REG-Centrica PLC Half-yearly Report
* Reuters is not responsible for the content in this press release.
LONDON--(Business Wire)--
Interim results for the period ended 30 June 2008
Financial overview:
-- Group revenue^ £10bn (2007: £8.6bn)
-- Operating profit*^ £992m (2007: £1,226m)
-- Group effective tax rate*^ 58% (2007: 34%)
-- Earnings*^ £416m (2007: £786m)
-- Adjusted basic earnings per share^ 11.3p (2007: 21.4p)
-- Interim ordinary dividend of 3.9p/share (2007: 3.35p/share)
Operating overview:
-- Good results in a difficult commodity environment
-- Continued improvement in British Gas customer service
-- Excellent operational performance in upstream gas production and storage
-- Legacy industrial and commercial gas sales contracts weighed on earnings
-- Strong growth from British Gas Business and British Gas Services
-- £372m invested in energy assets in six months
"We produced a good set of results in tough market conditions and against a
record first half in 2007. Through the rest of 2008 and beyond we will continue
to concentrate on improving customer service in British Gas, driving
inefficiencies out of our entire business, moving in a disciplined manner
towards a greater level of vertical integration and pursuing value-adding growth
opportunities in all of our businesses."
Sam Laidlaw, Chief Executive
Statutory results:
The statutory results include certain re-measurements which are unrealised net
gains on energy procurement and sale contracts falling under the scope of IAS39
which are explained in the Group financial summary and disclosed in note 7.
-- Operating profit £2,965m (2007: £1,600m)
-- Earnings £1,802m (2007: £1,006m)
-- Basic earnings per ordinary share 48.9p (2007: 27.4p)
Chairman's Statement
Performance review
In the first half of 2008 Centrica delivered good financial results against a
record six months of 2007 and made further progress in addressing the longer
term priorities of the business. These achievements were made in a challenging
period for Centrica and the whole energy supply industry in the UK. Never before
has the UK experienced such sustained high wholesale gas and power prices, which
were driven by record oil prices in an increasingly interconnected global energy
market.
The high level of current and forward wholesale gas prices necessitated an
increase in retail tariffs by British Gas early in the year and then again at
the end of July. These increases were required to restore reasonable
profitability in British Gas and to enable investment in additional gas and
power assets. To minimise the impact to consumers we continued to reduce the
operating costs in British Gas while delivering a step-change improvement to
customer service. The results of this can already be seen in the reduction in
complaints to Energywatch of over 90% from the peak in the early part of 2007.
We delivered some very encouraging results in our growth businesses. Of
particular note are British Gas Business and British Gas Services where we
increased revenue, operating profit and customer numbers. In Direct Energy we
grew the mass markets energy and home services customer bases and delivered a
satisfactory financial result in a difficult economic and commodity price
climate.
During the period we also made some important investments. We added to the gas
asset base both in the North Sea and in North America. In the UK we added to our
equity position in the gas assets originally acquired from Newfield late in 2007
and followed this with an agreement in July to acquire additional producing and
development gas assets in the Norwegian sector of the North Sea. In May we
acquired the Canadian oil and gas assets of TransGlobe Energy to add to those
gained through the acquisition of Rockyview Energy. We also acquired a
commercial energy supply business, Strategic Energy, in the United States. These
will all prove to be important additions to the business as we move forward. In
July we also made valuable progress in Europe as we took a controlling 51%
interest in SPE in Belgium through the acquisition of the 25.5% share held by
Gaz de France.
Dividend
In line with our policy of paying an interim dividend equivalent to 30% of the
prior year's full year dividend, the board of Directors has declared an interim
dividend of 3.9 pence per share to be paid in November 2008.
Board changes
In March we announced the appointment of Mark Hanafin as Managing Director
Centrica Energy and Europe, replacing Jake Ulrich. Jake resigned from the Board
on 12 May and continued as a member of the Executive Committee until 31 July. I
would like to thank him for the dedication he has shown since the formation of
Centrica in 1997 and the material contribution he has made in building our
portfolio of gas, power and storage assets. Mark joined on 14 July and took up
membership of the Board and Executive Committee on this date. He brings with him
21 years of experience in Shell where he was most recently president and chief
executive officer of Shell Energy North America.
Our employees
In times when energy is high on the world agenda the dedication, effort, skill,
enthusiasm and flexibility of all our employees continues to be a key ingredient
of our success in dealing with our challenges and opportunities. I want to thank
them for their commitment and loyalty.
The future
The energy supply industry in the UK is currently under unprecedented scrutiny
with the recent report from the Department for Business, Enterprise and
Regulatory Reform select committee and with Ofgem due to report in the second
half of the year. The interest of these bodies is unsurprising, given the
current level of wholesale energy prices. Although energy retailing in the UK is
an extremely competitive business we welcome any improvements which can be made.
It is essential that the market continues to operate in a way that encourages
the level of investment which will be required in gas and power infrastructure
in the coming years.
The management team will remain focused on progressing the priorities we set out
for the business back at the start of 2007. This will mean continuing to improve
service whilst reducing cost in the mature businesses and driving even more
rapid growth across the rest of the Group. We will continue to take every
opportunity to improve the level of physical asset integration in Centrica while
maintaining our emphasis on shareholder value in any acquisition or relationship
we may undertake.
-0-
*T
Roger Carr
Chairman 31 July 2008
*T
Earnings and operating profit numbers are stated, throughout the commentary,
before certain re-measurements where applicable - see note 3 for definition. The
Directors believe this measure assists with better understanding the underlying
performance of the Group. The equivalent amounts after certain re-measurements
are reflected in note 6 and are reconciled at Group level in the Group Income
Statement. Certain re-measurements are described in note 7. Adjusted earnings
and adjusted basic earnings per share are reconciled to their statutory
equivalents in note 10.
All current financial results listed are for the 6 months ended 30 June 2008.
All references to 'the prior-period', 'the prior-year', '2007' and 'last year'
mean the 6 months ended 30 June 2007 unless otherwise specified.
* including joint ventures and associates stated net of interest and taxation,
and before certain re-measurements
^ from continuing operations
Chief Executive's Review
Overview of 2008
Centrica once again delivered a good financial performance during six months
when wholesale natural gas prices in the UK were on average more than double
those in the same period of 2007. The operational performance of the business
continues to improve as does its resilience to very volatile wholesale energy
prices.
We continued to make real progress in transforming British Gas. The quality of
the customer experience has improved substantially. Compared to 2007 we have
been answering the phones 50% faster, we have substantially reduced the
transactional exceptions associated with the new billing system and we have
raised the percentage of customers who are dealt with first time by a single
contact. As a result the number of complaints to Energywatch has fallen by over
90% and we are on track to remove £60 million from the operating cost base in
2008, bringing the total reduction to £200 million over two years. The sharp
increase in wholesale prices forced British Gas to follow other suppliers and
raise retail tariffs in January and then raise them again in July. The response
to rising bills meant that energy account sales were lower over the period and
at the end of June we served 15.8 million accounts.
In British Gas Business we moved ahead on both the top and bottom line as we
added to our customer numbers in the period and drove inefficiencies out of our
cost structure. In British Gas Services we increased operating profit by 35%
while maintaining strong customer service statistics. Centrica Storage had
another strong operational period and also restructured the standard storage
contract in July to meet the increasingly complex requirements of our customers.
We also moved forward our plans to grow this business with the announcement of
pre-development studies for the conversion of the Bains gas field into an
additional offshore storage facility.
Upstream in Centrica Energy the gas production business performed extremely well
and benefited from higher production and the rising market gas prices. The
increase in gas production profits, where tax rates are as high as 75%, drove
the effective Group tax rate* up to 58% from 34% in the prior period. In July we
continued to build our upstream business as we successfully reached an agreement
to acquire a valuable package of gas assets in Norway. Higher wholesale prices
resulted in the legacy industrial and commercial sales contracts becoming
heavily loss-making in the period and an unplanned outage at our South Humber
Bank power station during a time of particularly high spark spreads also
impacted profit. By early July all of the power stations were back online.
Internationally conditions were challenging. In North America, natural gas
prices doubled from a year ago and the slowing US economy, along with increased
volatility in Texas wholesale power prices, reduced operating profit against the
record first half of 2007. However against this backdrop we returned to growth
in our mass markets customer base and completed the acquisition of Strategic
Energy which positions us as a top three commercial and industrial energy
supplier in North America. In Europe regulatory progress continued to be slow
and our short term financial performance, particularly in The Netherlands, was
hit by the rising wholesale gas prices. However, in July we did make progress in
Belgium as we took a controlling interest in SPE through the acquisition of the
stake disposed of by Gaz de France (GdF). This was sold as part of the remedies
imposed by the European Commission as a condition of its approval of GdF's
merger with Suez.
In summary, against a record 2007, the financial performance was good.
Operationally we continued to make substantial progress in our UK residential
business and produced strong growth in British Gas Business and British Gas
Services. Despite inflationary pressures operating costs remained under tight
control across the Group and were flat compared to the prior period. We also
made some important investments in our energy asset base and in growing our
supply business in North America. This positions us well for the second half of
the year and beyond.
Business outlook
We will continue to make progress against the four priorities which we
communicated early in 2007. We set out to:
-- Transform British Gas
-- Sharpen the organisation and reduce cost
-- Reduce risk through increased integration
-- Build on our growth platforms
On our first priority of transforming British Gas, we have made considerable
progress over the last 18 months. Our decision yesterday to raise retail tariffs
was unavoidable given the extremely high wholesale gas prices in the UK. This is
expected to restore reasonable operating margins in the second half of the year.
We have committed to no further price rises for standard tariff customers for
the remainder of 2008. We will work even harder in the short term and invest in
our business to minimise the impact on our customer base and ensure that we
continue to protect our vulnerable customers. Key to this will be building on
the substantial progress we have made in improving customer service and the
development of new marketing propositions. While we do this we will also
concentrate on reducing the ongoing cost base and delivering on our commitment
to remove another £60 million of operating costs in 2008.
On our second priority of sharpening the organisation and reducing cost we will
continue to strike a balance between driving out inefficiencies across the
business and allowing our growth platforms to prosper. This involves taking
additional costs out of our mature businesses to fund this growth. Therefore, on
a like for like basis, despite clear cost inflationary pressures, we expect to
hold our total operating cost base broadly flat on 2007.
On our third priority of reducing risk through increased integration we will
maintain our financial discipline in this increasingly high price energy
environment. However we expect that value-adding assets will become available
and we will continue to target those that provide a quality hedge for the gas
exposure in our downstream businesses. We will also continue to work on building
closer relationships with large scale gas producers, both in LNG and pipeline
gas. Our gas exploration activities will remain focused, with the main activity
taking place in the UK and Norway.
We are working on two important construction projects in power generation. Work
on the 885 megawatt (MW) gas-fired plant at Langage in Devon will continue, with
the expectation that this will come into service in the first half of 2009. The
offshore wind farms, Lynn and Inner Dowsing, totalling 180MW, commenced
generation from the first arrays in the second quarter of this year and are due
to be fully commissioned in the fourth quarter. The Government's target to
source 15% of UK energy from renewable sources by 2020 and the recommendation in
the Energy White Paper to increase the Renewable Obligation subsidy for new
offshore wind farms provide us with ambitious goals as we move forward with
planning on our Round 2 wind farm licences at Lincs, Docking Shoal and Race
Bank.
We will also be concentrating on delivering our fourth priority of building on
our growth platforms. British Gas Services and British Gas Residential already
operate well together, with the customer bases delivering around 100,000 account
sales in the first half alone. We will further strengthen this relationship with
the launch of an innovative product which gives priority emergency call-out
response to around 500,000 of the most valuable customers in British Gas
Residential. This will also provide a boost to the important on-demand business
in British Gas Services. In British Gas Business we expect to achieve further
growth in the customer base and to grow the average customer size while
maintaining the bottom line percentage margins. In Centrica Storage we expect to
complete the injection into Rough in the third quarter and actively drive
storage sales following approval of a new storage product. We will also begin to
invest in the early stage assessment of the Bains storage project and a further
storage prospect on the UK continental shelf. In total this could increase UK
gas storage capacity by around 50%.
The growing awareness of climate change is also positive for British Gas New
Energy. Here we are developing a range of products and services in what is
expected to become a large market for domestic and commercial energy efficiency.
We would also expect to bundle some of these products with gas and electricity
to form new and attractive customer propositions.
In North America the economic environment remains uncertain. Here we will move
ahead rapidly with the integration of the Strategic Energy business which we
expect to have largely completed by the end of the year. We have also
implemented price rises in Texas which will restore operating margins to
acceptable levels and we will further increase our efforts to grow our mass
markets customer base across all regions.
Trading outlook
Commodity prices for the winter rose very sharply in the first half. In the
current wholesale market our recent pricing decision in British Gas will enable
us to deliver acceptable margins this year, with operating margins in the second
half of the year currently forecast to be broadly in line with those in the
first half. The gas production business continues to benefit from the current
market conditions but this is offset by the higher resulting Group tax rate this
drives and the losses in the legacy I&C gas sales contracts. Overall our 2008
earnings outlook remains in line with expectations.
We produced a good set of results in tough market conditions and against a
record first half in 2007. Through the rest of 2008 and beyond we will continue
to concentrate on further improving customer service in British Gas, driving
inefficiencies out of our entire business, moving in a disciplined manner
towards a greater level of vertical integration and pursuing value-adding growth
opportunities in all of our businesses.
-0-
*T
Sam Laidlaw
Chief Executive 31 July 2008
*T
* including joint ventures and associates stated net of interest and taxation,
and before certain re-measurements
Group Financial Summary
Group revenue from continuing operations was up 17% at £10 billion (2007: £8.6
billion). This was primarily driven by increases in British Gas, Centrica
Energy, Direct Energy and European Energy with sales prices reflecting the high
wholesale commodity price environment experienced during the first half of 2008.
Group operating profit* from continuing operations was down 19% at £992 million
(2007: £1,226 million). The exceptional circumstances seen during the first half
of 2007 were not repeated, resulting in lower reported margins in British Gas
and losses in our legacy industrial and commercial contracts. This reduction was
partially offset by the significant increase in profitability from our gas
production and development business.
The statutory profit for the period was £1,802 million (2007: £1,006 million).
The reconciling items between adjusted Group earnings* and the statutory profit
are certain re-measurements that are explained below.
Group earnings* on a continuing basis were down by 47% to £416 million (2007:
£786 million). This reduction in earnings* came from the lower operating profit*
combined with a significant change in profit mix towards greater upstream
contributions, resulting in a higher effective group tax rate of 58% in the
period (2007: 34%).
Group operating cash flow before movements in working capital was down from
£1,519 million in 2007 to £1,315 million. After working capital adjustments,
operational interest, tax, and payments related to exceptional items this stood
at £1,487 million (2007: £1,261 million). This increase in operating cash flow
is primarily due to increased net margin cash balances held against positive
mark-to-market positions on energy contracts. The net cash outflow from
investing activities increased to £546 million (2007: £342 million), 60% higher
than last year due to the Group's acquisitions of Strategic Energy and Canadian
gas assets as described in note 18 to the condensed Interim Financial Statements
and capital expenditure on UK power generation assets.
The Group's net recourse debt level at 30 June 2008 was £274 million (31
December 2007: £795 million, 30 June 2007: £942 million). This was down from 31
December 2007 primarily due to the increase in margin cash received from our
counterparties. At the end of June we held £1.1 billion of net margin cash,
almost all of which relates to hedging transactions which will unwind over the
next 18 months.
During the period net assets increased to £5,204 million from £3,382 million as
at 31 December 2007 (30 June 2007: £2,726 million). This increase was driven
primarily by positive movements on the mark-to-market position of the Group's
financial instruments as detailed below.
Certain re-measurements
In our business we enter into a portfolio of forward energy contracts which
include buying substantial quantities of commodity to meet the future needs of
our customers. A number of these arrangements are considered to be derivative
financial instruments and are required to be fair valued under IAS 39. Fair
valuing means that we apply the prevailing forward market prices to these
contracts. The Group has shown the fair value adjustments separately as certain
re-measurements as they are unrealised and non-cash in nature. The profits*
arising from the physical purchase and sale of commodities during the year,
which reflect the prices in the underlying contracts, are not impacted by these
re-measurements.
The statutory results include credits to operating profit relating to these
re-measurements of £1,973 million (2007: £374 million), primarily from
marking-to-market some contracts relating to our energy procurement activities.
As gas and power were delivered under these contracts, net in-the-money
mark-to-market positions were unwound, generating a net charge to the Income
Statement in the period of £41 million (2007: net credit of £309 million). As
forward prices increased in the period to 30 June 2008 the portfolio of
contracts fair valued through the income statement under IAS 39 reported a net
credit on revaluation of £2,024 million (2007: net credit of £75 million). The
remaining charge of £10 million (2007: charge of £10 million) reflects the
proprietary trading positions relating to cross-border capacity and storage
contracts.
The net profit of £1,973 million on the remeasurement of energy contracts
largely represents unrealised mark-to-market value created by gas and power
purchase contracts which are priced below the current wholesale market value of
energy. This value is calculated with reference to forward energy prices and
therefore the extent of the economic benefit arising over the life of these
contracts is uncertain and is entirely dependent upon the level of future
wholesale energy prices.
Business combinations and capital expenditure
During the period the Group acquired business combinations for a total net cash
consideration of £147 million, which included Strategic Energy for £78 million
and Canadian oil and gas assets for £65 million. These are detailed in note 18
to the condensed Interim Financial Statements. Asset acquisitions and capital
expenditure over the period totalled £400 million, the primary components being
Sojitz, £36 million, and construction costs for Lynn and Inner Dowsing wind
farms of £86 million and £87 million for the Langage power plant. Details of
capital expenditure are provided in note 6(c) to the condensed interim Financial
Statements.
Principal risks and uncertainties
The Group's risk management process remains unchanged from 31 December 2007 and
is described in detail in the Directors' Report of the Group's 2007 Annual
Report and Accounts on pages 25-27. A description of the impact of the increase
in wholesale gas prices and continuing shortage of available credit in the
market on financial risk management is provided in note 4 to the condensed
interim Financial Statements.
A description of the Group's principal risks and uncertainties for the remainder
of the year is provided in the Trading outlook section of the Chief Executive's
Review on page 6 of these interim results.
Related party transactions
Related party transactions are described in note 20 to the condensed interim
Financial Statements.
Events after the balance sheet date
Changes to UK tax law substantively enacted in July 2008 relating to relief for
upstream losses will result in a re-appraisal of approximately £70 million of
the Group's unrecognised deferred tax assets during the second half of the year,
which may give rise to a reduction to the full year tax charge and a
corresponding increase to deferred tax assets.
On 9 July 2008, the Group announced it had reached an agreement to acquire
interests in a package of gas and oil assets in the Norwegian North Sea. The
agreed cash consideration of US$375 million (£190 million) will be adjusted
downwards to reflect production since 1 January 2008. The agreement is subject
to Norwegian government approvals.
On 23 July 2008, the Group announced that it is to increase its shareholding in
Belgian generation and supply company SPE SA from 25.5%, to a controlling 51 per
cent, through the acquisition of GDF International SAS's 50 per cent stake in
the 50/50 joint venture, Segebel SA. Completion is subject to EC merger control
approval, but is expected to take place in September 2008. The Group will pay
EUR 515 million (£409 million) in cash with additional deferred consideration of
up to EUR 105 million (£83 million).
* including joint ventures and associates stated net of interest and taxation,
and before certain re-measurements
British Gas Residential
Against an external environment dominated by high wholesale energy prices,
British Gas Residential made good progress in addressing its agenda of restoring
customer service, reducing costs and leading industry innovation.
Compared with the same period last year, call volume fell by 37% and average
speed to answer improved by 50%. Repeat calls have reduced by 15% and the
backlog of outstanding process exceptions in the billing system reduced by 79%.
As a consequence, by June complaints to Energywatch had fallen by over 90% from
the peak in April 2007 and our share of Ombudsman complaints fell below the
level of our market share to 26%. In May British Gas was also recognised by
Ofgem as having the fewest sales complaints.
We continued to focus on reducing our operating costs, which were 8% lower than
the same period last year. Step changes in underlying processes and the material
improvement in customer service meant that overall headcount fell by 8% over
this period and we are on track to deliver the targeted annual savings of £60
million in 2008.
British Gas is also continuing to demonstrate industry leadership in areas such
as fuel poverty and smart metering. Our preferential Essentials tariff, targeted
at vulnerable customers, remains the largest such commitment in the industry. In
our 'Pay As You Go Energy' business we introduced prepayment dual fuel discounts
and an on-line offer, and we continued to roll out our EnergyPoint device which
allows customers to charge their meters in their own homes. This is now
available to around 850,000 customers.
In July, in conjunction with British Gas Services, we launched a trial of a
priority response emergency breakdown product for the top tranche of our high
value energy customers. We believe this will drive additional value through
increased loyalty and lower churn in this part of the customer base.
Revenue in the period was up by 9% to £3,823 million (2007: £3,497 million) due
to the overall higher average selling prices. Operating profit*, however, was
down to £166 million (2007: £533 million), a 4% operating margin. In the first
half of 2007 rapidly falling wholesale energy prices drove an exceptional
result. In 2008 wholesale gas and electricity prices rose throughout the period,
averaging 122% and 126% respectively above the same period of 2007. As well as
the year-on-year rise in our commodity costs of £634 million, transmission and
metering charges rose by £67 million and Carbon Emission Reduction Target (CERT)
obligations rose by a further £27 million to £70 million (2007: £43 million).
This necessitated a price increase in January. Following this, customer numbers
fell during the period and at the end of June we served 15.8 million customer
accounts.
The forward price of commodity for the winter of 2008/09 is higher still and led
to us announcing a further price increase in late July to maintain reasonable
profitability in the second half of the year. We have sought to lessen the
impact on the size of the customer base through the ongoing focus on service
standards and the launch of a new suite of products including a market-leading
fixed price offer which provides protection for customers for three years until
the end of August 2011.
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*T
British Gas Residential
------------------------------------------------ ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------ ---------- ---------- ---------- ----------
Customer numbers (period end):
Gas ('000) 9,763 10,004 (2.4) 10,018
Electricity ('000) 6,004 5,817 3.2 6,019
------------------------------------------------ ---------- ---------- ---------- ----------
Total ('000) 15,767 15,821 (0.3) 16,037
------------------------------------------------ ---------- ---------- ---------- ----------
Estimated market share (%):
Gas 44.8 46.3 (1.5) ppts 46.4
Electricity 22.1 21.6 0.5 ppts 22.4
------------------------------------------------ ---------- ---------- ---------- ----------
Average consumption:
Gas (therms) 313 293 7 541
Electricity (kWh) 1,993 1,955 1.9 3,945
------------------------------------------------ ---------- ---------- ---------- ----------
Total consumption:
Gas (mmth) 3,119 2,966 5 5,443
Electricity (GWh) 12,041 11,236 7 23,001
------------------------------------------------ ---------- ---------- ---------- ----------
Revenue (£m):
Gas 2,605 2,447 6 4,296
Electricity 1,218 1,050 16 2,161
------------------------------------------------ ---------- ---------- ---------- ----------
Total 3,823 3,497 9 6,457
------------------------------------------------ ---------- ---------- ---------- ----------
Commodity costs (£m): 2,246 1,612 39 3,282
------------------------------------------------ ---------- ---------- ---------- ----------
Transmission & metering costs (£m):
Gas 664 629 6 1,193
Electricity 300 268 12 541
------------------------------------------------ ---------- ---------- ---------- ----------
Total 964 897 7 1,734
------------------------------------------------ ---------- ---------- ---------- ----------
Operating costs (£m): 378 413 (8) 800
------------------------------------------------ ---------- ---------- ---------- ----------
Operating profit (£m)* 166 533 (69) 571
------------------------------------------------ ---------- ---------- ---------- ----------
Operating margin (%) (10.9)
4.3 15.2 ppts 8.8
------------------------------------------------ ---------- ---------- ---------- ----------
*T
British Gas Business
Despite challenging wholesale energy market conditions during the first half,
British Gas Business reported strong financial results and grew the customer
base. We were also once again recognised as one of the UK's Top 50 "Best
Workplaces for 2008" by the Financial Times.
Revenue increased by 14% to £1,444 million (2007: £1,267 million) due to tariff
increases on the back of higher wholesale commodity costs, the renewal of
contract customers at higher prices, reflecting the rise in wholesale commodity,
and increased consumption across both gas and power.
Renewal rates across both the larger commercial and SME customers remained high,
supported by the investment made in our differentiated service proposition
through which we gave the bulk of our accounts a single point of contact for
customer service. Along with the continued good sales performance, this led to a
small increase in the number of customer supply points during the period, which
was up to 957,000 (31 December 2007: 954,000).
Operating profit* in the period increased by 15% to £55 million (2007: £48
million). The underlying strong performance was the result of ongoing operating
cost efficiencies and the maintenance of gross margins in the more volatile
commodity price environment. This included a contribution of £5 million (2007:
£25 million) from a favourable historic electricity procurement contract.
-0-
*T
British Gas Business
------------------------------------------------ ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------ ---------- ---------- ---------- ----------
Customer supply points (period end):
Gas ('000) 406 408 (0.5) 412
Electricity ('000) 551 548 0.5 542
------------------------------------------------ ---------- ---------- ---------- ----------
Total ('000) 957 956 0.1 954
------------------------------------------------ ---------- ---------- ---------- ----------
Average consumption:
Gas (therms) 2,229 2,137 4.3 3,729
Electricity (kWh) 16,795 15,416 9 32,644
------------------------------------------------ ---------- ---------- ---------- ----------
Total consumption:
Gas (mmth) 918 859 7 1,524
Electricity (GWh) 9,169 8,300 10 17,356
------------------------------------------------ ---------- ---------- ---------- ----------
Revenue (£m):
Gas 675 596 13 1,037
Electricity 769 671 15 1,394
------------------------------------------------ ---------- ---------- ---------- ----------
Total 1,444 1,267 14 2,431
------------------------------------------------ ---------- ---------- ---------- ----------
Transmission & metering costs (£m):
Gas 109 90 21 186
Electricity 161 142 13 298
------------------------------------------------ ---------- ---------- ---------- ----------
Total 270 232 16 484
------------------------------------------------ ---------- ---------- ---------- ----------
Operating profit (£m)* 55 48 15 120
------------------------------------------------ ---------- ---------- ---------- ----------
Operating margin (%) 3.8 3.8 0.0 ppts 4.9
------------------------------------------------ ---------- ---------- ---------- ----------
*T
British Gas Services
British Gas Services performed strongly in the first half of the year. Revenue
was up by 8% at £664 million (2007: £616 million) as we grew the number of
customer product relationships by 5% to 7.8 million. We continued to experience
particularly strong customer growth in our Plumbing and Drains Care and Home
Electrical Care products, up by 9% and 16% respectively. During the period we
also continued to invest in customer service. We successfully completed the
transition to the new National Distribution Centre (NDC) which underpins our
overnight parts delivery commitment. We also launched a new online booking
facility which enables customers to schedule their annual service visit.
Customer take-up to date has been very encouraging, with around 10% of customers
choosing to use this facility.
We introduced new products to further extend our range of services to provide
cover for water supply pipes and more general home emergencies and began the
national roll out of TimeChoice, a product which offers customers a more precise
time slot for engineer visits. We also maintained our share of the important
on-demand market, carrying out over 150,000 jobs. These initiatives supplemented
the significant ongoing cross-selling activity that benefits both the Home
Services and Residential Energy businesses.
Central heating installations of 54,000 were maintained at broadly 2007 levels
despite a more challenging economic climate.
Operating profit* increased by 35% to £85 million (2007: £63 million),
reflecting the strong growth in higher margin care products outside the original
central heating range, combined with the continued focus on cost control.
-0-
*T
British Gas Services
------------------------------------------------ ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------ ---------- ---------- ---------- ----------
Customer product holdings (period end):
Central heating service contracts ('000) 4,511 4,444 1.5 4,525
Kitchen appliances care (no. of customers)
('000) 409 405 1.0 414
Plumbing and drains care ('000) 1,589 1,452 9 1,536
Home electrical care ('000) 1,246 1,072 16 1,173
------------------------------------------------ ---------- ---------- ---------- ----------
Total holdings ('000) 7,755 7,373 5 7,648
------------------------------------------------ ---------- ---------- ---------- ----------
Central heating installations ('000) 54 55 (1.8) 113
------------------------------------------------ ---------- ---------- ---------- ----------
Revenue (£m):
Central heating service contracts 360 336 7 688
Central heating installations 174 161 8 348
Other 130 119 9 243
------------------------------------------------ ---------- ---------- ---------- ----------
Total 664 616 8 1,279
------------------------------------------------ ---------- ---------- ---------- ----------
Engineering staff employed 9,231 9,151 0.9 9,209
------------------------------------------------ ---------- ---------- ---------- ----------
Operating profit (£m)* 85 63 35 151
------------------------------------------------ ---------- ---------- ---------- ----------
Operating margin (%) 12.8 10.2 2.6 ppts 11.8
------------------------------------------------ ---------- ---------- ---------- ----------
*T
Centrica Energy
Centrica Energy once again performed well in a period when wholesale commodity
prices were rising, with the very positive result in the gas production business
only partially offset by the movement of the legacy industrial and commercial
sales contracts into loss. Overall operating profit* was up 50% at £504 million
(2007: £337 million).
Gas production and development
Operating profit* in gas production rose to £638 million from £123 million in
the same period of 2007. The key drivers of this were higher production volumes
and a much higher gas selling price. Overall hydrocarbons production volume was
up by 32% at 26.6 million barrels of oil equivalent (mboe) (2007: 20.2 mboe),
with gas volumes up 34% at 1,413 million therms (mmth). The first half of 2008
benefited from consistent Morecambe production and additional volumes from the
newly acquired Grove field of 0.9 mboe and 0.3 mboe from the Maria field, which
came on-stream in January. Higher wholesale gas prices over this period drove
the average gas selling price up 123% to 52.9 pence per therm (p/th) (2007: 23.7
p/th).
We acquired additional equity in North Sea gas fields from Sojitz for £36
million and after further development we expect to recognise around 32 billion
cubic feet equivalent (bcfe) of reserves. In July we announced the investment of
up to a further £190 million in Norwegian continental shelf gas assets in a deal
with Marathon. The final consideration will be adjusted downwards to reflect
production since 1 January 2008. An additional capital investment of
approximately £125 million is expected to be required in order to maximise the
total reserves potential of 165 bcfe over the next four years.
During the period we invested an additional £30 million in our current gas asset
portfolio. We also approved further significant investment plans at an aggregate
cost of around £250 million. These plans cover the Grove field where a rig is
now on site to drill further production wells, Seven Seas which will be
developed during 2008/09 and Babbage where we have a 13% interest. In doing so,
we expect to recognise an additional 180 bcfe of reserves. We also invested £18
million in our focused exploration programme in Norway and seismic activity in
Nigeria and agreed a long-term rig charter to enable the ongoing exploitation of
our Norwegian development and exploration asset base.
Power generation
The power generation segment delivered a loss in the first half of the year of
£5 million (2007: profit of £47 million). The average load factor across the
conventional fleet was marginally down at 64% (2007: 65%). Market spark spreads
were higher but the operating result was held back by an ongoing forward sales
contract which ends early in 2009 and an outage at the South Humber Bank station
in the second quarter which coincided with the period of highest clean spark
spreads. During the period we made good progress on our two large scale
construction projects. The Lynn and Inner Dowsing wind farms and the Langage gas
fired station remain on budget and are still due for completion in the fourth
quarter of 2008 and the first half of 2009 respectively.
Industrial and commercial
This business area reported an operating loss* of £156 million against a profit
of £148 million in the same period of 2007. This swing was due to the sharp
increase in wholesale gas prices between the two periods which drove the input
cost of gas higher. Also the historically index-linked pricing mechanisms in
these contracts limited the sales price movements on volumes sold. Customers
also increased their gas takes from the contracts, lifting volumes sold by 27%
to 1,343 mmth (2007: 1,058 mmth).
Energy procurement
We continued to seek differentially indexed gas supply contracts to build the
contractual hedge position in Centrica. During the period we successfully
re-indexed an existing contract and negotiated additional medium term supply
contracts. This totalled four billion cubic metres (BCM) of gas per annum.
Accord trading
Accord delivered a strong operating profit* of £27 million, up 42% on the prior
period (2007: £19 million), during another period of extremely volatile energy
prices.
-0-
*T
Centrica Energy
------------------------------------------------ ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------ ---------- ---------- ---------- ----------
Gas Production
Gas production volumes (mmth)
Morecambe 1,020 742 37 1,574
Other 393 312 26 686
------------------------------------------------ ---------- ---------- ---------- ----------
Total 1,413 1,054 34 2,260
------------------------------------------------ ---------- ---------- ---------- ----------
Average gas sales price (p/therm) 52.9 23.7 123 30.4
Oil and condensate production volumes (Mboe) 3.3 3.0 10 5.6
Average oil and condensate sales price (£/boe) 43.5 33.1 31 33.3
Revenue (£m) 925 366 153 923
External revenue (£m) 237 137 73 299
Operating costs (£m)
Volume related production costs 181 128 41 291
Other production costs 106 115 (8) 203
------------------------------------------------ ---------- ---------- ---------- ----------
Total 287 243 18 494
------------------------------------------------ ---------- ---------- ---------- ----------
Operating profit (£m)* 638 123 419 429
------------------------------------------------ ---------- ---------- ---------- ----------
Power generation
Power generated (GWh) 11,536 11,723 (1.6) 19,845
Operating (loss) / profit (£m)* (5) 47 nm 46
------------------------------------------------ ---------- ---------- ---------- ----------
Industrial & commercial
External sales volumes (mmth) 1,343 1,058 27 2,260
Average sales price (p/therm) 38.5 36.3 6 35.7
External revenue (£m) 525 395 33 838
------------------------------------------------ ---------- ---------- ---------- ----------
Operating (loss) / profit (£m)* (156) 148 nm 179
------------------------------------------------ ---------- ---------- ---------- ----------
Accord
Operating profit (£m)* 27 19 42 9
------------------------------------------------ ---------- ---------- ---------- ----------
Centrica Energy operating profit (£m)* 504 337 50 663
------------------------------------------------ ---------- ---------- ---------- ----------
*T
Centrica Storage
Centrica Storage delivered a very strong operational performance during the
first half of the year. We successfully completed a major project to replace and
upgrade the two offshore compression trains for the Rough storage field. The
resulting enhancement to injection rates has resulted in a record injection
season to date, and increased asset flexibility. The improved injection
performance meant that Rough was already over 70% full by the end of June,
despite a lower level of stock carry over of more than 30% compared to the
previous storage year. Reliability of both production and injection during the
first half remained high, at over 98%.
Revenue in the period was up 24% to £244 million (2007: £196 million) reflecting
higher gas sales driven by increased volumes and prices. The success of our
virtual product (V Store) continued with sales for 2008/09 achieving a
substantial premium to the Standard Bundled Unit (SBU). The average price
achieved for an SBU was lower at 48.5p (2007: 61.5p), driven by the narrowing of
the summer/winter gas price spread from the historic highs seen in 2006/07. As a
result operating profit* for the period was down 27% at £93 million (2007: £128
million). In April we announced that we had successfully sold all SBUs for the
2008/09 storage year at an average selling price of 38.8p (2007/08: 53.4p).
In response to market demand and to address customers' concerns about the
availability of entry capacity to National Grid's system, we announced in May
the introduction of an innovative new storage product, C Store, which includes
pre-paid grid entry capacity. This was approved by Ofgem in July and sales began
for the 2009/10 storage year. We also introduced for 2009/10, within-day and day
ahead-only flexibility across our standard storage and C store products.
In March we announced our involvement in the proposed conversion of the Bains
gas field in the East Irish Sea into a new offshore gas storage facility with a
potential capacity of up to 20bcf. Pre-development studies will continue until
the beginning of 2009 before an investment decision is made.
-0-
*T
Centrica Storage
------------------------------------------------ ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------ ---------- ---------- ---------- ----------
Average SBU price (calendar year) pence 48.5 61.5 (21) 57.4
Revenue (£m)
Standard SBUs 110 139 (21) 261
Extra space 9 17 (47) 28
Gas sales 106 28 279 87
Other 19 12 58 27
------------------------------------------------ ---------- ---------- ---------- ----------
Total 244 196 24 403
------------------------------------------------ ---------- ---------- ---------- ----------
External turnover (£m) 212 162 31 340
------------------------------------------------ ---------- ---------- ---------- ----------
Cost of gas (£m) 116 29 300 87
------------------------------------------------ ---------- ---------- ---------- ----------
Operating profit (£m)* 93 128 (27) 240
------------------------------------------------ ---------- ---------- ---------- ----------
*T
Direct Energy
Direct Energy faced difficult market conditions in the first half of 2008. The
business performance was impacted by the US economic slowdown which coincided
with record sustained wholesale gas prices and some challenging market dynamics
in Texas.
Revenue in the period was up 18% on 2007 at £2,452 million (2007: £2,073
million) due mainly to the effect of higher retail prices and the continued
growth in the commercial and industrial (C&I) energy supply business. Overall we
delivered £91 million of operating profit*, down by 17% on the prior period
(2007: £110 million).
Mass markets energy
During the period mass markets energy experienced difficult trading conditions.
Despite this we still managed to grow the customer base from the end of 2007. In
Texas, high gas prices and transmission congestion during the second quarter
caused spikes in intra-day balancing power prices. These prices stabilised
towards the middle of June following the introduction of new load balancing
protocols. In this higher wholesale commodity price environment it became
necessary to raise our retail prices in order to restore margins to sustainable
levels. In Canada and the US North East we continued to grow our customer base
with fixed price propositions becoming more attractive to consumers in an
environment of rapidly rising energy prices.
Reported revenue was up 2.4% to £1,371 million (2007: £1,339 million) and
reported operating profit* was down 31% at £61 million (2007: £88 million) due
mainly to the impacts in Texas, partially offset by a recovery in Canada
following the issues faced last year in renewing electricity contracts in
Ontario.
Commercial and industrial energy
We continued to display strong top line revenue growth in our C&I business.
Although selling became more difficult in Texas towards the end of the period
due to high wholesale prices and an emerging backwardated commodity curve,
volumes delivered rose by 2% in gas and 41% in electricity. In June we completed
the acquisition of Strategic Energy for US$300 million, which included US$88.5
million of cash and cash equivalents. This doubles the size of our business and
makes us one of the top three C&I energy suppliers in North America. We now
serve 207,000 meters across Canada and the US and have equivalent annual energy
sales of around 55TWh. The costs of integrating this new business will have an
impact on reported results in the second half.
Revenue in the period was up 47% at £712 million (2007: £483 million) due to
higher prices and the continued growth in the volumes of gas and electricity
sold. We delivered an operating profit* of £8 million against a loss of £1
million in the same period of 2007.
Home and business services
In Canada we grew our protection plan customer base by 13% to over 700,000 plans
and water heater numbers remained stable despite increasing competition. However
the profitability of the US residential new construction business was adversely
affected by the continued housing slowdown, with new home sales at their lowest
level for 17 years. In response, we have significantly reduced our costs in this
business and we are gaining market share.
Revenue in the period was down by 0.6% to £168 million (2007: £169 million).
Overall operating profit* was flat at £3 million recognising that the phasing of
profits is traditionally weighted toward the second half.
Upstream and wholesale energy
Operating profit* was marginally down year-on-year at £19 million (2007: £20
million), but contained some significant swings within the business. The natural
gas production business was well ahead, with higher volumes from the original
business and following the acquisitions of both Rockyview Energy and the
Canadian assets of TransGlobe Energy. Gas production volumes were up by 22% at
183 mmth (2007: 150 mmth) and selling prices were also higher, reflecting the
rising wholesale price of gas.
This was offset by events in Texas, where maintenance outages caused significant
transmission congestion in West Texas, resulting in a sharp decline in achieved
power prices for our wind farm power purchase agreements. In addition an
unplanned outage at the Bastrop power station in June caused total power
generated in Texas to fall by 8% to 2.3 TWh (2007: 2.5 TWh).
-0-
*T
Direct Energy
------------------------------------------------- ---------- ---------- ---------- ----------
For the period ended 30 June 2008 H1 2008 H1 2007 ^% FY 2007
------------------------------------------------- ---------- ---------- ---------- ----------
Customer numbers (period end):
Mass markets energy ('000) 3,034 3,187 (4.8) 3,005
Home and business services ('000) 2,112 2,000 6 2,033
------------------------------------------------- ---------- ---------- ---------- ----------
Volumes:
Commercial & industrial gas sales (mmth) 362 356 1.7 627
Commercial & industrial electricity sales (GWh) 9,228 6,553 41 13,925
Gas production (mmth) 183 150 22 297
Power generation (GWh) 2,346 2,549 (8) 5,053
------------------------------------------------- ---------- ---------- ---------- ----------
Revenue (£m):
Mass markets energy 1,371 1,339 2.4 2,437
Commercial & industrial energy 712 483 47 978
Home and business services 168 169 (0.6) 351
Upstream and wholesale energy 201 82 145 226
------------------------------------------------- ---------- ---------- ---------- ----------
Total 2,452 2,073 18 3,992
------------------------------------------------- ---------- ---------- ---------- ----------
Operating profit / (loss) (£m)*:
Mass markets energy 61 88 (31) 123
Commercial & industrial energy 8 (1) nm 1
Home and business services 3 3 0 17
Upstream and wholesale energy 19 20 (5) 46
------------------------------------------------- ---------- ---------- ---------- ----------
Total 91 110 (17) 187
------------------------------------------------- ---------- ---------- ---------- ----------
Operating margin (%) 3.7 5.3 (1.6) ppts 4.7
------------------------------------------------- ---------- ---------- ---------- ----------
*T
European Energy
Our European businesses faced tough market conditions during the first of the
year, with a reported operating loss* of £1 million (2007: operating profit* £11
million).
In Oxxio in The Netherlands, we experienced sustained higher commodity prices
and increased market pressures, as the incumbent utilities have become
increasingly competitive ahead of full market unbundling. Although the market is
very challenging the customer base remained stable at around 750,000.
In Belgium, the financial performance of SPE was in line with the prior year and
we are now serving 1.5 million customers. In June the framework agreement
governing Pax Electrica 2 (PE2) was signed with Electrabel under which, subject
to regulatory clearance, SPE will increase its share of nuclear capacity which
will increase its competitiveness in future and consolidate its position as the
number two energy supplier in Belgium. On 23 July Centrica agreed to acquire
GdF's 25.5% of SPE for EUR 515 million, plus additional deferred consideration
of up to EUR 105 million contingent upon the approval of the PE2 agreement. This
gives Centrica a controlling stake of 51%.
In Spain, Centrica Energía is one of three 100% green suppliers in the country
and now supplies approximately 2TWh of power to its business customers. This has
been assisted by the introduction of a new innovative service for Special Regime
renewable energy producers, which enables them to supply the Spanish power
market on a more economic basis.
In Germany Centrica Energie GmbH is beginning to benefit from improved market
conditions as competition begins to develop in Germany. Having successfully
secured gas via E.ON's gas release programme, it is building its portfolio of
wholesale and industrial and commercial customers.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the interim report for the six month
period ended 30 June 2008 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 IAS 34, Interim Financial Reporting, as adopted by
the European Union and that the interim report 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.
The Directors of Centrica plc are listed in the Group's 2007 Annual Report and
Accounts, with the exception of the following changes: Jake Ulrich resigned from
the Board on 12 May 2008 and Mark Hanafin joined the Board as an Executive
Director on 14 July 2008. A list of current Directors is maintained on the
Centrica plc web site which can be found at www.centrica.com.
By order of the Board
-0-
*T
Sam Laidlaw Nick Luff
31 July 2008 31 July 2008
CHIEF EXECUTIVE GROUP FINANCE DIRECTOR
*T
Independent Review Report to Centrica plc
Introduction
We have been engaged by the Company to review the condensed interim Financial
Statements in the interim report for the six months ended 30 June 2008, which
comprises the Group Income Statement, Group Balance Sheet, Group Statement of
Recognised Income and Expense, Group Cash Flow Statement and related notes. We
have read the other information contained in the interim financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the condensed interim Financial Statements.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim report in
accordance with the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual Financial Statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed interim Financial Statements included in the interim report have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
interim Financial Statements in the interim report based on our review. This
report, including the conclusion, has been prepared for and only for the Company
for the purpose of the Disclosure and Transparency Rules of the Financial
Services Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, 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 Ireland) 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.
Review conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed interim Financial Statements in the interim report for the
six months ended 30 June 2008 are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place
London
WC2N 6RH
31 July 2008
Notes
(a) The maintenance and integrity of the Centrica plc web site is the
responsibility of the Directors; the work carried out by PricewaterhouseCoopers
LLP does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to the
interim report since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
Condensed interim Financial Statements
Group Income Statement
-0-
*T
2008 2007 (restated) (ii)
----------------------------------------------------------------------------------------------------------------
Results for Results for
the period the period
before before
certain Certain Results certain Certain Results
re- re- for re- re- for
measurements measurements the measurements measurements the
(i) (i) period (i) (i) period
Six months ended 30 June Notes £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------
Continuing operations
Group revenue 6 10,032 - 10,032 8,570 - 8,570
Cost of sales (7,930) - (7,930) (6,234) - (6,234)
Re-measurement of energy contracts
(i) 6,7 - 1,973 1,973 - 379 379
----------------------------------------------------------------------------------------------------------------
Gross profit 2,102 1,973 4,075 2,336 379 2,715
Operating costs (1,118) - (1,118) (1,120) - (1,120)
Share of profits/(losses) in joint
ventures and associates, net of
interest and taxation (i) 8 - 8 10 (5) 5
----------------------------------------------------------------------------------------------------------------
Group operating profit 6 992 1,973 2,965 1,226 374 1,600
---------------------------------- -------------------------------------
Interest income 8 144 - 144 83 - 83
Interest expense 8 (142) - (142) (111) - (111)
---------------------------------- -------------------------------------
Net interest income/(expense) 8 2 - 2 (28) - (28)
----------------------------------------------------------------------------------------------------------------
Profit from continuing operations
before taxation 994 1,973 2,967 1,198 374 1,572
Taxation on profit from continuing
operations 9 (577) (587) (1,164) (411) (89) (500)
----------------------------------------------------------------------------------------------------------------
Profit from continuing operations
after taxation 417 1,386 1,803 787 285 1,072
---------------------------------- -------------------------------------
Profit/(loss) from discontinued
operations (i) - - - 2 (67) (65)
---------------------------------- -------------------------------------
Discontinued operations - - - 2 (67) (65)
----------------------------------------------------------------------------------------------------------------
Profit for the period 417 1,386 1,803 789 218 1,007
----------------------------------------------------------------------------------------------------------------
Attributable to:
Equity holders of the parent 416 1,386 1,802 788 218 1,006
Minority interests 1 - 1 1 - 1
----------------------------------------------------------------------------------------------------------------
417 1,386 1,803 789 218 1,007
----------------------------------------------------------------------------------------------------------------
Pence Pence Pence Pence
----------------------------------------------------------------------------------------------------------------
Earnings per ordinary share
From continuing and discontinued
operations:
Basic 10 48.9 27.4
Adjusted basic 10 11.3 21.5
Diluted 10 48.2 27.0
From continuing operations:
Basic 10 48.9 29.2
Adjusted basic 10 11.3 21.4
Diluted 10 48.2 28.7
Interim dividend per share 11 3.90 3.35
Prior year final dividend paid per
share 11 9.65 8.00
----------------------------------------------------------------------------------------------------------------
*T
(i) Certain re-measurements (notes 3 and 7) included within operating profit
comprise re-measurement arising on our energy procurement activities and
re-measurement of proprietary trades in relation to cross-border transportation
or capacity contracts. Certain re-measurements included within profit from
discontinued operations in 2007 comprise re-measurement of the publicly traded
units of The Consumers' Waterheater Income Fund. All other re-measurement is
included within results for the period before certain re-measurements.
(ii) Restated to present The Consumers' Waterheater Income Fund as a
discontinued operation as explained in note 3.
The following notes form part of these condensed interim Financial Statements.
Group Balance Sheet
-0-
*T
30 June
31 2007
30 June December (restated)
2008 2007 (i)
Notes £m £m £m
----------------------------------------------------------- -----------------------------------------
Non-current assets
Goodwill 1,135 1,074 1,086
Other intangible assets 497 465 481
Property, plant and equipment 4,099 3,910 3,665
Interests in joint ventures and associates 305 285 228
Deferred tax assets 13 27 59
Trade and other receivables 95 33 19
Derivative financial instruments 12 376 72 14
Available-for-sale financial assets 49 39 38
Retirement benefit assets 14 - 152 130
----------------------------------------------------------- -----------------------------------------
6,569 6,057 5,720
----------------------------------------------------------- -----------------------------------------
Current assets
Inventories 307 241 229
Current tax assets 46 40 19
Trade and other receivables 3,731 3,423 2,855
Derivative financial instruments 12 5,170 914 658
Available-for-sale financial assets 50 50 90
Cash and cash equivalents 1,662 1,130 1,130
----------------------------------------------------------- -----------------------------------------
10,966 5,798 4,981
----------------------------------------------------------- -----------------------------------------
Total assets 17,535 11,855 10,701
----------------------------------------------------------- -----------------------------------------
Current liabilities
Trade and other payables (4,261) (3,371) (2,317)
Current tax liabilities (551) (281) (411)
Bank overdrafts, loans and other borrowings 13 (468) (221) (91)
Derivative financial instruments 12 (2,979) (1,404) (1,264)
Provisions for other liabilities and charges (132) (140) (89)
----------------------------------------------------------- -----------------------------------------
(8,391) (5,417) (4,172)
----------------------------------------------------------- -----------------------------------------
Net current assets 2,575 381 809
----------------------------------------------------------- -----------------------------------------
Non-current liabilities
Trade and other payables (69) (20) (34)
Bank loans and other borrowings 13 (1,567) (1,793) (2,695)
Derivative financial instruments 12 (1) (11) (56)
Deferred tax liabilities (1,380) (596) (384)
Retirement benefit obligations 14 (279) (55) (57)
Provisions for other liabilities and charges (644) (581) (577)
----------------------------------------------------------- -----------------------------------------
(3,940) (3,056) (3,803)
----------------------------------------------------------- -----------------------------------------
Net assets 5,204 3,382 2,726
----------------------------------------------------------- -----------------------------------------
Equity
Called up share capital 15,16 229 227 227
Share premium account 16 718 685 678
Merger reserve 16 467 467 467
Capital redemption reserve 16 16 16 16
Other reserves 16 3,714 1,928 1,280
----------------------------------------------------------- -----------------------------------------
Shareholders' equity 16 5,144 3,323 2,668
Minority interests in equity 16 60 59 58
----------------------------------------------------------- -----------------------------------------
Total minority interests and shareholders' equity 16 5,204 3,382 2,726
----------------------------------------------------------- -----------------------------------------
*T
(i) Restated to present exploration and evaluation expenditure, previously
reported in property, plant and equipment, in other intangible assets on the
Balance Sheet as explained in note 3.
Group Statement of Recognised Income and Expense
-0-
*T
2008 2007
Six months ended 30 June Notes £m £m
-------------------------------------------------------------------------------------------------------------------
Profit for the period 1,803 1,007
--------- ---------
(Losses)/gains on revaluation of available-for-sale financial assets 16 (9) 1
Gains/(losses) on cash flow hedges 16 1,025 (90)
Exchange differences on translation of foreign operations 16 (1) 6
Actuarial (losses)/gains on defined benefit pension schemes 14 (492) 340
Tax on items taken directly to equity 16 (179) (68)
--------- ---------
Net income recognised directly in equity 344 189
--------- ---------
Transferred to income and expense on cash flow hedges 16 (20) 237
Tax on items transferred from equity 16 5 (83)
--------- ---------
Transfers (15) 154
-------------------------------------------------------------------------------------------------------------------
Total recognised income and expense for the period 2,132 1,350
-------------------------------------------------------------------------------------------------------------------
Total income and expense recognised in the period is attributable to:
Equity holders of the parent 2,131 1,349
Minority interests 1 1
-------------------------------------------------------------------------------------------------------------------
2,132 1,350
-------------------------------------------------------------------------------------------------------------------
*T
Group Cash Flow Statement
-0-
*T
2007
(restated)
2008 (i)
Six months ended 30 June Notes £m £m
---------------------------------------------------------------------- ------------------------------
Operating cash flows before movements in working capital 17 1,315 1,519
(Increase)/decrease in inventories (67) 43
(Increase)/decrease in receivables (103) 722
Increase/(decrease) in payables 682 (963)
---------------------------------------------------------------------- ------------------------------
Cash generated from continuing operations 1,827 1,321
Interest received 10 9
Interest paid (7) (1)
Tax paid (277) (33)
Payments relating to exceptional charges (66) (68)
---------------------------------------------------------------------- ------------------------------
Net cash flow from continuing operating activities 17 1,487 1,228
Net cash flow from discontinued operating activities 17 - 33
---------------------------------------------------------------------- ------------------------------
Net cash flow from operating activities 1,487 1,261
---------------------------------------------------------------------- ------------------------------
Purchase of interests in subsidiary undertakings and businesses net of
cash and
cash equivalents acquired 18 (147) (14)
Disposal of interests in subsidiary undertakings and businesses net of
cash and
cash equivalents disposed - 1
Purchase of intangible assets (i) 6 (70) (73)
Disposal of intangible assets - 2
Purchase of property, plant and equipment (i) 6 (333) (273)
Disposal of property, plant and equipment 12 76
Investments in joint ventures and associates (1) (2)
Disposal of interests in associates and other investments 1 -
Interest received 11 12
Net purchase of available-for-sale financial assets (19) (42)
---------------------------------------------------------------------- ------------------------------
Net cash flow from continuing investing activities (546) (313)
Net cash flow from discontinued investing activities - (29)
---------------------------------------------------------------------- ------------------------------
Net cash flow from investing activities (546) (342)
---------------------------------------------------------------------- ------------------------------
Issue of ordinary share capital 30 15
--------- ----------
Interest paid in respect of finance leases (12) (28)
Other interest paid (38) (51)
--------- ----------
Interest paid (50) (79)
--------- ----------
Cash inflow from additional debt 38 53
Cash outflow from payment of capital element of finance leases (10) (9)
Cash outflow from repayment of other debt (28) (104)
--------- ----------
Net cash flow from decrease in debt - (60)
Realised net foreign exchange loss on cash settlement of derivative
contracts (24) -
Equity dividends paid 11 (356) (294)
---------------------------------------------------------------------- ------------------------------
Net cash flow from continuing financing activities (400) (418)
Net cash flow from discontinued financing activities - (6)
---------------------------------------------------------------------- ------------------------------
Net cash flow from financing activities (400) (424)
---------------------------------------------------------------------- ------------------------------
Net increase in cash and cash equivalents 541 495
Cash and cash equivalents at 1 January (ii) 1,100 592
Effect of foreign exchange rate changes 1 1
---------------------------------------------------------------------- ------------------------------
Cash and cash equivalents at 30 June (ii) 1,642 1,088
---------------------------------------------------------------------- ------------------------------
*T
(i) Restated to present exploration and evaluation expenditure, previously
reported in property, plant and equipment, in other intangible assets on the
Balance Sheet and to present The Consumers' Waterheater Income Fund as a
discontinued operation as explained in note 3.
(ii) Cash and cash equivalents are stated net of overdrafts of £20 million
(2007: £42 million).
Notes to the Condensed Interim Financial Statements
1. General information
Centrica plc is a limited liability company incorporated and domiciled in the
UK. The address of the registered office is Millstream, Maidenhead Road,
Windsor, Berkshire, SL4 5GD.
The Company has its primary listing on the London Stock Exchange.
The condensed interim Financial Statements for the six months ended 30 June 2008
were authorised for issue in accordance with a resolution of the Board of
Directors on 31 July 2008.
These condensed interim Financial Statements do not comprise statutory accounts
within the meaning of Section 240 of the Companies Act 1985. Statutory accounts
for the year ended 31 December 2007 were approved by the Board of Directors on
21 February 2008 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under Section 237 of the
Companies Act 1985.
The financial information contained in this report is unaudited. The Income
Statement, Statement of Recognised Income and Expense and Cash Flow Statement
for the interim period to 30 June 2008, and the Balance Sheet as at 30 June 2008
and related notes have been reviewed by the auditors and their report to the
Company is set out on page 21.
2. Basis of preparation
These condensed interim Financial Statements for the six months ended 30 June
2008 have been prepared in accordance with the Disclosure and Transparency Rules
of the Financial Services Authority and with IAS 34, Interim Financial
Reporting, as adopted by the European Union. These condensed interim Financial
Statements should be read in conjunction with the annual Financial Statements
for the year ended 31 December 2007, which have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
3. Accounting policies
The accounting policies applied in these condensed interim Financial Statements
are consistent with those of the annual Financial Statements for the year ended
31 December 2007, as described in the annual Financial Statements, with the
exception of standards, amendments and interpretations effective in 2008.
(a) Standards, amendments and interpretations effective in 2008
At the date of authorisation of these condensed interim Financial Statements,
the following interpretations issued by the International Financial Reporting
Interpretations Committee were effective for the period:
-- IFRIC 11, IFRS 2 - Group and Treasury Share Transactions;
-- IFRIC 12, Service Concession Arrangements; and
-- IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction.
The adoption of these interpretations has not led to any changes in the Group's
accounting policies.
(b) Certain re-measurements
The Group's Income Statement and segmental note separately identify the effects
of re-measurement of certain financial instruments, in order to provide readers
with a clear and consistent presentation of the Group's underlying performance.
As part of its energy procurement activities the Group enters into a range of
commodity contracts designed to achieve security of energy supply. These
contracts comprise both purchases and sales and cover a wide range of volumes,
prices and timescales. The majority of the underlying supply comes from high
volume long-term contracts which are complemented by short-term arrangements.
These short-term contracts are entered into for the purpose of balancing energy
supplies and customer demand and to optimise the price paid by the Group.
Short-term demand can vary significantly as a result of factors such as weather,
power generation profiles and short-term movements in market prices.
Many of the energy procurement contracts are held for the purpose of receipt or
delivery of commodities in accordance with the Group's purchase, sale or usage
requirements and are therefore out of scope of IAS 39, Financial Instruments:
Recognition and Measurement. However, a number of contracts are considered to be
derivative financial instruments and are required to be fair valued under IAS
39, primarily because their terms include the ability to trade elements of the
contracted volumes on a net-settled basis.
The Group has shown the fair value adjustments arising on these contracts
separately in the certain re-measurements column. This is because the intention
of management is, subject to short-term demand balancing, to use these energy
supplies to meet customer demand. Accordingly, management believe the ultimate
net charge to cost of sales will be consistent with the price of energy agreed
in these contracts and that the fair value adjustments will reverse as the
energy is supplied over the life of the contract. This makes the fair value
re-measurements very different in nature from costs arising from the physical
delivery of energy in the period.
At the balance sheet date the fair value represents the discounted difference
between the prices agreed in the respective contracts and the actual or
anticipated market price of acquiring the same amount of energy on the open
market. The movement in the fair value taken to certain re-measurements in the
Income Statement represents the unwind of the contracted volume delivered or
consumed during the period, combined with the change in fair value of future
contracted energy as a result of movements in forward energy prices during the
period.
These adjustments represent the significant majority of the items included in
certain re-measurements. In addition to these, however, the Group has identified
a number of comparable contractual arrangements where the discounted difference
between the price which the Group expects to pay or receive under a contract and
the market price is required to be recognised by IAS 39. These additional items
relate to cross-border transportation or transmission capacity, storage capacity
and contracts relating to the sale of energy by-products, on which economic
value has been created which is not wholly recognised under the requirements of
IAS 39. For these arrangements the related fair value adjustments are also
included under certain re-measurements.
These arrangements 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 the results
before certain re-measurements.
(c) Change of accounting presentation
As detailed in note 2(c) of the 2007 Annual Report and Accounts, the Group
adopted a change in accounting presentation in relation to capitalised
exploration and evaluation costs associated with oil and gas activities. Such
costs, which were previously presented as property, plant and equipment, are now
presented as intangible assets in order to better reflect their nature. The
impact to comparatives of the change in accounting presentation is to reclassify
£34 million of capitalised costs from property, plant and equipment to
intangible assets as at 30 June 2007 and to reclassify £15 million of net cash
flow from investing activities from purchase of property, plant and equipment to
purchase of intangible assets for the period ended 30 June 2008.
(d) The Consumers' Waterheater Income Fund
As detailed in note 3 of the 2007 Annual Report and Accounts, the Group
deconsolidated the Consumers' Waterheater Income Fund (the Fund) with effect
from 1 December 2007. As a result, the comparative information within these
condensed interim Financial Statements has been restated to present the results
of the Fund in prior periods as discontinued operations distinct from continuing
operations within the Income Statement.
4. 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, interest rate risk and equity price risk), credit risk and
liquidity risk. The Group's overall risk management process is designed to
identify, manage and mitigate business risks, including financial risks. The
Group's overall risk management process is described in the Group's 2007 Annual
Report and Accounts.
The interim period to 30 June 2008 has seen a significant increase in commodity
prices and a continuing shortage of available credit in the market. As a result
of these external market factors, the Group is encountering an increase in
commodity price risk, credit risk and liquidity risk compared with that
experienced at the end of 2007.
The increase in commodity prices has resulted in significant mark-to-market
gains on certain energy procurement contracts where the purchase price has been
locked in by contract. This exposes the Group to an increase in the risk of loss
associated with the counterparty's inability or failure to discharge its
obligations under these contracts. The Group sets credit limits, uses master
netting agreements and, where possible, net settles payments with counterparties
to manage credit risk. In addition, the Group employs a variety of security
measures to mitigate credit risk: margining, various forms of bank and parent
company guarantees and letters of credit. At 30 June 2008 the Group was holding
£1.1 billion (31 December 2007: £93 million, 30 June 2007: £7 million) of cash
as collateral against counterparty balances and had pledged £25 million (31
December 2007: £118 million, 30 June 2007: £118 million) of cash as collateral,
principally under margin calls to cover exposure to mark-to-market positions on
derivative contracts.
The increase in commodity prices has also resulted in an increase in the
volatility of cash balances as a result of the Group's various margin cash
arrangements. Were commodity prices to fall significantly from their current
levels, cash would be required to meet margin calls with some of the Group's
counterparties. To mitigate this risk the Group holds cash on short-term deposit
and maintains significant committed bank facilities. The Group's liquidity
position is monitored and stress tested on a regular basis.
In addition to the above, the increase in commodity prices has increased the
Group's working capital requirements as commodity settlement is generally
required before funds are collected from retail customers.
The Group continues to manage these risks in accordance with its financial risk
management processes and has not incurred any additional significant costs as a
result of the increased liquidity or credit risk.
5. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions. As a result of this, amounts reported for the interim period may not
be indicative of the amounts that will be reported for the full year due to
seasonal fluctuations in customer demand for gas, electricity and services, the
impact of weather on demand and commodity prices, market changes in commodity
prices and changes in retail tariffs.
Customer demand for gas in the UK and North America 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 generally follows a similar pattern to
gas, but is more stable. Customer demand for electricity in North America is
also more stable than gas but is driven by heating load in the winter and
cooling load in the summer. Generally demand for electricity in North America is
higher in the winter and summer than it is in the spring and autumn, and higher
from July to December than it is from January to June.
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
heating systems break down, so that customer demand from July to December is
higher than from January to June. Customer demand for home services in North
America follows a similar pattern, but is also higher in the summer as a result
of residential new construction in the US and the servicing of cooling systems.
Gas production volumes in the UK 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 lowest. Gas production volumes
in North America are generally not seasonal.
Power generation volumes are dependent on spark spread prices, which is the
difference between the price of electricity and the price of gas multiplied by a
conversion rate, and as a result are not as seasonal as gas production volumes
in the UK, as wholesale prices for both gas and electricity are generally higher
in the winter than they are in the summer. Power generation volumes in North
America are generally higher in the summer than in the winter and can be higher
or lower from January to June when compared to July to December.
The impact of seasonality on customer demand and wholesale prices has a direct
effect on the Group's financial performance and cash flows.
6. Segmental analysis
-0-
*T
2007
(restated)
Six months ended 30 June 2008 (iv)
------------------------------------------ ------------------------------------------------------------------
Less inter- Less inter-
Gross segment Gross segment
segment revenue Group segment revenue Group
revenue(i),(ii),(iii) revenue revenue(i),(ii),(iii) revenue
(a) Revenue £m £m £m £m £m £m
------------------------------------------ ------------------------------------------------------------------
Continuing operations:
British Gas Residential 3,823 - 3,823 3,497 - 3,497
British Gas Business 1,444 - 1,444 1,267 - 1,267
British Gas Services 664 - 664 616 - 616
-------------------------------- ---------------------------------
Gas production and development (i) 925 (688) 237 366 (229) 137
Power generation (i) 583 (305) 278 525 (305) 220
Industrial and commercial (ii) 790 (265) 525 395 - 395
Accord energy trading (iii) 31 (6) 25 26 - 26
-------------------------------- ---------------------------------
Centrica Energy 2,329 (1,264) 1,065 1,312 (534) 778
Centrica Storage (i) 244 (32) 212 196 (34) 162
Direct Energy (iv) 2,452 - 2,452 2,073 - 2,073
European Energy 372 - 372 177 - 177
------------------------------------------ ------------------------------------------------------------------
11,328 (1,296) 10,032 9,138 (568) 8,570
------------------------------------------ ------------------------------------------------------------------
Discontinued operations:
The Consumers' Waterheater Income Fund
(iv) - - - 22 - 22
------------------------------------------ ------------------------------------------------------------------
- - - 22 - 22
------------------------------------------ ------------------------------------------------------------------
*T
(i) Inter-segment revenue reflects the level of revenue generated on sales to
other Group segments on an arm's length basis.
(ii) Inter-segment revenue in the Industrial and commercial segment reflects the
sale of upstream gas produced or procured to other Group segments on an arm's
length basis. Prior to 2008, the Group's downstream businesses procured gas
directly from Gas production and development or externally.
(iii) Group revenue presented for Accord energy trading comprises both realised
(settled) and unrealised (fair value changes) from trading in physical and
financial energy contracts. Inter-segment revenue represents brokerage fees
charged to other Group segments.
(iv) Restated to present The Consumers' Waterheater Income Fund as a
discontinued operation as described in note 3. Discontinued operations
previously formed part of the Direct Energy segment.
-0-
*T
Operating Operating
profit/(loss) Certain re- profit/(loss)
before certain re- measurements after certain re-
Six months ended 30 June measurements (note 3) measurements
------------------------------------ ----------------------------------------------------------------
2007 2007
(restated) (restated)
2008 (i) 2008 2007 2008 (i)
(b) Operating profit £m £m £m £m £m £m
------------------------------------ ----------------------------------------------------------------
Continuing operations:
British Gas Residential 166 533 1,546 103 1,712 636
British Gas Business 55 48 278 133 333 181
British Gas Services 85 63 - - 85 63
--------- ----------- --------- ---------- --------- -----------
Gas production and development 638 123 (70) - 568 123
Power generation (5) 47 (49) (1) (54) 46
Industrial and commercial (156) 148 (309) 106 (465) 254
Accord energy trading 27 19 (1) (3) 26 16
--------- ----------- --------- ---------- --------- -----------
Centrica Energy 504 337 (429) 102 75 439
Centrica Storage 93 128 (35) (1) 58 127
Direct Energy (i) 91 110 497 43 588 153
European Energy (1) 11 116 (5) 115 6
Other operations (1) (4) - (1) (1) (5)
------------------------------------ ----------------------------------------------------------------
992 1,226 1,973 374 2,965 1,600
------------------------------------ ----------------------------------------------------------------
Discontinued operations:
The Consumers' Waterheater Income
Fund (i) - 22 - - - 22
------------------------------------ ----------------------------------------------------------------
- 22 - - - 22
------------------------------------ ----------------------------------------------------------------
*T
(i) Restated to present The Consumers' Waterheater Income Fund as a discontinued
operation as explained in note 3. Discontinued operations previously formed part
of the Direct Energy segment.
-0-
*T
Capital expenditure
Capital expenditure on intangible
on property, plant assets other than
Six months ended 30 June and equipment goodwill (ii)
-----------------------------------------------------------------------------------------------------------
2007 2007
(restated) (restated)
2008 (i) 2008 (i)
(c) Capital expenditure £m £m £m £m
-----------------------------------------------------------------------------------------------------------
British Gas Residential - 1 5 1
British Gas Business 1 - - 6
British Gas Services 5 3 - 2
-------- ----------- -------- -----------
Gas production and
development 69 69 9 7
Power generation 213 160 30 32
Industrial and commercial - 7 8 3
Accord energy trading - - - -
-------- ----------- -------- -----------
Centrica Energy 282 236 47 42
Centrica Storage 8 6 - -
Direct Energy 31 23 10 14
European Energy 2 7 6 6
Other operations 1 8 2 1
-----------------------------------------------------------------------------------------------------------
Additions 330 284 70 72
Increase/(decrease) in prepayments related to capital
expenditure (27) (35) - -
(Increase)/decrease in trade payables related to capital
expenditure 30 24 - 1
-----------------------------------------------------------------------------------------------------------
Net cash outflow 333 273 70 73
-----------------------------------------------------------------------------------------------------------
*T
(i) Restated to present exploration and evaluation expenditure, previously
reported in property, plant and equipment, in other intangible assets on the
Balance Sheet as described in note 3.
(ii) See note 18 for additions to goodwill.
7. Certain re-measurements
-0-
*T
2008 2007
Six months ended 30 June £m £m
--------------------------------------------------------------------------------- --------------------
Certain re-measurements recognised in relation to energy contracts
Net (loss)/gain arising on delivery of contracts (i) (41) 309
Net gains arising on market price movements and new contracts (ii) 2,024 80
Net losses arising on proprietary trades in relation to cross-border
transportation
or capacity contracts (iii) (10) (10)
--------------------------------------------------------------------------------- --------------------
Net re-measurement of energy contracts included within gross profit 1,973 379
Net losses arising on re-measurement of joint ventures' energy contracts (iv) - (5)
--------------------------------------------------------------------------------- --------------------
Net re-measurement included within Group operating profit 1,973 374
Taxation on certain re-measurements (587) (89)
--------------------------------------------------------------------------------- --------------------
Net re-measurement after taxation 1,386 285
Discontinued operations:
Fair value losses arising on re-measurement of the publicly traded units of
The Consumers' Waterheater Income Fund (v) - (67)
--------------------------------------------------------------------------------- --------------------
Total certain re-measurements 1,386 218
--------------------------------------------------------------------------------- --------------------
*T
(i) As energy is delivered or consumed from previously contracted positions, the
related fair value recognised in the opening balance sheet (representing the
discounted difference between forward energy prices at the opening balance sheet
date, and the contract price of energy to be delivered) is charged or credited
to the Income Statement.
(ii) Represents fair value gains arising from the change in fair value of future
contracted sales and purchase contracts as a result of changes in forward energy
prices between reporting dates (or date of inception and the reporting date,
where later).
(iii) Comprises movements in fair value arising on proprietary trades in
relation to cross-border transportation or storage capacity, on which economic
value has been created which is not wholly accounted for under the provisions of
IAS 39.
(iv) Certain re-measurements included within Group operating profit also include
the Group's share of the certain re-measurements relating to the energy
procurement activities of joint ventures.
(v) Certain re-measurements included within discontinued operations comprise
re-measurement of the publicly traded units of The Consumers' Waterheater Income
Fund
8. Net interest
-0-
*T
2007
(restated)
Six months ended 30 June 2008 (i)
-------------------------------------- -------------------------------------------------------------
Interest Interest Interest Interest
expense income Total expense income Total
£m £m £m £m £m £m
-------------------------------------- -------------------------------------------------------------
Continuing operations
Cost of servicing net debt
--------- --------- --------- --------- --------- -----------
Interest income - 43 43 - 28 28
Interest expense on bank loans and
overdrafts (51) - (51) (44) - (44)
Interest expense on finance leases
(including tolling agreements) (12) - (12) (24) - (24)
--------- --------- --------- --------- --------- -----------
(63) 43 (20) (68) 28 (40)
(Losses)/gains on revaluation
--------- --------- --------- --------- --------- -----------
Fair value (losses)/gains on hedges (12) 12 - (12) 9 (3)
Fair value (losses)/gains on other
derivatives (36) 51 15 (21) 7 (14)
Net foreign exchange translation of
monetary assets and liabilities (14) - (14) - 7 7
--------- --------- --------- --------- --------- -----------
(62) 63 1 (33) 23 (10)
Other interest
--------- --------- --------- --------- --------- -----------
Notional interest arising on
discounted items (8) 29 21 (10) 26 16
Interest on margin cash balances (9) 1 (8) - 1 1
Interest on supplier early payment
arrangements - 8 8 - 5 5
--------- --------- --------- --------- --------- -----------
(17) 38 21 (10) 32 22
-------------------------------------- -------------------------------------------------------------
Interest (expense)/income (142) 144 2 (111) 83 (28)
-------------------------------------- -------------------------------------------------------------
*T
(i) Restated to present The Consumers' Waterheater Income Fund as a discontinued
operation as explained in note 3.
9. Taxation
-0-
*T
Six Six
months months
ended 30 ended 30
June June
2008 2007
Analysis of tax charge for the period £m £m
--------------------------------------------------------------------------------- -------------------
UK corporation tax (including adjustments in respect of prior years) 290 324
UK petroleum revenue tax 267 55
Foreign tax (including adjustments in respect of prior years) 20 32
--------------------------------------------------------------------------------- -------------------
Taxation on profit before certain re-measurements 577 411
--------------------------------------------------------------------------------- -------------------
Tax on certain re-measurements (note 7) 587 89
--------------------------------------------------------------------------------- -------------------
Total tax on profit from continuing operations 1,164 500
--------------------------------------------------------------------------------- -------------------
*T
The Group's effective tax rate on a continuing basis before certain
re-measurements increased to 58% for the six months ended 30 June 2008 (2007:
34%) as a result of the change in profit mix towards greater upstream
contributions.
10. Earnings per ordinary share
Basic earnings per ordinary share has been calculated by dividing the earnings
attributable to equity holders of the Company for the period of £1,802 million
(2007: £1,006 million) by the weighted average number of ordinary shares in
issue during the period of 3,686 million (2007: 3,667 million).
The reconciliation of basic to adjusted basic earnings per ordinary share is as
follows:
-0-
*T
Six months ended 30 June 2008 2007
--------------------------------------------------------------------------------
Pence Pence
per per
ordinary ordinary
(a) Continuing and discontinued operations £m share £m share
--------------------------------------------------------------------------------
Earnings - basic 1,802 48.9 1,006 27.4
-
Certain re-measurement gains after tax (notes 3
and 7) (1,386) (37.6) (218) (5.9)
--------------------------------------------------------------------------------
Earnings - adjusted basic 416 11.3 788 21.5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Earnings - diluted 1,802 48.2 1,006 27.0
--------------------------------------------------------------------------------
Six months ended 30 June 2008 2007
--------------------------------------------------------------------------------
Pence Pence
per per
ordinary ordinary
(b) Continuing operations £m share £m share
--------------------------------------------------------------------------------
Earnings - basic 1,802 48.9 1,071 29.2
Certain re-measurement gains after tax (notes 3
and 7) (1,386) (37.6) (285) (7.8)
--------------------------------------------------------------------------------
Earnings - adjusted basic 416 11.3 786 21.4
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Earnings - diluted 1,802 48.2 1,071 28.7
--------------------------------------------------------------------------------
Six months ended 30 June 2008 2007
--------------------------------------------------------------------------------
Pence Pence
per per
ordinary ordinary
(c) Discontinued operations £m share £m share
--------------------------------------------------------------------------------
Loss - basic - - (65) (1.8)
------------------------------------------------ -------------------------------
------------------------------------------------ -------------------------------
Loss - diluted - - (65) (1.7)
------------------------------------------------ -------------------------------
*T
Certain re-measurements (notes 3 and 7) included within operating profit
comprise re-measurement arising on our energy procurement activities and
re-measurement of proprietary trades in relation to cross-border transportation
or capacity contracts. Certain re-measurements included within discontinued
operations comprise re-measurement of the publicly traded units of The
Consumers' Waterheater Income Fund. All other re-measurements are included
within results before certain re-measurements.
11. Dividends
The prior year final dividend of 9.65 pence (2007: 8.00 pence) per ordinary
share was paid on 11 June 2008 (2007: 13 June) totalling £356 million (2007:
£294 million).
An interim dividend of 3.90 pence (2007: 3.35 pence) per ordinary share
(totalling £145 million) will be paid on 12 November 2008.
12. Derivative financial instruments
Derivatives held for proprietary energy trading are carried at fair value with
changes in fair value recognised in the Group's results for the period before
certain re-measurements, with the exception of certain derivatives related to
cross-border transportation and capacity contracts (note 3). Derivative
financial instruments held for treasury management or energy procurement are
also carried at fair value with changes in the fair value of derivatives related
to treasury management reflected in results for the period before certain
re-measurements, and those related to energy procurement reflected in certain
re-measurements. Energy contracts designated at fair value through profit and
loss include certain energy contracts that the Group has, at its option,
designated at fair value through profit and loss under IAS 39 because the energy
contract contains one or more embedded derivatives that significantly modify the
cash flows under the contract. In cases where a derivative does qualify for
hedge accounting, derivatives are classified as fair value hedges, cash flow
hedges or hedges of a net investment in a foreign operation. The increase in
unrealised mark-to-market assets is due to gas and power purchase contracts
which are priced below the current wholesale value of energy.
-0-
*T
31
30 June December 30 June
2008 2007 2007
£m £m £m
--------------------------------------------------------------------------------
Derivative financial instruments - held for
proprietary energy trading
Derivative financial instruments - held for trading
under IAS 39
Energy derivatives - assets 854 44 249
Energy derivatives - liabilities (842) (52) (307)
--------------------------------------------------------------------------------
12 (8) (58)
--------------------------------------------------------------------------------
Derivatives financial instruments - held for treasury
management or energy procurement
Derivative financial instruments - held for trading
under IAS 39
Energy derivatives - assets 3,543 789 392
Energy derivatives - liabilities (2,071) (1,100) (551)
Interest rate derivatives - assets 2 2 3
Interest rate derivatives - liabilities (3) (5) (1)
Foreign exchange derivatives - assets 40 19 10
Foreign exchange derivatives - liabilities (38) (80) (3)
--------------------------------------------------------------------------------
1,473 (375) (150)
--------------------------------------------------------------------------------
Energy contracts designated at fair value through
profit and loss
Energy derivatives - assets 12 9 10
Energy derivatives - liabilities (10) (86) (52)
--------------------------------------------------------------------------------
2 (77) (42)
--------------------------------------------------------------------------------
Derivative financial instruments in hedge accounting
relationships
Energy derivatives - assets 1,073 123 -
Energy derivatives - liabilities (3) (68) (350)
Interest rate derivatives - assets 2 - 1
Interest rate derivatives - liabilities (10) (7) (34)
Foreign exchange derivatives - assets 20 - 7
Foreign exchange derivatives - liabilities (3) (17) (22)
--------------------------------------------------------------------------------
1,079 31 (398)
--------------------------------------------------------------------------------
Net total 2,566 (429) (648)
--------------------------------------------------------------------------------
The net total reconciles to the Balance Sheet as
follows:
31
30 June December 30 June
2008 2007 2007
£m £m £m
--------------------------------------------------------------------------------
Derivative financial instruments - non-current assets 376 72 14
Derivative financial instruments - current assets 5,170 914 658
--------------------------------------------------------------------------------
5,546 986 672
--------------------------------------------------------------------------------
Derivative financial instruments - current liabilities (2,979) (1,404) (1,264)
Derivative financial instruments - non-current
liabilities (1) (11) (56)
--------------------------------------------------------------------------------
(2,980) (1,415) (1,320)
--------------------------------------------------------------------------------
Net total 2,566 (429) (648)
--------------------------------------------------------------------------------
*T
13. Bank overdrafts, loans and other borrowings
-0-
*T
30 June 2008 31 December 2007
-----------------------------------------------------------------------------------------------------------
Interest Non- Non-
Rate Principal Current current Total Current current Total
% m £m £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------
Recourse borrowings
Bank overdrafts and loans 54 309 363 70 277 347
Bonds (by maturity date)
-----------------------------------------------------------
25 July 2008 3.500 EUR 75 61 - 61 57 - 57
8 September 2008 Floating EUR 100 80 - 80 74 - 74
9 March 2009 4.129 £250 252 - 252 - 253 253
2 November 2012 6.103 £400 - 404 404 - 400 400
27 February 2013 1.045 ¥3,000 - 15 15 - 13 13
24 October 2016 5.706 £300 - 300 300 - 300 300
4 September 2026 Floating £150 - 153 153 - 153 153
-----------------------------------------------------------
393 872 1,265 131 1,119 1,250
Obligations under finance
leases
(including power station
tolling arrangements) 21 386 407 20 397 417
-----------------------------------------------------------------------------------------------------------
468 1,567 2,035 221 1,793 2,014
-----------------------------------------------------------------------------------------------------------
30 June 2007
-----------------------------------------------------------------------------------------------------------
Interest Non-
Rate Principal Current current Total
% m £m £m £m
-----------------------------------------------------------------------------------------------------------
Recourse borrowings
Bank overdrafts and loans 66 102 168
Bonds (by maturity date)
-----------------------------
25 July 2008 3.500 EUR 75 - 52 52
8 September 2008 Floating EUR 100 - 68 68
9 March 2009 4.129 £250 - 251 251
2 November 2012 6.103 £400 - 400 400
27 February 2013 1.045 ¥3,000 - 14 14
24 October 2016 5.706 £300 - 298 298
4 September 2026 Floating £150 - 153 153
-----------------------------
- 1,236 1,236
Obligations under finance
leases
(including power station
tolling arrangements) 25 771 796
-----------------------------------------------------------------------------------------------------------
91 2,109 2,200
Non-recourse borrowings
Bonds (by maturity date)
(i)
-----------------------------
28 January 2013 4.700 C$275 - 128 128
28 January 2015 5.245 C$225 - 105 105
-----------------------------
- 233 233
Units of The Consumers'
Waterheater Income Fund
(ii) - 353 353
-----------------------------------------------------------------------------------------------------------
91 2,695 2,786
-----------------------------------------------------------------------------------------------------------
*T
(i) This debt was issued by The Consumers' Waterheater Income Fund. The Group
deconsolidated the Fund with effect from 1 December 2007 as described in note 3.
(ii) Prior to the deconsolidation of the Fund with effect from 1 December 2007,
units of the Fund were treated as debt in the Group Financial Statements.
14. Pensions
Substantially all of the Group's UK employees at 30 June 2008 were members of
one of the three main schemes: the Centrica Pension Scheme, the Centrica
Engineers' Pension Scheme and the Centrica Management Pension Scheme (together
the approved pension schemes). The Centrica Pension Scheme (final salary
section) and the Centrica Management Pension Scheme (a final salary scheme) were
closed to new members from 1 April 2003. The Centrica Pension Scheme (career
average salary section) was closed to new members from 1 July 2008. The Centrica
Engineers' Pension Scheme (final salary section) was closed to new members from
1 April 2006, and a career average salary section was added to the scheme at
that date. These schemes are defined benefit schemes, and are tax-approved
funded arrangements. They are subject to independent valuations at least every
three years, on the basis of which the qualified actuary certifies the rate of
employers' 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.
The Centrica Unapproved Pension Scheme is an unfunded arrangement which provides
benefits to certain employees whose benefits under the main schemes would
otherwise be limited by the earnings cap. The Group also has a commitment to
provide pension and post retirement benefits to certain employees of Direct
Energy Marketing Limited (Canada) under a defined benefit scheme.
The latest full actuarial valuations were carried out at the following dates:
the approved pension schemes at 31 March 2006, the Unapproved Pension Scheme at
6 April 2005 and the Direct Energy Marketing Limited defined benefit pension
scheme at 14 June 2005. These have been updated to 30 June 2008 for the purposes
of meeting the requirements of IAS 19. Investments have been valued, for this
purpose, at market value.
In addition, the Group has a commitment to provide contributions to defined
contribution schemes for certain employees in the UK and North America who are
not members of one of the Group's defined benefit schemes.
-0-
*T
31
30 June December 30 June
2008 2007 2007
Major assumptions used for the actuarial valuation % % %
------------------------------------------------------------------------ --------- --------- ---------
Rate of increase in employee earnings 4.90 4.40 4.30
Rate of increase in pensions in payment and deferred pensions 3.90 3.40 3.30
Discount rate 6.20 5.80 5.65
Inflation assumption 3.90 3.40 3.30
------------------------------------------------------------------------ --------- --------- ---------
*T
Demographic assumptions remain unchanged from 31 December 2007.
The market value of the assets and the present value of the liabilities in the
schemes at the balance sheet date are as follows:
-0-
*T
31
30 June December 30 June
2008 2007 2007
£m £m £m
--------------------------------------------------------------------------------- --------- ---------
UK equities 1,113 1,549 1,586
Non-UK equities 1,108 931 943
Fixed-interest bonds 414 412 301
Index-linked bonds 363 351 253
Property 69 50 67
Cash and other assets 89 34 80
--------------------------------------------------------------------------------- --------- ---------
Total fair value of plan assets 3,156 3,327 3,230
Present value of defined benefit obligation (3,435) (3,230) (3,157)
--------------------------------------------------------------------------------- --------- ---------
Net (liability)/asset recognised in the Balance Sheet (279) 97 73
Associated deferred tax asset/(liability) recognised in the
Balance Sheet 78 (28) (22)
--------------------------------------------------------------------------------- --------- ---------
Net pension (liability)/asset (201) 69 51
--------------------------------------------------------------------------------- --------- ---------
Net (liability)/asset recognised in the Balance Sheet
comprises:
Surpluses - 152 130
Deficits (279) (55) (57)
--------------------------------------------------------------------------------- --------- ---------
(279) 97 73
--------------------------------------------------------------------------------- --------- ---------
*T
Included within schemes' liabilities above are £29 million (31 December 2007:
£31 million, 30 June 2007: £30 million) relating to unfunded pension
arrangements. Included within non-current available-for-sale financial assets
are £25 million (31 December 2007: £30 million, 30 June 2007: £30 million) of
investments, held by the Law Debenture Trust on behalf of the Company, as
security in respect of the Centrica Unapproved Pension Scheme.
-0-
*T
Six Six
months months
ended 30 ended 30
June June
2008 2007
Analysis of the amount charged to operating profit £m £m
---------------------------------------------------------------------------------- --------- ---------
Current service cost (i) 51 70
Past service credit (3) -
---------------------------------------------------------------------------------- --------- ---------
Net charge to operating profit 48 70
---------------------------------------------------------------------------------- --------- ---------
*T
(i) In addition to current service cost on the Group's defined benefit pension
schemes the Group also charged £3 million (2007: £2 million) to operating profit
in respect of defined contribution pension schemes.
-0-
*T
Six Six
months months
ended 30 ended 30
June June
2008 2007
Analysis of the amount credited to notional interest £m £m
---------------------------------------------------------------------------------- --------- ---------
Expected return on pension scheme assets 120 108
Interest on pension scheme liabilities (93) (82)
---------------------------------------------------------------------------------- --------- ---------
Net credit to notional interest income 27 26
---------------------------------------------------------------------------------- --------- ---------
*T
-0-
*T
Six Six
months months
ended 30 ended 30
June June
Analysis of the actuarial (loss)/gain recognised in the Statement 2008 2007
of Recognised Income and Expense £m £m
---------------------------------------------------------------------------------- --------- ---------
Actual return less expected return on pension scheme assets (402) 70
Experience gains and losses arising on the scheme liabilities (2) (17)
Changes in assumptions underlying the present value of the schemes' liabilities (88) 287
---------------------------------------------------------------------------------- --------- ---------
Actuarial (loss)/gain to be recognised in the Statement of Recognised Income and
Expense before adjustment for tax (492) 340
Cumulative actuarial gains and losses recognised in reserves at 1 January 723 439
---------------------------------------------------------------------------------- --------- ---------
Cumulative actuarial gains and losses recognised in reserves at 30 June 231 779
---------------------------------------------------------------------------------- --------- ---------
*T
15. Called up share capital
-0-
*T
31
30 June December 30 June
2008 2007 2007
£m £m £m
------------------------------------------------------------------------ --------- --------- ---------
Authorised share capital of the Company
4,455,000,000 ordinary shares of 6 14/81p each
(31 December and 30 June 2007: 4,455,000,000 ordinary shares of 6 14/81p
each) 275 275 275
100,000 cumulative redeemable preference shares of £1 each - - -
------------------------------------------------------------------------ --------- --------- ---------
Allotted and fully paid share capital of the Company
3,707,858,032 ordinary shares of 6 14/81p each
(31 December: 3,679,980,311 ordinary shares and 30 June 2007:
3,676,262,304 ordinary shares of 6 14/81p each) 229 227 227
------------------------------------------------------------------------ --------- --------- ---------
*T
The movement in allotted and fully paid share capital of the Company for the
period was as follows:
-0-
*T
2008 2007
Number Number
--------------------------------------------------------------- ------------------- -------------------
1 January 3,679,980,311 3,662,721,068
Shares issued under employee share schemes 27,877,721 13,541,236
--------------------------------------------------------------- ------------------- -------------------
30 June 3,707,858,032 3,676,262,304
--------------------------------------------------------------- ------------------- -------------------
*T
The closing price of one Centrica ordinary share on 30 June 2008 was 310.25
pence (31 December 2007: 358.75 pence, 30 June 2007: 388.50 pence).
16. Reserves
-0-
*T
Attributable to equity holders of the Company
---------------------------------------------------------------
Capital
Share Share Merger redemption Other Minority Total
capital premium reserve reserve reserves Total interest equity
£m £m £m £m £m £m £m £m
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
1 January 2008 227 685 467 16 1,928 3,323 59 3,382
Exchange differences on
translation of foreign
operations - - - - (1) (1) - (1)
Actuarial losses on
defined benefit
pension schemes - - - - (492) (492) - (492)
Losses on revaluation
of available-for-sale
assets - - - - (9) (9) - (9)
Cash flow hedges:
Net fair value gains - - - - 1,025 1,025 - 1,025
Transfers to income - - - - (20) (20) - (20)
Tax on items taken
directly to/from
equity - - - - (174) (174) - (174)
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
227 685 467 16 2,257 3,652 59 3,711
Profit for the period - - - - 1,802 1,802 1 1,803
Employee share schemes:
Purchase of treasury
shares - - - - (1) (1) - (1)
Share issue 2 33 - - - 35 - 35
Exercise of awards - - - - (4) (4) - (4)
Value of services
provided - - - - 16 16 - 16
Dividends - - - - (356) (356) - (356)
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
30 June 2008 229 718 467 16 3,714 5,144 60 5,204
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
*T
-0-
*T
Attributable to equity holders of the Company
---------------------------------------------------------------
Capital
Share Share Merger redemption Other Minority Total
capital premium reserve reserve reserves Total interest equity
£m £m £m £m £m £m £m £m
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
1 January 2007 226 657 467 16 219 1,585 57 1,642
Exchange differences on
translation of foreign
operations - - - - 6 6 - 6
Actuarial gains on
defined benefit
pension schemes - - - - 340 340 - 340
Gains on revaluation of
available-for-sale
assets - - - - 1 1 - 1
Cash flow hedges:
Net fair value losses - - - - (90) (90) - (90)
Transfers to income - - - - 237 237 - 237
Tax on items taken
directly to/from
equity - - - - (151) (151) - (151)
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
226 657 467 16 562 1,928 57 1,985
Profit for the period - - - - 1,006 1,006 1 1,007
Employee share schemes:
Purchase of treasury
shares - - - - (2) (2) - (2)
Share issue 1 21 - - - 22 - 22
Exercise of awards - - - - (5) (5) - (5)
Value of services
provided - - - - 13 13 - 13
Dividends - - - - (294) (294) - (294)
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
30 June 2007 227 678 467 16 1,280 2,668 58 2,726
----------------------- --------- --------- --------- ---------- --------- ------------ --------- ---------
*T
17. Notes to the Group Cash Flow Statement
-0-
*T
Six Six months
months ended 30
ended 30 June 2007
June (restated)
(a) Reconciliation of Group operating profit to net cash flow from operating 2008 (i)
activities £m £m
-------------------------------------------------------------------------------------------------------------
Continuing operations
Group operating profit including share of result of joint ventures and associates 2,965 1,600
Less share of profits of joint ventures and associates (8) (5)
-------------------------------------------------------------------------------------------------------------
Group operating profit before share of joint ventures and associates 2,957 1,595
Add back:
Amortisation and write-down of intangible assets 44 54
Depreciation of property, plant and equipment 268 223
Employee share scheme costs 16 13
Profit on sale of businesses - (2)
(Profit)/loss on sale of property, plant and equipment, and other intangible
assets (1) 5
Movement in provisions (31) 12
Re-measurement of energy contracts (ii) (1,938) (381)
-------------------------------------------------------------------------------------------------------------
Operating cash flows before movements in working capital 1,315 1,519
(Increase)/decrease in inventories (67) 43
(Increase)/decrease in receivables (103) 722
Increase/(decrease) in payables 682 (963)
-------------------------------------------------------------------------------------------------------------
Cash generated from continuing operations 1,827 1,321
Income taxes paid (130) (66)
Net petroleum revenue tax (paid)/received (147) 33
Net interest received 3 8
Payments relating to exceptional charges (66) (68)
-------------------------------------------------------------------------------------------------------------
Net cash flow from continuing operating activities 1,487 1,228
-------------------------------------------------------------------------------------------------------------
Discontinued operations
Group operating profit before share of joint ventures and associates - 22
Add back:
Depreciation of property, plant and equipment - 11
-------------------------------------------------------------------------------------------------------------
Operating cash flows before movements in working capital - 33
Decrease in receivables - 1
Increase in payables - (1)
-------------------------------------------------------------------------------------------------------------
Net cash flow from discontinued operating activities - 33
-------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 1,487 1,261
-------------------------------------------------------------------------------------------------------------
*T
(i) Restated to present exploration and evaluation expenditure, previously
reported in property, plant and equipment, in other intangible assets on the
Balance Sheet and to present The Consumers' Waterheater Income Fund as a
discontinued operation as explained in note 3.
(ii) Adds back unrealised (profits)/losses arising from re-measurement of energy
contracts including those related to proprietary trading activities.
Cash and cash equivalents (which are presented as a single class of assets on
the face of the Balance Sheet) comprise cash at bank and other short-term highly
liquid investments with a remaining contractual maturity at acquisition of three
months or less.
-0-
*T
31
30 June December 30 June
2008 2007 2007
(b) Net recourse debt £m £m £m
---------------------------------------------------------------------------------------------------------
Current recourse borrowings (note 13) (468) (221) (91)
Non-current recourse borrowings (note 13) (1,567) (1,793) (2,109)
Less:
Cash and cash equivalents 1,662 1,130 1,130
Current available-for-sale financial assets 50 50 90
Non-current available-for-sale financial assets 49 39 38
---------------------------------------------------------------------------------------------------------
(274) (795) (942)
---------------------------------------------------------------------------------------------------------
Six months Six months
ended 30 ended 30
(c) Reconciliation of net increase in cash and cash equivalents to movement in net June 2008 June 2007
recourse debt £m £m
---------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 541 495
Add back/(deduct):
Net purchase of available-for-sale financial assets 19 42
Cash inflow from additional debt (38) (53)
Cash outflow from payment of capital element of finance leases 10 9
Cash outflow from repayment of other debt 28 104
---------------------------------------------------------------------------------------------------------
560 597
Revaluation of:
Available-for-sale financial assets (9) 1
Loans and other borrowings 13 18
---------------------------------------------------------------------------------------------------------
564 616
Decrease in interest payable on loans and other borrowings (16) (14)
Acquisitions (19) -
Exchange adjustments (9) (2)
Other non-cash movements 1 (15)
---------------------------------------------------------------------------------------------------------
Movement in net recourse debt 521 585
Net debt at 1 January (795) (1,527)
---------------------------------------------------------------------------------------------------------
Net recourse debt at end of period (274) (942)
---------------------------------------------------------------------------------------------------------
*T
18. Business combinations
During the period the Group acquired 100% of the outstanding common shares of
Rockyview Energy Inc. (Rockyview Energy), 100% of the membership interests of
Strategic Energy LLC (Strategic Energy), a subsidiary of Great Plains Energy,
and 100% of the Canadian assets of TransGlobe Energy Corp. (TransGlobe Energy).
Other smaller acquisitions are described in section (d).
The purchase method of accounting was adopted in all cases. The assets and
liabilities acquired and their fair values are shown below. The fair values
stated are provisional because the Directors have not yet reached a final
determination on all aspects of the fair value exercise.
The residual excess over the net assets acquired on each acquisition is
recognised as goodwill in the Financial Statements.
(a) Rockyview Energy
On 14 January 2008 the Group acquired 88.4% of the outstanding common shares of
publicly traded oil and gas company Rockyview Energy for cash consideration of
C$68 million (£34 million) and the remaining 11.6% of the outstanding common
shares of Rockyview Energy by 19 February 2008 in a series of transactions for
additional cash consideration of C$9 million (£5 million). The acquired business
contributed a profit after tax of £1.2 million to the Group for the period from
14 January 2008 to 30 June 2008. The book value of the assets and liabilities
has been adjusted to align with the fair values of assets and liabilities
acquired. The adjustments to recognise other intangible assets and property,
plant and equipment at fair value mainly relate to the acquired exploration and
evaluation assets, and the producing oil and gas field assets. Other adjustments
were made in respect of the recognition of decommissioning provisions at fair
value and deferred tax relating to the fair value adjustments.
(b) Strategic Energy
On 2 June 2008 the Group acquired 100% of the membership interests of Strategic
Energy, a subsidiary of Great Plains Energy, for cash consideration of US$307
million (£155 million). Strategic Energy is an electricity supplier serving
non-residential customers in eleven states within the US. The acquired business
contributed a loss after tax of £3.2 million to the Group for the period from 2
June 2008 to 30 June 2008. The book value of the assets and liabilities has been
adjusted to align with the fair values of assets and liabilities acquired.
Adjustments have been made in respect of other intangible assets, primarily to
recognise contractual customer relationships and the acquired Strategic Energy
brand, to trade and other payables and to trade and other receivables in order
to recognise acquired customer contracts and wholesale energy contracts at fair
value. Goodwill of £67 million has principally arisen in relation to expected
synergies.
(c) TransGlobe Energy
On 1 May 2008 the Group acquired 100% of the assets of TransGlobe Energy for
cash consideration of C$52 million (£26 million). TransGlobe Energy is a
publicly-traded oil and gas producer based in Calgary, Canada. The acquired
business contributed a profit after tax of £0.6 million to the Group for the
period from 1 May 2008 to 30 June 2008. The book value of the assets and
liabilities has been adjusted to align with the fair values of the assets and
liabilities acquired. An adjustment has been made to recognise property, plant
and equipment, which comprise mainly exploration and evaluation assets, at their
fair value.
-0-
*T
Rockyview Energy Strategic Energy TransGlobe Energy Total
----------------------- ---------------------- ---------------------- ---------------------- ----------------------
IFRS IFRS IFRS IFRS
carrying carrying carrying carrying
values values values values
pre- Fair pre- Fair pre- Fair pre- Fair
acquisition value acquisition value acquisition value acquisition value
£m £m £m £m £m £m £m £m
----------------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Other intangible assets 7 10 - 6 - 3 7 19
Property, plant and
equipment 64 54 3 3 30 26 97 83
Trade and other
receivables 6 6 342 285 - - 348 291
Cash and cash
equivalents - - 77 77 - - 77 77
Trade and other
payables (5) (5) (158) (283) - - (163) (288)
Bank loans (19) (19) - - - - (19) (19)
Provisions for other
liabilities and
charges (2) (6) - - (1) (1) (3) (7)
Deferred tax
liabilities (4) (1) - - (2) (2) (6) (3)
----------------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Net assets acquired 47 39 264 88 27 26 338 153
----------------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Goodwill - 67 - 67
----------------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Cash consideration 39 155 26 220
----------------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
*T
(d) Other acquisitions
The Group also acquired the assets and certain liabilities of Chilltrol Inc. on
29 February 2008 (consideration £3.9 million, goodwill £2.7 million) and the
assets of Climate Control Inc. on 12 March 2008 (consideration £0.3 million,
goodwill £0.2 million). Both businesses operate in the heating, ventilation and
air conditioning services industry. The acquired businesses contributed a profit
after tax of £0.1 million to the Group from their respective dates of
acquisition up to 30 June 2008.
The proforma consolidated results of the Group, as if the 2008 acquisitions had
been made at the beginning of the period, include revenues from continuing
operations of £10,498 million and a profit after tax of £1,807 million. The
proforma results have been calculated using the Group's accounting policies. In
preparing the proforma results, revenue and costs have been included as if the
businesses were acquired on 1st January 2008 and inter-company transactions had
been eliminated. This information is not necessarily indicative of the results
of the combined Group that would have occurred had the purchases actually been
made at the beginning of the period presented, or indicative of the future
results of the combined Group.
19. Commitments and contingencies
(a) Commitments
-0-
*T
30 June 31 December 30 June
Commitments in relation to the acquisition of property, plant and 2008 2007 2007
equipment £m £m £m
------------------------------------------------------------------------------------------------------
Construction of power station at Langage 143 201 205
Construction of Lynn and Inner Dowsing wind farms 39 114 162
Redevelopment of Statfjord gas field 81 83 59
Other 131 69 122
------------------------------------------------------------------------------------------------------
394 467 548
------------------------------------------------------------------------------------------------------
30 June 31 December 30 June
2008 2007 2007
Commitments in relation to the acquisition of intangible assets £m £m £m
------------------------------------------------------------------------------------------------------
Renewable obligation certificates 1,036 1,075 1,089
Carbon emissions certificates 435 224 192
Certified emission reduction certificates 191 166 136
Other 68 49 50
------------------------------------------------------------------------------------------------------
1,730 1,514 1,467
------------------------------------------------------------------------------------------------------
30 June 31 December 30 June
Commitments in relation to capacity, transportation and services 2008 2007 2007
contracts £m £m £m
------------------------------------------------------------------------------------------------------
Liquefied natural gas capacity 754 754 754
Transportation capacity 685 445 445
Outsourcing of services 149 167 164
Other 185 110 57
------------------------------------------------------------------------------------------------------
1,773 1,476 1,420
------------------------------------------------------------------------------------------------------
30 June 31 December 30 June
2008 2007 2007
Commitments in relation to commodity purchase contracts (i) £m £m £m
------------------------------------------------------------------------------------------------------
Within one year 15,600 8,400 6,400
Between one and five years 30,300 18,100 15,300
After five years 10,800 9,100 8,900
------------------------------------------------------------------------------------------------------
56,700 35,600 30,600
------------------------------------------------------------------------------------------------------
*T
(i) The increase in commitments at 30 June 2008 reflects the increase in
wholesale commodity prices in the six months ended 30 June 2008.
(b) Contingent liabilities
There have been no changes in the nature or amount of contingent liabilities
subsequent to 31 December 2007.
20. Related party transactions
During the period, the Group entered into the following transactions with
related parties who are not members of the Group:
-0-
*T
Six months ended 30 June 2008 2007
------------------------------------------- --------------------------------- ---------------------------------
Sale Purchase Sale Purchase
of goods of goods of goods of goods
and and Other and and Other
services services transactions services services transactions
£m £m £m £m £m £m
------------------------------------------- --------- --------- ------------- --------- --------- -------------
Barrow Offshore Wind Limited - 9 1 - 5 1
Braes of Doune Wind Farm (Scotland) Limited - 8 - - 4 -
The Consumers' Waterheater Income Fund 38 - 1 34 - 2
------------------------------------------- --------- --------- ------------- --------- --------- -------------
38 17 2 34 9 3
------------------------------------------- --------- --------- ------------- --------- --------- -------------
*T
Balances outstanding with related parties at the end of the period were as
follows:
-0-
*T
30 June 2008 31 December 2007
------------------------------------------- ------------------------------- -------------------------------
Provision Provision
for bad or for bad or
doubtful doubtful
debt debt
Amounts relating Amounts relating
owed Amounts to amounts owed Amounts to amounts
from owed to owed from from owed to owed from
related related related related related related
parties parties parties parties parties parties
£m £m £m £m £m £m
------------------------------------------- --------- --------- ----------- --------- --------- -----------
Barrow Offshore Wind Limited 27 4 - 26 4 -
Braes of Doune Wind Farm (Scotland) Limited 38 4 - 38 4 -
The Consumers' Waterheater Income Fund 3 - - 3 - -
------------------------------------------- --------- --------- ----------- --------- --------- -----------
68 8 - 67 8 -
------------------------------------------- --------- --------- ----------- --------- --------- -----------
*T
-0-
*T
30 June 2007
------------------------------------------------------------------------ -------------------------------
Provision
for bad
or doubtful
debt
relating
Amounts to
owed Amounts amounts
from owed to owed from
related related related
parties parties parties
£m £m £m
------------------------------------------------------------------------ --------- --------- -----------
Barrow Offshore Wind Limited 25 2 -
Braes of Doune Wind Farm (Scotland) Limited - 1 -
The Consumers' Waterheater Income Fund 3 - -
------------------------------------------------------------------------ --------- --------- -----------
28 3 -
------------------------------------------------------------------------ --------- --------- -----------
*T
Barrow Offshore Wind Limited and Braes of Doune Wind Farm (Scotland) Limited are
both joint ventures of the Group.
The Consumers' Waterheater Income Fund (Fund) was deconsolidated with effect
from 1 December 2007. The deconsolidation is explained in note 3. The
transactions disclosed in the tables above reflect all transactions entered into
with the Fund for the full period disclosed. The Fund is a related party of the
Group due to the significance of the contractual arrangements in place between
the Fund and the Group to the operations of the Fund.
The nature and amounts of remuneration of key management personnel have not
changed significantly from that reported in the 2007 Annual Report and Accounts.
21. Events after the balance sheet date
Changes to UK tax law substantively enacted in July 2008 relating to relief for
upstream losses will result in a re-appraisal of approximately £70 million of
the Group's unrecognised deferred tax assets during the second half of the year,
which may give rise to a reduction to the full year tax charge and a
corresponding increase to deferred tax assets.
On 9 July 2008, the Group announced that it had reached an agreement with
Marathon Oil to acquire interests in a package of gas and oil assets in the
Heimdal area of the Norwegian North Sea for cash consideration of approximately
US$375 million (£190 million). The agreement is subject to Norwegian government
approvals. On closing, the final consideration will be adjusted downwards to
reflect production since 1 January 2008.
On 23 July 2008, the Group announced that it is to increase its shareholding in
Belgian generation and supply company SPE SA from 25.5 per cent, to a
controlling 51 per cent, through the acquisition of GDF International SAS's 50
per cent stake in the 50/50 joint venture, Segebel SA. Completion is subject to
EC merger control approval, but is expected to take place in September 2008. The
Group will pay EUR 515 million (£409 million) in cash, with additional
contingent consideration of up to EUR 105 million (£83 million).
* including joint ventures and associates stated net of interest and taxation,
and before exceptional items and certain re-measurements
Disclaimers
This announcement does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any Centrica shares or other securities.
This announcement contains certain forward-looking statements with respect to
the financial condition, results, operations and businesses of Centrica plc.
These statements and forecasts involve risk and uncertainty because they relate
to events and depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward looking statements
and forecasts.
Past performance is no guide to future performance and persons needing advice
should consult an independent financial adviser.
For further information
Centrica will hold its 2008 Interim Results presentation for analysts and
institutional investors at 9.30am (GMT) on Thursday 31 July 2008. There will be
a live webcast of the presentation and slides from 9.30am at
www.centrica.com/investors.
The live broadcast of the presentation will be available by dialling in using
the following numbers:
-0-
*T
From the UK 01452 556 620
From overseas +44 1452 556 620
*T
The call title is "Centrica plc - Interim Results 2008" and the conference ID is
55194325.
An archived webcast and full transcript of the presentation and the question and
answer session will be available on the website on Friday 1 August 2008.
-0-
*T
Enquiries
Investors and Analysts: Kieran McKinney Director of Investor Relations
Telephone: 01753 494 900
email: ir@centrica.com
Media: Media Relations
Telephone: 0845 072 8002
email: media@centrica.com
*T
Financial Calendar
-0-
*T
Ex-dividend date for 2008 interim dividend 24 September 2008
Record date for 2008 interim dividend 26 September 2008
2008 interim dividend payment date 12 November 2008
Interim Management Statement 13 November 2008
2008 prelim results announcement 26 February 2009
*T
Registered Office
Millstream, Maidenhead Road, Windsor, Berkshire SL4 5GD
Centrica PLC
Copyright Business Wire 2008
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