that our propositions are attractive and we are well placed
for when alternative heating solutions gain more prominence. These
resulted in a negative impact on adjusted operating profit of
approximately GBP50m, with the main areas of investment as
follows:
o Our recruitment and training of engineers resulted in more
downtime from experienced engineers as they mentored new
colleagues.
o In addition, we continue to invest in operating costs to
improve the business, with additional investment in improving our
core IT systems and building our net zero capability.
o We are also seeing increasing costs in a high inflation
environment, including our own employee costs as we look to support
colleagues through the cost of living crisis. Mindful of this
difficult time for customers, we are choosing to invest in our
pricing by not passing these inflationary costs fully onto our
customers.
-- The impact of a lower priced boiler mix and global supply
chain issues creating capacity constraints earlier in the year
negatively impacted adjusted operating profit by approximately
GBP10m compared to H1 2021 .
Organic customer growth against a backdrop of high and volatile
prices in British Gas Energy
British Gas Energy 2022 2021 Change
================================================= ===== ===== ======
Residential energy customers ('000) (closing)
(1,2) 7,464 7,260 3%
Small business customer sites ('000) (closing)
(1) 459 455 1%
Energy complaints per customer (%) (3) 6.6% 4.0% 2.6ppt
Energy Touchpoint NPS (1,4) 14 14 nm
Cost per residential energy customer (GBP)
(1) 96 93 3%
Adjusted operating profit (GBPm) 98 172 (43%)
------------------------------------------------- ----- ----- ------
All 2021 comparators are for the 6 months ended 30 June 2021
unless otherwise stated.
1. 2021 comparator at 31 December 2021.
2. Residential energy customers are defined as single households
buying energy from British Gas.
3. Total complaints, measured as an expression of
dissatisfaction in line with submissions made to Ofgem, as a
percentage of average customers over the year.
4. Measured independently, through individual questionnaires and
the customer's willingness to recommend British Gas following
contact.
-- British Gas Energy is focused on developing more modern ways
of working and the migration of customers onto a new 'software as a
service' IT platform, to lower its cost per customer and improve
customer service. It should also allow us to capture the
opportunities arising from changes to how customers use their
energy, for example through increased numbers of electric vehicles
and growth in the electrification of heating, which benefit from
dynamic time-of-use tariffs.
-- We now have nearly 900,000 customers on this platform
compared to around 350,000 at the start of the year, as we continue
to migrate customers in a controlled manner.
-- British Gas Energy residential customer numbers increased by
204,000, or 3%, in the first half.
-- This included a net increase of 158,000 customers who
ultimately joined us through Ofgem's SOLR process from Together
Energy.
-- We also saw organic growth of 46,000 customers in the first
half, against a backdrop of low levels of market switching.
-- The number of small business customers increased by 1% to 459,000.
-- Energy Touchpoint NPS remained flat, however complaints
increased in the period, with higher customer bills prompting
higher call volumes into our contact centres with customers
becoming more focused on bills and direct debit reassessments. We
are focused on improving complaint levels, including through the
creation of 500 new UK-based contact centre roles in order to help
our customers.
-- Cost per customer increased by GBP3 to GBP96. The impacts of
an increased bad debt charge and dual running IT costs were
equivalent to GBP7 per customer, meaning there was an underlying
reduction of GBP4 per customer.
-- British Gas Energy adjusted operating profit decreased by 43% to GBP98m.
-- As in H2 2021, the rise in wholesale commodity prices meant
that default tariffs remained cheaper than nearly all new
fixed-price tariffs. This resulted in more customers on default
tariffs than we had hedged for, requiring us to purchase more
commodity from the market at prices above those allowed with the
price caps. Price cap allowances have been introduced to compensate
for these costs, however this recovery will mostly occur in future
periods.
-- Warmer than normal temperatures in the first half reduced
demand compared to a cold H1 2021. However, the impact of this was
more than offset by the positive impact of surplus gas and power
being sold back into a high-priced market.
-- The impact of increased customer numbers and average unit
margins was more than offset by the estimated effect that higher
bills had on customer behaviour, with lower underlying energy
demand and a GBP63m increase in the bad debt charge.
-- We saw more normalised Energy Company Obligation (ECO) costs
in H1 2022 following elevated spend in 2021 and demand recovery
from small business customers following removal of Covid-19
restrictions, although these were partially offset by the repayment
of GBP27m received by the Group under the UK Government's
Coronavirus Job Retention Scheme.
Improved financial result from Bord Gáis Energy with Whitegate
back in operation
Bord Gáis Energy 2022 2021 Change
=================================== ==== ==== ======
Customers ('000) (closing) (1) 513 509 1%
Complaints per customer (%) (2) 1.0% 0.8% 0.2ppt
Journey NPS (1,3) 20 30 (10pt)
Adjusted operating profit (GBPm) 33 19 74%
----------------------------------- ---- ---- ------
All 2021 comparators are for the 6 months ended 30 June 2021
unless otherwise stated.
1. 2021 comparator at 31 December 2021.
2. Total complaints, measured as any oral or written expression
of dissatisfaction, as a percentage of average customers over the
year.
3. Weighted NPS for the main customer interaction channels.
-- The number of Bord Gáis Energy customers increased by 4,000, or 1%, in H1 2022.
-- Customer complaints increased slightly and Journey NPS fell
by 10 points over the half, reflecting customer concerns as retail
tariffs increased materially due to the significant rise in global
wholesale commodity prices.
-- Bord Gáis Energy adjusted operating profit increased by 74%
to GBP33m despite reduced retail margins in a challenging
environment for energy supply. This reflects the return to service
of the Whitegate power station in December 2021, which was offline
for all of the first half of 2021, and good trading performance.
These factors were partially offset by an increased bad debt
charge.
Impacts of high and volatile commodity prices handled well by
Energy Marketing & Trading
Energy Marketing & Trading (EM&T) 2022 2021 Change
================================================= ==== ==== ======
Renewable capacity under management (GW)
(1) 11.1 11.7 (5%)
EM&T adjusted operating profit / (loss) (GBPm) 278 (40) nm
------------------------------------------------- ---- ---- ------
All 2021 comparators are for the 6 months ended 30 June 2021
unless otherwise stated.
1. 2021 comparator at 31 December 2021.
-- Our core EM&T trading and optimisation activities
performed well in the first half of the year, utilising our
capability in optimising our portfolio of European power purchase
and route to market agreements against a backdrop of highly
volatile commodity markets.
-- EM&T renewable route-to-market capacity under management
reduced by 0.6GW to 11.1GW with a number of contracts coming to an
end during the period. However, the contracts we have remained very
valuable in H1 2022 and delivered materially higher levels of
adjusted operating profit compared to H1 2021. We remain focused on
growing our route-to-market capacity as more renewable capacity
comes online across Europe and we have a good pipeline of new
contracts.
-- The remaining legacy gas contract relating to the Sole Pit
gas field contributed a profit of GBP25m in H1 2022 compared to a
loss of GBP57m in H1 2021, as we used optionality around the timing
of gas takes. We now expect the contract to broadly break-even for
the full year, significantly better than our expectations of a loss
of around GBP50m at the time of the Preliminary Results. At current
forward commodity prices, we expect adjusted operating losses to
total around GBP150m until the contract ends in 2025.
-- We reported a loss in the LNG business, however this is a
function of accrual accounting treatment of the phasing of costs
and revenues associated with hedges and cargoes. The underlying
economic performance of the portfolio was good and we expect LNG to
be profitable for the full year.
-- EM&T adjusted operating profit was GBP278m (H1 2021: loss
of GBP40m), reflecting strong performance across our gas, power and
renewables trading activities and the profit from the Sole Pit
contract.
Covid-19 recovery in a more-focused Centrica Business
Solutions
Centrica Business Solutions 2022 2021 Change
================================================= ==== ==== ======
Energy supply total gas and electricity volume
(TWh) 11.8 11.8 nm
Energy supply complaints per customer (%)
(2) 4.0% 3.2% 0.8pt
Energy supply Touchpoint NPS (1,3) 24 21 3pt
New Energy Services order intake (GBPm) 152 221 (31%)
New Energy Services order book (GBPm) (1) 851 820 4%
Adjusted operating profit/(loss) (GBPm) 20 (24) nm
------------------------------------------------- ---- ---- ------
All 2021 comparators are for the 6 months ended 30 June 2021
unless otherwise stated.
1. 2021 comparator at 31 December 2021.
2. Total complaints, measured as any oral or written expression
of dissatisfaction, as a percentage of average customers over the
year.
3. Measured independently, through individual questionnaires and
the customer's willingness to recommend.
-- In Centrica Business Solutions energy supply, which consists
of medium-sized enterprise and Commercial and Industrial (C&I)
customers:
-- The total amount of energy supplied in the period was flat at
11.8TWh. An increase in demand following the easing of Covid-19
restrictions and growth in our core market of mid-sized enterprise
customers was offset by the impacts of warmer weather and a
reducing portfolio of large C&I customers.
-- Customer complaints were higher in the period, with increased
customer concern around high energy prices, although Touchpoint NPS
increased slightly to +24.
-- In Centrica Business Solutions New Energy Services:
-- Order intake of GBP152m was 31% lower than in H1 2021. This
is partially due to the impact of our more focused strategic
approach reducing the number of markets we participate in, although
we are also seeing competitive market conditions and delayed
customer decision making given current macroeconomic uncertainty.
The order book has increased by 4% since the start of the year to
GBP851m.
-- Centrica Business Solutions reported adjusted operating
profit of GBP20m (H1 2021: loss of GBP24m).
-- Business energy supply reported adjusted operating profit of
GBP33m (H1 2021: GBP3m), with no repeat of Covid-19 driven demand
reduction from H1 2021. In addition, reducing underlying demand and
warmer temperatures allowed us to sell surplus power and gas back
into a higher priced commodity market. These positive effects were
partially offset by the impacts of higher bad debt provisioning,
higher balancing costs, and the phasing of margins towards the back
end of some new customer contracts due to commodity prices being
higher in the near term.
-- New Energy Services reported a reduced adjusted operating
loss of GBP13m (H1 2021: GBP27m), reflecting growth in revenue and
gross margin in both the UK, Ireland and North America markets and
lower operating costs, partially offset by the impact of the
Peterborough site disposal in 2021.
Good Upstream operational performance and higher nuclear
volumes
Upstream 2022 2021 Change
E&P total production volumes (mmboe) 18.0 18.5 (3%)
Nuclear power generated (GWh) 4,648 4,171 11%
Adjusted operating profit (GBPm) 906 75 1,108%
--------------------------------------- ----- ----- ------
All 2021 comparators are for the 6 months ended 30 June.
-- Total E&P production was down 3% to 18.0mmboe. Excluding
production from the disposed Spirit Energy assets, E&P
production was up 29% to 11.7mmboe.
-- Volumes from the retained Spirit Energy business increased
21% to 9.3mmboe, reflecting strong production at Morecambe and
Cygnus which more than offset natural decline in the portfolio.
-- Production volumes from CSL's Rough field increased by 71% to
2.4mmboe, with strong operational performance allowing us to
optimise production from Rough and continue producing during
periods of higher prices.
-- Centrica's share of nuclear generation volumes of 4.6TWh was
11% higher than in H1 2021, despite the closures of Dungeness B in
June 2021 and Hunterston B in January 2022, reflecting strong plant
reliability. Hinkley Point B is due to close in August 2022, which
will leave five operational plants.
-- Upstream adjusted operating profit increased to GBP906m (H1 2021: GBP75m).
-- Disposed Spirit Energy assets adjusted operating profit
increased to GBP485m (H1 2021: GBP122m).
-- The retained Spirit Energy business reported an adjusted
operating profit of GBP59m (H1 2021: loss of GBP18m), with higher
production volumes and higher wholesale commodity prices resulting
in a higher achieved gas price despite the impacts of hedging.
These more than offset an increase in cash lifting costs and higher
depreciation following impairment write-backs last year.
-- CSL adjusted operating profit was GBP76m (H1 2021: GBP9m),
reflecting strong production from Rough and a higher achieved
average gas price. These impacts were partially offset by higher
depreciation following impairment write-backs last year.
-- Nuclear reported adjusted operating profit of GBP286m (H1
2021: loss of GBP38m), reflecting the higher wholesale price
environment, increased generation volumes and lower costs following
the closures of Dungeness B and Hunterston B.
-- E&P free cash flow, excluding disposal proceeds,
increased to GBP860m (H1 2021: GBP266m), with higher achieved
prices resulting in increased EBITDA.
SUMMARY GROUP FINANCIAL PERFORMANCE
Healthy adjusted operating profit and earnings
-- Adjusted EBITDA increased by GBP978m to GBP1,660m and
adjusted operating profit increased by GBP1,080m to GBP1,342m,
reflecting the movements in business unit adjusted operating profit
as described in the previous section.
-- The net finance charge fell by GBP18m to GBP78m and the tax
rate on adjusted profit increased to 46% (H1 2021: 35%), largely
due to the change in profit mix towards more highly taxed E&P
activities and no repeat of 2021 tax credits. Higher Spirit Energy
profit meant adjusted earnings attributable to Spirit Energy
minority partners increased to GBP50m (2021: GBP11m).
-- Reflecting the above, adjusted earnings attributable to
shareholders of GBP643m was up GBP545m on last year (2021: GBP98m)
and adjusted basic EPS was 11.0p (2021: 1.7p). Excluding earnings
from the disposed Spirit Energy assets, adjusted basic EPS was
10.2p (2021: 1.3p).
Statutory loss reflects high commodity price environment
-- Total exceptional items recognised after tax generated a
profit of GBP182m in H1 2022, with write-backs of our nuclear
investment and recognition of a deferred tax asset, both related to
the higher commodity price environment, partially offset by a loss
on disposal of Spirit Energy Norway. This compared to a total
exceptional profit of GBP856m in H1 2021 which included E&P
impairment write backs and a profit on disposal of Direct
Energy.
-- A loss from net re-measurements after tax of GBP1,876m was
recognised in H1 2022 (2021: profit of GBP396m), largely relating
to the movement of an onerous supply contract provision
representing the future cost to fulfil customer contracts on a
current market price basis.
-- Reflecting this, the statutory loss after taxation was
GBP1,001m (2021: profit of GBP1,361m). After non-controlling
interests, the statutory loss was GBP864m (2021: profit of
GBP1,351m) with a basic EPS loss of 14.7p (2021: profit of
23.2p).
Further robust cash flow generation resulting in a stronger
balance sheet
-- Although adjusted EBITDA increased by GBP978m, free cash flow
from continuing operations of GBP643m was only GBP119m higher than
in H1 2021. This is largely growth related, in that it reflects
higher tax payments due to increased adjusted operating profit, and
a significant increase in working capital utilised. The working
capital outflow was largely seen in British Gas Energy due to the
impact of taking on SOLR customers and the impact of higher
commodity costs, as we typically pay for the purchase of commodity
in advance of receiving payment from customers. Growth in Energy
Marketing & Trading also resulted in a working capital outflow
in that business. H1 2021 free cash flow also included GBP2,582m
related to Direct Energy disposal proceeds.
-- Statutory net cash flow from continuing operating activities
reduced by GBP393m to GBP165m in H1 2022, with the difference
between this reduction and the increase in free cash flow largely
related to a GBP519m negative movement in margin cash compared to a
GBP129m inflow in H1 2021. This was partly offset by lower pension
deficit payments, with H1 2021 including pension strain payments
related to redundancies in prior years.
-- We also made a payment of GBP233m to the minority
shareholders of Spirit Energy, representing their share of cash
flows generated since 1 January 2021 from the disposed Spirit
Energy businesses. At the end of June 2022, the Group had net cash
of GBP316m compared to GBP680m at the end of 2021.
-- We retain significant access to liquidity. At the end of June
2022, the Company had GBP3.4bn of unrestricted cash and cash
equivalents (net of bank overdrafts) and GBP2.9bn of undrawn credit
facilities. We still have a legacy of long-dated and relatively
expensive debt. However, we did have two maturities totalling
GBP282m in H1 2022 which we did not need to refinance.
Pensions triennial valuation
-- The Company had an IAS19 net pension surplus of GBP747m at
the end of June 2022 compared to a net deficit of nil at the end of
2021. This predominantly reflects an increase in the real discount
rate due to a rise in interest rates since the start of the
year.
-- The technical pension deficit is based on more conservative
assumptions and determines the level of cash contributions into the
schemes. In July 2022, we reached agreement in principle with the
pension trustees on a March 2021 technical provisions deficit of
GBP944m. On a roll-forward basis, using the same methodology,
consequent assumptions and contributions paid, the technical
deficit would be in the region of GBP600m at 30 June 2022. Annual
deficit contributions are expected to remain broadly unchanged. We
have also been heavily focused on de-risking our pension
liabilities. The overall level of interest rate and inflation
hedging has increased from 36% three years ago to 95% today,
meaning the volatility of our pension deficit should be much
reduced in future.
2022 OUTLOOK POSITIVE WITH THE FOCUS ON FURTHER PERFORMANCE
IMPROVEMENT
-- The strong operational and financial performance in H1 2022
leaves the business well placed as we head into H2 2022. We will
continue to invest in and drive operational improvements,
particularly given the uncertain economic environment which creates
challenges for British Gas Services & Solutions, and also
increases bad debt risk for our energy supply businesses.
-- If forward commodity prices were to stay around current
levels and asset performance remains strong, we would expect full
year adjusted earnings per share to be at, or even above the top
end of the range of current sell side analyst expectations, which
is currently 10.1p to 15.0p based on 12 forecasts published since
our Trading Update on 10 May 2022.
-- However, as always there are significant uncertainties and a
range of external factors we cannot control, most materially
weather and commodity prices, both of which are exacerbated at
current elevated commodity prices.
Balance sheet strength to facilitate growth and shareholder
returns
-- We have introduced an updated financial framework which will
underpin our strategy moving forwards.
Strong investment grade credit ratings
-- Maintaining strong investment grade credit ratings remain
important to us for our energy procurement and optimisation
activities, so maintaining a strong balance sheet will be key to
our continued success. We are currently in a net cash position.
However, we can see significant cash swings, particularly in times
of volatile energy markets and economic uncertainty. As a result,
we would expect to maintain a prudent balance sheet, providing
resilience for the Group while ensuring the flexibility to invest
in the attractive investment opportunities available.
-- It also means we will have the headroom to cope with further
regulatory changes in the UK energy market. This includes the
mandated ring-fencing of 100% of gross customer deposits, which we
continue to believe is the right thing for customers.
Progressive dividend policy
-- We are reinstating an ordinary dividend and are declaring a
2022 interim dividend of 1.0p per share. We intend to retain our
historic policy of paying roughly a third of the full year dividend
as an interim. We expect the dividend to be progressive and
dividend cover from earnings to move to around 2x over time,
recognising the ratio is likely to vary each year dependent on the
business cycle.
Investment in organic growth
-- We will continue to invest in our people and technology,
whether through operating costs or capital expenditure. This should
underpin further improvements in customer service and productivity,
and in turn improve customer retention. Our balance sheet approach
also means we are able to support increased working capital
capacity, should attractive opportunities arise in our optimisation
activities.
Value accretive investments
-- We have a number of opportunities to invest in a value
accretive way in flexible and lower carbon assets in areas that
will help accelerate the energy transition and improve security of
supply in our core markets. We will assess these opportunities
against a robust framework and each project will need to deliver
appropriate returns commensurate with the risk undertaken. These
assets will have to deliver suitable returns for shareholders. Any
investment will also ensure we retain a diversified and balanced
portfolio as our existing E&P and Nuclear assets naturally
reduce in scale over time.
Efficient use of capital
-- We will continue to make efficient use of capital. This
includes the potential return of any surplus structural capital to
shareholders, although current market volatility and the uncertain
timing of our potential investments means we cannot yet give
clarity on the timing of any returns.
DELIVERING GROWTH AND POSITIONING OURSELVES FOR NET ZERO
-- We have significant growth opportunities across retail energy
supply and services, energy system optimisation and infrastructure
ownership and management.
Growth potential in retail
-- The UK energy supply regulatory environment is improving for
responsible suppliers, and those successful at improving service
levels and the competitiveness of their cost base should be able to
make a fair and sustainable return. British Gas Energy is well
placed to deliver growth over the long term.
-- British Gas Services & Solutions is also well placed to
deliver growth, having the largest energy services field force in
the UK with around 7,000 engineers. The decarbonisation of heat
will drive substantial demand for new heating systems, and as the
UK's largest installer and servicer of such systems, this is a real
opportunity. There are 28 million homes in the UK and 3 million in
the Republic of Ireland - and the majority of them will require
some form of change to their heating systems to ensure net zero is
achieved.
-- Our award-winning in-house training academies also provide us
with a competitive advantage, allowing us to both train and certify
our own apprentices and upskill our engineers to install heat
pumps, electric vehicle charging points, smart meters and
hydrogen-ready boilers.
-- We will need to continue to improve our operational
performance to take maximum advantage of these opportunities
whenever they might arise. That is why we are investing in customer
service and productivity, which should over time drive improved
retention and market share growth.
Optimisation capabilities are key to delivering growth
-- We have always had a requirement to manage our commodity
exposure and risk in core markets, given the scale of our retail
and infrastructure positions, and the expertise we have gained
through doing this is incredibly valuable. We have strong people
and technology capabilities in gas and power balancing and trading
and with European energy markets increasingly interlinked, we have
expanded our activities outside our core markets of the UK and
Ireland. In total, we now trade in 27 countries across Europe and
employ around 600 colleagues across our main offices in Aalborg,
London and Antwerp.
-- Our optimisation activity is generally underpinned by
contractual positions, including our route-to-market business which
provides market access and optimisation services for customer owned
assets. We have grown this and now manage 15GW of assets, with
around 80% of it relating to renewable assets, largely wind and
solar.
-- We also manage a global LNG portfolio. In addition to
capacity at the Isle of Grain regassification facility and our long
term US export contract with Cheniere, we have been building up a
number of medium term positions that de-risk and optimise the
overall LNG portfolio. We have a strong team with deep
understanding of the LNG market and its logistics and will continue
to seek options to de-risk and potentially grow, enabled by our
stronger balance sheet and deep knowledge of global gas
markets.
-- We already build and maintain customer assets as well as our
own through Centrica Business Solutions. Combined with our world
class optimisation capability and access to huge amounts of market
data, this gives us confidence that we can compete across the value
chain, investing Centrica's capital in assets and monetising
them.
Investment opportunities
-- Investment in the UK and Ireland energy systems is expected
to increase materially in the next decade, with nearly GBP200
billion expected to be spent between 2021 and 2030 driven by
government decarbonisation targets and the push for increased
security of supply.
-- The majority of this investment is projected to come from
intermittent renewable technologies such as wind and solar.
However, a combination of technologies will be required, creating
opportunities for companies with strong balance sheets, flexible
business models and detailed knowledge of markets.
-- This creates opportunities for Centrica, and we are clear
where we can participate. When making investment decisions we will
weigh up the size and growth rates of the market, expected returns,
risk profile, our competitive advantage and any wider portfolio
benefits. Reflecting these considerations, at this point in time we
see our main areas of investment focus are likely to be battery
storage, gas peaking generation, solar, hydrogen and Carbon
Capture, Utilisation and Storage (CCUS). The focus will be on our
core markets of the UK and Ireland.
-- Potential investments in small scale, flexible generation
will be aligned to our existing capabilities. We already own
operational assets in the UK and Ireland, including a battery at
Roosecote, a gas peaking plant at Brigg and the Whitegate CCGT in
Ireland. A number of projects are also already underway. A 18MW
solar farm in Wiltshire in the UK is already under construction at
a total expected cost of GBP15m, while we have also recently made a
final investment decision on a 50MW battery investment on the site
of the now closed Brigg CCGT, which is expected to cost GBP45m. We
expect to make a final investment decision on two 100MW gas peaking
plants in Ireland in the second half of this year, at an expected
cost of around EUR250m. Including these projects, we have
brownfield sites across the UK and Ireland that could support over
1GW of new flexible generation capacity over the next five years.
We would expect all these projects to deliver asset returns in
excess of 5%, before we include any optimisation upside that our
capabilities in this space should allow us to achieve.
-- We own E&P and Nuclear assets today, however their
lifespan is limited. Our challenge is to reinvest cash flows
generated by these assets to turn them into net zero assets, which
will continue to provide the balance our portfolio benefits from
today.
-- We continue to work on developing the option to convert Rough
back to a gas storage asset, with a view to ultimately converting
it to a hydrogen storage asset. We currently estimate that this
project would cost in the region of GBP2bn, including the cost of
converting it to store hydrogen. We also continue to assess
longer-term options for the Spirit Energy-owned Morecambe gas
field, which could prove to be an attractive asset for CCUS. Given
the scale of both of these investments, we would be looking for a
regulated return model for both options.
A SIMPLER, DE-RISKED, MORE EFFICIENT COMPANY WITH ATTRACTIVE NET
ZERO OPPORTUNITIES
-- In summary, our balanced portfolio has served us well through
the ongoing energy crisis. In addition, we have significantly
simplified and de-risked Centrica over the past three years through
eliminating net debt, reducing decommissioning liabilities and
reducing pension liabilities.
-- We are focused on driving improved operational performance
and are seeing signs of progress in British Gas Energy and British
Gas Services & Solutions as we look to position them to
capitalise on the opportunities presented by net zero.
-- We will continue to focus on delivering simply, sustainably
and affordably for our customers and on delivering stable and
growing returns for our shareholders.
-- Centrica is evolving into a new type of integrated energy
company using our strong established positions in retail,
optimisation and infrastructure. These capabilities and our
financial strength will allow us to invest in attractive
opportunities aligned to the energy transition and net zero to
drive growth over the long term.
Group Financial Review
REVENUE
-- Group statutory revenue increased by 49% to GBP10.3bn (2021:
GBP6.9bn). Group revenue included in business performance increased
by 75% to GBP14.3bn (2021: GBP8.2bn).
-- Gross segment revenue from continuing operations, which
includes revenue generated from the sale of products and services
between segments, increased by 83% to GBP16.0bn (2021: GBP8.7bn).
This was largely driven by the impact of higher wholesale commodity
prices on Energy Marketing & Trading and Upstream, and the
impact of higher wholesale prices on retail tariffs in British Gas
Energy, Bord Gáis Energy and Centrica Business Solutions.
-- A table reconciling different revenue measures is shown in the table below:
2022 2021
Gross Gross
segment Less inter-segment Group segment Less inter-segment Group
revenue revenue revenue revenue revenue revenue
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
============================== ======== ================== ======== ======== ================== ========
British Gas Services &
Solutions 744 (22) 722 722 (32) 690
British Gas Energy 5,090 - 5,090 3,840 - 3,840
Centrica Business Solutions 1,295 (11) 1,284 871 (9) 862
Bord Gáis Energy 784 - 784 484 - 484
Energy Marketing & Trading 6,355 (113) 6,242 1,991 (151) 1,840
Upstream 1,695 (1,515) 180 838 (400) 438
=============================== ======== ================== ======== ======== ================== ========
Group revenue included
in business performance 15,963 (1,661) 14,302 8,746 (592) 8,154
=============================== ======== ================== ======== ======== ================== ========
Less: revenue arising
on contracts in scope
of IFRS 9 included in
business performance (3,987) (1,236)
Group statutory revenue 10,315 6,918
=============================== ======== ================== ======== ======== ================== ========
OPERATING PROFIT / (LOSS)
-- Adjusted operating profit increased to GBP1,342m (H1 2021:
GBP262m). Excluding the disposed Spirit Energy assets, adjusted
operating profit increased to GBP857m (2021: GBP140m). The
statutory operating loss from continuing operations was GBP1,099m
(H1 2021: profit of GBP1,003m). The difference between the two
measures of profit relates to exceptional items and certain
remeasurements. A table reconciling the different profit measures
is shown below:
2022 2021
Exceptional Exceptional
items items
Business and certain Statutory Business and certain Statutory
Six months ended 30 performance re-measurements result performance re-measurements result
June Notes GBPm GBPm GBPm GBPm GBPm GBPm
======================= ===== ============ ================ ========== ============ ================ ==========
Continuing operations
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
British Gas Services
&
Solutions 7 60
British Gas Energy 98 172
Centrica Business
Solutions 20 (24)
Bord Gáis Energy 33 19
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Energy Marketing &
Trading 278 (40)
Core EM&T 253 17
Legacy gas contract 25 (57)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Upstream 421 (47)
Spirit Energy
(retained) 59 (18)
CSL 76 9
Nuclear 286 (38)
======================= ===== ============ ================ ========== ============ ================ ==========
Total Group excluding
Spirit Energy disposed
assets 857 140
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Spirit Energy
disposed assets 485 122
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Group operating
profit/(loss) 4(c) 1,342 (2,441) (1,099) 262 741 1,003
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Net finance cost 7 (78) - (78) (96) - (96)
Taxation 8 (571) 747 176 (57) (97) (154)
======================= ===== ============ ================ ========== ============ ================ ==========
Profit/(loss) from
continuing
operations 693 (1,694) (1,001) 109 644 753
Profit attributable
to
non-controlling
interests (50) 187 137 (11) 1 (10)
======================= ===== ============ ================ ========== ============ ================ ==========
Adjusted earnings from
continuing operations 643 (1,507) (864) 98 645 743
======================= ===== ============ ================ ========== ============ ================ ==========
Discontinued
operations - - - - 608 608
Adjusted earnings
attributable
to shareholders 643 (1,507) (864) 98 1,253 1,351
======================= ===== ============ ================ ========== ============ ================ ==========
Adjusted earnings
excluding
disposed Spirit Energy
assets 598 74
======================= ===== ============ ================ ========== ============ ================ ==========
Group operating profit from business performance (adjusted
operating profit)
-- The increase in adjusted operating profit was primarily
driven by the Upstream businesses, reflecting strong production and
generation volumes and the impact of higher commodity prices.
Additionally, Energy Marketing & Trading managed the more
volatile commodity price environment well and delivered higher
adjusted operating profit. Offsetting this, higher customer energy
bills and an uncertain economic outlook resulted in British Gas
Energy booking an increased bad debt charge, while inflationary
pressures and investment in customer service and pricing reduced
adjusted operating profit in British Gas Services &
Solutions.
-- More detail on specific business unit adjusted operating
profit performance is provided in the Group Overview on pages 6 to
10.
GROUP FINANCE CHARGE AND TAXATION
Finance costs
-- Net finance costs from continuing operations decreased to
GBP78m (2021: GBP96m). Higher interest rates resulted in increased
investment income, while interest cost on bonds, bank loans and
overdrafts reduced with the full period impact of the redemption of
the EUR750m hybrid bond at its first call date of April 2021 and
two further bond repayments totaling GBP282m made in the first half
of 2022.
Taxation
-- Business performance taxation on profit from continuing
operations increased to GBP571m (2021: GBP57m). After including tax
on joint ventures and associates, the adjusted tax charge was
GBP581m (2021: GBP59m).
-- The resultant adjusted effective tax rate for the Group was
46% (2021: 35%), due to a change in the profit mix towards more
highly taxed E&P activities, combined with GBP42m of tax
credits from one-off increases in deferred tax balances in 2021 not
recurring.
-- The adjusted effective tax rate calculation is shown below:
2022 2021
Six months ended 30 June GBPm GBPm
---------------------------------------------------------- ----- -----
Adjusted operating profit before impacts of taxation 1,342 262
Add: JV/associate taxation included in adjusted operating
profit 10 2
Net finance cost from continuing operations (78) (96)
========================================================== ===== =====
Adjusted profit before taxation 1,274 168
========================================================== ===== =====
Taxation on profit from continuing operations (571) (57)
Share of JV/associate taxation (10) (2)
========================================================== ===== =====
Adjusted tax charge (581) (59)
========================================================== ===== =====
Adjusted effective tax rate 46% 35%
========================================================== ===== =====
EXCEPTIONAL ITEMS AND CERTAIN RE-MEASUREMENTS
-- Total certain re-measurements and exceptional items from
continuing operations generated a pre-tax loss of GBP2,441m (2021:
gain of GBP741m), made up of a pre-tax loss on certain
re-measurements of GBP2,536m (2021: gain of GBP368m) and a pre-tax
gain on exceptional items of GBP95m (2021: GBP373m). Total certain
re-measurements and exceptional items from continuing operations
generated a tax credit of GBP747m (2021: charge of GBP97m), with a
credit of GBP660m (2021: GBP28m) related to certain-remeasurements
and a credit of GBP87m (2021: charge of GBP125m) related to
exceptional items.
Certain re-measurements
-- The Group enters into a number of forward energy trades to
protect and optimise the value of its underlying production,
generation, storage and transportation assets (and similar capacity
or off-take contracts), as well as to meet the future needs of our
customers. A number of these arrangements are considered to be
derivative financial instruments and are required to be fair valued
under IFRS 9.
-- The Group has shown the fair value adjustments on these
commodity derivative trades separately as certain re-measurements,
as they do not reflect the underlying performance of the business
because they are economically related to our upstream assets,
capacity/off-take contracts or downstream demand, which are
typically not fair valued.
-- As a result of the significant commodity price movements, the
Group has also recognised an onerous contract provision for its UK
downstream energy supply contract portfolio. Although gains on the
commodity derivative hedge trades are already separately recognised
in the income statement, the Group must assess whether downstream
customer contracts have become onerous taking into account the
reversal of these mark to market gains. Movement in the amount
provided has also been recognised in certain re-measurements, as
the supply contracts are economically related to both the hedges
and forecast future profitability of supply and therefore do not
reflect underlying performance.
-- The operating profit in the statutory results includes a net
pre-tax loss of GBP2,536m (2021: gain of GBP368m) relating to
re-measurements, comprising:
-- A net loss of GBP667m on the re-measurement of derivative
energy contracts (including certain associates' contracts net of
taxation). With the Group generally a net purchaser of commodity,
we saw a positive revaluation of energy supply contract hedge
purchases due for delivery in future periods as commodity prices
rose over the first half of 2022, partially offset by an unwind of
in-the-money hedge positions for the UK downstream energy supply
business from December 2021. The net positive impact of these two
factors was GBP2,731m. However, this was offset by a negative
revaluation predominantly from Upstream and Energy Marketing &
Trading sell trades due for delivery in future periods, less the
unwind of their out-the-money positions from December 2021. The net
negative impact of these two factors was GBP3,398m.
-- An increase in an onerous energy supply contract provision of
GBP1,869m. Although the Group has purchased the commodity required
for future supply in advance, without these hedges the future costs
of fulfilling downstream customer contracts would exceed the
fixed/capped charges recoverable from customers, due to commodity
price increases in the first half of 2022. The gain from releasing
this provision will offset losses from the unwinding of
in-the-money hedge positions, without affecting the ultimate
profitability of the underlying transactions.
-- These re-measurements generated a taxation credit of GBP660m
(2021: GBP28m). As a result, the total loss from net
re-measurements after taxation for continuing operations was
GBP1,876m (2021: profit of GBP396m).
-- The Group recognises the realised gains and losses on
commodity derivative and onerous supply contracts when the
underlying transaction occurs. The business performance profits
arising from the physical purchase and sale of commodities during
the year, which reflect the prices in the underlying contracts, are
not impacted by these re-measurements.
-- Further details can be found in note 6(a).
Exceptional items
-- An exceptional pre-tax gain of GBP95m was included within the
statutory Group operating profit from continuing operations in the
first half of 2022 (2021: GBP373m) including:
-- A credit of GBP424m relating to the write-back of the Group's
nuclear investment, predominantly due to an increase in near-term
liquid commodity prices. The write-back takes the book value of the
nuclear investment back to its historic depreciated cost.
-- A loss of GBP329m on the Spirit Energy Norwegian E&P and
Statfjord disposal. The disposal had a commercial effective date of
1 January 2021, with headline consideration of approximately
GBP800m to be reduced by the net post-tax cashflows generated by
the disposal businesses after that date (less any remaining tax
payable on those cashflows). The loss on disposal offsets the
profits of the disposal businesses recognised in business
performance across 2021 and 2022.
-- The Group recognised an exceptional taxation credit of GBP87m
(2021: charge of GBP125m), associated with the recognition of a net
deferred tax asset related to E&P, due to the increase in
forecast commodity prices.
-- Further details on exceptional items, including on impairment
accounting policy, process and sensitivities can be found in notes
6(b) and 6(c).
DISCONTINUED OPERATIONS
-- There was no adjusted operating profit or adjusted earnings
from discontinued operations in the first half of 2021 or 2022.
Statutory earnings of GBP608m from discontinued operations in 2021
are entirely related to the profit on disposal and release of a tax
provision related to the disposal of Direct Energy.
GROUP EARNINGS
Adjusted earnings
-- Profit for the period from business performance after
taxation was GBP693m (2021: GBP109m). After adjusting for
non-controlling interests relating to Spirit Energy, adjusted
earnings were GBP643m (2021: GBP98m). Excluding the disposed Spirit
Energy assets, adjusted earnings were GBP598m (2021: GBP74m).
-- Adjusted basic EPS was 11.0p (2021: 1.7p). Excluding the
disposed Spirit Energy assets, adjusted basic EPS was 10.2p (2021:
1.3p).
Statutory earnings
-- After including exceptional items, certain re-measurements
and earnings from discontinued operations, the statutory loss
attributable to shareholders for the period was GBP864m (2021:
profit of GBP1,351m).
-- The Group reported a statutory basic EPS loss of 14.7p (2021:
profit of 23.2p of which 12.8p related to continuing
operations).
Dividend
-- An interim dividend of 1.0p per share will be paid on 17
November 2022 to shareholders on the register on 7 October
2022.
GROUP CASH FLOW, NET DEBT AND BALANCE SHEET
Group cash flow
-- Free cash flow is the Group's primary measure of cash flow as
management believe it provides relevant information to show the
cash generation of the business after taking account of the need to
maintain its capital asset base. Free cash flow is reconciled to
statutory net cash flow from operating and investing activities in
the table below. See the explanatory note in note 4(f) for further
details.
2022 2021
Six months ended 30 June GBPm GBPm
Statutory cash flow from operating activities 165 558
Statutory cash flow from continuing investing activities (139) (146)
------------------------------------------------------------- ----- -----
Statutory cash flow from continuing operating and investing
activities 26 412
Add back/(deduct):
Purchase of securities 1 -
Interest received (8) (2)
Movements in collateral and margin cash 519 (129)
Defined benefit pension deficit payment 105 243
Free cash flow from continuing operations 643 524
============================================================= ===== =====
Discontinued operations free cash flow (related to
Direct Energy sale proceeds) - 2,582
Free cash flow 643 3,106
============================================================= ===== =====
-- Net cash flow from operating activities reduced to GBP165m
(2021: GBP558m), as higher adjusted EBITDA was more than offset by
higher tax payments and working capital and margin cash outflows,
compared to inflows in 2021.
-- Net cash outflow from continuing investing activities was
broadly unchanged at GBP139m (2021: GBP146m), with higher capital
expenditure offset by higher business sale proceeds.
-- Group total free cash flow from continuing operations was
GBP643m (2021: GBP524m), as reconciled to statutory cash flow
measures in the table above.
-- Net cash outflow from financing activities decreased to
GBP695m in 2022 (2021: GBP740m) with lower bond repayments due to
lower levels of debt maturity, partially offset by a GBP233m
distribution to Spirit Energy's non-controlling interests in
respect of the net proceeds from the disposed assets.
Net debt/cash
-- The above resulted in a GBP669m decrease in cash and cash
equivalents over the period, and when including the impact of
reduced gross debt resulting from the bond repayments, non-cash
movements and exchange adjustments, the Group's net cash position
at the end of June 2022 was GBP316m, compared to GBP680m on 31
December 2021.
-- Further details on the Group's sources of finance and net debt are included in note 12.
Pension deficit
-- The Group had an IAS 19 net pension surplus of GBP747m at the
end of June 2022, compared to a net deficit of GBPnil on 31
December 2021, predominantly due to the effect of rising interest
rates leading to an increase in the discount rate and decreasing
obligations.
-- Further details on the post-retirement benefits are included in note 13.
Balance sheet
-- Net assets decreased to GBP2,183m (31 December 2021:
GBP2,750m). This reflects the impact of the statutory loss for the
period, in particular the movement in the onerous energy supply
contract provision, and the minority dividend payment, partially
offset by the increase in the IAS19 net pension surplus.
-- The higher commodity price environment resulted in a
significant increase in derivative financial instrument assets
which are used to manage the risk largely arising from fluctuations
in the value of assets associated with energy sales and procurement
and trading. However, it also resulted in a related increase in
derivative financial instrument liabilities which are used to
manage the risk largely arising from fluctuations in the value of
liabilities associated with energy sales and procurement and
trading.
2022 ACQUISITIONS, DISPOSALS AND DISPOSAL GROUPS CLASSIFIED AS
HELD FOR SALE
-- On 8 December 2021, Centrica announced that the Spirit Energy
Group, of which Centrica owns 69%, had agreed to dispose of its
Norwegian oil and gas E&P business and its interests in the
Statfjord field for headline consideration of $1,076m
(approximately GBP800m) on a debt-free cash-free basis plus a
deferred commodity price-linked contingent payment. The commercial
effective date of the transaction was 1 January 2021. The
transaction was approved by Centrica shareholders at a General
Meeting on 13 January 2022 and completed on 31 May 2022.
-- After adjustments for the net post-tax cash flows generated
by the sale business and interests after the commercial effective
date, less any remaining tax payable on these cash flow, net
consideration was GBP104m, including a deferred commodity
price-linked receivable and a tax indemnity provided to Sval Energi
. In June 2022, Spirit Energy distributed the net cash flow
generated since 1 January 2021 and the net consideration to
Centrica and its joint venture partners in proportion to their
ownership, with GBP233m distributed to Centrica's non-controlling
interest in June 2022.
-- Further details on assets purchased, acquisitions and
disposals are included in notes 4(e) and 11.
EVENTS AFTER BALANCE SHEET DATE
-- Details of events after the balance sheet date are described in note 17.
RISKS AND CAPITAL MANAGEMENT
-- The nature of the Group's principal risks and uncertainties
are broadly unchanged from those set out in its 2021 Annual Report.
Our top three Principal Risks are Commodity Risk, Weather Risk and
Asset Production, with Commodity Risk further heightened by the
impact the war in Ukraine is having on global commodity prices.
-- The Group has also actively responded to those risks
heightened by the record levels of global wholesale energy prices.
Centrica's approach to risk management has enabled the
implementation of agile hedging policies and effective demand
forecasting processes. The extent to which the Group may continue
to be impacted by the consequences of the current high level of
commodity prices, including the onboarding of around 700,000
customers through the SOLR process since the start of 2021, will in
part depend on government and regulatory policy, including the
setting of future levels of default tariff caps, which could also
be a factor in the level of customer bad debt we see.
-- Details of how the Group has managed financial risks such as
liquidity and credit risk are set out in note 19. Details of the
Group's capital management processes are provided under sources of
finance in note 12(a).
ACCOUNTING POLICIES
-- The Group's accounting policies and specific accounting
measures, including changes of accounting presentation and selected
key sources of estimation uncertainty, are explained in notes 1, 2
and 3.
Appendix: Upstream performance metrics
Nuclear
Six months ended 30 June 2022 2021 Change
Nuclear power generated (GWh) 4,648 4,171 11%
======================================= ===== ===== ======
Nuclear achieved power price (GBP/MWh) 110.4 46.5 137%
======================================= ===== ===== ======
Exploration & Production
Six months ended 30 June 2022 2021 Change
Total recordable injury frequency rate (per 200,000
hours worked) 0.14 0.22 (36%)
====================================================== ===== ==== ======
Process safety incident rate - tier 1 & 2 (per
200,000 hours worked) 0.19 0.09 111%
====================================================== ===== ==== ======
Gas production volumes (mmth)
Spirit Energy 692 637 9%
CSL 136 84 62%
====================================================== ===== ==== ======
Total gas production volumes (mmth) 828 721 15%
====================================================== ===== ==== ======
Liquids production volumes (mmboe)
Spirit Energy 4.2 6.7 (37%)
CSL 0.09 0.05 80%
====================================================== ===== ==== ======
Total liquids production volumes (mmboe) 4.3 6.8 (37%)
====================================================== ===== ==== ======
Total production volumes (mmboe)
Spirit Energy 15.6 17.1 (9%)
CSL 2.4 1.4 71%
====================================================== ===== ==== ======
Total production volumes (mmboe) 18.0 18.5 (3%)
====================================================== ===== ==== ======
Average achieved gas sales prices (p/therm)
Spirit Energy 104.4 44.4 135%
CSL 134.3 55.9 140%
====================================================== ===== ==== ======
Average achieved liquid sales prices (GBP/boe)
Spirit Energy 59.9 38.7 55%
CSL 88.5 26.8 230%
====================================================== ===== ==== ======
Lifting and other cash production costs (GBP/boe) (1)
Spirit Energy 18.7 16.4 14%
CSL 8.4 20.4 (59%)
====================================================== ===== ==== ======
Gas and liquids realisations (GBPm) (2) 1,152 575 100%
====================================================== ===== ==== ======
Unit DDA rate (GBP/boe)
Spirit Energy 12.0 11.5 4%
CSL 16.6 5.4 207%
====================================================== ===== ==== ======
Net investment (GBPm) (3)
Capital expenditure (including small acquisitions) 155 122 27%
Net disposals (82) - nm
====================================================== ===== ==== ======
Net investment (GBPm) 73 122 (40%)
====================================================== ===== ==== ======
Free cash flow (GBPm) (3) 942 266 254%
====================================================== ===== ==== ======
1. Lifting and other cash production costs are total operating
costs and cost of sales excluding depreciation and amortisation,
dry hole costs, exploration costs and profit on disposal.
2. Realisations are total revenues from sales of gas and liquids
including hedging and net of Spirit NTS costs.
3. See pages 69 to 73 for an explanation of the use of adjusted
performance measures.
Financial Statements
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Results
for the six-month period ended 30 June 2022 in accordance with
applicable law, regulations and accounting standards. In preparing
the condensed interim Financial Statements, the Directors are
responsible for ensuring that they give a true and fair view of the
state of affairs of the Group at the end of the period and the
profit or loss of the Group for that period.
The Directors confirm that the condensed interim Financial
Statements have been prepared in accordance with United Kingdom
adopted International Accounting Standard 34, "Interim Financial
Reporting", and that the Interim Results includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of the important events that have occurred
during the first six months and their impact on the condensed
interim Financial Statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- material related party transactions in the first six months
of the year and any material changes in the related party
transactions described in the last annual report.
A list of current Directors is maintained on the Centrica plc
website which can be found at www.centrica.com.
On behalf of the Board on 27 July 2022
Chris O'Shea Kate Ringrose
Group Chief Executive Group Chief Financial Officer
Independent Review Report to Centrica plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the Group Income
Statement, the Group Statement of Comprehensive Income, the Group
Balance Sheet, the Group Statement of Changes in Equity, the Group
Cash Flow Statement and related notes 1 to 20.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Accounting Standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
27 July 2022
Group Income Statement
2022 2021
============================================ ===========================================
Exceptional Exceptional
items Results items Results
Business and certain for Business and certain for
Six months ended performance re-measurements the period performance re-measurements the period
30 June Notes GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ============= ================ =========== ============ ================ ===========
Continuing
operations
4,
Group revenue 6 14,302 (3,987) 10,315 8,154 (1,236) 6,918
Cost of sales (i) 6 (12,039) 2,991 (9,048) (7,000) 2,244 (4,756)
Re-measurement and
settlement
of derivative
energy contracts 6 - (1,541) (1,541) - (640) (640)
Gross 4,
profit/(loss) 6 2,263 (2,537) (274) 1,154 368 1,522
============= ================ =========== ============ ================ ===========
Operating costs
before
exceptional
items and
credit
losses on
financial
assets (830) - (830) (790) - (790)
Credit losses on
financial
assets 14 (140) - (140) (66) - (66)
Exceptional
items - net
impairment
reversals 6 - 424 424 - 366 366
Exceptional
items - net
loss on
significant
disposals 6 - (329) (329) - - -
Exceptional
items - net
restructuring
cost reversals 6 - - - - 7 7
Operating costs (970) 95 (875) (856) 373 (483)
Share of
profits/(losses)
of joint ventures
and associates,
net of interest
and taxation 5 49 1 50 (36) - (36)
================== ===== ============= ================ =========== ============ ================ ===========
Group operating
profit/(loss) 4 1,342 (2,441) (1,099) 262 741 1,003
Net finance cost 7 (78) - (78) (96) - (96)
================== ===== ============= ================ =========== ============ ================ ===========
Profit/(loss) from
continuing
operations
before taxation 1,264 (2,441) (1,177) 166 741 907
Taxation on
profit/(loss)
from continuing 6,
operations 8 (571) 747 176 (57) (97) (154)
================== ===== ============= ================ =========== ============ ================ ===========
Profit/(loss) from
continuing
operations
after taxation 693 (1,694) (1,001) 109 644 753
Discontinued
operations
(ii) 6 - - - - 608 608
================== ===== ============= ================ =========== ============ ================ ===========
Profit/(loss) for
the
period 693 (1,694) (1,001) 109 1,252 1,361
================== ===== ============= ================ =========== ============ ================ ===========
Attributable to:
Owners of the
parent 643 (1,507) (864) 98 1,253 1,351
Non-controlling
interests 50 (187) (137) 11 (1) 10
================== ===== ============= ================ =========== ============ ================ ===========
Earnings per Pence Pence
ordinary
share
================== ===== ============= ================ =========== ============ ================ ===========
From continuing
and discontinued
operations
Basic 9 (14.7) 23.2
Diluted 9 (14.7) 22.9
From continuing
operations
Basic 9 (14.7) 12.8
Diluted 9 (14.7) 12.6
Interim dividend
proposed
per ordinary
share 10 1.0 -
================== ===== ============= ================ =========== ============ ================ ===========
(i) Costs of sales includes a movement of GBP1,869 million
(2021: GBPnil) relating to the onerous energy supply contract
provision within the certain re-measurements column. See notes 3
and 6.
(ii) Profit from discontinued operations is entirely
attributable to equity holders of the parent.
The notes on pages 30 to 68 form part of these condensed interim
Financial Statements.
Group Statement of Comprehensive Income
2022 2021
Six months ended 30 June Notes GBPm GBPm
============================================================ ===== ======= =====
(Loss)/profit for the period (1,001) 1,361
Other comprehensive income
Items that will be or have been reclassified to the
Group Income Statement:
Impact of cash flow hedging (net of taxation) (22) (8)
Exchange differences on translation of foreign operations (62) (32)
Exchange differences reclassified to Group Income
Statement on disposal 11 274 (20)
Net investment hedging (net of taxation) reclassified
to the Group Income Statement on disposal - (40)
Items that will not be reclassified to the Group
Income Statement:
Net actuarial gains on defined benefit pension schemes
(net of taxation) 497 184
(Losses)/gains on revaluation of equity instruments
measured at fair value through other comprehensive
income (net of taxation) (1) 1
Share of other comprehensive (loss)/income of joint
ventures and associates (net of taxation) (19) 42
============================================================ ===== ======= =====
Other comprehensive income (net of taxation) 667 127
============================================================ ===== ======= =====
Total comprehensive (loss)/income for the period (334) 1,488
============================================================ ===== ======= =====
Attributable to:
Owners of the parent (197) 1,481
Non-controlling interests (137) 7
============================================================ ===== ======= =====
Total comprehensive (loss)/income attributable to
owners of the parent arises from:
Continuing operations (197) 933
Discontinued operations - 548
============================================================ ===== ======= =====
The notes on pages 30 to 68 form part of these condensed interim
Financial Statements.
Group Statement of Changes in Equity
Share Share Retained Other Non-controlling Total
capital premium earnings equity Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ========= ======= ===== =============== =======
1 January 2022 363 2,377 377 (752) 2,365 385 2,750
---------------------------------- -------- -------- --------- ------- ----- --------------- -------
Loss for the period - - (864) - (864) (137) (1,001)
Other comprehensive income - - - 667 667 - 667
---------------------------------- -------- -------- --------- ------- ----- --------------- -------
Total comprehensive (loss)/income - - (864) 667 (197) (137) (334)
================================== ======== ======== ========= ======= ===== =============== =======
Employee share schemes
and other share transactions 2 17 (2) (17) - - -
Distributions to non-controlling
interests (note 11) - - - - - (233) (233)
================================== ======== ======== ========= ======= ===== =============== =======
30 June 2022 365 2,394 (489) (102) 2,168 15 2,183
================================== ======== ======== ========= ======= ===== =============== =======
Share Share Retained Other Non-controlling Total
capital premium earnings equity Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ========= ======= ===== =============== =======
1 January 2021 361 2,347 (836) (915) 957 425 1,382
---------------------------------- -------- -------- --------- ------- ----- --------------- -------
Profit for the period - - 1,351 - 1,351 10 1,361
Other comprehensive income/(loss) - - - 130 130 (3) 127
---------------------------------- -------- -------- --------- ------- ----- --------------- -------
Total comprehensive income - - 1,351 130 1,481 7 1,488
================================== ======== ======== ========= ======= ===== =============== =======
Employee share schemes
and other share transactions 2 30 1 (25) 8 - 8
================================== ======== ======== ========= ======= ===== =============== =======
30 June 2021 363 2,377 516 (810) 2,446 432 2,878
================================== ======== ======== ========= ======= ===== =============== =======
The notes on pages 30 to 68 form part of these condensed interim
Financial Statements.
Group Balance Sheet
30 June 31 December
2022 2021
Notes GBPm GBPm
=========================================================== ===== ======== ===========
Non-current assets
Property, plant and equipment 1,819 1,985
Interests in joint ventures and associates 2,084 1,628
Other intangible assets 836 760
Goodwill 405 401
Deferred tax assets 8 1,340 823
Trade and other receivables, and contract-related assets 14 241 233
Derivative financial instruments 15 1,463 1,005
Retirement benefit assets 13 801 231
12,
Securities 15 124 135
=========================================================== ===== ======== ===========
9,113 7,201
=========================================================== ===== ======== ===========
Current assets
Trade and other receivables, and contract-related assets 14 5,814 5,881
Inventories 1,141 644
Derivative financial instruments 15 10,444 6,545
Current tax assets 105 83
Cash and cash equivalents 12 4,093 5,060
=========================================================== ===== ======== ===========
21,597 18,213
=========================================================== ===== ======== ===========
Assets of disposal groups classified as held for sale 11 - 1,672
=========================================================== ===== ======== ===========
21,597 19,885
=========================================================== ===== ======== ===========
Total assets 30,710 27,086
=========================================================== ===== ======== ===========
Current liabilities
Derivative financial instruments 15 (9,565) (4,929)
Trade and other payables, and contract-related liabilities (6,299) (7,513)
Current tax liabilities (94) (333)
Provisions for other liabilities and charges (4,578) (2,769)
Bank overdrafts, loans and other borrowings 12 (490) (1,204)
=========================================================== ===== ======== ===========
(21,026) (16,748)
=========================================================== ===== ======== ===========
Liabilities of disposal groups classified as held for sale 11 - (1,228)
=========================================================== ===== ======== ===========
(21,026) (17,976)
=========================================================== ===== ======== ===========
Non-current liabilities
Deferred tax liabilities (23) (36)
Derivative financial instruments 15 (2,275) (1,080)
Trade and other payables, and contract-related liabilities (312) (120)
Provisions for other liabilities and charges (1,475) (1,454)
Retirement benefit obligations 13 (54) (231)
Bank loans and other borrowings 12 (3,362) (3,439)
=========================================================== ===== ======== ===========
(7,501) (6,360)
=========================================================== ===== ======== ===========
Total liabilities (28,527) (24,336)
=========================================================== ===== ======== ===========
Net assets 2,183 2,750
=========================================================== ===== ======== ===========
Share capital 365 363
Share premium 2,394 2,377
Retained earnings (489) 377
Other equity (102) (752)
=========================================================== ===== ======== ===========
Total shareholders' equity 2,168 2,365
=========================================================== ===== ======== ===========
Non-controlling interests 15 385
=========================================================== ===== ======== ===========
Total shareholders' equity and non-controlling interests 2,183 2,750
=========================================================== ===== ======== ===========
The notes on pages 30 to 68 form part of these condensed interim
Financial Statements.
Group Cash Flow Statement
2022 2021
Six months ended 30 June Notes GBPm GBPm
============================================================== ===== ======= =====
Continuing operations:
Group operating (loss)/profit including share of results
of joint ventures and associates (1,099) 1,003
(Deduct)/add back share of (profits)/losses of joint
ventures and associates, net of interest and taxation 5 (50) 36
============================================================== ===== ======= =====
Group operating (loss)/profit before share of results
of joint ventures and associates (1,149) 1,039
============================================================== ===== ======= =====
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments
and write-backs (57) (13)
Loss on disposals 11 329 27
Increase/(decrease) in provisions 1,845 (47)
Cash contributions to defined benefit schemes in excess
of service cost income statement charge (85) (243)
Employee share scheme costs 3 3
Unrealised losses/(gains) arising from re-measurement
of energy contracts 1,224 (239)
Exceptional charges reflected directly in operating
profit - 5
============================================================== ===== ======= =====
Operating cash flows before movements in working capital
relating to business performance and payments relating
to taxes and exceptional charges 2,110 532
(Increase)/decrease in inventories (488) 2
Decrease/(increase) in trade and other receivables
and contract-related assets relating to business performance 155 (122)
(Decrease)/increase in trade and other payables and
contract-related liabilities relating to business
performance (1,222) 153
============================================================== ===== ======= =====
Operating cash flows before payments relating to taxes
and exceptional charges 555 565
Taxes (paid)/refunded (367) 41
Payments relating to exceptional charges in operating
costs (23) (48)
============================================================== ===== ======= =====
Net cash flow from continuing operating activities 165 558
Net cash flow from discontinued operating activities - -
============================================================== ===== ======= =====
Net cash flow from operating activities 165 558
============================================================== ===== ======= =====
Continuing operations:
Purchase of businesses, net of cash acquired (5) (13)
Sale of businesses 11 82 4
Purchase of property, plant and equipment and intangible
assets (including disposal group purchases) 4 (223) (174)
Sale of property, plant and equipment and intangible
assets 1 32
(Investments in)/disposal of joint ventures and associates (1) 2
Dividends received from joint ventures and associates - 1
Interest received 8 2
Purchase of securities 12 (1) -
============================================================== ===== ======= =====
Net cash flow from continuing investing activities (139) (146)
Net cash flow from discontinued investing activities - 2,582
============================================================== ===== ======= =====
Net cash flow from investing activities (139) 2,436
============================================================== ===== ======= =====
Continuing operations:
Payments for own shares (1) -
Proceeds from sale of forfeited share capital - 1
Distributions to non-controlling interests 11 (233) -
Financing interest paid 12 (125) (111)
Repayment of borrowings and capital element of leases 12 (336) (630)
Net cash flow from continuing financing activities (695) (740)
Net cash flow from discontinued financing activities - -
============================================================== ===== ======= =====
Net cash flow from financing activities (695) (740)
============================================================== ===== ======= =====
Net (decrease)/increase in cash and cash equivalents (669) 2,254
Cash and cash equivalents including overdrafts, and
including cash classified as held for sale at 1 January 4,328 1,393
Effect of foreign exchange rate changes 12 111 (10)
============================================================== ===== ======= =====
Cash and cash equivalents including overdrafts at
30 June 12 3,770 3,637
============================================================== ===== ======= =====
Included in the following line of the Group Balance
Sheet:
Cash and cash equivalents 4,093 3,733
Overdrafts included within current bank overdrafts,
loans and other borrowings (323) (96)
============================================================== ===== ======= =====
The notes on pages 30 to 68 form part of these condensed interim
Financial Statements.
Notes to the condensed interim Financial Statements
Notes to the condensed interim Financial Statements provide additional
information required by statute, accounting standards or Listing
Rules to explain a particular feature of the condensed interim Financial
Statements. These condensed interim Financial Statements should be
read in conjunction with the information that was released in the
Group's consolidated Financial Statements for the year ended 31 December
2021.
1. General information
Centrica plc (the 'Company') is a public company limited by
shares, domiciled and incorporated in the UK, and registered in
England and Wales. The address of the registered office is
Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD. The
Company has its listing on the London Stock Exchange. The Company,
together with its subsidiaries comprise the 'Group'.
The condensed interim Financial Statements for the six months
ended 30 June 2022 included in this announcement were authorised
for issue in accordance with a resolution of the Board of Directors
on 27 July 2022.
These condensed interim Financial Statements do not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2021 were approved by the Board of Directors on 23
February 2022 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified and did
not contain an emphasis of matter paragraph and did not contain any
statement under Section 498 of the Companies Act 2006. The
financial information contained in these condensed interim
Financial Statements is unaudited. The Group Income Statement,
Group Statement of Comprehensive Income, Group Statement of Changes
in Equity, Group Cash Flow Statement for the interim period to 30
June 2022, the Group Balance Sheet as at 30 June 2022, and the
related notes have been reviewed by the auditors and their report
to the Company is set out on page 24.
2. Basis of preparation
These condensed interim Financial Statements for the six months ended
30 June 2022 have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and with
IAS 34: 'Interim financial reporting', as adopted by the United Kingdom.
These condensed interim Financial Statements should be read in
conjunction with the Group's consolidated Financial Statements for
the year ended 31 December 2021, which were prepared in accordance
with the United Kingdom adopted International Accounting Standards,
with International Financial Reporting Standards as issued by the
IASB and in conformity with the requirements of the Companies Act
2006. The Group's consolidated Financial Statements for the year
ending 31 December 2022 will be prepared in accordance with the
United Kingdom adopted International Financial Reporting
Standards.
Preparation of interim financial statements requires management
to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expense. Actual amounts may differ from
these estimates. In preparing these condensed interim Financial
Statements, the significant judgements, estimates and assumptions
made by management in applying the Group's accounting policies were
consistent with those applied in the Group's consolidated Financial
Statements for the year ended 31 December 2021, unless amended by
the application of new accounting policies, standards or
interpretations, or as a result of changes in estimation
uncertainty or judgements as described in note 3.
Taxes on income in the interim period are accrued using tax
rates that would be applicable to expected total annual earnings
for each relevant source of income.
In the context of the continuing economic uncertainty caused by
commodity price volatility and energy market uncertainty, the
Directors have updated their going concern assessment performed to
support the December 2021 Annual Report and Accounts, which were
approved by the Board of Directors on the 23 February 2022. That
going concern assessment included the impact on the Group of a
reduction in commodity prices, adverse weather events, higher bad
debt, reduced asset production and increased margin requirements.
The Directors have updated their going concern assessment to factor
in the Group's updated principal risks, strategy and forecasts,
together with modelling downside sensitivities. The going concern
assessment has considered the financial impact on the Group's
credit and liquidity headroom of certain stress events impacting
the Group's key risks over a 12-18 month horizon, including the
risks noted above.
The Group's forecasts (including reasonable worst case
forecasting) show that the Group will maintain sufficient headroom,
underpinned by unrestricted cash and cash equivalents, net of bank
overdrafts, of c.GBP3.4 billion as at 30 June 2022, and c.GBP2.9
billion of undrawn committed facilities, which remain committed
until at least 2024. Accordingly, the Directors continue to believe
it is appropriate to adopt the going concern basis of accounting in
preparing the condensed interim Financial Statements.
3. Accounting policies
This section details new accounting policies, standards, amendments
and interpretations, whether these are effective in 2022 or later
years, and if and how these are expected to impact the financial position
and performance of the Group. In addition, this section sets out the
Group's specific accounting measures applied in the preparation of
the condensed interim Financial Statements. These measures enable
the users of the accounts to understand the Group's underlying and
statutory business performance separately.
The accounting policies applied in these condensed interim
Financial Statements are consistent with those used in the
preparation of the Group's consolidated Financial Statements for
the year ended 31 December 2021, as described in those annual
Financial Statements, with the exception of policies, standards,
amendments and interpretations effective as of 1 January 2022 and
other changes detailed below.
(a) New accounting policies, standards, amendments and
interpretations effective or adopted in 2022
From 1 January 2022, the following standards and amendments are
effective in the Group's consolidated Financial Statements:
-- Amendments to IAS 16: 'Property, Plant and Equipment'
regarding proceeds before intended use. The amendments specified
that proceeds from selling items produced while bringing an asset
into the location and condition necessary for it to be capable of
operating in the manner intended should be included in profit or
loss;
-- Amendments to IAS 37: 'Provisions, contingent assets and
contingent liabilities'. The amendments specify which costs an
entity should include when assessing whether a contract is onerous
and therefore requires a provision; and
-- Annual Improvements to IFRS 2018-2020.
None of the changes to IFRS described above have a material
impact on the Group's consolidated Financial Statements.
(b) Standards, amendments and interpretations that are issued
but not yet applied by the Group
The following standards and amendments have been issued,
endorsed and will be applied to the Group in future periods:
IFRS 17: 'Insurance Contracts', effective from 1 January
2023.
The following standards and amendments have been issued and will
be applied to the Group in future periods, subject to UK
endorsement:
-- Amendments to IAS 1: 'Presentation of Financial Statements'
relating to the classification of financial liabilities are
effective from 1 January 2023. The amendments clarify the meaning
of settlement in the context of liabilities, and the circumstances
in which liabilities are classified as current or non-current;
-- Amendments to IAS 12: 'Income Taxes' relating to deferred tax
on assets and liabilities arising from a single transaction
effective from 1 January 2023;
-- Amendments to IAS 1 relating to the disclosure of accounting
policy and materiality judgements, effective from 1 January 2023;
and
-- Amendments to IAS 8: 'Accounting policies, change in
accounting estimates and errors' relating to the definition of
accounting estimates, effective from 1 January 2023.
IFRS 17 will be effective from 1 January 2023. The Group
currently has fixed-fee service contracts that it accounts for as
insurance contracts under IFRS 4, 'Insurance Contracts'. The Group
has substantially completed its assessment of IFRS 17 and expects
these contracts to fall within the scope of IFRS 17 where the Group
reflects an assessment of the risk associated with an individual
customer in setting the price of the contract. The Group plans to
apply the simplified 'Premium Allocation Approach' to its contracts
on the basis that the coverage period of the Group's insurance
contracts is not greater than one year. The Group does not expect a
material impact from the application of this standard.
Management does not expect other issued but not effective
amendments of standards, or standards not discussed above to have a
material impact on the Group's financial statements.
(c) Centrica specific accounting measures
The Directors believe that reporting adjusted measures (revenue,
margin, profit, earnings per share and cash flow) provides
additional useful information on business performance and
underlying trends. These measures are used for internal performance
purposes, are not defined terms under IFRS and may not be
comparable with similarly titled measures reported by other
companies.
Management uses adjusted revenue, adjusted gross margin and
adjusted operating profit to evaluate segment performance. They are
defined as revenue/gross margin/operating profit before:
-- exceptional items; and
-- certain re-measurements.
Exceptional items and certain re-measurements are excluded
because these items are considered by the Directors to distort the
Group's underlying business performance.
Adjusted earnings is defined as earnings before:
-- exceptional items net of taxation; and
-- certain re-measurements net of taxation.
A reconciliation of adjusted earnings and adjusted earnings per
share is provided in note 9.
Free cash flow is used by management to assess the cash
generating performance of each segment. Segmental free cash flow is
defined as net cash flow from operating and investing activities
before:
-- deficit reduction payments made to the UK defined benefit pension schemes;
-- movements in variation margin and collateral;
-- interest received;
-- sale, settlement and purchase of securities; and
-- taxes paid and refunded.
Segmental free cash flow as assessed by management excludes cash
flows relating to tax. This is because the effect of group relief
and similar reliefs could distort the measure of segment
performance. As a Group-wide measure, free cash flow includes taxes
paid and refunded.
Free cash flow gives a measure of the cash generation
performance of the business after taking account of the need to
maintain its capital asset base. By excluding pension deficit
reduction payments and movements in variation margin and
collateral, which are predominantly triggered by wider market
factors and, in the case of collateral and margin movements,
represent timing differences, free cash flow gives a measure of the
underlying performance of the Group.
Interest received and cash flows from the sale, settlement and
purchase of securities are excluded from free cash flow as these
items are included in the Group's net debt measure, and are
therefore viewed by the Directors as related to the manner in which
the Group finances its operations.
Exceptional items and certain re-measurements
The Group reflects its underlying financial results in the
business performance column of the Group Income Statement. To be
able to provide users with this clear and consistent presentation,
the effects of 'certain re-measurements' of financial instruments,
and 'exceptional items', are reported in a different column in the
Group Income Statement.
The Group is an integrated energy business. This means that it
utilises its knowledge and experience across the gas and power (and
related commodity) value chains to make profits across the core
markets in which it operates. As part of this strategy, the Group
enters into a number of forward energy trades to protect and
optimise the value of its underlying production, generation,
storage and transportation assets and contracts (and similar
capacity or off-take arrangements), as well as to meet the future
needs of its customers (downstream demand). These trades are
designed to reduce the risk of holding such assets, contracts or
downstream demand and are subject to strict risk limits and
controls.
Primarily because some of these trades include terms that permit
net settlement, they are prohibited from being designated as 'own
use' and so IFRS 9: 'Financial instruments' requires them to be
individually fair valued.
Fair value movements on these commodity derivative trades do not
reflect the underlying performance of the business because they are
economically related to the Group's upstream assets,
capacity/off-take contracts or downstream demand, which are
typically not fair valued. Similarly, where our downstream customer
supply contracts have become onerous as a result of significant
market price movements (and the fact any associated commodity
hedges have separately been recognised at fair value under IFRS 9
and therefore the onerous supply contract assessment must reflect
the reversal of those gains in subsequent periods), movements in
the required provision are also reflected as a certain
re-measurement in the 'Cost of sales' line item and separately
disclosed in note 6. Movements in this provision do not reflect the
underlying performance of the business because they are
economically related to both the hedges and forecast future
profitability of the supply contracts. Therefore, these certain
re-measurements are reported separately and are subsequently
reflected in business performance when the underlying transaction
or asset impacts profit or loss.
The effects of these certain re-measurements are presented
within either revenue or cost of sales when recognised in business
performance depending on the nature of the contract. They are
managed separately from proprietary energy trading activities where
trades are entered into speculatively for the purpose of making
profits in their own right. These proprietary trades are included
in revenue in the business performance column of the Group Income
Statement.
The Group's result for the period presents both realised and
unrealised fair value movements on all derivative energy contracts,
including those within the 'Re-measurement and settlement of energy
contracts' line item.
Exceptional items are those items that, in the judgement of the
Directors, need to be disclosed separately by virtue of their
nature, size or incidence. Again, to ensure the business
performance column reflects the underlying results of the Group,
these exceptional items are also reported in the separate column in
the Group Income Statement. Items that may be considered
exceptional in nature include disposals of businesses or
significant assets, business restructurings (including property
rationalisation costs), significant onerous contract
charges/releases, debt repurchase costs, certain pension past
service credits/costs, asset impairments/write-backs, the tax
effects of these items and the effect of changes in UK upstream tax
rates.
The Group distinguishes between business performance asset
impairments/write-backs and exceptional impairments/write-backs on
the basis of the underlying driver of the impairment, as well as
the magnitude of the impairment. Drivers that are deemed to be
outside of the control of the Group (e.g. commodity price changes)
give rise to exceptional impairments. Additionally, impairment
charges or write-backs that are of a one-off nature (e.g. reserve
downgrades or one-time change in intended use of an asset) and
significant enough value to distort the underlying results of the
business are considered to be exceptional. Other impairments that
would be expected in the normal course of business, such as
unsuccessful exploration activity (dry holes), are reflected in
business performance.
(d) Key sources of estimation uncertainty and critical
accounting judgements
With the exception of the items noted below which have been
updated during the reporting period, key areas of critical
accounting judgement and estimation uncertainty that have the most
significant effect on the consolidated Group Financial Statements
remain as disclosed in note 3(a) and 3(b) of the Annual Report and
Accounts for the year ended 31 December 2021.
Supplier of Last Resort (SoLR)
During 2021, the Group was appointed as the Supplier of Last
Resort to eight suppliers who ceased trading during the year and
one further appointment was made in January 2022. Under Ofgem's
licence conditions, the Group is entitled to make a Last Resort
Supplier Payment (LRSP) claim for the shortfall between costs
reasonably incurred in supplying gas and electricity to premises
under the Last Resort Supply Direction, and the charges recovered
from customers.
Ofgem published a decision setting out temporary changes to the
process for claiming the LRSP and as a result, the Group submitted
an initial claim for GBP361 million covering a six month period
from the date of appointment, and received confirmation of Ofgem's
acceptance in December 2021. The claim primarily covers incremental
commodity costs, incurred as a result of procuring gas and
electricity to supply affected customers. The six month SoLR period
has now ended for all appointments made in 2021 and the related
claim is being settled in monthly instalments between April 2022
and April 2023; GBP107 million has been received during the period
to 30 June 2022. The Group will submit a second claim, estimated to
be GBP159m, to Ofgem by Autumn 2022. This is expected to include a
true-up to the initial claim for incremental costs incurred, the
inclusion of customer credit balances where the Group has not
waived the right to do so, and a claim for costs incurred in
relation to the Group's further SoLR appointment made in January
2022. The second claim is expected to be settled between April 2023
and April 2024 and remains subject to Ofgem validation.
The total receivable recognised at 30 June 2022 in respect of
both claims is GBP413 million (31 December 2021: GBP234
million).
The Group concluded that the LRSP process represents an Ofgem
support mechanism, enabling energy suppliers to provide stability
to the customers of failed suppliers. The Group determines that the
critical accounting judgement is that the LRSP falls within the
scope of IAS 20 'Government Grants' and amounts receivable under
the mechanism are recognised as an asset, and a credit within cost
of sales and operating costs, as the related expenses are incurred
.
British Gas Energy and Centrica Business Solutions Onerous
Supply Contracts
The Group operates and manages a hedging strategy to ensure that
the future costs of supplying customers of the British Gas Energy
and Centrica Business Solutions portfolios are appropriately
managed.
Hedges are measured at fair value under IFRS 9 and are
recognised as certain re-measurements in the Group's income
statement until the point at which the related costs to purchase
electricity and gas are incurred. Fair value movements on energy
purchase contracts entered to meet the future needs of customers
are economically related to customer demand; the supply contracts
for which are measured on an accrual basis.
Gains arising from hedges have been recognised in the income
statement (within certain re-measurements) in accordance with the
requirements of IFRS 9. Because of this hedge value recognition,
the assessment of whether the supply contracts are onerous must
include the contracted energy purchase costs and those mark to
market reversals. The Group determines that at the reporting date,
the future costs to fulfil customer contracts, including those mark
to market reversals, will exceed the charges recovered from
customers because the associated hedging gains have already been
recognised in the income statement.
The Group has recognised an onerous supply contract provision of
GBP4,399 million at 30 June 2022 (31 December 2021: GBP2,530
million). This has been calculated by estimating the expected
margins from energy supply customers and deducting from this margin
the expected costs to fulfil those arrangements, including energy
purchase costs reflecting the mark to market gains, and directly
attributable overhead costs. For customers where this results in a
loss, an onerous contract provision is recorded.
The change in commodity prices significantly impacts the value
of the provision and has resulted in a material increase since year
end. This increase is partially offset by the corresponding gains
on the related derivatives recognised in certain re-measurements.
Further disclosures relating to movements in certain
re-measurements are provided in note 6.
Further key sources of estimation uncertainty relate to the
expected future tenure of the Group's customer portfolio at 30 June
2022, and the estimated gross margin attributable to them.
Estimations are based on historic experience, adjusted to reflect
non-recurring costs. At 30 June 2022, the Group has determined that
the assumptions in relation to customer tenure made at December
2021 continue to be applicable; the ability of customers to change
suppliers is currently restricted due to market conditions, and the
Group therefore determines that customer tenure assumptions at year
end are the best measure of customer behaviour in normal market
conditions. Gross margin assumptions have been updated in relation
to the British Gas Energy residential portfolio to reflect changes
to the price cap methodology during the period, and certain
operating cost assumptions have also been revised.
The British Gas Energy residential element of the provision is
particularly sensitive to movements in these assumptions. The model
indicates that a customer tenure of eight years or more is not
expected to be onerous. The gross margin for 30 June 2022 can be
found in note 4. The element of the provision relating to business
customers is much less sensitive to the assumptions made.
Sensitivities for residential customers are provided in the
table below:
31 December
30 June 2022 2021
Decrease/ Decrease/
(increase) (increase)
in provision in provision
Assumption GBPm GBPm
Customer tenure one year longer/(shorter) 241/(190) 170/(124)
Gross margin 10% increase/(decrease) 138/(174) 111/(150)
------------------------------------------ ------------- -------------
Impairment and impairment reversals of long-lived assets
The Group makes judgements in considering whether the carrying
amounts of its long-lived assets (principally Upstream gas and oil
assets, Nuclear investment (20% economic interest accounted for as
an investment in associate) and goodwill) or cash generating units
(CGUs) are recoverable and estimates their recoverable amounts.
2021 and 2022 have seen significant increases in forward
commodity prices, both in terms of observable market prices and
forecast forward prices. As a result, impairment reversals have
been booked related to our retained assets. Impairment reversals
cannot exceed the depreciated historic cost value of an asset and
as a result, all material long-lived assets now have headroom where
the estimated recoverable value is higher than depreciated historic
cost. Accordingly, these are no longer subject to significant
estimation uncertainty as at 30 June 2022.
Upstream gas and oil assets
Forward prices for gas and liquids are a key input in the
determination of the recoverable amount of the Group's gas and oil
assets. The first half of 2022 has seen continued increases in the
prices for such commodities, both in terms of observable market
prices and forecast forward prices. The recoverable amounts of the
Group's gas and oil assets are capped at depreciated historic cost;
no material impairment reversals have been recorded during the
period.
Nuclear investment
The recoverable amount of the Nuclear investment is based on the
value of the existing UK nuclear fleet operated by EDF. The
existing fleet value is calculated by discounting pre-tax cash
flows derived from the stations based on forecast power generation
and power prices, whilst taking account of outages and the likely
operational lives of the stations.
Further details of the methodology, assumptions, impairment
reversals booked during the year and related sensitivities are
provided in note 6.
Credit provisions for trade and other receivables
The economic effects of the significant increase in wholesale
gas and electricity costs, and resultant increase in consumer
tariffs alongside wider inflationary and cost of living pressures
may impact the ability of the Group's customers to pay amounts due.
The level of estimation uncertainty in determining the credit
provisions required for customers is heightened.
The methodology for determining provisions for credit losses on
trade and other receivables and the level of such provision, along
with associated sensitivities, are set out in note 14. Although the
provisions recognised are considered appropriate, the use of
different assumptions or changes in economic conditions could lead
to movements in the provisions and therefore impact the Group
Income Statement.
4. Segmental analysis
The Group's reporting segments are those used internally by management
to run the business and make decisions. The Group's segments are
based on products and services as well as the major factors that
influence the performance of these products and services across the
geographical locations in which the Group operates.
(a) Segmental structure
The types of products and services from which each reportable
segment derived its income during the period are detailed below.
Income sources are reflected in Group revenue unless otherwise
stated:
Segment Description
========================= ======================================================================
British Gas Services (i) The installation, repair and maintenance of domestic
& Solutions central heating and related appliances, installation
of smart meters, and the provision of fixed-fee maintenance/breakdown
service and insurance contracts in the UK; and
(ii) the supply of new technologies and energy efficiency
solutions in the UK.
========================= ======================================================================
British Gas Energy (i) The supply of gas and electricity to residential
and small business customers in the UK.
========================= ======================================================================
Centrica Business (i) The supply of gas and electricity and provision
Solutions of energy-related services to medium and large business
customers
in the UK (i) ; and
(ii) the supply of energy efficiency solutions, flexible
generation, and new technologies to commercial and industrial
customers in all geographies in which the Group operates.
Flexible merchant generation is also provided to the
UK system operator.
========================= ======================================================================
Bord Gáis (i) The supply of gas and electricity to residential
Energy and commercial and industrial customers in the Republic
of Ireland;
(ii) the installation, repair and maintenance of domestic
central heating and related appliances in the Republic
of Ireland; and
(iii) power generation in the Republic of Ireland (i)
.
========================= ======================================================================
Energy Marketing (i) The procurement, trading and optimisation of energy
& Trading in the UK and Europe (i) ; and
(ii) the global procurement and sale of LNG.
========================= ======================================================================
Upstream (i) The production and processing of gas and oil, principally
within Spirit Energy (i) ; and
(ii) the sale of power generated from nuclear assets
in the UK (i) .
========================= ======================================================================
Direct Energy (i) The supply of gas and electricity, and provision
(Discontinued operation) of energy-related services to residential and business
customers in North America;
(ii) the installation, repair and maintenance of domestic
central heating and cooling systems and related appliances,
and the provision of fixed-fee maintenance/breakdown
service and insurance contracts in North America; and
(iii) the procurement, trading and optimisation of energy
in North America (i) .
========================= ======================================================================
(i) Where income is generated from contracts in the scope of
IFRS 9, this is included in re-measurement and settlement of energy
contracts.
(b) Revenue
Gross segment revenue includes revenue generated from the sale of
products and services to other reportable segments of the Group.
Group revenue reflects only the sale of products and services to
third parties. Sales between reportable segments are conducted on
an arm's length basis.
2022 2021
========================================= ============================= ============================
Less Less
Gross inter- Gross inter-
segment segment Group segment segment Group
revenue revenue revenue revenue revenue revenue
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= ======== ======== ========
British Gas Services & Solutions 744 (22) 722 722 (32) 690
British Gas Energy 5,090 - 5,090 3,840 - 3,840
Centrica Business Solutions 1,295 (11) 1,284 871 (9) 862
Bord Gáis Energy 784 - 784 484 - 484
Energy Marketing & Trading 6,355 (113) 6,242 1,991 (151) 1,840
Upstream 1,695 (1,515) 180 838 (400) 438
========================================= ======== ======== ========= ======== ======== ========
Group revenue included in
business performance 15,963 (1,661) 14,302 8,746 (592) 8,154
========================================= ======== ======== ========= ======== ======== ========
Less: revenue arising from
contracts in scope of IFRS
9 included in business performance (3,987) (1,236)
Group revenue 10,315 6,918
========================================= ======== ======== ========= ======== ======== ========
The table below shows the Group revenue arising from contracts
with customers, and therefore in the scope of IFRS 15, and revenue
arising from contracts in the scope of other standards. The key
economic factors impacting the nature, timing and uncertainty of
revenue and cash flows are considered to be driven by the type and
broad geographical location of the customer. The analysis of IFRS
15 revenue below reflects these factors.
2022
=========================================================================
Revenue
from fixed-fee
service
and insurance
contracts
in scope Revenue
of IFRS in business
Revenue 4, and performance
from contracts leasing arising Group
with customers contracts from contracts revenue
in scope in scope in scope included
of IFRS of IFRS Group of IFRS in business
15 16 revenue 9 performance
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
====================================== =============== =============== ======== =============== ============
Energy services and solutions 293
British Gas Services & Solutions 293 429 722 - 722
===============
Energy supply - UK 5,090
British Gas Energy 5,090 - 5,090 - 5,090
===============
Energy supply - UK 609
Energy services and solutions 142
===============
Centrica Business Solutions 751 9 760 524 1,284
===============
Energy supply - Republic of Ireland 571
===============
Bord Gáis Energy 571 - 571 213 784
Energy sales to trading and energy
procurement counterparties 2,777
Energy Marketing & Trading 2,777 8 2,785 3,457 6,242
Gas and oil production 387
Upstream 387 - 387 (207) 180
====================================== =============== =============== ======== =============== ============
9,869 446 10,315 3,987 14,302
====================================== =============== =============== ======== =============== ============
2021
===========================================================================
Revenue
from fixed-fee
service
and insurance
contracts
in scope Revenue
of IFRS in business
Revenue 4, and performance
from contracts leasing arising Group
with customers contracts from contracts revenue
in scope in scope in scope included
of IFRS of IFRS Group of IFRS in business
15 16 revenue 9 performance
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
====================================== =============== =============== ======== =============== ============
Energy services and solutions 240
British Gas Services & Solutions 240 450 690 - 690
===============
Energy supply - UK 3,840
British Gas Energy 3,840 - 3,840 - 3,840
===============
Energy supply - UK 484
Energy services and solutions 129
===============
Centrica Business Solutions 613 1 614 248 862
===============
Energy supply - Republic of Ireland 406
===============
Bord Gáis Energy 406 - 406 78 484
Energy sales to trading and energy
procurement counterparties 1,042
Energy Marketing & Trading 1,042 7 1,049 791 1,840
Gas and oil production 319
Upstream 319 - 319 119 438
====================================== =============== =============== ======== =============== ============
6,460 458 6,918 1,236 8,154
====================================== =============== =============== ======== =============== ============
(c) Adjusted gross margin and adjusted operating profit
The measure of profit used by the Group is adjusted operating profit.
Adjusted operating profit is operating profit before exceptional
items and certain re-measurements. This includes business performance
results of equity-accounted interests.
This note also details adjusted gross margin. Both measures are reconciled
to the reported results.
Adjusted gross Adjusted operating
margin profit
================ ====================
2022 2021 2022 2021
Six months ended 30 June GBPm GBPm GBPm GBPm
==================================================== ========= ===== =========== =======
British Gas Services & Solutions 255 266 7 60
British Gas Energy 551 530 98 172
Centrica Business Solutions 113 75 20 (24)
Bord Gáis Energy 97 69 33 19
Energy Marketing & Trading 337 26 278 (40)
Upstream 910 188 906 75
Adjusted gross margin/adjusted operating
profit 2,263 1,154 1,342 262
==================================================== ========= ===== =========== =======
Certain re-measurements:
Onerous energy supply contract provision (1,869) - (1,869) -
Derivatives contracts (668) 368 (668) 368
Share of re-measurement of certain associates' - - 1 -
contracts (net of taxation)
---------------------------------------------------- --------- ----- ----------- -------
Gross (loss)/profit (274) 1,522
==================================================== ========= ===== =========== =======
Exceptional items in operating profit 95 373
==================================================== ========= ===== =========== =======
Operating (loss)/profit after exceptional
items and certain re-measurements (1,099) 1,003
==================================================== ========= ===== =========== =======
(d) Included within adjusted operating profit
Presented below are certain items included within adjusted operating
profit, including a summary of impairments of property, plant and equipment
and write-downs relating to exploration and evaluation assets.
Amortisation,
write-downs and
Depreciation of impairments of
PP&E intangibles
================= ==================
2022 2021 2022 2021
Six months ended 30 June GBPm GBPm GBPm GBPm
=================================== ======== ======= ======== ========
British Gas Services & Solutions (15) (15) (7) (7)
British Gas Energy (1) (3) (40) (45)
Centrica Business Solutions (6) (6) (13) (19)
Bord Gáis Energy (4) (2) (7) (6)
Energy Marketing & Trading (15) (20) (5) (6)
Upstream (227) (204) - (21)
Other (i) (14) (15) (13) (15)
=================================== ======== ======= ======== ========
(282) (265) (85) (119)
=================================== ======== ======= ======== ========
(i) The Other segment includes corporate functions, subsequently
recharged.
Impairments and impairment reversals of PP&E
No impairments or impairment reversals of PP&E were
recognised within business performance during the six months ended
30 June 2022 or 30 June 2021.
Write-downs and impairments of intangible assets
During the six months ended 30 June 2022, no write-downs (2021:
GBP21 million) relating to exploration and evaluation assets were
recognised in the Upstream segment. All such current and prior
period write-downs were recognised within business performance as
they were not deemed exceptional in nature. During the six months
ended 30 June 2022, no other intangible assets were impaired within
business performance (2021: GBP3 million).
(e) Capital expenditure
Capital expenditure represents additions, other than assets acquired
as part of business combinations, to property, plant and equipment
and intangible assets. Capital expenditure has been reconciled to
the related cash outflow.
Capital expenditure
Capital expenditure on intangible
on property, assets other
plant and equipment than goodwill
====================== =====================
2022 2021 2022 2021
Six months ended 30 June GBPm GBPm GBPm GBPm
================================================= ========== ========== ========== =========
British Gas Services & Solutions 25 11 13 9
British Gas Energy - - 112 97
Centrica Business Solutions 22 6 43 46
Bord Gáis Energy - - 3 4
Energy Marketing & Trading - - 8 3
Upstream 48 129 6 10
Other 6 2 - -
================================================= ========== ========== ========== =========
Capital expenditure 101 148 185 169
Capitalised borrowing costs - (4) - -
Inception of new leases and movements
in payables and prepayments related
to capital expenditure (23) (13) 1 13
Capital expenditure cash outflow subsequent
to transfer to held for sale 109 - 10 -
Purchases of emissions allowances and
renewable obligation certificates (i) - - (160) (139)
================================================= ========== ========== ========== =========
Net cash outflow 187 131 36 43
================================================= ========== ========== ========== =========
(i) Purchases of emissions allowances and renewable obligation
certificates of GBP86 million (2021: GBP97 million) in British Gas
Energy, GBP63 million (2021: GBP42 million) in Centrica Business
Solutions, GBP5 million (2021: GBPnil) in Energy Marketing &
Trading and GBP6 million (2021: GBPnil) in Upstream.
(f) Free cash flow
Free cash flow is used by management to assess the cash generating
performance of each segment, after taking account of the need to maintain
its capital asset base. By excluding pension deficit reduction payments
and movements in collateral and margin cash, which are predominantly
triggered by wider market factors, and in the case of collateral and
margin movements, represent timing movements, free cash flow gives
a measure of the underlying cash generation of the business. Free cash
flow excludes investing cash flows that are related to net debt. This
measure is reconciled to the net cash flow from operating and investing
activities.
2022 2021
Six months ended 30 June GBPm GBPm
===================================================================== ===== =======
Continuing operations
British Gas Services & Solutions (54) 46
British Gas Energy (507) (58)
Centrica Business Solutions 124 72
Bord Gáis Energy 66 (7)
Energy Marketing & Trading 218 121
Upstream (i) 1,151 255
Other (ii) 12 54
===================================================================== ===== =======
Segmental free cash flow excluding tax 1,010 483
===================================================================== ===== =======
Discontinued operations
Direct Energy - 2,582
===================================================================== ===== =======
Group total segmental free cash flow excluding tax 1,010 3,065
Taxes (paid)/refunded from continuing operations (i) (367) 41
Group total free cash flow 643 3,106
===================================================================== ===== =======
Less discontinued operations free cash flow (including tax) - (2,582)
===================================================================== ===== =======
Free cash flow from continuing operations 643 524
UK Pension deficit payments (105) (243)
Movements in variation margin and collateral (519) 129
Interest received 8 2
Purchase of securities (1) -
===================================================================== ===== =======
26 412
===================================================================== ===== =======
Net cash flow from continuing operating activities 165 558
===================================================================== ===== =======
Net cash flow used in continuing investing activities (139) (146)
===================================================================== ===== =======
Total cash flow from continuing operating and investing activities 26 412
===================================================================== ===== =======
(i) Upstream free cash flow excluding tax in 2022 includes
inflows of GBP650 million relating to the Norwegian disposal
groups. Realised hedge cash outflows of GBP(89) million have been
incurred relating to the Norwegian assets but were held outside the
disposal groups. GBP(286) million of taxes paid relate to the
Norway disposal group.
(ii) The Other segment includes corporate functions.
5. Joint ventures and associates
Share of results of joint ventures and associates represents the results
of businesses where we exercise joint control or significant influence
and generally have an equity holding of up to 50%.
Share of results of joint ventures and associates
The Group's share of results of joint ventures and associates
for the six months ended 30 June 2022 principally arises from its
interest in Nuclear - Lake Acquisitions Limited, an associate,
reported in the Upstream segment.
2022 2021
=========================================== ===========================================
Share
of
Share Share exceptional Share
of exceptional of Share items of
Share items results of and results
of business and certain for business certain for
performance re-measurements the period performance re-measurements the period
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
========================== ============ ================ =========== ============ ================ ===========
Income 286 - 286 208 - 208
Expenses before
exceptional
items and certain
re-measurements (226) - (226) (241) - (241)
Exceptional items and - 1 1 - - -
re-measurement
of certain contracts
Operating profit/(loss) 60 1 61 (33) - (33)
Financing costs (1) - (1) (1) - (1)
Taxation on profit/(loss) (10) - (10) (2) - (2)
Share of post-taxation
results
of joint ventures
and associates 49 1 50 (36) - (36)
========================== ============ ================ =========== ============ ================ ===========
6. Exceptional items and certain re-measurements
(a) Certain re-measurements
Certain re-measurements are the fair value movements on energy contracts
entered into to meet the future needs of our customers or to sell the
energy produced from our upstream assets. These contracts are economically
related to our upstream assets, capacity/off-take contracts or downstream
demand, which are typically not fair valued, and are therefore separately
identified in the current period and reflected in business performance
in future periods when the underlying transaction or asset impacts
the Group Income Statement.
2022 2021
Six months ended 30 June GBPm GBPm
================================================================ ======= =====
Certain re-measurements recognised in relation to energy
contracts:
Net losses arising on delivery of contracts (1,658) (232)
Net gains arising on market price movements and new contracts 990 600
================================================================ ======= =====
Net re-measurements included within gross profit before
onerous supply contract provision (668) 368
Onerous energy supply contract provision movement (i) (1,869) -
================================================================ ======= =====
Net re-measurements included within gross profit (2,537) 368
Net gains arising on re-measurement of certain associates' 1 -
contracts (net of taxation)
================================================================ ======= =====
Net re-measurements included within Group operating profit (2,536) 368
Taxation on certain re-measurements (note 8) (ii) 660 28
================================================================ ======= =====
Net re-measurements after taxation (1,876) 396
================================================================ ======= =====
2022 2021
Six months ended 30 June GBPm GBPm
------------------------------------------------------------- ------- -------
Re-measurement and settlement of derivative energy contracts (1,541) (640)
excluding:
IFRS 9 business performance revenue (3,987) (1,236)
IFRS 9 business performance cost of sales 4,860 2,244
============================================================= ======= =======
Unrealised certain re-measurements recognised in relation
to energy contracts included in gross profit (668) 368
============================================================= ======= =======
Onerous contract provision movement (cost of sales) (1,869) -
============================================================= ======= =======
Total certain re-measurements (2,537) 368
============================================================= ======= =======
(i) The onerous supply contract provision represents the future
costs to fulfil customer contracts on a current market price basis.
The associated hedging gains are separately recognised within the
gains arising on market price movements and new contracts.
(ii) Taxation on onerous energy supply contracts amounted to a
GBP355 million credit (2021: GBPnil) and taxation on other certain
re-measurements amounted to a GBP305 million credit (2021: GBP28
million).
The table below reflects the certain re-measurement derivative
movements between UK energy supply net purchases, and trades
related to other business units:
2022 2021
Six months ended 30 June GBPm GBPm
=========================================================== ======= =====
UK Energy Supply (British Gas Energy and Centrica Business
Solutions) 2,731 1,145
Upstream/Energy Marketing & Trading/Bord Gáis (3,399) (777)
Unrealised certain re-measurements recognised in relation
to energy contracts included in gross profit (668) 368
=========================================================== ======= =====
(b) Exceptional items
Exceptional items are those items that, in the judgement of the Directors,
need to be disclosed separately by virtue of their nature, size or
incidence. Items which may be considered exceptional in nature include
disposals of businesses or significant assets, business restructurings,
significant onerous contract charges and releases, pension change
costs or credits, significant debt repurchase costs and asset write-downs/impairments
and write-backs.
2022 2021
Six months ended 30 June GBPm GBPm
============================================================ ===== =====
Exceptional items recognised in continuing operations
Write-back of power assets (i) 424 -
Write-back of exploration and production assets (ii) - 366
Loss on disposal of E&P Norway (iii) (329) -
Restructuring credit - 7
Exceptional items included within Group operating profit 95 373
Net taxation on exceptional items (iv) (note 8) 87 (125)
Net exceptional items recognised in continuing operations
after taxation 182 248
============================================================ ===== =====
Net exceptional items recognised in discontinued operations
after taxation - 608
============================================================ ===== =====
Total exceptional items recognised after taxation 182 856
============================================================ ===== =====
Exceptional items recognised in discontinued operations
Profit on disposal of Direct Energy - 597
Exceptional items before taxation - 597
============================================================ ===
Net taxation on exceptional items - 11
============================================================ ===
Net exceptional items recognised in discontinued operations
after taxation - 608
============================================================ ===
(i) In the Upstream segment, an impairment write-back of the
nuclear investment of GBP424 million (post-tax GBP424 million) has
been recorded as a result of increase in near-term liquid commodity
prices and this has reached historic depreciated cap. See note
6c.
(ii) Despite the increase in near-term liquid commodity prices,
no material impairment write-backs have been recorded for
exploration and production assets because field carrying values
have now reached depreciated historic cost. In 2021, impairment
write-backs of GBP366 million (post-tax GBP194 million) were
booked.
(iii) The disposal of E&P Norway completed on 31 May 2022.
See note 11 for further details.
(iv) Taxation on exceptional items relates to a credit of GBP87
million (2021: GBP49 million) associated with net deferred tax
asset recognition related to exploration and production tax losses,
investment allowance and decommissioning carrying back, due to the
increase in forecast commodity prices. In 2021, a taxation charge
of GBP2 million was also recognised in association with the
restructuring credit (alongside the tax impact of the exploration
and production write-backs referenced in footnote (ii)).
(c) Impairment accounting policy, process and sensitivities
The information provided below relates to the assets and CGUs
(or groups of CGUs) that have been subject to impairment
write-backs during the period.
Exceptional impairments/write-back assessments of assets
measured on a value in use (VIU) basis
Recoverable Carrying
Asset/CGU (or Basis for impairment/write-back amount value (closing) Write-back
Segment group of CGUs) assessment GBPm GBPm GBPm
========= ================ ================================ =========== ================ ==========
Increase in short-term
Upstream Nuclear baseload power prices 3,202 2,081 424
========= ================ ================================ =========== ================ ==========
Nuclear
A VIU calculation has been used to determine the recoverable
amount of the Group's investment in Nuclear. The cash flows
incorporated in the valuation are based on detailed business
forecasts in the short term, extrapolated to future years to
account for the expected generation profile of the fleet for its
remaining life. Assumptions include forward commodity prices,
capacity rates, fuel and network costs, operating and capital
expenditure requirements. Price assumptions are based on liquid
market prices for mid-2022 to mid-2026 which are then blended over
a one-year period to long-term price forecasts. Long-term price
assumptions derived from third-party market comparator median
curves are used due to alignment with pricing that a reasonable
market participant would use. The VIU calculation assumes that the
Sizewell plant operates until 2055, reflecting a 20-year extension
beyond its original design life.
The future pre-tax cash flows generated by the investment in the
associate are discounted using a pre-tax nominal discount rate of
18.0% (2021: 9.2%). This equated to a post-tax rate of 6.5% (2021:
5.7%).
During the period the impairment write-back has been restricted
to the depreciated historic cost of the investment and therefore
significant impairment headroom remains over the closing carrying
value. As a consequence, the asset carrying value is not
particularly sensitive to the above assumptions, with the exception
of changes in short-term commodity price. The table below details
average prices for the relevant periods and associated
sensitivities.
Change in pre/post-tax write-back/(impairment)
(ii)
====================================================
Five-year liquid Ten-year long-term
and blended-period average price
price (i) (i) +10% -10%
====================== ====================== ======================= ===========================
2022-2026 2022-2026 2027-2036 2027-2036
========= =========== ========= ===========
30 June 31 December 30 June 31 December 31 December 31 December
2022 2021 2022 2021 30 June 2021 30 June 2021
GBP/MWh GBP/MWh GBP/MWh GBP/MWh 2022 GBPm GBPm 2022 GBPm GBPm
============== ========= =========== ========= =========== ========== =========== ============== ===========
Baseload power 177 93 63 49 - 319 - (317)
============== ========= =========== ========= =========== ========== =========== ============== ===========
-50%
Five-year
liquid
and
blended-period
only
==============
(554)
==============
(i) Prices are shown in 2021 real terms.
(ii) A 10% change was historically deemed to represent a
reasonably possible variation across the entire period covered by
the liquid market and comparator curves used in the nuclear
impairment test. Given the increases in commodity prices during
2022, a further sensitivity has been included based on a 50% fall
in liquid and blend-period commodity prices only.
7. Net finance cost
Financing costs mainly comprise interest on bonds and bank debt, the
results of hedging activities used to manage foreign exchange and interest
rate movements on the Group's borrowings, and notional interest arising
on discounting of decommissioning provisions and pensions. An element
of financing cost is capitalised on qualifying projects.
Investment income predominantly includes interest received on short-term
investments in money market funds, bank deposits and government bonds.
Continuing operations
2022 2021
============================ ============================
Financing Investment Financing Investment
costs income Total costs income Total
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
=========================================== ========= ========== ===== ========= ========== =====
Cost of servicing net debt:
========= ========== ===== ========= ========== =====
Interest income - 8 8 - 4 4
Interest cost on bonds, bank loans
and overdrafts (84) - (84) (93) - (93)
Interest cost on lease liabilities (2) - (2) (4) - (4)
========= ========== ===== ========= ========== =====
(86) 8 (78) (97) 4 (93)
Net losses on revaluation (5) - (5) (4) - (4)
Notional interest arising from discounting - 1 1 (3) - (3)
=========================================== ========= ========== ===== ========= ========== =====
(91) 9 (82) (104) 4 (100)
Capitalised borrowing costs (i) 4 - 4 4 - 4
=========================================== ========= ========== ===== ========= ========== =====
Financing (cost)/income (87) 9 (78) (100) 4 (96)
=========================================== ========= ========== ===== ========= ========== =====
(i) Borrowing costs have been capitalised using an average rate
of 5.13% (2021: 4.37%).
8. Taxation
The taxation note details the different tax charges arising in the
Group. This tax charge excludes the Group's share of taxation on the
results of joint ventures and associates.
The tax charge for the period has been calculated based on an estimate
of the annual effective tax rate expected for the full financial year
applied to the interim pre-tax accounting profits for each relevant
source of income.
Analysis of tax charge
2022 2021
======================================= ===========================================
Exceptional
items and Results Exceptional
certain for items Results
Business re-measurements the Business and certain for
performance (ii) period performance re-measurements the period
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
================================ ============ ================ ======= ============ ================ ===========
Continuing operations:
The taxation (charge)/credit
comprises
UK corporation tax (99) 782 683 26 (41) (15)
UK petroleum revenue tax (1) (20) (21) 5 - 5
Non-UK tax (471) (15) (486) (88) (56) (144)
================================ ============ ================ ======= ============ ================ ===========
Total taxation on profit/(loss)
(i) (571) 747 176 (57) (97) (154)
================================ ============ ================ ======= ============ ================ ===========
(i) Total taxation on profit/(loss) excludes taxation on the
Group's share of profits of joint ventures and associates.
(ii) Exceptional item and certain re-measurement movements
predominantly relate to deferred tax, resulting in significantly
increased deferred tax assets in 2022.
The Group's adjusted effective tax rate for the six months ended
30 June 2022 was 46% (2021: 35%). This is reconciled to this note
in the Group Financial Review on page 18.
The tax charge in respect of the business performance was
increased by GBP15 million as a result of a net increase in the
Group's uncertain tax provision in respect of the Group's tax
disputes primarily relating to transfer pricing.
On 26 May 2022, the UK Government announced the introduction of
an Energy Profits Levy ('EPL') on the UK ring fence profits of oil
and gas producers with effect from 26 May 2022. The legislation
introducing the EPL was substantively enacted on 11 July 2022. The
EPL is charged at the rate of 25% on taxable profits in addition to
ring fence corporation tax of 30% and Supplementary Charge of 10%,
making a total rate on ring fence profits of 65%. The Group's
profits from Spirit and Rough will be impacted by the EPL and the
results for the year will reflect the additional tax.
The interim tax charge does not reflect an EPL charge as the
legislation was not substantively enacted at 30 June 2022. An EPL
tax charge of GBP4 million is expected to arise from business
performance in the period 26 May 2022 to 30 June 2022. Based on the
temporary differences at 30 June 2022, a net deferred tax asset
would also be recognised of GBP325 million in respect of EPL,
mainly due to derivative balances. These amounts are provisional
and the overall current and deferred tax impact will be updated
once the full-year results are known.
9. Earnings per ordinary share
Earnings per share (EPS) is the amount of profit or loss attributable
to each share. Basic EPS is the amount of profit or loss for the
period divided by the weighted average number of shares in issue
during the period. Diluted EPS includes the impact of outstanding
share options.
Basic earnings per ordinary share has been calculated by
dividing the loss attributable to equity holders of the Company for
the period of GBP864 million (2021: profit of GBP1,351 million) by
the weighted average number of ordinary shares in issue during the
period of 5,868 million (2021: 5,825 million). The number of shares
excludes 26 million ordinary shares (2021: 37 million), being the
weighted average number of the Company's own shares held in the
employee share trust and treasury shares purchased by the Group as
part of share repurchase programmes.
The Directors believe that the presentation of adjusted basic
earnings per ordinary share, being the basic earnings per ordinary
share adjusted for certain re-measurements and exceptional items,
assists with understanding the underlying performance of the Group,
as explained in note 3.
Information presented for diluted and adjusted diluted earnings
per ordinary share uses the weighted average number of shares as
adjusted for 25 million (2021: 74 million) potentially dilutive
ordinary shares as the denominator, unless it has the effect of
increasing the profit or decreasing the loss attributable to each
share.
Continuing and discontinued operations
2022 2021
==================== ================
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============= ===== =========
Earnings - basic (864) (14.7) 1,351 23.2
Net exceptional items after taxation (notes
3 and 6) (i) (166) (2.8) (780) (13.4)
Certain re-measurement losses/(gains) after
taxation (notes 3 and 6) (i) 1,673 28.5 (473) (8.1)
============================================ ===== ============= ===== =========
Earnings - adjusted basic 643 11.0 98 1.7
============================================ ===== ============= ===== =========
Earnings - diluted (ii) (864) (14.7) 1,351 22.9
============================================ ===== ============= ===== =========
Earnings - adjusted diluted (ii) 643 10.9 98 1.7
============================================ ===== ============= ===== =========
Continuing operations
2022 2021
==================== ================
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============= ===== =========
Earnings - basic (864) (14.7) 743 12.8
Net exceptional items after taxation (notes
3 and 6) (i) (166) (2.8) (172) (3.0)
Certain re-measurement losses/(gains) after
taxation (notes 3 and 6) (i) 1,673 28.5 (473) (8.1)
============================================ ===== ============= ===== =========
Earnings - adjusted basic 643 11.0 98 1.7
============================================ ===== ============= ===== =========
Earnings - diluted (ii) (864) (14.7) 743 12.6
============================================ ===== ============= ===== =========
Earnings - adjusted diluted (ii) 643 10.9 98 1.7
============================================ ===== ============= ===== =========
Discontinued operations
2022 2021
===================== ================
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============== ===== =========
Earnings - basic - - 608 10.4
Net exceptional items after taxation (notes
3 and 6) - - (608) (10.4)
Earnings - adjusted basic - - - -
============================================ ===== ============== ===== =========
Earnings - diluted (ii) - - 608 10.3
============================================ ===== =============== ===== =========
Earnings - adjusted diluted (ii) - - - -
============================================ ===== =============== ===== =========
(i) Net exceptional items after taxation and certain
re-measurement losses/(gains) after taxation are adjusted to
reflect the share attributable to non-controlling interests.
(ii) Potential ordinary shares are not treated as dilutive when
they would decrease a loss per share.
10. Dividends
Dividends represent the return of profits to shareholders. Dividends
are paid as an amount per ordinary share held. The Group retains part
of the profits generated to meet future investment plans or to fund
share repurchase programmes.
No dividends were paid during the period to 30 June 2022 (30
June 2021:GBPnil).
The Directors propose an interim dividend of 1.0 pence per
ordinary share (totalling GBP59 million) for the six months ended
30 June 2022. The dividend will be paid on 17 November 2022 to
those shareholders registered on 7 October 2022.
11. Acquisitions, disposals and disposal groups classified as
held for sale
This section details business combinations, asset acquisitions and
disposals made by the Group.
(a) Business combinations and asset acquisitions
During the period, the Group were appointed by Ofgem as the
Supplier of Last Resort (SOLR) to one energy company who had ceased
trading during the period. This was in addition to the eight
appointments that were made in 2021. SOLR appointments are not
accounted for as business combinations or asset acquisitions as the
incremental costs associated with supplying the affected customers
are recoverable through the established Last Resort Supplier
Payment (LRSP) claim mechanism under Ofgem supplier licence
conditions. A customer intangible asset of GBP10 million was
recognised in 2021 in respect of certain customer credit balances
that the Group did not include in their LRSP claims.
There have been no material acquisitions during the period. No
material measurement period adjustments have been made to
acquisitions completed in prior periods.
(b) Disposals
On 8 December 2021 the Group announced that it had agreed to
sell Spirit Energy's entire Norwegian portfolio excluding the
Statfjord fields to Sval Energi for a headline consideration of
$1,026 million (GBP758 million), and the Statfjord fields to
Equinor for headline consideration of $50 million (GBP37
million).
The sales had a commercial effective date of 1 January 2021, and
the consideration receivable at legal completion of 31 May 2022 has
been reduced by the net cash flows generated by the business being
disposed and interest since 1 January 2021. Net consideration
receivable on completion (including costs to dispose) reduced to
GBP222 million from Sval Energi, with a net consideration payable
to Equinor of GBP(118) million. This includes a deferred commodity
price linked receivable, and a tax indemnity provided by Spirit
Energy Norway. The deferred commodity price linked receivable is
currently valued at GBP55 million from Sval Energi and GBP38
million from Equinor. The tax indemnity provided to Sval Energi is
currently valued at GBP(136) million. Distribution of the net
consideration and net cash flows generated will be pro-rata to the
ownership share, with 31% attributable to the non-controlling
interests. In the period ended 30 June 2022, GBP233 million (2021:
GBPnil) was distributed to SWM Bayerische E&P
Beteiligungsgesellschaft mbH upon completion of the Spirit Energy
Norway sale.
In applying IFRS 5: 'Non-current assets held for sale and
discontinued operations', the Group has judged that there are two
separate disposal groups being the Statfjord fields and the
remainder of the Norwegian portfolio. The assets and liabilities
comprising the disposal groups were classified as held for sale as
at 8 December 2021. This is on the basis that at that point, the
disposal groups were available for immediate sale, subject only to
terms that are customary for sales of such assets, and the sale was
highly probable. However, the disposal groups do not represent a
separate major line of business or geographical operations and
hence the Group has concluded that they do not constitute
discontinued operations.
Details of the assets and liabilities of the disposal group at
31 May 2022 are shown below.
Norway
portfolio
excluding
Statfjord Statfjord Total
GBPm GBPm GBPm
=============================================================================== ========= ========== =======
Non-current assets
Property, plant and equipment 315 975 1,290
Other intangible assets - 69 69
Goodwill (i) 19 191 210
Deferred tax assets (ii) 71 - 71
Other non-current financial assets - 8 8
=============================================================================== ========= ========== =======
405 1,243 1,648
=============================================================================== ========= ========== =======
Current assets
Trade and other receivables, and contract-related assets 5 149 154
Inventories 17 14 31
Cash and cash equivalents - 30 30
=============================================================================== ========= ========== =======
22 193 215
=============================================================================== ========= ========== =======
Assets of disposal groups classified as held for sale 427 1,436 1,863
=============================================================================== ========= ========== =======
Current liabilities
Trade and other payables, and contract-related liabilities (61) (129) (190)
Current tax liabilities (60) (393) (453)
Provisions for other liabilities and charges (3) (1) (4)
Lease liabilities - (3) (3)
=============================================================================== ========= ========== =======
(124) (526) (650)
=============================================================================== ========= ========== =======
Non-current liabilities
Deferred tax liabilities (ii) 140 (425) (285)
Provisions for other liabilities and charges (527) (239) (766)
Lease liabilities - (3) (3)
=============================================================================== ========= ========== =======
(387) (667) (1,054)
=============================================================================== ========= ========== =======
Liabilities of disposal groups classified as held for sale (511) (1,193) (1,704)
=============================================================================== ========= ========== =======
Net (liabilities)/assets of disposal groups classified as held for sale (84) 243 159
=============================================================================== ========= ========== =======
Consideration (payable)/receivable (net of transaction costs of GBP14 million) (118) 222 104
=============================================================================== ========= ========== =======
Loss on disposal before recycling of foreign currency translation reserve (34) (21) (55)
=============================================================================== ========= ========== =======
Recycling of foreign currency translation reserve on disposal (274)
=============================================================================== ========= ========== =======
Loss on disposal before and after taxation (329)
=============================================================================== ========= ========== =======
(i) The proposed divestment of the entire Norwegian portfolio,
and attributing exploration and production goodwill of GBP408
million, resulted in an impairment of GBP198 million in 2021,
before transfer of the remaining balance of GBP210 million to
assets of disposal groups classified as held for sale.
(ii) Deferred tax assets of GBP71 million represents tax
attributable to Statfjord UK, part of a UK tax group. Deferred tax
liabilities are categorised between Statfjord Norway, and the
portfolio excluding Statfjord purely for presentational
purposes.
The results of the disposal groups during 2022 reported in
business performance are as follows:
Norway
portfolio
excluding
Statfjord Statfjord Total
GBPm GBPm GBPm
====================== ========= ========== =====
Operating profit 142 416 558
Taxation on profit (87) (351) (438)
Profit after taxation 55 65 120
====================== ========= ========== =====
Commodity derivatives previously entered into outside of the
disposal group to hedge the future production of the disposal group
assets, have been volumetrically closed prior to the completion
date. These derivatives have previously been recognised as a loss
of GBP121 million within certain re-measurements. In accordance
with the Group's policy, these losses will not be subsequently
reflected in the business performance column of the income
statement because the underlying performance to which they relate
(i.e. the asset production disposal group) will no longer occur.
Cash flows associated with these derivatives will occur through to
September 2023.
In the five month period to legal completion of 31 May 2022,
GBP73 million pre-tax (GBP48 million post-tax) realised losses were
recognised in business performance .
Breakdown of consideration:
Norway
portfolio
excluding
Statfjord Statfjord Total
GBPm GBPm GBPm
======================================================== ========= ========== =====
December 2021 payment - 39 39
May 2022 completion payment (156) 278 122
2022 contingent consideration (including tax indemnity) 38 (81) (43)
======================================================== ========= ========== =====
Total consideration (118) 236 118
Less cost to dispose - (14) (14)
(118) 222 104
======================================================== ========= ========== =====
A reconciliation of the completion amounts received in 2022 to
the cash flow statement is presented below:
Norway
portfolio
excluding
Statfjord Statfjord Total
GBPm GBPm GBPm
======================================================= ========= ========== =====
May 2022 completion payment (156) 278 122
Cash and cash equivalents included with disposal group - (30) (30)
Disposal fees incurred - (10) (10)
Cash flow statement (156) 238 82
======================================================= ========= ========== =====
Additionally, within the Other segment a minority investment
made by the former Centrica Innovations business unit in Driivz (an
electric vehicle charging software provider) has completed, with
cash flow of GBP21 million expected in the second half of the
year.
All other disposals undertaken by the Group were immaterial,
both individually and in aggregate.
12. Sources of Finance
(a) Capital structure
The Group seeks to maintain an efficient capital structure with
a balance of net debt and equity as shown in the table below:
30 June 31 December
2022 2021
GBPm GBPm
===================== ======= ===========
Net (cash)/debt (316) (680)
Shareholders' equity 2,168 2,365
===================== ======= ===========
Capital 1,852 1,685
===================== ======= ===========
Debt levels are restricted to limit the risk of financial
distress and, in particular, to maintain a strong credit profile.
The Group's credit standing is important for several reasons: to
maintain a low cost of debt, limit collateral requirements in
energy trading, hedging and decommissioning security arrangements,
and to ensure the Group is an attractive counterparty to energy
producers and long-term customers.
The Group monitors its current and projected capital position on
a regular basis, considering a medium-term view of at least three
years, and different stress case scenarios, including the impact of
changes in the Group's credit ratings and significant movements in
commodity prices.
A number of financial ratios are monitored, including those used
by credit rating agencies.
The level of debt that can be raised by the Group is restricted
by the Company's Articles of Association. Borrowing is limited to
the higher of GBP10 billion and a gearing ratio of three times
capital and reserves. The Group funds its long-term debt
requirements through issuing bonds in capital markets and taking
bank debt. Short-term debt requirements are met primarily through
commercial paper or short-term bank borrowings.
The Group maintains substantial committed facilities and uses
these to provide liquidity for general corporate purposes,
including short-term business requirements and back-up for
commercial paper.
British Gas Insurance Limited (BGIL) is required under PRA
regulations to hold a minimum capital amount and has complied with
this requirement since its inception. BGIL's capital management
policy and plan are subject to review and approval by the BGIL
board. Reporting processes provide relevant and timely capital
information to management and the board. A medium-term capital
management plan forms part of BGIL's planning and forecasting
process, embedded into approved timelines, management reviews and
board approvals.
(b) Net debt summary
Net debt includes capital market borrowings offset by cash, securities
and certain hedging financial instruments used to manage interest rate
and foreign exchange movements on borrowings.
Presented in the derivatives and current and non-current borrowings,
leases and interest accruals columns shown below are the assets and
liabilities that give rise to financing cash flows.
Other assets and liabilities
=================================================
Cash
Current and cash
and non-current equivalents, Current
borrowings, net of and
leases bank non-current
and interest Gross overdrafts securities Sub-lease Net cash/
accruals Derivatives debt (i) (ii) (iii) assets (debt)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ================ =========== ======= ============= ============ ========= =========
1 January 2022 (3,899) 93 (3,806) 4,328 156 2 680
Disposal of business (iv) 6 - 6 (30) (21) - (45)
Net cash outflow from
purchase
of securities - - - (1) 1 - -
Cash outflow for payment of
capital
element of leases 54 - 54 (54) - - -
Cash outflow for repayment
of
borrowings (v) 282 - 282 (282) - - -
Remaining cash outflow (iv) - - - (177) - - (177)
Revaluation 135 (177) (42) - (13) - (55)
Financing interest paid 72 33 105 (125) - - (20)
Interest payable and
amortisation
of borrowings (84) - (84) - - - (84)
New lease agreements and
re-measurement
of existing lease
liabilities (10) - (10) - - - (10)
Exchange adjustments (85) - (85) 111 1 - 27
=========================== ================ =========== ======= ============= ============ ========= =========
30 June 2022 (3,529) (51) (3,580) 3,770 124 2 316
=========================== ================ =========== ======= ============= ============ ========= =========
Other assets and liabilities
=================================================
Cash
Current and cash
and non-current equivalents, Current
borrowings, net of and
leases bank non-current
and interest Gross overdrafts securities Sub-lease Net cash/
accruals Derivatives debt (i) (ii) (iii) assets (debt)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ================ =========== ======= ============= ============ ========= =========
1 January 2021 (4,877) 346 (4,531) 1,393 138 2 (2,998)
Disposal of business (iv) 36 - 36 (132) (4) - (100)
Cash outflow for payment of
capital
element of leases 86 - 86 (86) - - -
Cash outflow for repayment
of
borrowings 650 (106) 544 (544) - - -
Remaining cash inflow - - - 3,127 - - 3,127
Revaluation 74 (93) (19) - 1 - (18)
Financing interest paid 93 (8) 85 (111) - - (26)
Interest payable and
amortisation
of borrowings (100) - (100) - - - (100)
New lease agreements and
re-measurement
of existing lease
liabilities (7) - (7) - - - (7)
Exchange adjustments 39 - 39 (10) - - 29
=========================== ================ =========== ======= ============= ============ ========= =========
30 June 2021 (4,006) 139 (3,867) 3,637 135 2 (93)
=========================== ================ =========== ======= ============= ============ ========= =========
(i) Cash and cash equivalents includes GBP377 million (2021:
GBP400 million) of restricted cash, of which GBP250 million relates
to cash on escrow in favour of the UK defined benefit pension
schemes. Restricted cash also includes GBP5 million (2021: GBP8
million) within the Spirit Energy business that is not restricted
by regulation, but is managed by Spirit Energy's own treasury
department.
(ii) Cash and cash equivalents are net of GBP323 million bank
overdrafts (2021: GBP96 million).
(iii) Securities balances include GBP72 million (2021: GBP83
million) of debt instruments and GBP52 million (2021: GBP52
million) of equity instruments, all measured at fair value.
(iv) Disposal of business in 2022 represents the net debt items
disposed of as part of the sale of the Norway and Driivz
businesses, and the cash received for the sale is shown as part of
remaining cash outflow. Disposal of business in 2021 represents the
net debt items disposed of as part of the sale of Direct
Energy.
(v) Bond repayment comprises GBP36 million repayment of a 3.68%
HKD bond repaid on 22 February 2022, and GBP246 million repayment
of a 6.375% GBP bond repaid on 10 March 2022.
(c) Borrowings, leases and interest accruals summary
30 June 2022 31 December 2021
============================= =============================
Coupon
rate Principal Current Non-current Total Current Non-current Total
% m GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== ========= ======= =========== ======= ======= =========== =======
Bank overdrafts (323) - (323) (750) - (750)
Bank loans (> 5 year
maturity) - (139) (139) - (137) (137)
Bonds (by maturity date):
======= =========== ======= ======= =========== =======
22 February 2022 3.680 HK$450 - - - (43) - (43)
10 March 2022 6.375 GBP246 - - - (241) - (241)
16 October 2023 (i) 4.000 US$302 - (246) (246) - (228) (228)
4 September 2026 (i) 6.400 GBP52 - (52) (52) - (55) (55)
16 April 2027 5.900 US$70 - (57) (57) - (51) (51)
13 March 2029 (i) 4.375 GBP552 - (512) (512) - (559) (559)
5 January 2032 (ii) Zero EUR50 - (66) (66) - (63) (63)
19 September 2033 (i) 7.000 GBP770 - (728) (728) - (788) (788)
16 October 2043 5.375 US$367 - (297) (297) - (267) (267)
12 September 2044 4.250 GBP550 - (538) (538) - (538) (538)
25 September 2045 5.250 US$50 - (40) (40) - (36) (36)
10 April 2075 (i) (iii) 5.250 GBP450 - (433) (433) - (455) (455)
- (2,969) (2,969) (284) (3,040) (3,324)
Obligations under lease
arrangements (85) (254) (339) (102) (262) (364)
Interest accruals (82) - (82) (68) - (68)
========================== ====== ========= ======= =========== ======= ======= =========== =======
(490) (3,362) (3,852) (1,204) (3,439) (4,643)
========================== ====== ========= ======= =========== ======= ======= =========== =======
(i) Bonds or portions of bonds maturing in 2023, 2026, 2029,
2033 and 2075 have been designated in a fair value hedge
relationship.
(ii) EUR50 million of zero coupon notes have an accrual yield of
4.2%, which will result in a EUR114 million repayment on
maturity.
(iii) The Group has the right to repay at par on 10 April 2025
and every interest payment date thereafter.
13. Post-retirement benefits
The Group manages a number of final salary and career average defined
benefit pension schemes. It also has defined contribution schemes.
The majority of these schemes are in the UK.
(a) Summary of main post-retirement benefit schemes
Name of scheme Type of benefit Status Country
===================== ============================ ========================= ===========
Centrica Engineers Defined benefit final salary Closed to new members UK
Pension Scheme pension in 2006
Defined benefit career Open to service engineers UK
average pension only
===================== ============================ ========================= ===========
Centrica Pension Defined benefit final salary Closed to new members UK
Plan pension in 2003
===================== ============================ ========================= ===========
Centrica Pension Defined benefit final salary Closed to new members UK
Scheme pension in 2003
Defined benefit career Closed to new members UK
average pension in 2008
Defined contribution pension Open to new members UK
===================== ============================ ========================= ===========
Bord Gáis Energy Defined benefit final salary Closed to new members Republic
Company Defined pension in 2014 of Ireland
Benefit Pension
Scheme
===================== ============================ ========================= ===========
Bord Gáis Energy Defined contribution pension Open to new members Republic
Company Defined of Ireland
Contribution Pension
Plan
===================== ============================ ========================= ===========
The Centrica Engineers Pension Scheme (CEPS), Centrica Pension
Plan (CPP) and Centrica Pension Scheme (CPS) form the significant
majority of the Group's defined benefit obligation and are referred
to below as the 'Registered Pension Schemes'. The other schemes are
individually, and in aggregate, immaterial.
Independent valuations
The Registered Pension Schemes are subject to independent
valuations at least every three years, on the basis of which the
qualified actuary certifies the rate of employer contributions,
which together with the specified contributions payable by the
employees and proceeds from the schemes' assets, are expected to be
sufficient to fund the benefits payable under the schemes. These
valuations are known as technical provisions (funding basis) and
differ to the IAS 19 accounting basis recognised on the Group's
balance sheet.
The latest full actuarial valuations agreed and finalised with
the Pension Trustees were carried out at the following dates: the
Registered Pension Schemes at 31 March 2018 and the Bord Gáis
Energy Company Defined Benefit Pension Scheme at 1 January 2020.
For the Registered Pension Schemes, a full actuarial valuation as
at 31 March 2021 has been undertaken but is in the process of being
finalised. These valuations (including insights from the current
in-progress valuation) have been updated to 30 June 2022 for the
purpose of meeting the requirements of IAS 19. Investments held in
all schemes have been valued for this purpose at market value.
The technical provisions deficit (funding basis) for the
Registered Pension Schemes was GBP1,402 million at the date of the
last agreed actuarial valuation as at 31 March 2018. The Group
remains committed to additional annual cash contributions to fund
this pension deficit. The overall deficit contributions, including
the previously disclosed asset-backed contribution arrangements,
totalled GBP235 million in 2019, GBP175 million in 2020 and 2021,
and will amount to an average of GBP175 million per annum from 2022
to 2025, with a balancing payment of GBP93 million in 2026. A
further GBP193 million was paid in 2021 in relation to a previous
pension strain deferral agreement. The Group has also provided
security to the Trustees in the form of GBP745 million of letters
of credit and GBP250 million cash in escrow.
The technical provisions deficit for the Registered Pension
Schemes as at 31 March 2021 has been agreed in principle with the
Pension Trustees at GBP944 million but work continues to finalise
the overall arrangement. If the technical provisions deficit was
rolled forward to 30 June 2022, using the same assumptions and
allowing for contributions paid and investment market movements
since the valuation date, it would be c.GBP600 million.
Governance
The Registered Pension Schemes are managed by trustee companies
whose boards consist of both company-nominated and member-nominated
Directors. Each scheme holds units in the Centrica Combined Common
Investment Fund (CCCIF), which holds the majority of the combined
assets of the Registered Pension Schemes. The board of the CCCIF is
currently comprised of nine directors: three independent directors,
three directors appointed by Centrica plc (including the Chairman)
and one director appointed by each of the three Registered Pension
Schemes.
Under the terms of the Pensions Act 2004, Centrica plc and each
trustee board must agree the funding rate for its defined benefit
pension scheme and a recovery plan to fund any deficit against the
scheme-specific statutory funding objective. This approach was
first adopted for the triennial valuations completed at 31 March
2006, and has been reflected in subsequent valuations, including
the 31 March 2018 valuation.
(b) Accounting assumptions
The accounting assumptions for the Registered Pension Schemes
are given below:
30 June
31 December
2022 2021
Major assumptions used for the actuarial valuation % %
==================================================== ======== ===========
Rate of increase in employee earnings:
Subject to 2% cap 1.8 1.8
Other not subject to cap 2.5 2.6
Rate of increase in pensions in payment 3.0 3.1
Rate of increase in deferred pensions:
In line with CPI capped at 2.5% 2.3 2.4
In line with RPI 3.0 3.1
Discount rate 3.7 1.8
==================================================== ======== ===========
The assumptions relating to longevity underlying the pension
liabilities at the balance sheet date have been based on a
combination of standard actuarial mortality tables, scheme
experience and other relevant data, and include an allowance for
future improvements in mortality.
For the Registered Pension Schemes, marginal adjustments to the
assumptions used to calculate the pension liability, or significant
swings in bond yields or stock markets, can have a large impact in
absolute terms on the net assets of the Group. Historic reasonably
possible changes as at 30 June to one of the actuarial assumptions
would have affected the scheme liabilities as set out below:
31 December
Impact of changing material assumptions 30 June 2022 2021
============================ ============================
Indicative Indicative
effect effect
Increase/ on scheme Increase/ on scheme
decrease liabilities decrease liabilities
in assumption % in assumption %
============================================== ============== ============ ============== ============
Rate of increase in employee earnings subject
to 2% cap 0.25% +/-0 0.25% +/-0
Rate of increase in pensions in payment and
deferred pensions 0.25% +/-4 0.25% +/-4
Discount rate 0.25% -/+5 0.25% -/+5
Inflation assumption 0.25% +/-4 0.25% +/-5
Longevity assumption 1 year +/-4 1 year +/-4
============================================== ============== ============ ============== ============
Given the movement in discount rate during the period, the
following additional sensitivity has been provided: a 1% increase
in the discount rate would reduce the scheme liabilities by 16%,
and a 1% decrease in the discount rate would increase scheme
liabilities by 21%.
The indicative effects on scheme liabilities have been
calculated by changing each assumption in isolation and assessing
the impact on the liabilities. For the reasonably possible change
in the inflation assumption, it has been assumed that a change to
the inflation assumption would lead to corresponding changes in the
assumed rates of increase in uncapped pensionable pay, pensions in
payment and deferred pensions.
(c) Amounts included in the Group Balance Sheet
30 June 31 December
2022 2021
GBPm GBPm
======================================================= ======= ===========
Fair value of plan assets 8,100 10,666
Present value of defined benefit obligation (7,353) (10,666)
======================================================= ======= ===========
Net asset recognised in the Group Balance Sheet 747 -
======================================================= ======= ===========
Pension asset presented in the Group Balance Sheet as:
Retirement benefit assets 801 231
Retirement benefit liabilities (54) (231)
======================================================= ======= ===========
The Trust Deed and Rules for the Registered Pension Schemes
provide the Group with a right to a refund of surplus assets
assuming the full settlement of scheme liabilities. No asset
ceiling restrictions have been applied.
Included in the Group Balance Sheet within non-current
securities are GBP98 million (31 December 2021: GBP111 million) of
investments, held in trust on behalf of the Group as security in
respect of the Centrica Unfunded Pension Scheme. Of the pension
scheme liabilities above, GBP52 million (31 December 2021: GBP66
million) relates to this scheme.
14. Trade and other receivables, and contract-related assets
Trade and other receivables include accrued income and are amounts
owed by our customers for goods we have delivered or services we
have provided. These balances are valued net of provisions for bad
debt. Other receivables include payments made in advance to our suppliers.
Contract-related assets are balances arising as a result of the Group's
contracts with customers in the scope of IFRS 15.
31 December
30 June 2022 2021
==================== ====================
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
================================================== ======= =========== ======= ===========
Financial assets:
Trade receivables 1,883 - 1,546 -
Unbilled downstream energy income 748 - 726 -
Trading and energy procurement accrued income
(i) 1,617 - 2,546 -
Other accrued energy income 98 - 175 -
Other accrued income 109 - 108 -
Cash collateral posted 1,280 - 888 -
Other receivables (including loans and contract
assets) (ii) 560 147 333 135
================================================== ======= =========== ======= ===========
6,295 147 6,322 135
Less: provision for credit losses (739) - (633) -
================================================== ======= =========== ======= ===========
5,556 147 5,689 135
================================================== ======= =========== ======= ===========
Non-financial assets: prepayments, other
receivables and costs to obtain or fulfil
a contract
with a customer 258 94 192 98
================================================== ======= =========== ======= ===========
5,814 241 5,881 233
================================================== ======= =========== ======= ===========
(i) Trading and energy procurement counterparty receivables are
typically with customers with external, published credit ratings.
Such receivables have typically much lower credit risk than
downstream counterparties and expected credit losses are not
significant.
(ii) Other receivables include GBP413 million (31 December 2021:
GBP234 million) of Supplier of Last Resort (SoLR) claims, see note
3 for further details.
The amounts above include gross amounts arising from the Group's
IFRS 15 contracts with customers of GBP1,746 million (31 December
2021: GBP1,419 million). Additionally, accrued income of GBP1,016
million (31 December 2021: GBP797 million) arising under IFRS 15
contracts is included.
Trade and other receivables include financial assets
representing the contractual right to receive cash or other
financial assets from residential customers, business customers and
treasury, trading and energy procurement counterparties as
follows:
31 December
30 June 2022 2021
==================== ====================
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
=========================================== ======= =========== ======= ===========
Financial assets by class:
Residential customers (i) 2,255 127 1,664 110
Business customers 1,063 19 1,019 21
Treasury, trading and energy procurement
counterparties 2,977 1 3,639 4
=========================================== ======= =========== ======= ===========
6,295 147 6,322 135
Less: provision for credit losses (739) - (633) -
=========================================== ======= =========== ======= ===========
5,556 147 5,689 135
=========================================== ======= =========== ======= ===========
(i) Residential customers include current other receivables of
GBP286 million (31 December 2021: GBP124 million) and non-current
other receivables of GBP127 million (31 December 2021: GBP110
million) in relation to SoLR claims, see note 3(a) for further
details.
Credit losses and provisions for Trade and other receivables
Receivables from residential and business customers are
generally considered to be credit impaired when the payment is past
the contractual due date. The Group applies different definitions
of default for different groups of customers, ranging from sixty
days past the due date to six to twelve months from the issuance of
a final bill. Receivables are generally written off only once a
period of time has elapsed since the final bill. Contractual due
dates range from falling due upon receipt to falling due in thirty
days from receipt.
The table below shows credit impaired balances in gross
receivables (those that are past due) and those that are not yet
due and therefore not considered to be credit impaired.
30 June 31 December
2022 2021 (i)
Gross trade and other receivables GBPm GBPm
================================== ======= ===========
Balances that are not past due 4,912 5,155
Balances that are past due 1,383 1,167
================================== ======= ===========
6,295 6,322
================================== ======= ===========
(i) The prior year has been re-presented to reclassify GBP123
million of balances that are past due to balances that are not past
due.
The IFRS 9 impairment model is applicable to the Group's
financial assets including trade receivables and other financial
assets. As the majority of the relevant balances are trade
receivables and contract assets to which the simplified model
applies, this disclosure focuses on these balances.
The provision for credit losses for trade receivables and
contract assets is based on an expected credit loss model that
calculates the expected loss applicable to the receivable balance
over its lifetime. Expected credit losses on receivables due from
treasury, trading and energy procurement counterparties are not
significant. For residential and business customers default rates
are calculated initially by considering historical loss experience
and applied to trade receivables within a provision matrix. The
matrix approach allows application of different default rates to
different groups of customers with similar characteristics. These
groups are determined by a number of factors including; the nature
of the customer, the payment method selected and where relevant,
the sector in which they operate. The characteristics used to
determine the groupings of receivables are the factors that have
the greatest impact on the likelihood of default. The rate of
default increases once the balance is thirty days past due.
Concentration of credit risk in Trade and other receivables
Treasury, trading and energy procurement counterparty
receivables are typically with customers with external, published
credit ratings. Such receivables have typically much lower credit
risk than downstream counterparties, and that risk is assessed
primarily by reference to the credit ratings rather than to the
ageing of the relevant balance.
The Group was appointed as a Supplier of Last Resort to a number
of energy suppliers who have ceased to trade. Under Ofgem licence
conditions, the Group is entitled to make a Last Resort Supplier
Payment claim for incremental costs reasonably incurred to supply
affected customers; a total of GBP413 million (31 December 2021:
GBP234 million) has been recognised in other receivables at 30 June
2022. This is being recovered as part of a two-step claim process.
An initial levy claim, based on expected commodity costs, was
submitted and approved by Ofgem, and is being settled in monthly
instalments between April 2022 and April 2023. A second claim,
truing up the initial claim to reflect both actual costs incurred
and customer credit balances will be submitted in Autumn 2022 and
recovered between April 2023 and April 2024. The second claim will
also include costs arising from the Group's additional SoLR
appointment made in January 2022. The claims are settled by network
operators who have strong credit ratings, therefore risk of default
is considered low. In addition, Ofgem have the power under
licensing conditions to take enforcement action against default in
accordance with its statutory duties and its Enforcement
Guidelines.
The Group's cash collateral balance has increased to GBP1,280
million in 2022 (31 December 2021: GBP888 million) as a result of
higher commodity prices. The related liability for collateral
received has decreased, see note 19. Collateral counterparties
typically have strong credit ratings and accordingly have low
credit risk; the Group does not expect credit losses to arise on
these balances.
The majority of the Group's credit exposure arises in the
British Gas Energy and Centrica Business Solutions segments and
relates to residential and business energy customers. The credit
risk associated with these customers is assessed as described
above, using a combination of the age of the receivable in
question, internal ratings based on a customer's payment history,
and external data from credit rating agencies and wider
macroeconomic information. The disclosures below reflect the
information that is reported internally for credit risk management
purposes in these segments.
British Gas Energy credit risk
Of the Group total of GBP1,883 million (31 December 2021:
GBP1,546 million) billed trade receivables, the British Gas Energy
reporting segment contributes GBP1,395 million (31 December 2021:
GBP1,033 million). British Gas Energy includes small business
customers on the basis that their profile closely matches those of
residential customers. As described above, credit risk is
concentrated in receivables from energy customers who pay in
arrears. Gross receivables from British Gas Energy residential
customers amount to GBP894 million (31 December 2021: GBP601
million) and are analysed below.
Trade receivables due from
British Gas residential
energy customers as at (i) 30 June 2022 31 December 2021
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(ii) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Direct debits (iii)
Gross receivables 109 100 120 329 55 28 53 136
Provision - (1) (17) (18) - - (2) (2)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 109 99 103 311 55 28 51 134
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Payment on receipt of bill
(iii)
Gross receivables 93 39 257 389 87 22 194 303
Provision (4) (7) (126) (137) (3) (4) (102) (109)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 89 32 131 252 84 18 92 194
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Final bills (iv)
Gross receivables 9 11 156 176 7 8 147 162
Provision (2) (5) (126) (133) (2) (4) (122) (128)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 7 6 30 43 5 4 25 34
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Total net British Gas residential
energy customers trade receivables 205 137 264 606 144 50 168 362
==================================== ===== ===== ======== ===== ===== ===== ======== =====
(i) The receivables information presented in this table relates
to downstream customers who pay energy bills using the methods
presented. It excludes low residual credit risk amounts, such as
balances in the process of recovery through pay-as-you-go energy
(PAYGE) arrangements and amounts receivable from PAYGE energy
vendors. Gross amounts in the process of recovery through PAYGE
arrangements at 30 June 2022 are GBP208 million (31 December 2021:
GBP201 million), against which a provision of GBP139 million is
held (31 December 2021: GBP136 million).
(ii) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to residential energy customers. Amounts paid on receipt
of a bill (PORB), which are settled using bank transfers, cash or
cheques are typically due within fourteen days of invoicing. Direct
debit customers typically pay in equal instalments over a
twelve-month period.
(iii) Receivables settled by direct debit are deemed to present
a lower credit risk than PORB amounts. This is reflected in the
relative level of provision held for these types of
receivables.
(iv) Final bill customers are those who are no longer customers
of the Group and have switched energy supplier. These balances are
deemed to have the highest credit risk.
Gross receivables from British Gas Energy small business
customers amount to GBP289 million (31 December 2021: GBP232
million) and are analysed below.
Trade receivables due from
British Gas small business
energy customers as at 30 June 2022 31 December 2021
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(i) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
============================ ===== ===== ======== ===== ===== ===== ======== =====
Small businesses
Gross receivables 49 24 216 289 48 18 166 232
Provision - (2) (157) (159) - (1) (128) (129)
============================ ===== ===== ======== ===== ===== ===== ======== =====
Total net British Gas small
business energy customers
trade receivables 49 22 59 130 48 17 38 103
============================ ===== ===== ======== ===== ===== ===== ======== =====
(i) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for
small business customers are ten working days.
Unbilled downstream energy income at 30 June 2022 includes gross
balances of GBP607 million in respect of British Gas Energy
customers (31 December 2021: GBP535 million), against which a
provision of GBP22 million is held (31 December 2021: GBP21
million).
Centrica Business Solutions energy credit risk
Of the Group total of GBP1,883 million (31 December 2021:
GBP1,546 million) billed trade receivables, the Centrica Business
Solutions reporting segment contributes GBP288 million (31 December
2021: GBP299 million). As described above, credit risk is
concentrated in receivables from business energy customers who pay
in arrears. Gross receivables from these customers amount to GBP247
million (31 December 2021: GBP251 million) and are analysed
below.
Trade receivables due from
Centrica Business Solutions
business energy customers
as at 30 June 2022 31 December 2021
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(i) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
============================= ===== ===== ======== ===== ===== ===== ======== =====
Commercial and industrial
(ii)
Gross receivables 110 3 40 153 116 3 47 166
Provision - - (19) (19) - - (18) (18)
============================= ===== ===== ======== ===== ===== ===== ======== =====
Net 110 3 21 134 116 3 29 148
============================= ===== ===== ======== ===== ===== ===== ======== =====
Medium-sized entities (ME)
Gross receivables 18 10 66 94 22 7 56 85
Provision - - (43) (43) - - (36) (36)
============================= ===== ===== ======== ===== ===== ===== ======== =====
Net 18 10 23 51 22 7 20 49
============================= ===== ===== ======== ===== ===== ===== ======== =====
Total net Centrica Business
Solutions business energy
customers trade receivables 128 13 44 185 138 10 49 197
============================= ===== ===== ======== ===== ===== ===== ======== =====
(i) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for ME
customers are ten working days. Credit terms for Commercial and
Industrial customers are bespoke and are set based on the
commercial agreement with each customer.
(ii) This category includes low credit risk receivables,
including those from public sector and customers with high turnover
(greater than GBP100 million).
Unbilled downstream energy income at 30 June 2022 includes gross
balances of GBP146 million in respect of Centrica Business
Solutions business energy customers (31 December 2021: GBP193
million), against which a provision of GBP4 million is held (31
December 2021: GBP5 million).
Sensitivity to changes in assumptions
Typically, the most significant assumption included within the
expected credit loss provisioning model that gives rise to
estimation uncertainty is that future performance will be
reflective of past performance and that there will be no
significant change in the payment profile or recovery rates within
each identified group of receivables. To address this risk, the
Group reviews and updates default rates, by group, on a regular
basis to ensure they incorporate the most up to date assumptions
along with forward-looking information where available and
relevant. The Group also considers regulatory changes and customer
segment specific factors that may have an impact, now or in the
future, on the recoverability of the balance.
The specific consideration of forward-looking information in the
impairment model does not usually give rise to significant changes
in the levels of credit losses. However, inflationary pressures and
increasing wholesale gas and electricity costs continue to cause
uncertainty in economic outlook. The economic recovery remains
vulnerable and there remains a level of estimation uncertainty
inherent in determining credit loss provisions for the Group's
trade receivables.
Where customers experience difficulties in settling balances,
the increased ageing of these amounts results in an increase in
provisions held in respect of them under the provision matrix
approach employed. The Group has also considered changes in
customer payment patterns, the specific circumstances of the
customers and the economic impacts of the factors identified above,
on the sectors in which they operate. Whilst economic recovery is
expected, a level of unpredictability remains apparent.
The Group has considered macroeconomic forecasts in determining
the level of provisions for credit losses. Customers are facing
increases to their cost of living, including increased energy
bills, higher inflation and higher interest rates.
During the period, the Group recognised impairment charges of
GBP140 million (2021: GBP66 million) in respect of financial
assets, representing 1.4% of Group revenue (2021: 1.0%) and 1.0% of
Group revenue from business performance (2021: 0.8%). As described
above, the majority of the Group's credit exposure arises in
respect of downstream energy receivables in British Gas Energy and
Centrica Business Solutions. Credit losses in respect of these
assets amounted to GBP132 million (2021: GBP63 million). This
represents 2.1% (2021: 1.4%) of total UK downstream energy supply
revenue from these segments of GBP6,223 million (2021: GBP4,572
million). Further details of segmental revenue are provided in note
4.
Due to the different level of risks presented by billed and
unbilled receivables, these asset groups are considered separately
in the analysis below.
Billed trade receivables
30 June 31 December
2022 2021
GBPm GBPm
========================= ======= ===========
Gross billed receivables 1,883 1,546
Provision (713) (607)
========================= ======= ===========
Net balance 1,170 939
========================= ======= ===========
30 June
31 December
2022 2021
% %
========================================================================================== ======== ===========
Provision coverage 38 39
========================================================================================== ======== ===========
Sensitivity GBPm GBPm
========================================================================================== ======== ===========
Impact on billed receivables/operating profit from 1 percentage point (increase)/decrease
in provision coverage (i) (19)/19 (16)/16
========================================================================================== ======== ===========
(i) Credit risk in the Group is impacted by a large number of
interacting factors.
Cash collection relative to billing has remained largely stable
throughout the first half of 2022, driven by continued high levels
of Business collections. Provision rates by customers in the
Group's downstream operations have fallen marginally, driven by
higher customer bill amounts which, being less aged, attract a
lower rate of bad debt provision. However, the macroeconomic
environment is deteriorating with higher inflation, higher interest
rates and lower growth projections leading to a more challenging
outlook. There remains significant uncertainty around the possible
increase in bad debt as a result of these factors, and some leading
debt indicators including the number of new customers going into
debt have deteriorated. Owing to recent changes in Price Cap levels
and the delayed impact on customer payments, these factors are yet
to be reflected fully in the underlying matrix output model used to
book provision coverage. Therefore, as part of management's
assessment of the adequacy of bad debt provisions, a GBP32 million
increase to the macroeconomic provision has been booked, which now
totals GBP62 million (31 December 2021: GBP30 million). It remains
highly uncertain when and how these factors will reduce the
collectability of debt and what impact future Government
intervention, including for the Energy Bills Support Scheme (EBSS),
may limit the impact of these. The table above and the unbilled
section below provides details of the sensitivity of moving the bad
debt provision by a further 1%.
The Group's services, upstream and trading operations are less
susceptible to credit risk. No significant deterioration of credit
risk has been experienced or is expected in the relevant segments
in respect of billed trade receivables recognised at 30 June 2022,
taking into account cash collection cycles in those areas of the
Group and credit rating information.
Unbilled downstream energy income
The table below shows the IFRS 15 unbilled downstream energy
income for the Group as a whole.
30 June 31 December
2022 2021
GBPm GBPm
=========================== ======= ===========
Gross unbilled receivables 748 726
Provision (26) (26)
--------------------------- ------- -----------
Net balance 722 700
=========================== ======= ===========
30 June
31 December
2022 2021
% %
============================================================================================ ======== ===========
Provision coverage 4 4
============================================================================================ ======== ===========
Sensitivity GBPm GBPm
============================================================================================ ======== ===========
Impact on unbilled receivables/operating profit from 1 percentage point (increase)/decrease
in provision coverage (i) (7)/7 (7)/7
============================================================================================ ======== ===========
(i) Credit risk in the Group is impacted by a large number of
interacting factors.
Unbilled downstream energy income is typically provided at a
significantly lower rate than billed debt. This is because a large
proportion of this debt once billed will be subject to the
historically short cash collection cycles of the Group's downstream
energy supply businesses.
15. Financial instruments
The fair value of a financial instrument is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The Group has documented internal policies for determining
fair value including methodologies used to establish valuation adjustments
required for credit risk.
(a) Fair value hierarchy
Financial assets and financial liabilities measured and held at
fair value are classified into one of three categories, known as
hierarchy levels, which are defined according to the inputs used to
measure fair value as follows:
-- Level 1: fair value is determined using observable inputs
that reflect unadjusted quoted market prices for identical assets
and liabilities;
-- Level 2: fair value is determined using significant inputs
that may be directly observable inputs or unobservable inputs that
are corroborated by market data; and
-- Level 3: fair value is determined using significant
unobservable inputs that are not corroborated by market data and
may be used with internally developed methodologies that result in
management's best estimate of fair value.
30 June 31 December
2022 2021
===== ======== ======= ======== ===== ======= ===== ===========
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
Financial assets
Derivative financial
instruments:
Energy derivatives - 10,475 1,259 11,734 - 6,906 480 7,386
Interest rate derivatives - 20 - 20 - 71 - 71
Foreign exchange derivatives - 153 - 153 - 93 - 93
Debt instruments 71 - 1 72 82 - 1 83
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
Equity instruments 28 4 20 52 29 3 20 52
Contingent consideration
receivable - 38 - 38 - - - -
Cash and cash equivalents - 3,084 - 3,084 - 3,670 - 3,670
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
Total financial assets
at fair value 99 13,774 1,280 15,153 111 10,743 501 11,355
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
Financial liabilities
Derivative financial
instruments:
Energy derivatives - (10,401) (1,234) (11,635) - (5,662) (290) (5,952)
Interest rate derivatives - (97) - (97) - - - -
Foreign exchange derivatives - (108) - (108) - (57) - (57)
Contingent consideration
payable - - (81) (81) - - - -
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
Total financial liabilities
at fair value - (10,606) (1,315) (11,921) - (5,719) (290) (6,009)
=============================== ===== ======== ======= ======== ===== ======= ===== ===========
The reconciliation of the Level 3 fair value measurements during
the period is as follows:
2022 2021
======================= =======================
Financial Financial Financial Financial
assets liabilities assets liabilities
Period ended 30 June GBPm GBPm GBPm GBPm
============================================== ========= ============ ========= ============
Level 3 financial instruments
1 January 501 (290) 120 (129)
Total realised and unrealised gains/(losses):
Recognised in Group Income Statement 779 (944) 36 75
Contingent consideration payable recognised
on disposal - (81) - -
Purchases, sales, issuances and settlements
(net) (i) - - (53) 20
30 June 1,280 (1,315) 103 (34)
============================================== ========= ============ ========= ============
Total gains/(losses) for the period for
Level 3 financial instruments
held at the end of the reporting period 779 (944) 36 75
============================================== ========= ============ ========= ============
(i) During 2021, Level 3 financial assets and financial
liabilities of GBP53 million and GBP20 million respectively were
disposed as part of the Direct Energy sale.
(b) Valuation techniques used to derive Level 2 and Level 3 fair
values and Group valuation process
Level 2 interest rate derivatives and foreign exchange
derivatives comprise interest rate swaps and forward foreign
exchange contracts. Interest rate swaps are fair valued using
forward interest rates extracted from observable yield curves.
Forward foreign exchange contracts are fair valued using forward
exchange rates that are quoted in an active market, with the
resulting market value discounted back to present value using
observable yield curves.
Level 2 energy derivatives are fair valued by comparing and
discounting the difference between the expected contractual cash
flows for the relevant commodities and the quoted prices for those
commodities in an active market. The average discount rate applied
to value this type of contract during the period was 2% per annum
(31 December 2021: 1% per annum).
For Level 3 energy derivatives, the main input used by the Group
pertains to deriving expected future commodity prices in markets
that are not active as far into the future as some of the Group's
contractual terms. This applies to certain contracts within Europe.
Fair values are then calculated by comparing and discounting the
difference between the expected contractual cash flows and these
derived future prices using an average discount rate of 2% per
annum (31 December 2021: 1% per annum).
Active period of markets Gas Power Coal Emissions Oil
======================== === ===== ==== ========= ===
UK (years) 4 4 3 3 4
Because the Level 3 energy derivative valuations involve the
prediction of future commodity market prices, sometimes a long way
into the future, reasonably possible alternative assumptions for
gas, power, coal, emissions or oil prices may result in a higher or
lower fair value for Level 3 financial instruments. Given the
relative size of the volumetric exposures and these fair values, it
is unlikely that the impact of these reasonably possible changes
would be significant when judged in relation to the Group's profit
and loss or total asset value because of the level of hedging
related to these exposures.
It should be noted that the fair values disclosed in the tables
above only concern those contracts entered into that are within the
scope of IFRS 9. The Group has numerous other commodity contracts
that are outside of the scope of IFRS 9 and are not fair valued.
The Group's actual exposure to market rates is constantly changing
as the Group's portfolio of energy contracts changes.
The Group's valuation process includes specific teams of
individuals that perform valuations of the Group's derivatives for
financial reporting purposes, including Level 3 valuations. The
Group has an independent team that derives future commodity price
curves based on available external data and these prices feed into
the energy derivative valuations, subject to adjustments to ensure
they are compliant with IFRS 13: 'Fair value measurement'. The
price curves are subject to review and approval by the Group
Financial Controller and the Group Chief Financial Officer. The
valuations of all derivatives, together with other contracts that
are not within the scope of IFRS 9 are also reviewed regularly as
part of the overall risk management process.
Where the fair value at initial recognition for contracts which
extend beyond the active period differs from the transaction price,
a day-one gain or loss will arise. Such gains and losses are
deferred and amortised to the Group Income Statement based on
volumes purchased or delivered over the contractual period until
such time as observable market data becomes available. The amount
that has yet to be recognised in the Group Income Statement
relating to the differences between the transaction prices and the
amounts that would have arisen had valuation techniques used for
subsequent measurement been applied at initial recognition, less
subsequent releases, is as follows:
2022 2021
Day-one gains deferred GBPm GBPm
------------------------------------------------- ----- -----
1 January 90 64
Disposal of Direct Energy - (45)
Net gains deferred on transactions in the period 152 3
Net amounts recognised in Group Income Statement (54) 1
Exchange differences 4 (1)
================================================= ===== =====
30 June 192 22
================================================= ===== =====
(c) Fair value of financial assets and liabilities held at
amortised cost
The carrying values of the Group's financial assets and
liabilities measured at amortised cost are approximately equal to
their fair value except as listed below:
30 June 2022 31 December 2021
============================== =================================
Carrying Fair Fair Carrying Fair
value value value value Fair value value
Notes GBPm GBPm hierarchy GBPm GBPm hierarchy
======================= ===== ======== ======= =========== ======== ========== ===========
Level Level
Bank loans 12 (139) (145) 2 (137) (173) 2
Level Level
Bonds Level 1 12 (2,903) (3,006) 1 (3,218) (3,947) 1
Level Level
Level 2 12 (66) (84) 2 (106) (136) 2
======================= ===== ======== ======= =========== ======== ========== ===========
16. Commitments and contingencies
(a) Commitments
Commitments are not held on the Group's Balance Sheet as these are
executory arrangements, and relate to amounts that we are contractually
required to pay in the future as long as the other party meets its
contractual obligations.
The Group's commitments primarily relate to the acquisition of
property, plant and equipment and intangible assets, commodity
purchase contracts, and contracts for LNG, transportation and other
capacity.
Commodity purchase contract commitments have increased by GBP24
billion since 31 December 2021 to GBP68 billion, predominantly as a
result of increased forecast prices.
Other commitments, including the acquisition of property, plant
and equipment and intangible assets, have remained at GBP8 billion
since 31 December 2021.
(b) Contingent liabilities
The Group has no material contingent liabilities.
17. Events after the balance sheet date
The Group updates disclosures in light of new information being received,
or a significant event occurring, in the period between 30 June 2022
and the date of this report.
On 27 July 2022 the Directors approved an interim dividend of
1.0p per share. See note 10. There are no other significant post
balance sheet events.
18. Related party transactions
The Group's principal related party is its investment in Lake Acquisitions
Limited, which owns the existing EDF UK nuclear fleet. The disclosures
below, including comparatives, only refer to related parties that were
related in the current reporting period.
During the period, the Group entered into the following arm's
length transactions with related parties who are not members of the
Group, and had the following associated balances:
2022 2021
======================= ========================
Purchase Purchase
of goods Amounts of goods Amounts
and services owed and services owed
(i) to (ii) (i) to (iii)
GBPm GBPm GBPm GBPm
============ ============= ======== ============= =========
Associates:
Nuclear (274) (56) (191) (40)
(274) (56) (191) (40)
============ ============= ======== ============= =========
(i) Six months ended 30 June.
(ii) As at 30 June.
(iii) As at 31 December.
During the period there were no material changes to commitments
in relation to joint ventures and associates. No provision for bad
or doubtful debts relating to amounts owed from related parties was
required in any of the periods disclosed above.
At the balance sheet date, the Group had committed facilities to
the Lake Acquisitions Group totalling GBP120 million (31 December
2021: GBP120 million), although nothing has been drawn down at 30
June 2022 (31 December 2021: GBPnil).
19. Financial Risk Management
The Group's normal operating, investing and financing activities expose
it to a variety of financial risks: market risk (including commodity
price risk, currency risk, and interest rate risk), credit risk and
liquidity risk. These condensed interim Financial Statements do not
include all financial risk management information and disclosures
included in note S3 of the Group's consolidated Financial Statements
for the year ended 31 December 2021.
The Group's normal operating, investing and financing activities
expose it to a variety of risks. Risk management is fundamental to
the way the Group is governed and managed. The Group's system of
risk management and internal control is set out in the 2021 Annual
Report and Accounts.
The Group's financial performance and price competitiveness is
dependent upon its ability to manage exposure to wholesale
commodity prices for gas, oil, carbon and power, interest rates for
long-term borrowing, fluctuations in various foreign currencies,
and environmental factors. Financial risk is reviewed quarterly by
the senior Finance stakeholders and the executive Centrica
Leadership Team to review Group financial exposures and assess
compliance with risk limits.
The four main areas of financial risk are managed as
follows:
-- commodity price risk management is carried out in accordance
with individual business unit policies and directives including
appropriate escalation routes;
-- treasury risk management, including management of currency
risk, interest rate risk and liquidity risk is carried out by a
central Group Treasury function in accordance with the Group's
financing and treasury policy, as approved by the Board;
-- wholesale credit risks associated with commodity trading and
treasury positions are managed in accordance with the Group's
credit risk policy; and
-- downstream customer credit risk management is carried out in
accordance with individual business unit credit policies.
Credit risk is the risk of loss associated with a counterparty's
inability or failure to discharge its obligations under a contract.
The Group continually reviews its rating thresholds for
counterparty credit limits, with reference to the current situation
in Ukraine and forecast macroeconomic impacts of high inflation and
commodity prices, and updates these as necessary based on a
consistent set of principles. It maintains a balance between
exchange-based trading and bilateral transactions. This allows for
a reasonable balance between counterparty credit risk and potential
liquidity requirements. In addition, the Group actively manages the
trade-off between credit and liquidity risks by optimising the use
of contracts with collateral obligations and physically settled
contracts without collateral obligations.
The Group has a number of treasury and risk policies to monitor
and manage liquidity risk. Cash forecasts identifying the Group's
liquidity requirements are produced regularly and are stress tested
for different scenarios, including, but not limited to, reasonably
possible increases or decreases in commodity prices and the
potential cash implications of a credit rating downgrade. The Group
seeks to ensure that sufficient financial headroom exists for at
least a 12-month period to safeguard the Group's ability to
continue as a going concern.
It is the Group's policy to maintain committed facilities and/or
available surplus cash resources of at least GBP1,200 million,
raise at least 75% of its gross debt (excluding non-recourse debt)
in the debt capital markets, and to maintain an average term to
maturity in the recourse long-term debt portfolio greater than five
years.
At 30 June 2022 the Group had undrawn committed credit
facilities of GBP2,939 million (31 December 2021: GBP3,006 million)
and GBP3,393 million (31 December 2021: GBP3,875 million) of
unrestricted cash and cash equivalents, net of outstanding
overdrafts. 85% (31 December 2021: 89%) of the Group's gross debt
has been raised in the long-term debt market, and the forecast
average term to maturity of the long-term debt portfolio was 10.4
years (31 December 2021: 10.9 years).
The Group's liquidity is impacted by the cash posted or received
under margin and collateral agreements. The terms and conditions of
these depend on the counterparty and the specific details of the
transaction. Cash is generally returned to the Group or by the
Group within two days of trade settlement.
30 June 31 December
2022 2021
GBPm GBPm
============================================== ======= ===========
Collateral (received)/posted included within:
Trade and other payables (988) (1,185)
Trade and other receivables 1,280 888
Collateral (received)/posted extinguishing:
Net derivative liabilities (i) (176) (114)
============================================== ======= ===========
Net collateral posted/(received) 116 (411)
============================================== ======= ===========
(i) Variation margin on daily settled derivatives results in the
extinguishment of the net derivative asset/liability. These
contracts remain outstanding until a future delivery date, and
therefore the cumulative daily settlement is considered collateral
until that fulfilment date.
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions. As a result of this, amounts reported for the
six-month period ended 30 June 2022 may not be indicative of the
amounts that would be reported for a full year due to seasonal fluctuations
in customer demand for gas, electricity and services, the impact of
weather on demand and commodity prices, and market changes in commodity
prices and retail tariffs.
Customer demand for gas in the UK and the Republic of Ireland is
driven primarily by heating load and is generally higher in the
winter than in the summer, and higher from January to June than
from July to December. Customer demand for electricity in the UK
and the Republic of Ireland generally follows a similar pattern to
gas, but is more stable.
Customer demand for home services in the UK is generally higher
in the winter than it is in the summer, and higher in the earlier
part of the winter as that is typically when heating systems tend
to break down most, so that customer demand from July to December
is higher than from January to June.
Gas production volumes are generally higher in the winter when
gas prices are higher. Gas production volumes are generally higher
from January to June than they are from July to December as outages
are generally planned for the summer months when gas demand and
prices are at their lowest.
The impact of seasonality on customer demand and wholesale
prices has a direct effect on the Group's financial performance and
cash flows.
Additional Information
Explanatory Notes
Definitions and reconciliation of adjusted performance
measures
Centrica's 2022 Interim Results include a number of non-GAAP
measures. These measures are chosen as they provide additional
useful information on business performance and underlying trends.
They are also used to measure the Group's performance against its
strategic financial framework. They are not however, defined terms
under IFRS and may not be comparable with similarly titled measures
reported by other companies. Where possible they have been
reconciled to the statutory equivalents from the primary statements
(Group Income Statement ('I/S'), Group Balance Sheet ('B/S'), Group
Cash Flow Statement ('C/F')) or the notes to the Financial
Statements.
Adjusted revenue, adjusted gross margin, adjusted operating
profit, adjusted earnings, net debt and free cash flow have been
defined and reconciled separately in notes 3, 4, 9 and 13 to the
Financial Statements where further explanation of the measures is
given. Additional performance measures are used within this
announcement to help explain the performance of the Group and these
are defined and reconciled below.
Adjusted EBITDA
Adjusted EBITDA is a business performance measure of operating
profit, after adjusting for depreciation and amortisation. It
provides a performance measure in its own right, and provides a
bridge between the Income Statement and the Group's key cash
metrics.
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
======================================================================================= ===== ======= ===== ======
Group operating (loss)/profit I/S (1,099) 1,003
Exceptional items included within Group operating (loss)/profit before taxation 6 (95) (373)
Certain re-measurements before taxation 6 2,536 (368)
Share of (profits)/losses of joint ventures and associates, net of interest and
taxation (i) I/S (49) 36
Depreciation and impairments of PP&E (i) 4 282 265
Amortisation, write-downs and impairments of intangibles (i) 4 85 119
Group total adjusted EBITDA 1,660 682 143%
======================================================================================= ===== ======= ===== ======
(i) These line items relate to business performance only.
Adjusted EBITDA excluding Spirit Energy disposed assets
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
=================================================================== ====== ===== ===== ======
Group total adjusted EBITDA 1,660 682
=========================================================================== ===== ===== ======
less disposed assets adjusted EBITDA (including associated hedges) (485) (255)
=========================================================================== ===== ===== ======
Adjusted EBITDA excluding Spirit Energy disposed assets 1,175 427 175%
=========================================================================== ===== ===== ======
Adjusted operating profit excluding Spirit Energy disposed
assets
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
============================================================================= ====== ===== ===== ======
Group total adjusted operating profit I/S 1,342 262
============================================================================= ====== ===== ===== ======
less disposed assets adjusted operating profit (including associated hedges) (485) (122)
===================================================================================== ===== ===== ======
Adjusted operating profit excluding Spirit Energy disposed assets 857 140 512%
===================================================================================== ===== ===== ======
The below table shows how adjusted EBITDA reconciles to free
cash flow:
2022 2021
Six months ended 30 June Notes GBPm GBPm
=========================================================== ===== ======= =====
Adjusted EBITDA 1,660 682
=========================================================== ===== ======= =====
Group operating (loss)/profit including share of joint
ventures and associates, from exceptional items and
certain
re-measurements I/S (2,441) 741
Share of profits of joint ventures and associates, net
of interest and taxation, from exceptional items and
certain
re-measurements I/S (1) -
Depreciation, amortisation, write downs, impairments
and write-backs, from exceptional items and certain
re-measurements 6 (424) (397)
Loss on disposals C/F 329 27
Increase/(decrease) in provisions C/F 1,845 (47)
Cash contributions to defined benefit schemes in excess
of service cost income statement charge C/F (85) (243)
Employee share scheme costs C/F 3 3
Unrealised losses/(gains) arising from re-measurement
of energy contracts C/F 1,224 (239)
Exceptional charges reflected directly in operating
profit C/F - 5
Net movement in working capital C/F (1,555) 33
Taxes (paid)/refunded C/F (367) 41
Payments relating to exceptional charges in operating
profit C/F (23) (48)
=========================================================== ===== ======= =====
Net cash flow from operating activities 165 558
=========================================================== ===== ======= =====
Purchase of businesses, net of cash acquired C/F (5) (13)
Sale of businesses C/F 82 4
Purchase of property, plant and equipment and intangible
assets C/F (223) (174)
Sale of property, plant and equipment and intangible
assets C/F 1 32
(Investments in)/disposal of joint ventures and associates C/F (1) 2
Dividends received from joint ventures and associates C/F - 1
UK Pension deficit payments 4 105 243
Movements in variation margin and collateral 4 519 (129)
Free cash flow from continuing operations 4 643 524
=========================================================== ===== ======= =====
Adjusted earnings attributable to shareholders excluding Spirit
Energy disposed assets
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
======================================================================================== ====== ===== ===== ======
Adjusted earnings attributable to shareholders I/S 643 98
======================================================================================== ====== ===== ===== ======
less disposed assets adjusted earnings attributable to shareholders (including associated
hedges) (45) (24)
================================================================================================ ===== ===== ======
Adjusted earnings attributable to shareholders excluding Spirit Energy disposed assets 598 74 708%
================================================================================================ ===== ===== ======
Adjusted basic earnings per share excluding Spirit Energy
disposed assets
Six months ended 30 June Notes 2022 2021 Change
================================================ ===== ===== ===== ======
Adjusted earnings attributable to shareholders
excluding Spirit Energy disposed assets (GBPm) 598 74
================================================ ===== ===== ===== ======
Weighted average of ordinary shares in issue
during the period (million shares) 9 5,868 5,825
================================================ ===== ===== ===== ======
Adjusted basic earnings per share excluding
Spirit Energy disposed assets 10.2p 1.3p 685%
================================================ ===== ===== ===== ======
Loss on disposals
2022 2021
Six months ended 30 June Notes GBPm GBPm
===================================================== ===== ===== =====
Loss on disposal 11 329 27
Less: Exceptional loss on disposal 6 (329) (31)
===================================================== ===== ===== =====
Profit on disposals relating to business performance - (4)
===================================================== ===== ===== =====
Group net investment
With an increased focus on cash generation, capital discipline
and reducing net debt, Group net investment provides a measure of
the Group's capital expenditure from a cash perspective and allows
the Group's capital discipline to be assessed.
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
======================================================= ====== ===== ===== ======
Capital expenditure (including small acquisitions) (i) 228 187
Net disposals (ii) (82) (38)
=============================================================== ===== ===== ======
Group net investment 146 149 (2)%
=============================================================== ===== ===== ======
Dividends received from joint ventures and associates C/F - (1)
Interest received C/F (8) (2)
Purchase and sale of securities C/F 1 -
======================================================= ====== ===== ===== ======
Net cash flow used in continuing investing activities C/F 139 146 (5)%
======================================================= ====== ===== ===== ======
(i) Capital expenditure is the net cash flow on capital
expenditure and purchases of businesses (less than GBP100 million).
See table (a).
(ii) Net disposals is the net cash flow from sales of
businesses, property, plant and equipment and intangible assets,
net of investments in joint ventures and associates. See table
(b).
Group net investment is capital expenditure including
acquisitions less net disposals. It excludes cash flows from
investing activities not associated with capital expenditure as
detailed in the table above.
(a) Capital expenditure (including small acquisitions)
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
================================================================ ====== ===== ===== ======
Purchase of property, plant and equipment and intangible assets C/F 223 174
Purchase of businesses, net of cash acquired C/F 5 13
Less: material acquisitions (>GBP100 million) - -
Capital expenditure (including small acquisitions) 228 187 22%
======================================================================== ===== ===== ======
(b) Net disposals
2022 2021
Six months ended 30 June Notes GBPm GBPm Change
============================================================ ====== ===== ===== =======
Sale of businesses C/F (82) (4)
Sale of property, plant and equipment and intangible assets C/F (1) (32)
Investment in/(disposal of) joint ventures and associates C/F 1 (2)
============================================================ ====== ===== ===== =======
Net disposals (82) (38) 116%
==================================================================== ===== ===== =======
Reconciliation from free cash flow to change in net debt
The following tables provide additional information to help
readers when reconciling between different parts of the
consolidated Financial Statements, and the Group Cash Flow
Statement.
2022 2021
Six months ended 30 June Notes GBPm GBPm
================================================== ===== ===== =====
Free cash flow from continuing operations 4 643 524
================================================== ===== ===== =====
Discontinued operations free cash flow (including
tax) 4 - 2,582
Group total free cash flow 4 643 3,106
Financing interest paid C/F (125) (111)
Interest received C/F 8 2
UK Pension deficit payments 4 (105) (243)
Proceeds from sale of forfeited share capital C/F - 1
Payments for own shares C/F (1) -
Distributions to non-controlling interests C/F (233) -
Movements in variation margin and collateral 4 (519) 129
================================================== ===== ===== =====
Cash flows affecting net debt (332) 2,884
================================================== ===== ===== =====
Discontinued operations non-cash movements in net
debt - 32
Non-cash movements in net debt (32) (11)
================================================== ===== ===== =====
Change in net debt (364) 2,905
================================================== ===== ===== =====
Opening net debt 12 (680) 2,998
================================================== ===== ===== =====
Closing net debt 12 (316) 93
================================================== ===== ===== =====
Payments relating to exceptional charges in operating costs
2022 2021
Six months ended 30 June Notes GBPm GBPm
======================================================= ====== ===== =====
Restructuring costs incurred during the period and
utilisation of prior year liabilities (23) (48)
Payments relating to exceptional charges in continuing
operating costs C/F (23) (48)
======================================================= ====== ===== =====
Depreciation, amortisation, write-downs, impairments and
write-backs
2022 2021
Six months ended 30 June Notes GBPm GBPm
=============================================================== ===== ====== ======
Depreciation, amortisation, write-downs, impairments
and write-backs, from exceptional
items included in the Group Cash Flow Statement (424) (397)
=============================================================== ===== ====== ======
Made up of:
Write-back of E&P assets 6 - (397)
Write-back of power assets 6 (424) -
Depreciation, amortisation, write-downs, impairments
and write-backs, from business performance included
in the Group Cash Flow Statement 367 384
=============================================================== ===== ====== ======
Made up of:
Business Performance PP&E depreciation 4 282 265
Business Performance intangibles amortisation 4 85 95
Business Performance intangibles impairments and write-downs 4 - 3
Business Performance E&E write-downs 4 - 21
=============================================================== ===== ====== ======
Depreciation, amortisation, write-downs, impairments
and write-backs included in the Group Cash Flow Statement (57) (13)
=============================================================== ===== ====== ======
Definitions and reconciliation of adjusted performance
measures
Reconciliation in receivables and payables to Group Cash flow
Statement
2022 2021
Six months ended 30 June Notes GBPm GBPm
========================================================= ====== ======= =======
Receivables opening balance B/S 6,114 2,946
Less receivables closing balance B/S (6,055) (3,061)
Payables opening balance B/S (7,633) (3,836)
Less payables closing balance B/S 6,611 4,094
========================================================= ====== ======= =======
Net (reduction)/increase receivables and payables (963) 143
================================================================= ======= =======
Non-cash changes, and other reconciling items:
Business disposals 9 -
Movement in capital creditors - 20
Movement in ROCS and emission certificate intangible
assets (138) (137)
Other movements (including foreign exchange movements) 25 5
Non-cash changes, and other reconciling items (104) (112)
================================================================= ======= =======
Movement in trade and other receivables, trade and
other payables and contract related assets relating
to continuing business performance C/F (1,067) 31
========================================================= ====== ======= =======
Pensions
2022 2021
Six months ended 30 June Notes GBPm GBPm
======================================================== ====== ===== =====
Cash contributions to defined benefit schemes in excess
of service cost income statement charge C/F (85) (243)
======================================================== ====== ===== =====
Ordinary employer contributions 21 26
UK Pension deficit payments 105 243
Contributions by employer in respect of employee salary
sacrifice arrangements 11 11
Total current service cost (52) (54)
Termination benefit - 17
================================================================ ===== =====
Disclosures
Disclaimers
This announcement does not constitute an invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any
Centrica shares or other securities.
This announcement contains certain forward-looking statements.
Forward-looking statements can be identified by the use of terms
such as 'may', 'should', 'will', 'continue' or similar words.
Forward-looking statements appear in a number of places throughout
this announcement and include statements regarding the current
intentions, beliefs or expectations of the Directors, Centrica
and/or the Group concerning, among other things, the financial
condition, goals and commitments, prospects, growth, strategies,
results, operations and businesses of Centrica.
Although we make such statements based on assumptions that we
believe to be reasonable, by their nature, these forward-looking
statements are subject to risk and uncertainties because they
relate to, and may be impacted by, events and circumstances that
will occur in the future which are beyond Centrica's ability to
control or estimate precisely. There can be no assurance that
Centrica's actual future results, financial condition, performance,
operations and businesses will not differ materially from those
express or implied in the forward-looking statements due to a
variety of factors, including, but not limited to, those set out in
this announcement and the 'Our Principal Risks and Uncertainties'
section of the Strategic Report in our Annual Report and Accounts.
Readers are cautioned that these forward-looking statements are not
guarantees or predictions of Centrica's future performance and
undue reliance should not be placed on them when making investment
decisions.
Past performance is no guide to future performance and persons
needing advice should consult an independent financial adviser.
For further information
Centrica will hold its 2022 Interim Results presentation for
analysts and institutional investors at 9.30am (UK) on Thursday 28
July 2022. There will be a live audio webcast of the presentation
and slides. Please register to view the webcast at:
https://webcasts.centrica.com/centrica121
You may also listen via conference call. To register for this
call and to receive a unique caller reference number, visit:
https://webcasts.centrica.com/centrica121/vip_connect
An archived webcast and full transcript of the presentation and
question and answer session will be available on the Centrica
website by Tuesday 2 August 2022.
Enquiries
Investors and analysts: Investor Relations
Telephone: 01753 494 900
Email: ir@centrica.com
Media: Media Relations
Telephone: 01784 843 000
Email: media@centrica.com
Financial calendar
For more information on Centrica's financial calendar please
visit: https://www.centrica.com/investors/financial-calendar/
Registered office
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END
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