Dec 18 - Fitch Ratings has affirmed Centrica plc's (Centrica)
Long-term Issuer Default Rating (IDR) and senior unsecured notes at 'A' and
Short-term IDR at 'F1'. The Outlook on the Long-term IDR is Stable.
The affirmation reflects Centrica's well-diversified business profile in terms
of operations across the energy value chain and the group's strong financial
profile. Centrica also has a lower proportion of mandatory capital expenditure
in comparison with peers, which leaves management scope to align its strategy to
changing economic conditions and government policy.
- Financial Profile in line with Ratio Guidelines
Fitch calculates funds from operations (FFO) adjusted net leverage of 1.9x and
FFO fixed charge cover of 8.4x for the year ending December 2011. The agency
forecasts FFO adjusted net leverage close to 2x and FFO fixed charge cover
around 8x over the rating horizon. This projection includes the acquisition of
upstream assets from Statoil for GBP1bn, ConocoPhillips for GBP142m and Total
- Flexibility to Adjust to Marco-Environment
Centrica's ratings take into account the following aspects:
- The group has advantages over peers in terms of gas procurement, due to own
upstream exploration and production assets and scale of the operations.
- Its retail brand, British Gas, enjoys wide recognition and continues to invest
in maintaining good levels of customer service.
- Centrica has a diversified generation portfolio of gas-powered generation
plant, nuclear, windpower and some coal capacity contracted from Drax. This
allows the group to adapt to changing pricing environments. Gas-fired power
stations continue to report poor earnings due to high gas prices in comparison
to coal and carbon. As a result, Centrica has reduced load factors for its gas
plants, closed the station at Kings Lynn, withdrawn Roosecote from service and
is bidding for balancing contracts for some of its plant. Nuclear output
continues to be strong.
- Geographical diversification of the upstream exploration and production
activities continues to widen. This reduces the absolute risk on earnings from
government intervention, including evolving energy policies and taxation.
- Management has indicated that the group is on track to deliver half the
savings of its cost reduction programme in 2012, ie around GBP250m.
- Diversification Across the Value Chain
Centrica is a diversified energy group in the UK and North America. Operations
include upstream exploration and production, upstream power generation, gas
storage, supply, maintenance and low carbon advice services.
RATING SENSITIVITY GUIDANCE:
Negative: Future developments that could lead to negative rating action include:
- FFO net leverage increasing sustainably above 2x and FFO fixed charge cover
falling below 6x, for example due to debt-funded acquisitions or increase of
- Exploration and production output rising above the group's own requirements,
resulting in increased direct exposure to commodity markets
- Weakening earning dynamics, for example if management decided not to pass on
increasing input costs to customers in a timely manner
Positive: Future developments that could lead to positive rating actions
- FFO net leverage moving sustainably below 1x and FFO fixed charge cover
increasing to above 12x
LIQUIDITY & DEBT STRUCTURE
- Adequate Liquidity Well Into 2014
As of 30 June 2012, the group had available GBP995m of cash and cash equivalents
(a small element of which relates to restricted cash) and now has GBP3.1bn of
undrawn, committed standby facilities, of which GBP2.9bn mature in July 2017.
Annual cash flow is sufficient to cover ongoing operating requirements,
including dividends and normalised capital expenditure. This funding position
provides adequate liquidity well into 2014.