TIDMCNA
RNS Number : 0577G
Centrica PLC
22 July 2021
Interim results for the period ended 30 June 2021
CHRIS O'SHEA, GROUP CHIEF EXECUTIVE
"Our first half financial performance was broadly as we expected
overall, and we continue to make good progress towards the
simplification of our company. Although there is still a lot to
achieve, our turnaround remains on track, our balance sheet has
been significantly strengthened and the recent changes in colleague
terms and conditions will enable us to better serve the needs of
our customers. We will continue to strengthen our foundations, as
we help our customers on the path to net zero."
FIRST HALF FINANCIAL PERFORMANCE BROADLY AS EXPECTED
-- Adjusted operating profit from continuing operations
(excluding Direct Energy) broadly flat at GBP262m (2020: GBP264m)
and adjusted basic EPS from continuing operations of 1.7p (2020:
1.6p).
-- Reflects efficiencies across the Group and higher consumption
due to colder weather in the energy supply businesses. Higher
commodity prices starting to benefit Upstream.
-- Offset by impacts of Covid-19 across the Group and industrial
action in British Gas Services, and a loss in Energy Marketing
& Trading with increased losses from the legacy gas
contract.
-- Total Group free cash flow from continuing operations up 4%
to GBP524m, with lower capital expenditure reflecting ongoing
capital discipline.
-- Net debt down to GBP0.1bn from GBP3.0bn over H1 2021,
including the impact of proceeds received from the sale of Direct
Energy in January 2021.
-- GBP608m post-tax exceptional profit on disposal of Direct
Energy. Total post-tax exceptional profit from continuing
operations of GBP248m (2020: loss of GBP897m) largely due to the
write back of E&P assets.
-- From continuing operations, statutory operating profit of
GBP1,003m (2020: loss of GBP338m) and basic EPS of 12.8p (2020:
loss of 5.9p) including a profit on certain remeasurements due to
rising commodity prices. Statutory net cash flow from operating
activities down 12% to GBP558m.
SIMPLIFYING THE PORTFOLIO AND STRENGTHENING THE BALANCE
SHEET
-- Sale of Direct Energy improves the long term strength of the
Group's balance sheet and allows an increased focus on core UK and
Ireland activities.
-- Making progress towards pursuing alternative Spirit Energy
sale options which will simplify the sale structure to maximise
value of assets and de-risk liabilities.
-- Triennial pensions valuation process underway. Technical
pension deficit on a roll-forward basis in the region of GBP1.5bn
at 30 June 2021, reduced from GBP1.9bn at 31 December 2020.
CREATING A MORE SUSTAINABLE AND PROFITABLE COMPANY
-- Focus remains on improving the long-term quality,
sustainability and level of earnings and cash flow.
-- Significant Group organisational restructure on track and expected to be completed in 2021.
-- New terms and conditions in place for UK colleagues, enabling
more modern and flexible approach to serving the needs of our
customers.
-- Over 250,000 British Gas Energy customers now on more
flexible, lower cost, 'software as a service' IT platform.
-- H2 priorities remain on 'fixing the basics', including
improving employee engagement, increasing customer satisfaction,
and driving better commercial, operational and financial
performance.
-- Capital Markets Event to be held on 16 November 2021 to
provide more detail on our longer term strategy and financial
framework.
FINANCIAL SUMMARY
Six months ended 30 June 2021 2020 Change
-------------------------------------------------- --------- --------- ------
Continuing operations (1)
EBITDA GBP682m GBP750m (9%)
Adjusted operating profit GBP262m GBP264m (1%)
Adjusted profit before tax GBP166m GBP140m 19%
Adjusted earnings attributable to shareholders GBP98m GBP90m 9%
Adjusted basic earnings per share (EPS) 1.7p 1.6p 6%
Interim dividend per share (DPS) - - nm
Group free cash flow GBP524m GBP504m 4%
-------------------------------------------------- --------- --------- ------
Statutory operating profit / (loss) GBP1,003m (GBP338m) nm
Statutory profit before tax GBP907m (GBP462m) nm
Statutory earnings attributable to shareholders GBP743m (GBP345m) nm
Statutory basic earnings per share 12.8p (5.9p) nm
Statutory net cash flow from operating activities GBP558m GBP634m (12%)
-------------------------------------------------- --------- --------- ------
30 Jun 31 Dec
2021 2020 Change
-------------------------------------------------- --------- --------- ------
Group net debt (2) GBP93m GBP2,998m (97%)
-------------------------------------------------- --------- --------- ------
See notes 3, 4 and 9 to the Financial Statements and pages 65-68
for an explanation of the use of adjusted performance measures.
1. Excludes Direct Energy which is classified in discontinued
operations. See note 4 for more information on segmental operating
profit and free cash flow.
2. Collateral posted/(received) has been removed from the
definition of net debt. See note 12.
GROUP PERFORMANCE INDICATORS
2021 2020 Change
---------------------------------------------------- ------ ------ ------
Total recordable injury frequency rate (per 200,000
hours worked) (1) 1.20 1.06 13%
Total residential customers ('000) (1, 2) 9,066 9,217 (2%)
Group direct headcount (1) 19,711 21,239 (7%)
Group employee engagement (%) 44% 42% 2ppt
---------------------------------------------------- ------ ------ ------
All 2020 comparators are as at 31 December 2020.
1. 2020 excludes Direct Energy.
2. Includes British Gas Energy, British Gas Services and Bord
Gáis Energy.
INVESTOR PRESENTATION
A pre-recorded results presentation will be available on
Centrica.com at 8am UK time on 22 July 2021 and Centrica will host
a conference call for institutional investors and analysts at
09:30am UK time on 22 July 2021. To register for the call please
visit:
https://webcasts.centrica.com/centrica116/vip_connect
If you would like to join in listen only mode, please register
at:
https://webcasts.centrica.com/centrica116
ENQUIRIES
Investors and Analysts: tel: +44 (0)1753 494900 email:
ir@centrica.com
Media: tel: +44 (0)1784 843000 email: media@centrica.com
Group Overview
SIMPLIFYING AND MODERNISING CENTRICA
-- We continued with the major transformation to turnaround
Centrica in the first half of 2021, as we aim to rebuild
shareholder value. Our first half financial result was overall
broadly as we expected, and we remained focused on protecting our
colleagues and our customers, and as a result the business, during
the ongoing Covid-19 pandemic.
-- We continue to target the simplification of our business
through the divestments of non-core assets, with the disposal of
Direct Energy completing in January 2021 and alternative options to
exit our Spirit Energy E&P assets being pursued.
-- We are also focused on improving our customer-facing
businesses. Our significant Group restructure is progressing to
plan, which will result in empowered colleagues, lower costs and a
better customer experience. In addition, the difficult but
necessary process to move colleagues onto new terms and conditions
in now complete, enabling us to better serve the needs of our
customers.
-- These changes will provide us with the platform from which to
enable growth in customers and in the number of services we offer,
and will leave us well placed to capitalise on future opportunities
arising from the move towards 'net zero' in our core markets, as we
look to deliver growth in jobs, profits and shareholder value.
SIMPLIFYING THE BUSINESS THROUGH NON-CORE DIVESTMENTS
Sale of Direct Energy completed
-- We completed the $3.6bn sale of Direct Energy to NRG Energy
on 5 January 2021. The transaction simplifies our business model,
and alongside the significant Group restructure will help create a
simpler, leaner Company, focused on our core markets of the UK and
Ireland.
-- The transaction increases the long-term strength of the
Group's balance sheet, with net cash proceeds to be used to reduce
net debt and contribute to the Group's defined benefit pension
schemes. It will also result in a more stable financial profile for
the Group, with an increased proportion of cash flows generated
from contracted services, and removal of volatility inherent within
Direct Energy.
Simplifying the Spirit Energy sales process
-- Our intention remains to exit oil and gas production in line
with our strategic shift to simplify the Group, focus on the
customer and decarbonise the Group's portfolio.
-- In line with this, in 2019 we announced our intention to
divest our 69% shareholding in the Spirit Energy E&P business.
The disposal process has been impacted by the uncertain backdrop
created by the Covid-19 pandemic, and the joint venture structure
which limited the number of parties interested in buying the
business as a whole. We have now made progress towards pursuing
alternative sale options, which will simplify the sale structure
and enable us to maximise the value of our assets while de-risking
liabilities.
-- While we still own Spirit Energy, we will actively manage it.
The steps we have taken with our partner and the Spirit management
team mean the business was free cash flow positive in H1 2021 and
given current commodity prices we expect that to remain the case
for the remainder of this year.
Further non-core divestments
-- We will also consider further divestments of other smaller
assets or businesses if they help to simplify and de-risk the Group
and we can realise good value for shareholders.
-- In the first half of 2021 we completed or announced the sales
of a number of non-core assets including the Peterborough gas-fired
power stations and site, the data management business Io-Tahoe, and
the site of the previous British Gas headquarters in Staines. The
total proceeds for these sales will total approximately GBP50m.
SIGNIFICANT GROUP RESTRUCTURE TO IMPROVE CORE BUSINESSES
Creating a simpler, leaner, more modern Company
-- In 2020, we announced plans for a significant restructure
designed to create a simpler, leaner Group focused on delivering
for our customers. This included a proposed new organisational
design, and the start of a consultation process to simplify terms
and conditions for colleagues in the UK. These changes will help to
simplify and modernise the Group and allow us to put customers at
the heart of everything we do.
Organisational restructure expected to be completed in 2021
-- The reorganisation will lead to a reduction of around 4,000
roles across the Group, with 3,000 roles removed in 2020 and a
further 1,000 roles to be removed over the course of 2021.
-- The new structure has now been embedded in the organisation.
With the number of organisational layers having been reduced from
eleven to seven, over half of the total reduction has come from
management roles and as a result a significantly higher proportion
of colleagues are now in customer-facing roles.
-- These changes will result in a more competitive cost
structure, in particular in our British Gas businesses, and an
improved customer experience, while providing us with a platform to
enable growth.
-- We are already seeing the benefits of the restructure in
British Gas Energy, with the annualised cost per customer falling
by GBP7 to GBP95 over the first six months.
-- The expected cost to complete the restructuring was provided
for in 2020. Cash restructuring costs were GBP48m in H1 2021, plus
there were exceptional pensions strain payments of GBP167m relating
to 2019 and 2020 redundancies. The majority of any remaining cash
expenditure is expected to occur by the end of 2021.
New terms and conditions in place for all UK colleagues
-- The company consulted to simplify colleague terms and
conditions in the UK over the second half of 2020. Centrica had
over 80 different employee contracts, each with multiple variants,
with many of the agreements dating back over 35 years. We needed to
modernise these to enable us to best serve the changing
expectations of today's customers while retaining the quality of
our service.
-- The process has been challenging, and we did see industrial
action from a portion of our UK services engineer base across Q1
and into Q2. We had contingency plans in place and prioritised
emergency visits and vulnerable customers. However, we saw some
deterioration in operational performance over the first quarter,
which caused a drop in customer satisfaction levels and was a
factor in the loss of customers. We saw a number of metrics
recovering over the second quarter, with engineer NPS moving up by
3 points between March and June and the number of jobs per day
completed by service and repair engineers moving above 2019
levels.
-- 98% of our UK colleagues accepted the new terms. The
increased productivity and flexibility will improve our
competitiveness and levels of customer service, providing a
sustainable platform from which to deliver growth in customers and
jobs.
-- Our focus in the second half of the year is on rebuilding
employee engagement levels, driving further improvements in
customer service and improving sales and retention performance as
we look to return to customer growth.
Flexible, lower cost, 'software as a service' IT platform in
British Gas Energy
-- Within British Gas Energy, we are now utilising a new
low-cost 'software as a service' IT platform and more modern ways
of working, in order to compete more effectively with challenger
brands.
-- The new platform will allow us to launch customer
propositions more quickly, improve the customer experience and
further reduce our cost to serve.
-- We expect to incur some additional operating costs as we run
two systems for a period of time. However, we are also reducing
capital expenditure on the legacy IT system as we migrate customers
onto the new platform.
-- We currently have over 250,000 customers on this platform
compared to around 100,000 at the start of the year.
BUSINESS UNIT OPERATIONAL, COMMERCIAL AND FINANCIAL
PERFORMANCE
-- During 2020 the Group's reportable operating segments were
amended due to a change in the way management review and make
decisions about the business. To reflect additional restructuring
and management changes that have occurred, during 2021 the British
Gas segment has been further refined and separated into two
operating segments, British Gas Energy and British Gas Services and
Solutions, and small business customer sites previously reported in
Centrica Business Solutions are now reported within British Gas
Energy. In addition, 2020 has been restated to reflect the
reallocation of corporate costs following the treatment of Direct
Energy as a discontinued operation. All prior period comparators
relating to adjusted operating profit and cost per customer metrics
have been restated accordingly.
British Gas Energy positively impacted by colder weather; focus
remains on improving the customer experience and efficiency to
return to customer growth
British Gas Energy 2021 2020 Change
Residential energy customers ('000) (1) 6,802 6,916 (2%)
Small business customer sites ('000) (1,
2) 450 450 0%
Energy complaints per customer (%) (3) 4.0% 2.8% 1.2ppt
Energy Touchpoint NPS (1, 4) 12 9 3pt
Cost per energy customer (GBP) (1) 95 102 (7%)
Adjusted operating profit (GBPm) 172 78 121%
------------------------------------------- ----- ----- ------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
1. 2020 KPI comparator based on 31 December 2020.
2. 31 December 2020 restated to reflect the number of small
business customers moved across to British Gas Energy.
3. A complaint is an expression of dissatisfaction, in line with
submissions made to Ofgem.
4. Measured independently, through individual questionnaires,
the customer's willingness to recommend British Gas following
contact with an energy call centre.
-- British Gas Energy residential customers fell by 114,000 or 2% over the first half of 2021.
-- This reflects the announcement in February of a significant
increase in default price cap tariffs from 1 April, which resulted
in increased levels of market switching across March and April. In
addition, the price comparison website market remained fiercely
competitive across H1 2021, with some competitors continuing to
price at negative gross margins. Reflecting this, we reduced our
activity through this channel, while focusing on customer
retention.
-- We also took over supply for 53,000 customers from Simplicity
Energy through Ofgem's supplier of last resort process in January
and acquired 36,000 customers from Nabuh Energy in March.
-- British Gas Energy now includes 450,000 small business
customers, with their profile closely matching those of households.
These customers were previously included within Centrica Business
Solutions. The number of small business customers was broadly flat
over the first half of 2021.
-- Call volumes and complaints increased as operations returned
towards normal, following a fall in 2020 during the first phase of
the Covid-19 pandemic when we had encouraged customers to interact
with us online so we could prioritise calls from more vulnerable
customers. 63% of transactions were completed online in H1 2021
compared to 70% in H1 2020, although this was still significantly
above the levels completed online in 2019.
-- Energy Touchpoint NPS increased by 3 points over the first
half of the year back to the level seen in June 2020.
-- Cost per customer reduced by GBP7 to GBP95 reflecting a
reduction in overhead costs due to the significant Group
restructure largely delivered in 2020. We also benefited from a
lower bad debt charge.
-- British Gas Energy adjusted operating profit increased by 121% to GBP172m.
-- This includes the impact of colder than normal weather in H1
2021 which resulted in higher energy consumption compared to a warm
H1 2020. This was partly offset by additional costs associated with
commodity volatility and balancing.
-- It also includes the benefit of cost efficiencies, reduced
Covid-19 impacts including a return to historic levels of bad debt
provisioning, and a one-off benefit of around GBP20m related to an
adjustment in the price cap in the period to 31 March 2021,
following a successful judicial review in 2019 to allow partial
recovery of wholesale costs incurred in the first period of the
price cap in Q1 2019.
-- These benefits were partially offset by the impact of higher
Energy Company Obligation (ECO) costs, which were up GBP55m
compared to H1 2020, and lower customer numbers.
British Gas Services & Solutions negatively impacted by
Covid-19 and industrial action
British Gas Services & Solutions 2021 2020 Change
------------------------------------------- ----- ----- ------
Services customers ('000) (1) 3,419 3,563 (4%)
Install and on-demand jobs ('000) 148 128 16%
Services complaints per customer (%) (2) 6.4% 2.2% 4.2ppt
Services Engineer NPS (1, 3) 61 66 (5pt)
Revenue per services customer (GBP) (1) 359 359 0%
Cost per services customer (GBP) (1) 315 299 5%
Adjusted operating profit (GBPm) 60 94 (36%)
------------------------------------------- ----- ----- ------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
1. 2020 KPI comparator based on 31 December 2020.
2. A complaint is any oral or written expression of
dissatisfaction.
3. Measured independently, through individual questionnaires,
the customer's willingness to recommend British Gas following an
engineer visit.
-- British Gas services customers fell by 144,000, or 4% over
the first half of 2021. Proactive selling and marketing were
reduced in Q1 due to the impact of Covid-19 and industrial action,
while fiercely competitive pricing on energy supply switching sites
reduced sales of energy products bundled with services. Customer
retention remained around 80%, while the number of services
products per customer improved slightly to 2.24 from 2.22 at the
start of the year.
-- The total number of installs and on demand jobs for the half
year was up 16% compared to H1 2020, with fewer Covid-19
restrictions in place over H1 2021 than in H1 2020. Within this,
boiler installations were up 39%.
-- Service levels were impacted by the combined impacts of
Covid-19 and industrial action in Q1 2021, with reduced appointment
availability and higher job reschedule levels than in H1 2020. As a
result, the number of customer complaints increased and engineer
NPS reduced to +61. However, both of these metrics improved over Q2
2021.
-- Revenue per services customer was flat at GBP359, however
cost per services customer increased despite benefits from
operating cost efficiencies, due to additional costs related to
Covid-19 and industrial action.
-- British Gas Services & Solutions adjusted operating
profit fell by 36% to GBP60m. This reflects approximately GBP50m of
negative impact compared to H1 2020 from the combination of
Covid-19 and industrial action, which resulted in additional costs
due to the increased use of third party labour and refunds to some
customers for annual service visits not completed. There was also
an impact from lower customer numbers and a change in product mix
towards lower priced products, however this was more than offset by
cost efficiency benefits and lower depreciation resulting from the
decision to write down some Home Solutions IT assets at the end of
2020.
Robust performance from Bord Gáis Energy; financial result
impacted by Whitegate outage
Bord Gáis Energy 2021 2020 Change
Customers ('000) (1) 479 483 (1%)
Complaints per customer (%) (2) 0.8% 0.8% 0.0ppt
Journey NPS (1, 3) 35 38 (3pt)
Adjusted operating profit (GBPm) 19 29 (34%)
----------------------------------- ---- ---- ------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
1. 2020 KPI comparator based on 31 December 2020.
2. Total consumer complaints of all types.
3. Weighted NPS for the main customer interaction channels.
-- The number of Bord Gáis Energy customers fell by 4,000 in the
first half of 2021 in a competitive pricing environment. However,
products per customer increased and as a result the number of
accounts was broadly stable.
-- Customer complaints remained low, and Journey NPS remained
relatively high at +35, albeit fell by 3 points over the first half
of the year reflecting continued operational challenges caused by
Covid-19.
-- The Whitegate CCGT was offline for all the first half of the
year and is currently expected back on towards the end of the
year.
-- Bord Gáis Energy adjusted operating profit reduced by 34% to
GBP19m, largely reflecting the impact of the Whitegate power
station outage, partly offset by a benefit from cost efficiencies
and lower bad debt costs, with 2020 having been impacted by higher
Covid-19 related provisions.
Weaker Energy Marketing & Trading performance and increased
legacy gas contract loss
Energy Marketing & Trading (EM&T) 2021 2020 Change
Renewable capacity under management (GW)
(1) 11.0 10.7 3%
Total EM&T adjusted operating (loss) / profit
(GBPm) (40) 111 nm
------------------------------------------------ ---- ---- ------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
1. 2020 KPI comparator based on 31 December 2020.
-- Volatile and unpredictable commodity markets created a
challenging environment for our core EM&T trading and
optimisation activities. When combined with a return to a more
historic level of LNG performance compared to an exceptionally
strong 2020, this resulted in a significant year-on-year reduction
in adjusted operating profit from core EM&T activities.
-- In addition, the remaining legacy gas contract relating to
the Sole Pit gas field, which runs until 2025, remains out of the
money at current commodity prices. Losses from the contract
increased by GBP30m, from GBP27m to GBP57m, reflecting unfavourable
movements in the pricing mechanism relative to the achieved UK NBP
gas price.
-- EM&T renewable route-to-market capacity under management
increased by 3% from 10.7GW to 11.0GW. This continues to be a focus
area for growth as more renewable capacity comes online across
Europe.
-- EM&T reported an adjusted operating loss of GBP40m (2020:
profit of GBP111m), as the GBP57m loss on the legacy contract more
than offset a positive contribution from core trading and
optimisation activities.
Covid-19 recovery in Centrica Business Solutions
Centrica Business Solutions 2021 2020 Change
Energy supply total gas and electricity volume
(TWh) 11.8 9.8 21%
Energy supply complaints per customer (%)
(2) 3.0% 4.0% (1.0ppt)
Energy supply Touchpoint NPS (1, 3) 8 nm nm
New Energy Services order intake (GBPm) 221 154 44%
New Energy Services order book (GBPm) (1) 747 697 7%
Adjusted operating (loss) (GBPm) (24) (67) (64%)
------------------------------------------------- ---- ---- --------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
1. 2020 KPI comparator based on 31 December 2020.
2. Any oral or written expression of dissatisfaction where the
customer claims to have suffered financial loss, material distress
or material inconvenience.
3. Measured independently, through individual questionnaires,
the customer's willingness to recommend. This was measured by CBS
for the first time in H1 2021 to align to British Gas Energy
methodology, therefore no comparative data is available for
2020.
-- In Centrica Business Solutions energy supply, which now
consists of medium-sized entities and Commercial and Industrial
(C&I) customers:
-- The total amount of energy supplied in the period was 21%
higher than in H1 2020, reflecting the addition over the past 12
months of new, larger C&I customers. The impact of Covid-19 on
volumes was largely similar to H1 2020, although the phasing was
different with the impact in 2020 mainly in Q2 and the impact in
2021 mainly in Q1.
-- Customer complaints reduced while Touchpoint NPS was positive at +8.
-- In Centrica Business Solutions New Energy Services:
-- Order intake of GBP221m was 44% higher than in H1 2020 with
Brexit uncertainty reducing and Covid-19 restrictions beginning to
be lifted in core markets. The order book of GBP747m was GBP50m
higher than at the end of 2020.
-- Centrica Business Solutions reported a reduced adjusted
operating loss of GBP24m (2020: GBP67m).
-- Business energy supply reported an adjusted operating profit
of GBP3m (2020: loss of GBP33m), with no repeat of having to sell
back excess commodity volumes at a loss due to Covid-19 demand
reductions as seen in 2020, benefits from colder weather, a lower
bad debt charge and efficiency benefits.
-- New Energy Services reported a reduced adjusted operating
loss of GBP27m (2020: GBP34m), reflecting growth in revenue and
gross margin from increased solutions and optimisation
activity.
Lower volumes but higher prices in Upstream
Upstream 2021 2020 Change
E&P total production volumes (mmboe) 18.5 25.4 (27%)
Nuclear power generated (GWh) 4,171 4,537 (8%)
Adjusted operating profit (GBPm) 75 19 295%
--------------------------------------- ----- ----- ------
All 2020 comparators are for the 6 months ended 30 June 2020
unless otherwise stated.
-- Spirit Energy volumes fell 28% to 17.1mmboe, reflecting
natural decline in the portfolio, production issues at a number of
fields and a number of planned outages having been brought forward
to H1 2021 from later in the year. Therefore, production is
forecast to be higher in in H2 2021 than H1 2021. However, full
year production is expected to be around 15-20% lower for the full
year than 2020 production of 44.9mmboe, compared to an expected 10%
decline at the start of the year.
-- Production volumes from CSL's Rough field fell by 17% to
1.4mmboe, reflecting the natural decline in the late life
field.
-- Centrica's share of nuclear generation volumes of 4.2TWh was
8% lower than in H1 2020, reflecting outages at the Sizewell B,
Heysham 2 and Torness power stations, partially offset by
Hunterston B returning to service in advance of the scheduled
closure by 2022. Having been offline since 2018, it was announced
in June that the de-fuelling process would commence immediately at
Dungeness B.
-- Upstream adjusted operating profit increased to GBP75m (2020: GBP19m).
-- Spirit Energy adjusted operating profit increased from GBP34m
to GBP104m, with the effect of higher wholesale commodity prices
beginning to flow through to achieved oil and gas prices. This more
than offset the impacts of lower production volumes.
-- CSL adjusted operating profit was GBP9m (2020: nil) with the
lower production volumes offset by higher achieved gas prices
resulting from the higher wholesale commodity environment.
-- Nuclear reported an increased adjusted operating loss of
GBP38m (2020: GBP16m), reflecting the lower generation volumes and
a reduction in the achieved price versus 2020.
-- E&P free cash flow increased 89% to GBP266m (2020
GBP141m), reflecting increased operating profit, tax rebates and
lower capex.
SUMMARY GROUP FINANCIAL PERFORMANCE
Operating profit and earnings from continuing operations broadly
stable
-- EBITDA from continuing operations decreased by GBP68m, or 9%,
to GBP682m, largely reflecting the movements in business unit
adjusted operating profit as described in the previous section.
-- Adjusted operating profit from continuing operations was down
GBP2m, or 1%, to GBP262m, with the difference to the EBITDA
movement due to lower depreciation in Upstream resulting from lower
production and impairments recognised at the end of 2020.
-- The net finance charge fell to GBP96m (2020: GBP124m)
reflecting a lower interest rate environment and the redemption of
a EUR750m hybrid bond at its first call date of 10 April 2021. The
adjusted tax rate fell to 35% (2020: 41%), with the impact of a
change in profit mix towards more highly taxed E&P activities
being more than offset by an increase in a deferred tax balances in
respect of CSL decommissioning liabilities and an announced change
in the UK corporation tax rate from 2023. Earnings attributable to
Spirit Energy minority partners increased to GBP11m (2020: GBP4m),
reflecting the increased E&P profit.
-- Reflecting the above, adjusted earnings from continuing
operations attributable to shareholders of GBP98m was up slightly
on last year (2020: GBP90m) and adjusted EPS from continuing
operations was 1.7p (2020: 1.6p).
Exceptional profit from continuing operations largely reflects
E&P write backs
-- A pre-tax exceptional profit of GBP373m was recognised in
continuing operations in H1 2021, largely relating to write backs
of exploration and production assets due to the increase in near
term liquid commodity prices. After tax, the total net exceptional
profit recognised in continuing operations was GBP248m, compared to
a loss of GBP897m in H1 2020 which included impairments of Upstream
assets and restructuring costs.
-- When also including a total pre-tax gain from certain net
re-measurements of GBP368m (2020: GBP442m) and a related tax credit
of GBP28m (2020: charge of GBP69m), the statutory profit from
continuing operations after taxation was GBP753m. After
non-controlling interests, statutory basic earnings from continuing
operations was GBP743m (2020: loss of GBP345m) with a basic EPS of
12.8p (2020: loss of 5.9p). When including a GBP608m profit from
discontinued operations relating to the sale of Direct Energy, the
statutory profit attributable to shareholders was GBP1,351m (2020:
loss of GBP193m) and basic statutory EPS was 23.2p (2020: loss of
3.3p).
Dividend
-- No 2021 interim dividend is being declared. We recognise the
importance of dividends to shareholders and intend to recommence
dividends to shareholders when it is prudent to do so.
Further evidence of the Group's robust cash flow generation
-- Free cash flow from continuing operations of GBP524m was
GBP20m, or 4%, higher than in H1 2020, despite the reduction in
EBITDA. This increase reflects us receiving net tax refunds of
GBP41m in H1 2021, having paid net tax of GBP43m in H1 2020, and
reduced capital expenditure of GBP187m (2020: GBP285m) as we
maintained tight capital discipline and reduced IT spend in British
Gas Energy. These more than offset the impact of lower divestment
proceeds. Exceptional cash payments of GBP48m were similar to H1
2020.
-- After including net interest payments of GBP109m (2020:
GBP80m), pension deficit payments of GBP243m (2020: GBP76m), which
include GBP167m of pension strain payments related to redundancies
in prior years, positive movements in margin cash, proceeds from
the sale of Direct Energy and non-cash decreases to net debt of
GBP21m, net debt at the end of June 2021 was GBP93m compared to
GBP2,998bn at the end of 2020.
Balance sheet restructuring remains a focus
-- Net cash proceeds of GBP2.6bn from the sale of Direct Energy
were received on 5 January 2021 and although a portion of these
proceeds are expected to be used to contribute to the Group's
defined benefit pension schemes, the Group's long-term leverage
outlook is much improved.
-- We redeemed a EUR750m hybrid bond at its first call date of
10 April 2021 and have no plans to replace this with new hybrid
capital. However, we still have a legacy of long-dated and
relatively expensive debt. We have some maturities due next year,
which we currently don't expect to have to refinance. We will also
consider retiring gross debt over time should it be in the economic
interests of the Group, once we have reached agreement with the
pension trustees on the size of any contribution from the Direct
Energy proceeds.
-- We also retain significant access to liquidity. As at the end
of June 2021, the Company had GBP3.2bn of unrestricted cash and
cash equivalents (net of bank overdrafts) and GBP3.2bn of undrawn
credit facilities.
Pension deficit conversations underway
-- The IAS19 net pension deficit decreased by GBP471m in the
year to GBP130m, reflecting an increase in the discount rate due to
a rise in interest rates and deficit payments made since the start
of the year.
-- The technical pension deficit is based on more conservative
discount rate and inflation assumptions, and determines the level
of cash contributions into the schemes.
-- On a roll-forward basis using the same methodology and
consequent assumptions from the last valuation date in 2018, this
technical provision deficit would be in the region of GBP1.5bn as
at 30 June 2021, lower than the GBP1.9bn figure at 31 December
2020. This reflects an increase in real gilt rates over H1 2021.
This includes the GBP243m of deficit contributions made during the
first half of the year but is before taking into account any
additional contributions we intend to make from the Direct Energy
proceeds.
-- The triennial valuation date was 31 March 2021. Under UK
pensions regulations we have 15 months from this date to reach
agreement with the pension trustees on the level of the deficit and
any repair plan. Conversations with the trustees have already
commenced.
2021 OUTLOOK BROADLY UNCHANGED
-- The factors we set out in our Preliminary Results in February
that we expect to impact our 2021 full year outlook remain
relevant.
-- Bord Gáis Energy's Whitegate CCGT remains offline having
experienced a forced outage in December 2020, and it is currently
expected the power station will be back online towards the end of
2021. Adjusted operating profit is expected to be negatively
impacted by up to GBP40m, at the upper end of the previously guided
GBP25m-GBP40m range, due to lost revenue and higher market power
price exposure to meet customer demand.
-- We still forecast that Energy Company Obligation (ECO) costs
in British Gas Energy will be around GBP80m higher for the full
year than in 2020, and this level of spend is projected to continue
into 2022.
-- We also still expect to benefit materially from our
significant restructuring programme, with year-on-year operating
cost savings of more than GBP100m. Combined with the impact of
colder weather conditions in the UK, we continue to expect to see
some margin recovery in British Gas Energy in 2021 when compared to
2020 despite a fall in underlying consumption, a reduction in
customer numbers and the higher ECO costs.
-- The increase in wholesale commodity prices are starting to
benefit our Upstream businesses, however full year Spirit Energy
gas and oil production volumes are now expected to be around
15%-20% lower in 2021 than in 2020. We will see additional
depreciation of around GBP40m in H2 2021 as a result of the
write-backs on Spirit Energy assets. On Nuclear, we have greater
clarity on the future of some stations, however nuclear generation
is expected to be lower in 2021 than in 2020 given H1 2021 output
and current plant outages.
-- In addition, the remaining legacy gas contract in Energy
Marketing and Trading is now expected to make a full year operating
loss in 2021 around the upper end of the previously provided
GBP50m-GBP100m per annum range, reflecting recent commodity price
moves.
-- Although Covid-19 had a material impact on the financial
result in H1 2021, the easing of restrictions are expected to
result in some recovery in business energy demand in H2 2021. In
addition, we expect to see a return to more normal levels of
services and solutions workload. However, we remain cautious on the
potential for incremental working capital outflow and higher bad
debt costs due to an uncertain economic outlook and the end of
various government support schemes.
-- We will continue with our strong focus on free cash flow, in
particular a tight discipline on operating costs, cash
restructuring and capital expenditure.
CREATING A MORE SUSTAINABLE AND PROFITABLE COMPANY
-- The sale of Direct Energy allows a greater focus on the core
markets of the UK and Ireland, where we retain leading positions in
energy supply and services. These businesses will be further
strengthened by the actions we are taking to simplify the Group,
improve the customer experience and reduce operating costs. This
should position us to deliver longer-term customer-facing growth
and add value for shareholders.
-- In addition to navigating the remaining Covid-19 related
uncertainties, a major priority in the remainder of 2021 will be
continuing the operational transformation of the Group through
completion of the restructure, helping to improve our
competitiveness and drive further improvements in customer
experience and customer retention.
-- We will also continue to work with colleagues to improve
engagement across the Group. We've learnt a lot during Covid-19
about how we can work more flexibly and efficiently. As a result,
we will be embedding a flexible approach to working for all
colleagues, while ensuring we continue to best serve our customers'
needs.
-- Looking further out, the drive to net zero presents a
significant opportunity for Centrica. We have the largest services
field force in the UK, which we are looking to grow through the
recruitment of both qualified engineers and apprentices. We are on
track to recruit 1,000 new apprentices in British Gas across 2021
and 2022, and our training academies provide us with a competitive
advantage, allowing us to upskill our engineers to install newer
technologies such as electric vehicle charging points and heat
pumps.
-- We have been re-considering whether Nuclear can play a role
for Centrica in the future, having announced in 2018 that we
intended to divest of 20% interest in the UK's operating nuclear
fleet. Our focus remains on the customer, and as we look to help
our customers reduce their carbon emissions, our Nuclear stake
provides us with an important source of zero carbon electricity.
Therefore, we may decide to retain our 20% interest.
-- We are also engaged in a number of hydrogen initiatives, and
in January this year joined the Hydrogen Taskforce coalition of
companies. We are looking at the possibility of repurposing the
Rough field so it can act as a hydrogen storage facility. Any
development would be dependent on a regulated support model
allowing appropriate and stable returns. But we continue to view it
as an interesting option for Centrica should the economic model
look attractive.
-- The significant changes we are making position us well for
the future, and we intend to set out more detail around our
longer-term strategy at a Capital Markets Event on 16 November
2021.
Group Financial Review
REVENUE
-- Group revenue from continuing operations included in business
performance increased by 6% to GBP8.2bn (2020: GBP7.7bn).
-- Gross segment revenue from continuing operations, which
includes revenue generated from the sale of products and services
between segments, increased by 8% to GBP8.7bn (2020: GBP8.1bn).
This was driven largely by the impact of higher commodity prices
and colder weather on British Gas Energy, with the higher commodity
prices also resulting in higher Energy Marketing & Trading
revenue.
-- A table reconciling different revenue measures is shown in the table below:
2021 2020 (restated)
Gross Gross
segment Less inter-segment Group segment Less inter-segment Group
revenue revenue revenue revenue revenue revenue
Period ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======== ================== ======== ======== ================== ===============
Continuing operations
British Gas Energy 3,840 - 3,840 3,710 - 3,710
British Gas Services and
Solutions 722 (32) 690 736 (40) 696
Bord Gáis Energy 484 - 484 416 - 416
Energy Marketing & Trading 1,991 (151) 1,840 1,482 (109) 1,373
Centrica Business Solutions 871 (9) 862 802 (3) 799
Upstream 838 (400) 438 982 (250) 732
============================= ======== ================== ======== ======== ================== ===============
Group revenue included in
business performance 8,746 (592) 8,154 8,128 (402) 7,726
============================= ======== ================== ======== ======== ================== ===============
Discontinued operations
Direct Energy - - - 4,795 - 4,795
----------------------------- -------- ------------------ -------- -------- ------------------ ---------------
Business performance revenue
arising from continuing and
discontinued operations 8,746 (592) 8,154 12,923 (402) 12,521
----------------------------- -------- ------------------ -------- -------- ------------------ ---------------
Less: revenue arising on
contracts in scope of IFRS
9 included in business
performance (1,236) (1,394)
Less: Discontinued
operations - (4,795)
Group statutory revenue 6,918 6,332
============================= ======== ================== ======== ======== ================== ===============
Segmental revenues have been restated to reflect the new
operating structure of the Group, and to treat Direct Energy as a
discontinued operation. As a result of the change in segments,
gross segment revenue has been restated to reflect the updated
inter-segment trading.
OPERATING PROFIT / (LOSS)
-- Adjusted operating profit from continuing operations
decreased by 1% to GBP262m (2020: GBP264m). The statutory operating
profit from continuing operations was GBP1,003m (2020: loss of
GBP338m). The difference between the two measures of profit relates
to exceptional items and certain remeasurements. A table
reconciling the different profit measures is shown below:
2021 2020
Exceptional Exceptional
items items
Business and certain Statutory Business and certain Statutory
Six months ended 30 performance re-measurements result performance re-measurements result
June Notes GBPm GBPm GBPm GBPm GBPm GBPm
======================= ===== ============ ================ ========== ============ ================ ==========
Continuing operations
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
British Gas Energy 172 78
British Gas Services
&
Solutions 60 94
Bord Gáis Energy 19 29
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Energy Marketing &
Trading (40) 111
Core EM&T 17 138
Legacy gas contract (57) (27)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Centrica Business
Solutions (24) (67)
----------------------- ----- ------------ ---------------- ---------- ------------ ---------------- ----------
Upstream 75 19
Spirit Energy 104 34
CSL 9 0
Nuclear (38) (16)
======================= ===== ============ ================ ========== ============ ================ ==========
Group operating
profit/(loss) 4(c) 262 741 1,003 264 (602) (338)
Net finance cost 7 (96) - (96) (124) - (124)
Taxation 8 (57) (97) (154) (46) 78 32
======================= ===== ============ ================ ========== ============ ================ ==========
Profit/(loss) from
continuing
operations 109 644 753 94 (524) (430)
Profit attributable
to
non-controlling
interests (11) 1 (10) (4) 89 85
======================= ===== ============ ================ ========== ============ ================ ==========
Adjusted earnings from
continuing operations 98 645 743 90 (435) (345)
======================= ===== ============ ================ ========== ============ ================ ==========
Discontinued
operations - 608 608 57 95 152
Adjusted earnings
attributable
to shareholders 98 1,253 1,351 147 (340) (193)
======================= ===== ============ ================ ========== ============ ================ ==========
Adjusted operating profit broadly flat
-- The combined net negative impact of Covid-19 across the Group
and the industrial action in British Gas Services & Solutions
was estimated at GBP87m in H1 2021, compared to an estimated net
impact of GBP29m in H1 2020 which included a number of mitigating
actions not repeated in H1 2021, including GBP27m under the UK
Government's Coronavirus Job Retention Scheme.
-- Colder than normal weather positively impacted our energy
supply businesses, mainly British Gas Energy, partially offset by
the impact of having to buy incremental gas and power volumes at
higher prices, and higher balancing costs. The net positive impact
was an estimated GBP59m.
-- An outage at the Whitegate gas-fired power station in Ireland
negatively impacted Bord G á is Energy adjusted operating profit by
GBP28m. However, British Gas Energy, British Gas Services &
Solutions, Bord G á is Energy and Centrica Business Solutions all
saw improved underlying performance, including benefit from cost
efficiencies.
-- Energy Marketing & Trading adjusted operating profit
fell, with exceptionally strong trading and optimisation
performance in 2019 and 2020 not repeated and an increased loss
from the remaining legacy gas contract.
-- Upstream adjusted operating profit increased, with the impact
of higher gas, oil and power prices and lower depreciation more
than offsetting the impact of lower gas and oil production and
nuclear generation.
-- More detail on specific business unit adjusted operating
profit performance is provided in the Group Overview on pages 5 to
9.
GROUP FINANCE CHARGE AND TAXATION
Finance costs
-- Net finance costs for continuing operations decreased to
GBP96m (2020: GBP124m), with reduced interest costs on bonds, bank
loans and overdrafts reflecting the impact of lower interest rates
on floating debt and our decision to redeem the EUR750m hybrid bond
at its first call date of April 2021.
Taxation
-- Business performance taxation on profit from continuing
operations increased to GBP57m (2020: GBP46m). After taking account
of tax on joint ventures and associates, the adjusted tax charge
was GBP59m (2020: GBP64m).
-- The resultant adjusted effective tax rate for the Group was
35% (2020: 41%), with a changed profit mix towards more highly
taxed E&P activities offset by the impact of a GBP22m one off
increase in deferred tax balances in respect of decommissioning
liabilities and a one off GBP20m increase in deferred tax balances
relating to the change in the UK corporation tax rate from 19% to
25% on 1 April 2023.
-- The adjusted effective tax rate calculation is shown below:
2021 2020
Six months ended 30 June GBPm GBPm
Adjusted operating profit from continuing operations
before impacts of taxation 262 264
Add: JV/associate taxation included in adjusted operating
profit 2 18
Net finance cost from continuing operations (96) (124)
========================================================== ===== =====
Adjusted profit before taxation 168 158
========================================================== ===== =====
Taxation on profit from continuing operations (57) (46)
Share of JV/associate taxation (2) (18)
========================================================== ===== =====
Adjusted tax charge (59) (64)
========================================================== ===== =====
Adjusted effective tax rate 35% 41%
========================================================== ===== =====
EXCEPTIONAL ITEMS
-- An exceptional pre-tax credit of GBP373m was included within
the statutory Group operating profit from continuing operations in
H1 2021 (2020: charge of GBP1,044m) including:
-- A credit of GBP366m relating to the write-back of E&P
assets, predominantly due to the increase in near-term liquid
commodity prices.
-- A credit of GBP7m of relating to the reversal of a portion of
2020 restructuring charges relating to pension strain
estimates.
-- These generated a taxation charge of GBP125m (2020: credit of
GBP147m). As a result, the total net exceptional profit recognised
in continuing operations after taxation was GBP248m (2020: charge
GBP897m).
-- Further details on exceptional items, including on impairment
accounting policy, process and sensitivities can be found in notes
6(b) and 6(c).
CERTAIN RE-MEASUREMENTS
-- The Group enters into a number of forward energy trades to
protect and optimise the value of its underlying production,
generation, storage and transportation assets (and similar capacity
or off-take contracts), as well as to meet the future needs of our
customers. A number of these arrangements are considered to be
derivative financial instruments and are required to be fair valued
under IFRS 9.
-- The Group has shown the fair value adjustments on these
commodity derivative trades separately as certain re-measurements,
as they do not reflect the underlying performance of the business
because they are economically related to our upstream assets,
capacity/off-take contracts or downstream demand, which are
typically not fair valued.
-- The operating profit in the statutory results includes a net
pre-tax profit for continuing operations of GBP368m (2020: GBP442m)
relating to these re-measurements. With the Group generally a net
purchaser of commodity, the gain was due to the positive
revaluation of contracts due for delivery in future periods as
commodity prices rose over the first half of 2021, offset by the
unwind of in-the-money positions from December 2020. These
re-measurements generated a taxation credit of GBP28m (2020: charge
of GBP69m). As a result, the total profit from net re-measurements
after taxation for continuing operations was GBP396m (2020:
GBP373m).
-- The Group recognises the realised gains and losses on these
contracts when the underlying transaction occurs. The business
performance profits arising from the physical purchase and sale of
commodities during the year, which reflect the prices in the
underlying contracts, are not impacted by these
re-measurements.
-- Further details can be found in note 6(a).
DISCONTINUED OPERATIONS
-- The sale of Direct Energy was announced on 24 July 2020 and
completed on 5 January 2021. As such its activities are treated as
a discontinued operation in the financial results.
-- There was no adjusted operating profit or adjusted earnings
from discontinued operations in H1 2021. Statutory earnings of
GBP608m from discontinued operations are entirely related to the
profit on disposal and release of a tax provision related to the
disposal of Direct Energy.
GROUP EARNINGS
Adjusted earnings
-- Profit for the year from business performance from continuing
operations after taxation was GBP109m (2020: GBP94m). After
adjusting for non-controlling interests, adjusted earnings were
GBP98m (2020: GBP90m).
-- Adjusted basic EPS from continuing operations was 1.7p (2020: 1.6p).
Statutory earnings
-- After including exceptional items, certain re-measurements
and earnings from discontinued operations, the statutory profit
attributable to shareholders for the period was GBP1,351m (2020:
loss of GBP193m).
-- The Group reported a statutory basic EPS of 23.2p (2020: loss
of 3.3p). The statutory EPS from continuing operations was 12.8p
(2020: loss of 5.9p).
Dividend
-- The Group is proposing no 2021 interim dividend.
GROUP CASH FLOW, NET DEBT AND BALANCE SHEET
Group cash flow
-- Free cash flow is the Group's primary measure of cash flow as
management believe it provides relevant information to show the
cash generation of the business after taking account of the need to
maintain its capital asset base. Free cash flow is reconciled to
statutory net cash flow from operating and investing activities in
the table below. See the explanatory note in note 4(f) for further
details.
2021 2020
Six months ended 30 June GBPm GBPm
Statutory cash flow from continuing operating activities 558 634
Statutory cash flow from continuing investing activities (146) (26)
------------------------------------------------------------- ----- -----
Statutory cash flow from continuing operating and investing
activities
Add back/(deduct):
Sale and settlement of securities - (122)
Interest received (2) (3)
Movements in collateral and margin cash included in
net debt (129) (55)
Defined benefit pension deficit payment 243 76
Free cash flow from continuing operations 524 504
============================================================= ===== =====
Discontinued operations free cash flow 2,582 245
Free cash flow 3,106 749
============================================================= ===== =====
-- Net cash flow from continuing operating activities of GBP558m
was down 12% (2020: GBP634m), reflecting lower EBITDA. Higher
pension deficit payments were largely offset by tax refunds in H1
2021 compared to tax payments in H1 2020.
-- Net cash outflow from continuing investing activities
increased to GBP146m (2020: GBP26m), largely due to lower
divestment proceeds and no settlement and sale of securities in H1
2021.
-- Group total free cash flow from continuing operations was
GBP524m (2020: GBP504m). When including GBP2,582m of free cash flow
from discontinuing operations which relates to the sale of Direct
Energy on 5 January 2021, Group free cash flow was GBP3,106m (2020:
GBP749m).
-- Net cash outflow from continuing financing activities
increased to GBP740m in 2021 (2020: GBP161m) reflecting the
repayment of the hybrid bond in April 2021.
Net debt
-- All of the above resulted in a GBP2,254m increase in cash and
cash equivalents over the year, and when including the impact of
reduced gross debt resulting from the hybrid bond repayment,
non-cash movements and exchange adjustments, net debt at the end of
June 2021 was GBP93m, down from GBP2,998m as at 31 December
2020.
-- Further details on the Group's net debt are included in note 12.
Pension deficit
-- The Group's IAS 19 net pension deficit decreased by GBP471m
to GBP130m in the period, with deficit contributions and an
increase in the discount rate due to rising interest rates
decreasing obligations.
-- Further details on the post-retirement benefits are included in note 13.
Balance sheet
-- Net assets increased to GBP2,878m (31 December 2020:
GBP1,382m), reflecting the statutory profit in the period and the
decrease in retirement benefit obligations.
2021 ACQUISITIONS AND DISPOSALS
-- On 24 July 2020, the Group announced it had agreed to dispose
of its North American supply, services and trading business, Direct
Energy, to NRG for headline consideration of $3.6 billion on a debt
free, cash free basis. The transaction received all necessary
approvals prior to 31 December 2020 and completed on 5 January
2021. This resulted in a profit on disposal of GBP0.6bn.
-- Further details on assets purchased, acquisitions and
disposals are included in notes 4(e) and 11.
EVENTS AFTER BALANCE SHEET DATE
-- Details of events after the balance sheet date are described in note 17.
RISKS AND CAPITAL MANAGEMENT
-- The nature of the Group's principal risks and uncertainties
are broadly unchanged from those set out in its 2020 Annual Report,
although the Group has actively responded to those risks heightened
by Covid-19, with Centrica's approach to risk management enabling a
rapid mobilisation of resources to react to the challenges caused
by the pandemic. The extent to which the Group may continue to be
impacted by the consequences of Covid-19 will in part depend on the
degree of government support, in the form of direct aid and
stimulus programmes, which are likely to be a factor in the degree
of customer bad debt we see and in the speed of recovery in the
commercial sector.
-- Our top three Principal Risks are Political & Regulatory
Intervention, Commodity Risk and Asset Production. Capability of
People, Processes and Systems risk is also intensified as we
progress through our programmes of change.
-- Details of how the Group has managed financial risks such as
liquidity and credit risk are set out in note 19. Details of the
Group's capital management processes are provided under sources of
finance in note 12(a).
ACCOUNTING POLICIES
-- The Group's accounting policies and specific accounting
measures, including changes of accounting presentation and selected
key sources of estimation uncertainty, are explained in notes 1, 2
and 3.
Appendix: Upstream performance metrics
Nuclear
Six months ended 30 June 2021 2020 Change
Nuclear power generated (GWh) 4,171 4,537 (8%)
======================================= ===== ===== ======
Nuclear achieved power price (GBP/MWh) 46.5 53.0 (12%)
======================================= ===== ===== ======
Exploration & Production
Six months ended 30 June 2021 2020 Change
Total recordable injury frequency rate (per 200,000
hours worked) 0.22 0.28 (21%)
===================================================== ==== ===== ======
Process safety incident rate - tier 1 & 2 (per
200,000 hours worked) 0.09 0.00 nm
===================================================== ==== ===== ======
Gas production volumes (mmth)
Spirit Energy 637 930 (32%)
CSL 84 104 (19%)
===================================================== ==== ===== ======
Total gas production volumes (mmth) 721 1,034 (30%)
===================================================== ==== ===== ======
Liquids production volumes (mmboe)
Spirit Energy 6.7 8.5 (21%)
CSL 0.1 0.0 nm
===================================================== ==== ===== ======
Total liquids production volumes (mmboe) 6.7 8.5 (21%)
===================================================== ==== ===== ======
Total production volumes (mmboe)
Spirit Energy 17.1 23.7 (28%)
CSL 1.4 1.7 (18%)
===================================================== ==== ===== ======
Total production volumes (mmboe) 18.5 25.4 (27%)
===================================================== ==== ===== ======
Average achieved gas sales prices (p/therm)
Spirit Energy 44.4 33.9 31%
CSL 55.9 45.0 24%
===================================================== ==== ===== ======
Average achieved liquid sales prices (GBP/boe)
Spirit Energy 38.7 34.6 12%
CSL 26.8 18.4 46%
===================================================== ==== ===== ======
Lifting and other cash production costs (GBP/boe)
(1)
Spirit Energy 16.4 12.3 33%
CSL 20.4 21.0 (3%)
===================================================== ==== ===== ======
Gas and liquids realisations (GBPm) (2) 575 667 (14%)
===================================================== ==== ===== ======
Unit DDA rate (GBP/boe)
Spirit Energy 11.5 11.7 (2%)
CSL 5.4 3.9 38%
===================================================== ==== ===== ======
Net investment (GBPm) (3)
Capital expenditure (including small acquisitions) 122 204 (40%)
Net disposals 0 (9) nm
===================================================== ==== ===== ======
Net investment (GBPm) 122 195 (37%)
===================================================== ==== ===== ======
Free cash flow (GBPm) (3) 266 141 89%
===================================================== ==== ===== ======
1. Lifting and other cash production costs are total operating
costs and cost of sales excluding depreciation and amortisation,
dry hole costs, exploration costs and profit on disposal.
2. Realisations are total revenues from sales of gas and liquids
including hedging and net of Spirit NTS costs.
3. See pages 65 to 68 for an explanation of the use of adjusted
performance measures.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Results
for the six-month period ended 30 June 2021 in accordance with
applicable law, regulations and accounting standards. In preparing
the condensed interim Financial Statements, the Directors are
responsible for ensuring that they give a true and fair view of the
state of affairs of the Group at the end of the period and the
profit or loss of the Group for that period.
The Directors confirm that the condensed interim Financial
Statements have been prepared in accordance with United Kingdom
adopted International Accounting Standard 34, "Interim Financial
Reporting", and that the Interim Results includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of the important events that have occurred
during the first six months and their impact on the condensed
interim Financial Statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- material related party transactions in the first six months
of the year and any material changes in the related party
transactions described in the last annual report.
The Directors of Centrica plc are listed in the Group's 2020
Annual Report and Accounts. A list of current Directors is
maintained on the Centrica plc website which can be found at
www.centrica.com.
On behalf of the Board on 21 July 2021
Chris O'Shea Kate Ringrose
Group Chief Executive Group Chief Financial Officer
Independent Review Report to Centrica plc
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the Group Income
Statement, the Group Statement of Comprehensive Income, the Group
Balance Sheet, the Group Statement of Changes in Equity, the Group
Cash Flow Statement and related notes 1 to 20. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
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 Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of report
This report is made solely to the company 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 Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
21 July 2021
Group Income Statement
2021 2020 (restated) (i)
====================================== ========================================
Exceptional Results Exceptional
items for items Results
Business and certain the Business and certain for
performance re-measurements period performance re-measurements the period
Six months ended 30 June Notes GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ===== ============ =============== ======= =========== =============== ==========
Continuing operations
Group revenue 4 8,154 (1,236) 6,918 7,726 (1,394) 6,332
Cost of sales 6 (7,000) 2,244 (4,756) (6,541) 2,362 (4,179)
Re-measurement and
settlement
of energy contracts 6 - (640) (640) - (528) (528)
4,
Gross profit 6 1,154 368 1,522 1,185 440 1,625
============ =============== ======= =========== =============== ==========
Operating costs before
exceptional items and
credit
losses on financial
assets (790) - (790) (821) - (821)
Credit losses on
financial
assets (66) - (66) (98) - (98)
Exceptional items -
write-back/(impairments) 6 - 366 366 - (785) (785)
Exceptional items -
restructuring
credit/(costs) 6 - 7 7 - (259) (259)
Operating costs (856) 373 (483) (919) (1,044) (1,963)
Share of (losses)/profits
of joint ventures and
associates,
net of interest and
taxation 5 (36) - (36) (2) 2 -
=========================== ===== ============ =============== ======= =========== =============== ==========
Group operating
profit/(loss) 4 262 741 1,003 264 (602) (338)
Net finance cost 7 (96) - (96) (124) - (124)
=========================== ===== ============ =============== ======= =========== =============== ==========
Profit/(loss) from
continuing
operations
before taxation 166 741 907 140 (602) (462)
Taxation on profit/(loss)
from continuing operations 8 (57) (97) (154) (46) 78 32
=========================== ===== ============ =============== ======= =========== =============== ==========
Profit/(loss) from
continuing
operations
after taxation 109 644 753 94 (524) (430)
Discontinued operations
(ii) 6 - 608 608 57 95 152
=========================== ===== ============ =============== ======= =========== =============== ==========
Profit/(loss) for the
period 109 1,252 1,361 151 (429) (278)
=========================== ===== ============ =============== ======= =========== =============== ==========
Attributable to:
Owners of the parent 98 1,253 1,351 147 (340) (193)
Non-controlling interests 11 (1) 10 4 (89) (85)
=========================== ===== ============ =============== ======= =========== =============== ==========
Earnings per ordinary share
=========================== ===== ============ =============== ======= =========== =============== ==========
From continuing and
discontinued
operations
Basic 9 23.2 (3.3)
Diluted 9 22.9 (3.3)
From continuing operations
Basic 9 12.8 (5.9)
Diluted 9 12.6 (5.9)
Interim dividend paid per
ordinary share 10 - -
Final dividend per ordinary
share 10 - -
=========================== ===== ============ =============== ======= =========== =============== ==========
(i) Prior period results have been restated to remove the Direct
Energy business from continuing operations, as the business has
been classified as a discontinued operation. See note 3.
(ii) Profit from discontinued operations is entirely
attributable to equity holders of the parent.
The notes on pages 27 to 64 form part of these condensed interim
Financial Statements.
Group Statement of Comprehensive Income
2021 2020
Six months ended 30 June GBPm GBPm
============================================================ ===== =====
Profit/(loss) for the period 1,361 (278)
Other comprehensive (loss)/income
Items that will be or have been reclassified to the
Group Income Statement:
Impact of cash flow hedging (net of taxation) (8) 8
Exchange differences on translation of foreign operations (32) 108
Exchange differences reclassified to Group Income
Statement on disposal (20) -
Gains on net investment hedging (net of taxation)
reclassified to the Group Income Statement on disposal (40) -
Items that will not be reclassified to the Group Income
Statement:
Net actuarial gains/(losses) on defined benefit pension
schemes (net of taxation) 184 (238)
Gains/(losses) on revaluation of equity instruments
measured at fair value through other comprehensive
income (net of taxation) 1 (3)
Share of other comprehensive income of joint ventures
and associates (net of taxation) 42 -
============================================================= ===== =====
Other comprehensive income/(loss) (net of taxation) 127 (125)
============================================================= ===== =====
Total comprehensive income/(loss) for the period 1,488 (403)
============================================================= ===== =====
Attributable to:
Owners of the parent 1,481 (311)
Non-controlling interests 7 (92)
============================================================= ===== =====
Total comprehensive income/(loss) attributable to
owners of the parent arises from:
Continuing operations 933 (559)
Discontinued operations 548 248
============================================================= ===== =====
1,481 (311)
============================================================ ===== =====
The notes on pages 27 to 64 form part of these condensed interim
Financial Statements.
Group Statement of Changes in Equity
Share Share Retained Other Non-controlling Total
capital premium earnings equity Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ========= ======= ===== =============== =======
1 January 2021 361 2,347 (836) (915) 957 425 1,382
Profit for the period - - 1,351 - 1,351 10 1,361
Other comprehensive profit/(loss) - - - 130 130 (3) 127
Employee share schemes 2 30 1 (25) 8 - 8
================================== ======== ======== ========= ======= ===== =============== =======
30 June 2021 363 2,377 516 (810) 2,446 432 2,878
================================== ======== ======== ========= ======= ===== =============== =======
Share Share Retained Other Non-controlling Total
capital premium earnings equity Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= ======== ======== ========= ======= ===== =============== =======
1 January 2020 360 2,330 (869) (609) 1,212 583 1,795
Loss for the period - - (193) - (193) (85) (278)
Other comprehensive loss - - - (118) (118) (7) (125)
Employee share schemes - 15 (12) 24 27 - 27
========================= ======== ======== ========= ======= ===== =============== =======
30 June 2020 360 2,345 (1,074) (703) 928 491 1,419
========================= ======== ======== ========= ======= ===== =============== =======
The notes on pages 27 to 64 form part of these condensed interim
Financial Statements.
Group Balance Sheet
30 June 31 December
2021 2020
Notes GBPm GBPm
=========================================================== ===== ======== ===========
Non-current assets
Property, plant and equipment 2,858 2,643
Interests in joint ventures and associates 840 843
Other intangible assets 1,036 1,011
Goodwill 915 929
Deferred tax assets 713 636
Trade and other receivables, and contract-related assets 14 135 145
Derivative financial instruments 15 413 366
Retirement benefit assets 13 111 -
12,
Securities 15 135 134
=========================================================== ===== ======== ===========
7,156 6,707
=========================================================== ===== ======== ===========
Current assets
Trade and other receivables, and contract-related assets 14 2,926 2,801
Inventories 320 324
Derivative financial instruments 15 2,731 1,224
Current tax assets 116 132
Cash and cash equivalents 12 3,733 1,820
=========================================================== ===== ======== ===========
9,826 6,301
=========================================================== ===== ======== ===========
Assets of disposal groups classified as held for sale 11 - 4,111
=========================================================== ===== ======== ===========
9,826 10,412
=========================================================== ===== ======== ===========
Total assets 16,982 17,119
=========================================================== ===== ======== ===========
Current liabilities
Derivative financial instruments 15 (2,115) (747)
Trade and other payables, and contract-related liabilities (3,817) (3,722)
Current tax liabilities (201) (235)
Provisions for other liabilities and charges (139) (188)
Bank overdrafts, loans and other borrowings 12 (605) (787)
=========================================================== ===== ======== ===========
(6,877) (5,679)
=========================================================== ===== ======== ===========
Liabilities of disposal groups classified as held for sale 11 - (1,986)
=========================================================== ===== ======== ===========
(6,877) (7,665)
=========================================================== ===== ======== ===========
Non-current liabilities
Deferred tax liabilities (453) (149)
Derivative financial instruments 15 (365) (181)
Trade and other payables, and contract-related liabilities (277) (114)
Provisions for other liabilities and charges (2,394) (2,438)
Retirement benefit obligations 13 (241) (601)
Bank loans and other borrowings 12 (3,497) (4,589)
=========================================================== ===== ======== ===========
(7,227) (8,072)
=========================================================== ===== ======== ===========
Total liabilities (14,104) (15,737)
=========================================================== ===== ======== ===========
Net assets 2,878 1,382
=========================================================== ===== ======== ===========
Share capital 363 361
Share premium 2,377 2,347
Retained earnings 516 (836)
Other equity (810) (915)
=========================================================== ===== ======== ===========
Total shareholders' equity 2,446 957
=========================================================== ===== ======== ===========
Non-controlling interests 432 425
=========================================================== ===== ======== ===========
Total shareholders' equity and non-controlling interests 2,878 1,382
=========================================================== ===== ======== ===========
The notes on pages 27 to 64 form part of these condensed interim
Financial Statements.
Group Cash Flow Statement
2020 (restated)
2021 (i)
Six months ended 30 June Notes GBPm GBPm
============================================================== ===== ===== ===============
Continuing operations:
Group operating profit/(loss) including share of results
of joint ventures and associates 1,003 (338)
Add back share of losses of joint ventures and associates,
net of interest and taxation 5 36 -
============================================================== ===== ===== ===============
Group operating profit/(loss) before share of results
of joint ventures and associates 1,039 (338)
============================================================== ===== ===== ===============
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments
and write-backs (13) 1,275
Loss/(profit) on disposals 27 (3)
(Decrease)/increase in provisions (47) 69
Cash contributions to defined benefit schemes (in
excess of)/less than service cost income statement
charge (243) 37
Employee share scheme costs 3 23
Unrealised gains arising from re-measurement of energy
contracts (239) (425)
Exceptional charges reflected directly in operating
profit 5 23
============================================================== ===== ===== ===============
Operating cash flows before movements in working capital
relating to business performance and payments relating
to taxes and exceptional charges 532 661
Decrease in inventories 2 22
(Increase)/decrease in trade and other receivables
and contract-related assets relating to business performance (122) 679
Increase/(decrease) in trade and other payables and
contract-related liabilities relating to business
performance 153 (635)
============================================================== ===== ===== ===============
Operating cash flows before payments relating to taxes
and exceptional charges 565 727
Taxes refunded/(paid) 41 (43)
Payments relating to exceptional charges in operating
costs (48) (50)
============================================================== ===== ===== ===============
Net cash flow from continuing operating activities 558 634
Net cash flow from discontinued operating activities - 269
============================================================== ===== ===== ===============
Net cash flow from operating activities 558 903
============================================================== ===== ===== ===============
Continuing operations:
Purchase of businesses, net of cash acquired (13) -
Sale of businesses 4 108
Purchase of property, plant and equipment and intangible
assets 4 (174) (285)
Sale of property, plant and equipment and intangible
assets 32 2
Disposal of joint ventures and associates 2 -
Dividends received from joint ventures and associates 1 23
Receipt of sub-lease capital payments 12 - 1
Interest received 2 3
Settlement and sale of securities 12 - 122
============================================================== ===== ===== ===============
Net cash flow from continuing investing activities (146) (26)
Net cash flow from discontinued investing activities 2,582 (13)
============================================================== ===== ===== ===============
Net cash flow from investing activities 2,436 (39)
============================================================== ===== ===== ===============
Continuing operations:
Payments for own shares - (1)
Proceeds from sale of forfeited share capital 1 -
Financing interest paid 12 (111) (83)
Repayment of borrowings and capital element of leases 12 (630) (77)
Net cash flow from continuing financing activities (740) (161)
Net cash flow from discontinued financing activities - (8)
============================================================== ===== ===== ===============
Net cash flow from financing activities (740) (169)
============================================================== ===== ===== ===============
Net increase in cash and cash equivalents 2,254 695
Cash and cash equivalents including overdrafts, and
including cash classified as held for sale at 1 January 1,393 794
Effect of foreign exchange rate changes 12 (10) 14
============================================================== ===== ===== ===============
Cash and cash equivalents including overdrafts at
30 June 12 3,637 1,503
============================================================== ===== ===== ===============
Included in the following line of the Group Balance
Sheet:
Cash and cash equivalents 3,733 1,603
Overdrafts included within current bank overdrafts,
loans and other borrowings (96) (100)
============================================================== ===== ===== ===============
(i) Prior period results have been restated to remove the Direct
Energy business from continuing operations, as the business has
been classified as a discontinued operation. See note 3 and 11.
The notes on pages 27 to 64 form part of these condensed interim
Financial Statements.
Notes to the condensed interim Financial Statements
Notes to the condensed interim Financial Statements provide additional
information required by statute, accounting standards or Listing
Rules to explain a particular feature of the condensed interim Financial
Statements. These condensed interim Financial Statements should be
read in conjunction with the information that was released in the
Group's consolidated Financial Statements for the year ended 31 December
2020.
1. General information
Centrica plc (the 'Company') is a public company limited by
shares, domiciled and incorporated in the UK, and registered in
England and Wales. The address of the registered office is
Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD. The
Company has its listing on the London Stock Exchange. The Company,
together with its subsidiaries comprise the 'Group'.
The condensed interim Financial Statements for the six months
ended 30 June 2021 included in this announcement were authorised
for issue in accordance with a resolution of the Board of Directors
on 21 July 2021.
These condensed interim Financial Statements do not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2020 were approved by the Board of Directors on 24
February 2021 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified and did
not contain an emphasis of matter paragraph and did not contain any
statement under Section 498 of the Companies Act 2006. The
financial information contained in these condensed interim
Financial Statements is unaudited. The Group Income Statement,
Group Statement of Comprehensive Income, Group Statement of Changes
in Equity, Group Cash Flow Statement for the interim period to 30
June 2021, the Group Balance Sheet as at 30 June 2021, and the
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 2021 have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and with
IAS 34: 'Interim financial reporting', as adopted by the United Kingdom.
These condensed interim Financial Statements should be read in
conjunction with the Group's consolidated Financial Statements for
the year ended 31 December 2020, which were prepared in accordance
with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union, and applied by the
Group at the time. The Group's consolidated Financial Statements
for the year ended 31 December 2021 will be prepared in accordance
with the United Kingdom adopted International Financial Reporting
Standards.
Preparation of interim financial statements requires management
to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expense. Actual amounts may differ from
these estimates. In preparing these condensed interim Financial
Statements, the significant judgements, estimates and assumptions
made by management in applying the Group's accounting policies were
consistent with those applied in the Group's consolidated Financial
Statements for the year ended 31 December 2020, unless amended by
the application of new accounting policies, standards or
interpretations, or as a result of changes in estimation
uncertainty or judgements as described in note 3.
Taxes on income in the interim period are accrued using tax
rates that would be applicable to expected total annual earnings
for each relevant source of income.
In the context of the continuing economic uncertainty caused by
COVID-19, the Directors have updated their going concern assessment
to factor in the Group's updated principal risks, strategy and
forecasts, together with modelling further downside sensitivities.
The going concern assessment has considered the financial impact on
the Group's credit and liquidity headroom of certain stress events
impacting the Group's key risks: commodity price, weather,
regulatory, liquidity and potential further impacts of COVID-19,
over a 12-18 month horizon. The Group's forecasts show that the
Group will maintain sufficient headroom, underpinned by
unrestricted cash and cash equivalents, net of bank overdrafts, of
c.GBP3.2bn as at 30 June 2021, and c.GBP3.2bn of undrawn committed
facilities, which remain committed until at least 2024.
Accordingly, the Directors continue to believe it is appropriate to
adopt the going concern basis of accounting in preparing the
condensed interim Financial Statements.
3. Accounting policies
This section details new accounting policies, standards, amendments
and interpretations, whether these are effective in 2021 or later
years, and if and how these are expected to impact the financial position
and performance of the Group. In addition, this section sets out the
Group's specific accounting measures applied in the preparation of
the condensed interim Financial Statements. These measures enable
the users of the accounts to understand the Group's underlying and
statutory business performance separately.
The accounting policies applied in these condensed interim
Financial Statements are consistent with those used in the
preparation of the Group's consolidated Financial Statements for
the year ended 31 December 2020, as described in those annual
Financial Statements, with the exception of policies, standards,
amendments and interpretations effective as of 1 January 2021 and
other changes detailed below.
(a) New accounting policies, standards, amendments and
interpretations effective or adopted in 2021
From 1 January 2021, the following standards and amendments are
effective in the Group's consolidated Financial Statements:
-- 'Interest Rate Benchmark Reform - Phase 2 - Amendments to
IFRS 9, IAS 39, IFRS 17, IFRS 14 and IFRS 16'; and
-- Amendments to IFRS 17 and IFRS 4 Insurance Contracts -
deferral of IFRS 9.
Phase 2 of the Interest Rate Benchmark Reform became effective
on 1 January 2021 and reliefs available under Phase 1 will cease to
apply once the uncertainty regarding the timing and the amount of
interest rate benchmark-based cash flows is no longer present.
Under Phase 2, to the extent that modifications are made to
financial instruments that are necessary to implement Interest Rate
Benchmark Reform, reliefs from the discontinuation of hedge
accounting or immediate recognition of any gains or losses in the
income statement are available on transition to alternative rates,
provided that the new basis for calculating cash flows is
economically equivalent to the previous basis. Reliefs permit hedge
accounting relationships to continue unaffected. The Group is
applying these reliefs and expects to amend the formal designation
of hedge relationships; hedge accounting is expected to continue.
The amendments to IFRS 17 and IFRS 4 defer the date of application
of IFRS 17 to 1 January 2023 and change the fixed date of the
temporary exemption in IFRS 4 from applying IFRS 9 until 1 January
2023.
None of the changes to IFRS described above have a material
impact on the Group's consolidated Financial Statements.
Change in accounting treatment of deferred tax movements arising
from pension balances
IAS 12 allows for the reasonable allocation of current and
deferred tax charges and credits in respect of items where the
movements in those items are recognised outside of the Income
Statement, such as movements on the Group's pension assets and
liabilities. The Group previously allocated all deferred tax
movements arising on the pension schemes, including those
associated with a change in the rate of deferred tax, to the Income
Statement and the Statement of Other Comprehensive Income, on the
basis of the cumulative charges and credits to those statements.
However, the Group has now simplified its policy, and all movements
on deferred tax associated with the Group's pension schemes are now
recognised in the Statement of Other Comprehensive Income,
including in respect of tax rate changes, as the majority of timing
differences arise from actuarial movements which are dealt with in
the Statement of Other Comprehensive Income.
The Group has therefore recognised a GBP10 million credit in the
period in the Statement of Other Comprehensive Income, representing
all temporary differences in respect of the pension scheme balance.
This approach will be consistently applied to all future
remeasurement of the deferred tax balances in respect of the
pension scheme as a result of tax rate changes.
In 2020, the Group recognised part of the difference arising
from the remeasurement of the deferred tax balance in respect of
pension scheme balances through the income statement giving rise to
a tax charge of GBP22 million. The Group has not restated the prior
year comparatives as the amount is not material.
(b) Standards, amendments and interpretations that are issued
but not yet applied by the Group
The following standards and amendments have been issued and will
be applied to the Group in future periods:
-- IFRS 17: 'Insurance Contracts', effective from 1 January
2023;
-- Amendments to IAS 37: 'Provisions, contingent assets and
contingent liabilities' are effective from 1 January 2022, subject
to UK endorsement. The amendments specify which costs an entity
should include when assessing whether a contract is onerous and
therefore requires a provision;
-- Amendments to IAS 1: 'Presentation of Financial Statements'
relating to the classification of financial liabilities are
effective from 1 January 2023, subject to UK endorsement. The
amendments clarify the meaning of settlement in the context of
liabilities, and the circumstances in which liabilities are
classified as current or non-current;
-- Annual Improvements to IFRS 2018-2020', effective from 1
January 2022;
-- Amendments to IAS 1 relating to the disclosure of accounting
policy and materiality judgements, effective from 1 January 2023;
and
-- Amendments to IAS 8: 'Accounting policies, change in
accounting estimates and errors' relating to the definition of
accounting estimates, effective from 1 January 2023.
The Group is assessing the impact these changes will have on its
consolidated Financial Statements.
Other issued amendments or interpretations that have not yet
been applied by the Group are not expected to have a material
impact on the Group's accounting policies.
(c) Restatements
During 2020 the Group's reportable operating segments were
amended due to a change in the way management review and make
decisions about the business. During 2021 the British Gas segment
has been further refined and separated into two operating segments,
British Gas Energy and British Gas Services and Solutions,
reflecting additional restructuring and management changes that
have occurred. At the same time the small business customer result
has been moved to British Gas Energy from Centrica Business
Solutions to more accurately reflect how these customers are
managed.
The operating segments are now defined as:
-- British Gas Energy
-- British Gas Services and Solutions
-- Bord Gáis Energy
-- Energy Marketing & Trading
-- Centrica Business Solutions
-- Upstream
-- Direct Energy (Discontinued operation)
The disposal of the Group's North American Direct Energy
business, which completed on 5 January 2021, has led to the
classification of Direct Energy as a discontinued operation.
Comparatives in the Group Income Statement and Group Cash Flow
Statement have been restated accordingly.
Collateral posted/(received) has been removed from the
definition of net debt. See note 12.
(d) Centrica specific accounting measures
The Directors believe that reporting adjusted measures (revenue,
margin, profit, earnings per share and cash flow) provides
additional useful information on business performance and
underlying trends. These measures are used for internal performance
purposes, are not defined terms under IFRS and may not be
comparable with similarly titled measures reported by other
companies.
Management uses adjusted revenue, adjusted gross margin and
adjusted operating profit to evaluate segment performance. They are
defined as revenue/gross margin/operating profit before:
-- exceptional items; and
-- certain re-measurements.
Exceptional items and certain re-measurements are excluded
because these items are considered by the Directors to distort the
Group's underlying business performance.
Adjusted earnings is defined as earnings before:
-- exceptional items net of taxation; and
-- certain re-measurements net of taxation.
A reconciliation of adjusted earnings and adjusted earnings per
share is provided in note 9.
Free cash flow is used by management to assess the cash
generating performance of each segment. Segmental free cash flow is
defined as net cash flow from operating and investing activities
before:
-- deficit reduction payments made to the UK defined benefit
schemes;
-- movements in variation margin and collateral;
-- interest received;
-- sale, settlement and purchase of securities; and
-- taxes paid and refunded.
Segmental free cash flow as assessed by management excludes cash
flows relating to tax. This is because the effect of group relief
and similar reliefs could distort the measure of segment
performance. As a Group-wide measure, free cash flow includes taxes
paid and refunded.
Free cash flow gives a measure of the cash generation
performance of the business after taking account of the need to
maintain its capital asset base. By excluding pension deficit
reduction payments and movements in variation margin and
collateral, which are predominantly triggered by wider market
factors and, in the case of collateral and margin movements,
represent timing differences, free cash flow gives a measure of the
underlying performance of the Group.
Interest received and cash flows from the sale, settlement and
purchase of securities are excluded from free cash flow as these
items are included in the Group's net debt measure, and are
therefore viewed by the Directors as related to the manner in which
the Group finances its operations.
Exceptional items and certain re-measurements
The Group reflects its underlying financial results in the
business performance column of the Group Income Statement. To be
able to provide users with this clear and consistent presentation,
the effects of 'certain re-measurements' of financial instruments,
and 'exceptional items', are reported in a different column in the
Group Income Statement.
The Group is an integrated energy business. This means that it
utilises its knowledge and experience across the gas and power (and
related commodity) value chains to make profits across the core
markets in which it operates. As part of this strategy, the Group
enters into a number of forward energy trades to protect and
optimise the value of its underlying production, generation,
storage and transportation assets and contracts (and similar
capacity or off-take arrangements), as well as to meet the future
needs of its customers (downstream demand). These trades are
designed to reduce the risk of holding such assets, contracts or
downstream demand and are subject to strict risk limits and
controls.
Primarily because some of these trades include terms that permit
net settlement, they are prohibited from being designated as 'own
use' and so IFRS 9: 'Financial instruments' requires them to be
individually fair valued.
Fair value movements on these commodity derivative trades do not
reflect the underlying performance of the business because they are
economically related to the Group's upstream assets,
capacity/off-take contracts or downstream demand, which are
typically not fair valued. Therefore, these certain re-measurements
are reported separately and are subsequently reflected in business
performance when the underlying transaction or asset impacts profit
or loss.
The effects of these certain re-measurements are presented
within either revenue or cost of sales when recognised in business
performance depending on the nature of the contract. They are
managed separately from proprietary energy trading activities where
trades are entered into speculatively for the purpose of making
profits in their own right. These proprietary trades are included
in revenue in the business performance column of the Group Income
Statement.
The Group's result for the period presents both realised and
unrealised fair value movements on all derivative energy contracts,
including those within the 'Re-measurement and settlement of energy
contracts' line item.
Exceptional items are those items that, in the judgement of the
Directors, need to be disclosed separately by virtue of their
nature, size or incidence. Again, to ensure the business
performance column reflects the underlying results of the Group,
these exceptional items are also reported in the separate column in
the Group Income Statement. Items that may be considered
exceptional in nature include disposals of businesses or
significant assets, business restructurings (including property
rationalisation costs), significant onerous contract
charges/releases, debt repurchase costs, certain pension past
service credits/costs, asset impairments/write-backs, the tax
effects of these items and the effect of changes in UK upstream tax
rates.
The Group distinguishes between business performance asset
impairments/write-backs and exceptional impairments/write-backs on
the basis of the underlying driver of the impairment, as well as
the magnitude of the impairment. Drivers that are deemed to be
outside of the control of the Group (e.g. commodity price changes)
give rise to exceptional impairments. Additionally, impairment
charges that are of a one-off nature (e.g. reserve downgrades or
one-time change in intended use of an asset) and significant enough
value to distort the underlying results of the business are
considered to be exceptional. Other impairments that would be
expected in the normal course of business, such as unsuccessful
exploration activity (dry holes), are reflected in business
performance.
(e) Key sources of estimation uncertainty and critical
accounting judgements
With the exception of the items noted below, key areas of
critical accounting judgement and estimation uncertainty that have
the most significant effect on the consolidated Group Financial
Statements remain as disclosed in note 3(a) and 3(b) of the Annual
Report and Accounts for the year ended 31 December 2020.
COVID-19
The COVID-19 pandemic has had a profoundly negative impact on
the global economy, and there is significant uncertainty around the
timing and shape of any economic recovery. Although restrictions
have been gradually eased following the full lockdown in the first
two months of the year, significant uncertainty still exists.
Economic recovery is expected, but this is balanced against
vulnerabilities such as potential COVID-19 resurgences and
withdrawal of government support schemes; the recovery is likely to
be uneven. This has given rise to estimation uncertainty for the
Group, particularly regarding the matters noted below.
Impairment/write-back of long-lived assets
Upstream gas and oil assets
Forward prices for gas and liquids are a key input in the
determination of the recoverable amount of the Group's gas and oil
assets. The first half of 2021 has seen a recovery in the prices
for such commodities, both in terms of observable market prices and
forecast forward prices in periods in which market prices are not
available. This recovery is as a result of the global economic
rebound and improved growth prospects.
Details of impairment reversals of gas and oil assets along with
associated sensitivities, are provided in note 6.
Nuclear investment
The recoverable amount of the Nuclear investment is based on the
value of the existing UK nuclear fleet operated by EDF. Forward
prices for baseload power are a key input in determining the
recoverable amount. The first half of 2021 has seen a significant
recovery in prices in the observable market period, although there
was a reduction in the longer-term price forecasts. At the same
time output assumptions have also been impacted by issues at a
number of stations.
Details of impairment/write-back assessment of the Nuclear
investment along with associated sensitivities, are provided in
note 6.
Credit provisions for trade and other receivables
The economic effects of the COVID-19 pandemic have impacted the
ability of the Group's customers to pay amounts due. While the
impact on customers has been mitigated by a number of government
support and stimulus schemes, the level of estimation uncertainty
in determining the credit provisions required for customers in
different sectors and geographies has increased. Details of the
approach taken to determining the level of credit provision and
associated sensitivities are provided in note 14.
Discontinued operations
On 24 July 2020, the Group announced that it had agreed to
dispose of its North American energy supply, services and trading
business, Direct Energy, to NRG Energy Inc. for headline
consideration of $3.6 billion (GBP2.7 billion) on a debt free, cash
free basis. At the time of the announcement, the disposal was
subject to shareholder and regulatory approvals, all of which were
obtained before 31 December 2020. Direct Energy was not classified
as held-for-sale at 30 June 2020. The transaction completed on 5
January 2021.
The disposal group represents a separate major line of business
and geographical operations and therefore its results have been
presented as discontinued operations in the Group Income Statement,
Group Statement of Other Comprehensive Income and Group Cash Flow
Statement, and related notes.
4. Segmental analysis
The Group's reporting segments are those used internally by management
to run the business and make decisions. The Group's segments are
based on products and services as well as the major factors that
influence the performance of these products and services across the
geographical locations in which the Group operates.
(a) Segmental structure
During 2020 the Group's reportable operating segments were
amended due to a change in the way management review and make
decisions about the business. During 2021 the British Gas segment
has been further refined and separated into two operating segments,
British Gas Energy and British Gas Services and Solutions,
reflecting additional restructuring and management changes that
have occurred. At the same time the small business customer result
has been moved to British Gas Energy from Centrica Business
Solutions to more accurately reflect how these customers are
managed.
The types of products and services from which each reportable
segment derived its income during the period are detailed below.
Income sources are reflected in Group revenue unless otherwise
stated:
Segment Description
=========================== ======================================================================
British Gas Energy (i) The supply of gas and electricity to residential
and small business customers in the UK.
=========================== ======================================================================
British Gas Services (i) The installation, repair and maintenance of domestic
and Solutions central heating and related appliances, installation
of smart meters, and the provision of fixed-fee maintenance/breakdown
service and insurance contracts in the UK; and
(ii) the supply of new technologies and energy efficiency
solutions in the UK.
=========================== ======================================================================
Bord Gáis (i) The supply of gas and electricity to residential
Energy and commercial and industrial customers in the Republic
of Ireland;
(ii) the installation, repair and maintenance of domestic
central heating and related appliances in the Republic
of Ireland; and
(iii) power generation in the Republic of Ireland (i)
.
=========================== ======================================================================
Energy Marketing (i) The procurement, trading and optimisation of energy
& Trading in the UK and Europe (i) ;
(ii) the global procurement and sale of LNG; and
(iii) the generation of power from the Spalding combined
cycle gas turbine tolling contract.
=========================== ======================================================================
Centrica Business (i) The supply of gas and electricity and provision
Solutions of energy-related services to medium and large business
customers
in the UK (i) ; and
(ii) the supply of energy efficiency solutions, flexible
generation and new technologies to commercial and industrial
customers in all geographies in which the Group operates.
Flexible merchant generation is also provided to the
UK system operator.
=========================== ======================================================================
Upstream (i) The production and processing of gas and oil and
the development of new fields, principally within Spirit
Energy, to maintain reserves in the UK and Europe (i)
; and
(ii) the sale of power generated from nuclear assets
in the UK (i) .
=========================== ======================================================================
Direct Energy (Discontinued (i) The supply of gas and electricity, and provision
operation) of energy-related services to residential and business
customers in North America;
(ii) the installation, repair and maintenance of domestic
central heating and cooling systems and related appliances,
and the provision of fixed-fee maintenance/breakdown
service and insurance contracts in North America; and
(iii) the procurement, trading and optimisation of energy
in North America (i) .
=========================== ======================================================================
(i) Where income is generated from contracts in the scope of
IFRS 9, this is included in re-measurement and settlement of energy
contracts.
(b) Revenue
Gross segment revenue includes revenue generated from the sale of
products and services to other reportable segments of the Group.
Group revenue reflects only the sale of products and services to
third parties. Sales between reportable segments are conducted on
an arm's length basis.
2021 2020 (restated) (i)
============================ ============================
Less Less
Gross inter- Gross inter-
segment segment Group segment segment Group
revenue revenue revenue revenue revenue revenue
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ======== ======== ======== ========
Continuing operations
British Gas Energy 3,840 - 3,840 3,710 - 3,710
British Gas Services and Solutions 722 (32) 690 736 (40) 696
Bord Gáis Energy 484 - 484 416 - 416
Energy Marketing & Trading 1,991 (151) 1,840 1,482 (109) 1,373
Centrica Business Solutions 871 (9) 862 802 (3) 799
Upstream 838 (400) 438 982 (250) 732
========================================= ======== ======== ======== ======== ======== ========
Group revenue included in business
performance 8,746 (592) 8,154 8,128 (402) 7,726
========================================= ======== ======== ======== ======== ======== ========
Discontinued operations
Direct Energy - - - 4,795 - 4,795
========================================= ======== ======== ======== ======== ======== ========
Business performance revenue
arising from continuing and
discontinued operations 8,746 (592) 8,154 12,923 (402) 12,521
========================================= ======== ======== ======== ======== ======== ========
Less: revenue arising from
contracts in scope of IFRS
9 included in business performance (1,236) (1,394)
Less: Discontinued operations - (4,795)
========================================= ======== ======== ======== ======== ======== ========
Group Revenue 6,918 6,332
========================================= ======== ======== ======== ======== ======== ========
(i) Segmental revenues have been restated to reflect the new
operating structure of the Group, and to treat Direct Energy as a
discontinued operation (see note 3). As a result of the change in
segments, gross segment revenue has been restated to reflect the
updated inter-segment trading.
The table below shows the Group revenue arising from contracts
with customers, and therefore in the scope of IFRS 15, and revenue
arising from contracts in the scope of other standards. The key
economic factors impacting the nature, timing and uncertainty of
revenue and cash flows are considered to be driven by the type and
broad geographical location of the customer. The analysis of IFRS
15 revenue below reflects these factors.
2021
=========================================================================
Revenue
from fixed-fee
service
and insurance
contracts
in scope Revenue
of IFRS in business
Revenue 4, and performance
from contracts leasing arising Group
with customers contracts from contracts Revenue
in scope in scope in scope included
of IFRS of IFRS Group of IFRS in business
15 16 Revenue 9 performance
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
====================================== =============== =============== ======== =============== ============
Continuing operations
Energy supply - UK 3,840
British Gas Energy 3,840 - 3,840 - 3,840
===============
Energy services and solutions 240
British Gas Services and Solutions 240 450 690 - 690
===============
Energy supply - Republic of Ireland 406
===============
Bord Gáis Energy 406 - 406 78 484
===============
Energy sales to trading and energy
procurement counterparties 1,042
===============
Energy Marketing & Trading 1,042 7 1,049 791 1,840
===============
Energy supply - UK 484
Energy services and solutions 129
===============
Centrica Business Solutions 613 1 614 248 862
Gas and oil production 319
Upstream 319 - 319 119 438
====================================== =============== =============== ======== =============== ============
6,460 458 6,918 1,236 8,154
====================================== =============== =============== ======== =============== ============
2020 (restated) (i)
=========================================================================
Revenue
from fixed-fee
service
and insurance
contracts
in
scope Revenue
of IFRS in business
4, and performance
Revenue leasing arising
from contracts contracts from contracts Group
with customers in in Revenue
in scope scope scope included
of IFRS of IFRS Group of IFRS in business
15 16 Revenue 9 performance
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
====================================== =============== =============== ======== =============== ============
Continuing operations
===============
Energy supply - UK 3,710
===============
British Gas Energy 3,710 - 3,710 - 3,710
===============
Energy services and solutions 200
===============
British Gas Services and Solutions 200 496 696 - 696
===============
Energy supply - Republic of Ireland 367
===============
Bord Gáis Energy 367 - 367 49 416
===============
Energy sales to trading and energy
procurement counterparties 651
===============
Energy Marketing & Trading 651 - 651 722 1,373
===============
Energy supply - UK 461
Energy services and solutions 105
===============
Centrica Business Solutions 566 2 568 231 799
Gas and oil production 340
Upstream 340 - 340 392 732
====================================== =============== =============== ======== =============== ============
5,834 498 6,332 1,394 7,726
====================================== =============== =============== ======== =============== ============
(i) Segmental revenues have been restated to reflect the new
operating structure of the Group, and to treat Direct Energy as a
discontinued operation (see note 3).
(c) Adjusted gross margin and adjusted operating profit
The measure of profit used by the Group is adjusted operating profit.
Adjusted operating profit is operating profit before exceptional
items and certain re-measurements. This includes business performance
results of equity-accounted interests.
This note also details adjusted gross margin. Both measures are reconciled
to their statutory equivalents.
Adjusted gross Adjusted operating
margin profit
====================== ======================
2020 (restated) 2020 (restated)
2021 (i) 2021 (i)
Six months ended 30 June GBPm GBPm GBPm GBPm
===================================================== ===== =============== ===== ===============
Continuing operations
British Gas Energy 530 497 172 78
British Gas Services and Solutions 266 325 60 94
Bord Gáis Energy 69 83 19 29
Energy Marketing & Trading 26 148 (40) 111
Centrica Business Solutions 75 36 (24) (67)
Upstream 188 96 75 19
Adjusted gross margin/adjusted operating
profit 1,154 1,185 262 264
===================================================== ===== =============== ===== ===============
Discontinued operations
Direct Energy - 396 - 79
Total Group adjusted gross margin/adjusted
operating profit 1,154 1,581 262 343
Less Discontinued operations - (396) - (79)
Business performance gross margin/operating
profit from continuing operations 1,154 1,185 262 264
Certain re-measurements (continuing operations) 368 440 368 440
Share of re-measurement of certain associates'
contracts (net of taxation) - - - 2
----------------------------------------------------- ----- --------------- ----- ---------------
Gross profit 1,522 1,625
===================================================== ===== =============== ===== ===============
Exceptional items in operating profit
(continuing operations) 373 (1,044)
===================================================== ===== =============== ===== ===============
Operating profit/(loss) after exceptional
items and certain re-measurements 1,003 (338)
===================================================== ===== =============== ===== ===============
(i) Segmental results have been restated to reflect the current
operating structure of the Group, and to treat Direct Energy as a
discontinued operation (see note 3).
(d) Included within adjusted operating profit
Presented below are certain items included within adjusted operating
profit, including a summary of impairments of property, plant and equipment
and write-downs relating to exploration and evaluation assets.
Amortisation,
Depreciation and write-downs and
impairments of impairments of
PP&E intangibles
====================== ======================
2020 (restated) 2020 (restated)
2021 (i) 2021 (i)
Six months ended 30 June GBPm GBPm GBPm GBPm
===================================== ===== =============== ===== ===============
Continuing operations
British Gas Energy (3) (5) (45) (42)
British Gas Services and Solutions (15) (19) (7) (17)
Bord Gáis Energy (2) (3) (6) (6)
Energy Marketing & Trading (20) (13) (6) (6)
Centrica Business Solutions (6) (6) (19) (19)
Upstream (204) (283) (21) (16)
Other (ii) (15) (21) (15) (28)
===================================== ===== =============== ===== ===============
(265) (350) (119) (134)
===================================== ===== =============== ===== ===============
Discontinued operations
Direct Energy - (13) - (27)
===================================== ===== =============== ===== ===============
(i) Segmental results have been restated to reflect the current
operating structure of the Group, and to treat Direct Energy as a
discontinued operation (see note 3).
(ii) The Other segment includes corporate functions,
subsequently recharged.
Impairments of PP&E
No impairments of PP&E were recognised within business
performance during the six months ended 30 June 2021 or 30 June
2020.
Write-downs and impairments of intangible assets
During the six months ended 30 June 2021, GBP21 million of
write-downs (2020: GBP15 million) relating to exploration and
evaluation assets were recognised in the Upstream segment. All such
current and prior period write-downs were recognised within
business performance as they were not deemed exceptional in nature.
During 2021, GBP3 million of other intangible assets were impaired
within business performance in Centrica Business Solutions and
Other (2020: GBPnil).
The recoverable amount of these assets was GBPnil.
(e) Capital expenditure
Capital expenditure represents additions, other than assets acquired
as part of business combinations, to property, plant and equipment
and intangible assets. Capital expenditure has been reconciled to
the related cash outflow.
Capital expenditure
Capital expenditure on intangible
on property, assets other
plant and equipment than goodwill
====================== ======================
2020 (restated) 2020 (restated)
2021 (i) 2021 (i)
Six months ended 30 June GBPm GBPm GBPm GBPm
============================================== ===== =============== ===== ===============
Continuing operations
British Gas Energy - - 97 114
British Gas Services and Solutions 11 6 9 11
Bord Gáis Energy - 2 4 5
Energy Marketing & Trading (ii) - 103 3 23
Centrica Business Solutions 6 10 46 49
Upstream 129 140 10 57
Other 2 4 - 4
============================================== ===== =============== ===== ===============
148 265 169 263
Discontinued operations
Direct Energy - 4 - 154
============================================== ===== =============== ===== ===============
Group total capital expenditure 148 269 169 417
Less Discontinued operations - (4) - (154)
Related to continuing operations:
Capitalised borrowing costs (note 7) (4) (3) - (3)
Inception of new leases and movements
in payables and prepayments related
to capital expenditure (13) (111) 13 37
Purchases of emissions allowances and
renewable obligation certificates (iii) - - (139) (163)
============================================== ===== =============== ===== ===============
Net cash outflow (continuing operations) 131 151 43 134
============================================== ===== =============== ===== ===============
(i) Segmental results have been restated to reflect the current
operating structure of the Group, and to treat Direct Energy as a
discontinued operation (see note 3).
(ii) During the comparative period, the Group commenced the
lease of one new LNG vessel.
(iii) Purchases of emissions allowances and renewable obligation
certificates of GBP97 million (2020: GBP105 million) in British Gas
Energy, GBPnil (2020: GBP19 million) in Energy Marketing &
Trading, and GBP42 million (2020: GBP39 million) in Centrica
Business Solutions.
(f) Free cash flow
Free cash flow is used by management to assess the cash generating
performance of each segment, after taking account of the need to maintain
its capital asset base. By excluding pension deficit reduction payments
and movements in collateral and margin cash, which are predominantly
triggered by wider market factors, and in the case of collateral and
margin movements, represent timing movements, free cash flow gives
a measure of the underlying cash generation of the business. Free cash
flow excludes investing cash flows that are related to net debt. This
measure is reconciled to the net cash flow from operating and investing
activities.
2021 2020
Six months ended 30 June GBPm GBPm
===================================================================== ======= =====
Continuing operations
British Gas Energy (58) (37)
British Gas Services and Solutions 46 80
Bord Gáis Energy (7) 26
Energy Marketing & Trading 121 211
Centrica Business Solutions 72 93
Upstream 255 150
Other (i) 54 24
===================================================================== ======= =====
Segmental free cash flow excluding tax 483 547
===================================================================== ======= =====
Discontinued operations
Direct Energy (ii) 2,582 251
===================================================================== ======= =====
Group total segmental free cash flow excluding tax 3,065 798
Taxes refunded/(paid) from continuing operations 41 (43)
Taxes paid from discontinued operations - (6)
===================================================================== ======= =====
Group total free cash flow 3,106 749
===================================================================== ======= =====
Less Discontinued operations free cash flow (including tax) (2,582) (245)
===================================================================== ======= =====
Free cash flow from continuing operations 524 504
UK Pension deficit payments (243) (76)
Movements in variation margin and collateral (iii) 129 55
Interest received 2 3
Sale and settlement of securities - 122
===================================================================== ======= =====
412 608
===================================================================== ======= =====
Net cash flow from continuing operating activities 558 634
===================================================================== ======= =====
Net cash flow used in continuing investing activities (146) (26)
===================================================================== ======= =====
Total cash flow from continuing operating and investing activities 412 608
===================================================================== ======= =====
(i) The Other segment includes corporate functions.
(ii) Free cash flow from discontinued operations includes net
proceeds from the sale of Direct Energy. See note 11.
(iii) Excludes movement in variation margin and collateral from
discontinued operations of GBPnil (2020: GBP11 million).
5. Joint ventures and associates
Share of results of joint ventures and associates represents the results
of businesses where we exercise joint control or significant influence
and generally have an equity holding of up to 50%.
Share of results of joint ventures and associates
The Group's share of results of joint ventures and associates
for the six months ended 30 June 2021 principally arises from its
interest in Nuclear - Lake Acquisitions Limited, an associate,
reported in the Upstream segment.
2021 2020
=========================================== ===========================================
Share
of
Share Share exceptional Share
of exceptional of Share items of
Share items results of and results
of business and certain for business certain for
performance re-measurements the period performance re-measurements the period
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
========================== ============ ================ =========== ============ ================ ===========
Income 208 - 208 275 - 275
Expenses before
exceptional
items and re-measurements
of certain contracts (241) - (241) (255) - (255)
Exceptional items and
re-measurement
of certain contracts - - - - 3 3
Operating (loss)/profit (33) - (33) 20 3 23
Financing costs (1) - (1) (4) - (4)
Taxation on (loss)/profit (2) - (2) (18) (1) (19)
Share of post-taxation
results
of joint ventures
and associates (36) - (36) (2) 2 -
========================== ============ ================ =========== ============ ================ ===========
6. Exceptional items and certain re-measurements
(a) Certain re-measurements
Certain re-measurements are the fair value movements on energy contracts
entered into to meet the future needs of our customers or to sell the
energy produced from our upstream assets. These contracts are economically
related to our upstream assets, capacity/off-take contracts or downstream
demand, which are typically not fair valued, and are therefore separately
identified in the current period and reflected in business performance
in future periods when the underlying transaction or asset impacts
the Group Income Statement.
2021 2020
Six months ended 30 June GBPm GBPm
================================================================ ===== =====
Certain re-measurements recognised in relation to energy
contracts:
Net (losses)/gains arising on delivery of contracts (232) 441
Net gains/(losses) arising on market price movements and
new contracts 600 (1)
================================================================ ===== =====
Net re-measurements included within gross profit 368 440
Net gains arising on re-measurement of certain associates'
contracts (net of taxation) - 2
================================================================ ===== =====
Net re-measurements included within Group operating profit 368 442
Taxation on certain re-measurements (note 8) 28 (69)
================================================================ ===== =====
Net re-measurements after taxation for continuing operations 396 373
================================================================ ===== =====
Discontinued operations
Net re-measurements from discontinued operations before
taxation - 116
================================================================ ===== =====
Taxation on certain re-measurements in discontinued operations - (30)
================================================================ ===== =====
Net re-measurements after taxation from discontinued operations - 86
================================================================ ===== =====
Total certain re-measurements 396 459
================================================================ ===== =====
2021 2020
Six months ended 30 June GBPm GBPm
========================================================== ======= =======
Total re-measurement and settlement of derivative energy
contracts excluding: (640) (528)
IFRS 9 business performance revenue (1,236) (1,394)
IFRS 9 business performance cost of sales 2,244 2,362
========================================================== ======= =======
Unrealised certain re-measurements recognised in relation
to energy contracts included in gross profit 368 440
========================================================== ======= =======
(b) Exceptional items
Exceptional items are those items that, in the judgement of the Directors,
need to be disclosed separately by virtue of their nature, size or
incidence. Items which may be considered exceptional in nature include
disposals of businesses or significant assets, business restructurings,
significant onerous contract charges and releases, pension change
costs or credits, significant debt repurchase costs and asset write-downs/impairments
and write-backs.
2021 2020
Six months ended 30 June GBPm GBPm
============================================================ ===== =======
Exceptional items recognised in continuing operations
Write-back/(impairment) of exploration and production
assets (including field disposals) (i) 366 (381)
Impairment of power assets - (404)
Restructuring credit/(cost) (ii) 7 (259)
Exceptional items included within Group operating profit 373 (1,044)
Net taxation on exceptional items (note 8) (125) 147
Net exceptional items recognised in continuing operations
after taxation 248 (897)
============================================================ ===== =======
Net exceptional items recognised in discontinued operations
after taxation 608 9
============================================================ ===== =======
Total exceptional items recognised after taxation 856 (888)
============================================================ ===== =======
Exceptional items recognised in discontinued operations
Profit on disposal of Direct Energy (iii) 597 -
Restructuring credit - 8
Exceptional items before taxation 597 8
============================================================ ===
Net taxation on exceptional items (iv) 11 1
============================================================ ===
Net exceptional items recognised in discontinued operations
after taxation 608 9
============================================================ ===
(i) In the Upstream segment, net impairment write-backs of
exploration and production assets have been booked relating to the
value of certain UK and Norwegian gas and oil fields. This amounted
to GBP397 million (post-tax GBP216 million) and was predominantly
due to the increase in near-term liquid commodity prices, partially
offset by an update to the field production and outage levels.
Separately, in the taxation line, a credit of GBP49 million has
been recorded associated with deferred tax positions related to
exploration and production tax losses and decommissioning
carry-back, due to the increase in forecast prices. The farm-down
of the Pegasus field and an update to the prior year Danish gas and
oil asset disposal amounted to a loss on disposal (including
related asset impairments) of GBP31 million (post-tax GBP22
million).
(ii) The net restructuring credit relates to the reversal of a
prior year provision predominantly related to pension strain
estimates, partially offset by the run-off costs of projects from
the Group's restructuring programme (post-tax GBP5 million).
(iii) The disposal of Direct Energy completed on 5 January 2021.
See note 11 for further details.
(iv) Taxation on exceptional items in discontinued operations
predominantly relates to the release of an uncertain tax provision
associated with North American transfer pricing.
(c) Impairment accounting policy, process and sensitivities
The information provided below relates to the assets and CGUs
(or groups of CGUs) that have been subject to impairment
write-backs during the period.
Exceptional impairment write-back of assets measured on a FVLCD
basis
Recoverable
amount
Asset/CGU (or group (i) Write-back
Segment of CGUs) Basis for impairment write-back GBPm FV hierarchy GBPm
========= ==================== ================================ =========== ============ ==========
UK and Norwegian Increase in liquid commodity
Upstream fields (ii) prices 230 L3 397
========= ==================== ================================ =========== ============ ==========
(i) The recoverable amounts are for the specific assets
written-back (including the impact of decommissioning and tax).
(ii) Relates to 6 individual fields or cash-generating units
that were subject to impairment/write-back. Recoverable amount
disclosed relates to those 6 fields.
Fair value less costs of disposal (FVLCD) is determined by
discounting the post-tax cash flows expected to be generated by the
assets or CGU, net of associated selling costs, taking into account
those assumptions that market participants would use in estimating
fair value. Post-tax cash flows used in the FVLCD calculation are
based on the Group's Board-approved business plans and strategic
shape assumptions, together with, where relevant, long-term
production and cash flow forecasts.
Upstream gas and oil assets
For Upstream gas and oil assets post-tax cash flows are derived
from projected production profiles of each field, taking into
account forward prices for gas and liquids over the relevant
period. Where forward market prices are not available (i.e. outside
the active period for each commodity), prices are determined based
on the median of third-party market comparator curves. The date of
cessation of production depends on the interaction of a number of
variables, such as the recoverable quantities of hydrocarbons,
production costs, the contractual duration of the licence area and
the selling price of the gas and liquids produced. As each field
has specific reservoir characteristics and economic circumstances,
the post-tax cash flows for each field are computed using
individual economic models. Price assumptions are critical and use
liquid market prices for mid-2021 to mid-2025, blended over a
one-year period to long-term price forecasts. Long-term price
assumptions derived from third-party market comparator median
curves are deemed best aligned with pricing that a reasonable
market participant would use.
The future post-tax cash flows are discounted using a post-tax
nominal discount rate of 10.0% (2020: 10.0%).
A number of the field calculations are sensitive to assumptions
around production levels and outages. This has been made
particularly acute during the period because liquid commodity
prices are very high for the remainder of 2021 and 2022 but tail
off thereafter. The impairment tests have taken this into account
when considering the base case production profiles and possible
outages. The most material assumptions are:
The Rough field valuation is dependent on the modifications
currently being undertaken to improve the extraction rate, and the
successful restart in production after completion of these
modifications. Some level of outage has been factored into the base
case valuation but a three-month delay to restarting production
would indicate no change to the asset's value. With no delays or
issues, a post-tax impairment write-back of c.GBP50 million would
ensue. No impairment or write-back has been booked at half-year for
Rough.
The Morecambe field valuation is dependent on production
efficiency and the repair of a sealine valve, and forecast output
has been reduced accordingly. Were production levels to increase by
20% (with no change to cessation of production date) a post-tax
write-back of GBP52 million would be required. Note that a GBP85
million pre-tax write-back was already booked for Morecambe during
the period (included in the GBP397 million above) due to the
increase in commodity prices.
The Greater Markham Area cash generating unit is also dependent
on production levels and in-fill wells. Were production levels to
increase by 20% a post-tax write-back of GBP40 million would be
required. No impairment or write-back has been booked at half-year
for the Greater Markham Area.
As forward commodity prices are a key assumption in these
valuations, average prices and associated impairment sensitivities
for the Group's upstream gas and oil assets (including Goodwill)
for the relevant periods are shown below.
Change in post-tax write-back/(impairment)
(ii)
================================================
Five-year liquid Ten-year long-term
and blended-period average price
price (i) (i) +10% -10%
===================== ====================== ======================== ======================
2021-2025 2021-2025 2026-2035 2026-2035
========= ========== ========= ===========
30 June 31 December 30 June 31 December
30 June 31December 30 June 31 December 2021 2020 2021 2020 (iii)
2021 2020 2021 2020 GBPm GBPm GBPm GBPm
============== ========= ========== ========= =========== ========= ============= ======== ============
NBP (p/th) 52 40 47 47 168 289 (183) (266)
============== ========= ========== ========= =========== ========= ============= ======== ============
Brent ($/bbl) 60 47 68 68
============== ========= ========== ========= =========== ========= ============= ======== ============
(i) Prices are shown in 2020 real terms.
(ii) Sensitivity relates to Upstream exploration and production
assets and CGUs. A 10% change is deemed to represent a reasonably
possible variation across the entire period covered by both the
liquid market and longer-term comparator curves used in upstream
gas and oil impairment tests.
(iii) 31 December 2020 sensitivity includes GBP199 million of
goodwill (2021: GBPnil).
Exceptional impairments/write-back assessments of assets
measured on a VIU basis
Recoverable Impairment
Asset/CGU (or Basis for impairment/write-back amount /Write-back
Segment group of CGUs) assessment GBPm GBPm
========= ================ ========================================= =========== ============
Increase in short-term baseload
power prices entirely offset by
a fall in forecast longer-term baseload
power prices and the reduction in
volumes following the closure of
Upstream Nuclear Dungeness and other generation issues 837 -
========= ================ ========================================= =========== ============
Nuclear
A VIU calculation has been used to determine the recoverable
amount of the Group's investment in Nuclear. The cash flows
incorporated in the valuation are based on detailed business
forecasts in the short term, extrapolated to future years to
account for the expected generation profile of the fleet for its
remaining life. Assumptions include forward commodity prices,
capacity rates, fuel and network costs, operating and capital
expenditure requirements. Price assumptions are based on liquid
market prices for mid-2021 to mid-2025 which are then blended over
a one-year period to long-term price forecasts. Long-term price
assumptions derived from third-party market comparator median
curves are used due to alignment with pricing that a reasonable
market participant would use, and the inclusion of certain data
points (e.g. impact of climate change).
The VIU calculation assumes that the Sizewell plant operates
until 2055, reflecting a 20-year extension beyond its original
design life. In the absence of this extension, the Group's
investment in Nuclear would be impaired by GBP139 million.
The VIU calculation is also sensitive to changes in outage
assumptions, and the base level generation volumes assumed for the
fleet were reduced during the period. A further 1% increase in the
unplanned outages rate applied to volume across the nuclear fleet
would lead to impairment of GBP29 million.
The future pre-tax cash flows generated by the investment in the
associate are discounted using a pre-tax nominal discount rate 9.2%
(2020: 8.0%). This equated to a post-tax rate of 5.7% (2020: 6.5%).
A 1% increase in the post-tax discount rate would lead to an
impairment of GBP37 million. A 1% reduction in the post-tax
discount rate would lead to an impairment write-back of GBP45
million.
The asset is particularly sensitive to changes in commodity
price and the table below details average prices for the relevant
periods and associated sensitivities.
Change in pre/post-tax write-back/(impairment)
(ii)
===================================================
Five-year liquid Ten-year long-term
and blended-period average price
price (i) (i) +10% -10%
====================== ====================== ========================= ========================
2021-2025 2021-2025 2026-2035 2026-2035
========= =========== ========= ===========
30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December
2021 2020 2021 2020 2021 2020 2021 2020
GBP/MWh GBP/MWh GBP/MWh GBP/MWh GBPm GBPm GBPm GBPm
=============== ========= =========== ========= =========== ========= ============== ======== ==============
Baseload power 60 48 44 53 271 295 (263) (293)
=============== ========= =========== ========= =========== ========= ============== ======== ==============
(i) Prices are shown in 2020 real terms.
(ii) A 10% change is deemed to represent a reasonably possible
variation across the entire period covered by the liquid market and
comparator curves used in the nuclear impairment test.
7. Net finance cost
Financing costs mainly comprise interest on bonds and bank debt, the
results of hedging activities used to manage foreign exchange and interest
rate movements on the Group's borrowings, and notional interest arising
on discounting of decommissioning provisions and pensions. An element
of financing cost is capitalised on qualifying projects.
Investment income predominantly includes interest received on short-term
investments in money market funds, bank deposits and government bonds.
Continuing operations
2021 2020 (restated) (i)
============================ ============================
Financing Investment Financing Investment
costs income Total costs income Total
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
=========================================== ========= ========== ===== ========= ========== =====
Cost of servicing net debt:
========= ========== ===== ========= ========== =====
Interest income - 4 4 - 5 5
Interest cost on bonds, bank loans
and overdrafts (93) - (93) (106) - (106)
Interest cost on lease liabilities (4) - (4) (5) - (5)
========= ========== ===== ========= ========== =====
(97) 4 (93) (111) 5 (106)
Net losses on revaluation (4) - (4) (10) - (10)
Notional interest arising from discounting (3) - (3) (14) - (14)
=========================================== ========= ========== ===== ========= ========== =====
(104) 4 (100) (135) 5 (130)
Capitalised borrowing costs (ii) 4 - 4 6 - 6
=========================================== ========= ========== ===== ========= ========== =====
Financing (cost)/income (100) 4 (96) (129) 5 (124)
=========================================== ========= ========== ===== ========= ========== =====
(i) Comparatives have been restated to present the Direct Energy
business as a discontinued operation. See note 3 for details.
(ii) Borrowing costs have been capitalised using an average rate
of 4.37% (2020: 4.55%).
8. Taxation
The taxation note details the different tax charges arising in the
Group. This tax charge excludes the Group's share of taxation on the
results of joint ventures and associates.
The tax charge for the period has been calculated based on an estimate
of the annual effective tax rate expected for the full financial year
applied to the interim pre-tax accounting profits for each relevant
source of income.
Analysis of tax charge
2021 2020 (restated) (i)
=========================================== ===========================================
Exceptional Exceptional
items Results items Results
Business and certain for Business and certain for
performance re-measurements the period performance re-measurements the period
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm
============================ ============ ================ =========== ============ ================ ===========
Continuing operations:
The taxation (charge)/credit
comprises
UK corporation tax 26 (41) (15) (78) 45 (33)
UK petroleum revenue tax 5 - 5 27 27 54
Non-UK tax (88) (56) (144) 5 6 11
============================ ============ ================ =========== ============ ================ ===========
Total taxation on
profit/(loss)
(ii) (57) (97) (154) (46) 78 32
============================ ============ ================ =========== ============ ================ ===========
(i) Prior period results have been restated to remove the Direct
Energy business from continuing operations, as the business has
been classified as a discontinued operation. See note 3.
(ii) Total taxation on profit/(loss) excludes taxation on the
Group's share of profits of joint ventures and associates.
The Group's adjusted effective tax rate for the six months ended
30 June 2021 was 35% (2020: 41%). This is reconciled to this note
in the Group Financial Review on page 13.
The tax charge in respect of the business performance was
reduced by GBP22 million as a result of an increase in the deferred
tax asset recognised in respect of decommissioning liabilities in
the Upstream business.
The UK corporation tax rate will increase from 19% to 25% on 1
April 2023. As a result, the Group's downstream deferred tax
balances are required to be remeasured to reflect the change in the
corporation tax rate. The remeasurement of the Group's deferred tax
balances resulted in a tax credit of GBP21 million, of which a
credit of GBP12 million is reflected in taxation in the Business
performance column, and a credit of GBP9 million in the Statement
of Other Comprehensive Income.
Separately, there is a GBP8 million debit in respect of the
Group's share of associated companies' and joint ventures' deferred
tax balances, from this rate change. This is reported within the
Share of (losses)/profits of joint ventures and associates, net of
interest and taxation line item within the Group Income Statement,
and a GBP14 million debit is reported as part of the Group's share
of other comprehensive income of joint ventures and associates in
the Group Statement of Other Comprehensive Income.
9. Earnings per ordinary share
Earnings per share (EPS) is the amount of profit or loss attributable
to each share. Basic EPS is the amount of profit or loss for the
period divided by the weighted average number of shares in issue
during the period. Diluted EPS includes the impact of outstanding
share options.
Basic earnings per ordinary share has been calculated by
dividing the profit attributable to equity holders of the Company
for the period of GBP1,351 million (2020: loss of GBP193 million)
by the weighted average number of ordinary shares in issue during
the period of 5,825 million (2020: 5,824 million). The number of
shares excludes 37 million ordinary shares (2020: 10 million),
being the weighted average number of the Company's own shares held
in the employee share trust and treasury shares purchased by the
Group as part of share repurchase programmes.
The Directors believe that the presentation of adjusted basic
earnings per ordinary share, being the basic earnings per ordinary
share adjusted for certain re-measurements and exceptional items,
assists with understanding the underlying performance of the Group,
as explained in note 3.
Information presented for diluted and adjusted diluted earnings
per ordinary share uses the weighted average number of shares as
adjusted for 74 million (2020: 57 million) potentially dilutive
ordinary shares as the denominator, unless it has the effect of
increasing the profit or decreasing the loss attributable to each
share.
Continuing and discontinued operations
2021 2020
==================== ================
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============= ===== =========
Earnings - basic 1,351 23.2 (193) (3.3)
Net exceptional items after taxation (notes
3 and 6) (i) (780) (13.4) 799 13.7
Certain re-measurement gains after taxation
(notes 3 and 6) (i) (473) (8.1) (459) (7.9)
============================================ ===== ============= ===== =========
Earnings - adjusted basic 98 1.7 147 2.5
============================================ ===== ============= ===== =========
Earnings - diluted 1,351 22.9 (193) (3.3)
============================================ ===== ============= ===== =========
Earnings - adjusted diluted 98 1.7 147 2.5
============================================ ===== ============= ===== =========
Continuing operations
2021 2020
==================== ================
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============= ===== =========
Earnings - basic 743 12.8 (345) (5.9)
Net exceptional items after taxation (notes
3 and 6) (i) (172) (3.0) 808 13.9
Certain re-measurement gains after taxation
(notes 3 and 6) (i) (473) (8.1) (373) (6.4)
============================================ ===== ============= ===== =========
Earnings - adjusted basic 98 1.7 90 1.6
============================================ ===== ============= ===== =========
Earnings - diluted (ii) 743 12.6 (345) (5.9)
============================================ ===== ============= ===== =========
Earnings - adjusted diluted 98 1.7 90 1.6
============================================ ===== ============= ===== =========
Discontinued operations
2021 2020
==================== ===============
Pence
Pence per
per ordinary ordinary
Six months ended 30 June GBPm share GBPm share
============================================ ===== ============= ==== =========
Earnings - basic 608 10.4 152 2.6
Net exceptional items after taxation (notes
3 and 6) (608) (10.4) (9) (0.2)
Certain re-measurement gains after taxation
(notes 3 and 6) - - (86) (1.5)
============================================ ===== ============= ==== =========
Earnings - adjusted basic - - 57 0.9
============================================ ===== ============= ==== =========
Earnings - diluted 608 10.3 152 2.6
============================================ ===== ============= ==== =========
Earnings - adjusted diluted - - 57 0.9
============================================ ===== ============= ==== =========
(i) Net exceptional items after taxation and certain
re-measurement (gains)/losses after taxation are adjusted to
reflect the share attributable to non-controlling interests, a gain
of GBP76 million and a loss of GBP77 million are included
respectively.
(ii) Potential ordinary shares are not treated as dilutive when
they would decrease a loss per share.
10. Dividends
Dividends represent the return of profits to shareholders. Dividends
are paid as an amount per ordinary share held. The Group retains part
of the profits generated to meet future investment plans or to fund
share repurchase programmes.
2021 2020
====================== ======================
Pence Pence
per Date of per Date of
Six months ended 30 June GBPm share payment GBPm share payment
========================= ==== ====== ======== ==== ====== ========
Prior year final dividend - - - - - -
========================= ==== ====== ======== ==== ====== ========
On 2 April 2020 the Directors announced that the Board had taken
the decision to cancel the 2019 final dividend payment of 3.5p per
share, or GBP204 million, which was due to be paid in June 2020.
The Directors do not propose the payment of an interim
dividend.
11. Acquisitions, disposals and disposal groups classified as
held for sale
This section details business combinations, asset acquisitions and
disposals made by the Group.
(a) Business combinations and asset acquisitions
There have been no material acquisitions during the period. No
material measurement period adjustments have been made to
acquisitions completed in prior periods.
(b) Disposals
On 24 July 2020, the Group announced that it had agreed to sell
its North American energy supply, services and trading business,
Direct Energy, to NRG Energy Inc, for $3.6 billion in cash on a
debt free, cash free basis. The transaction received all necessary
approvals prior to 31 December 2020 and completed on 5 January
2021. As at the period end, a small element of the working capital
adjustment that fed into the final consideration, was in dispute
with NRG. The range of potential outcomes goes from a payment back
to NRG of $38 million up to a further receipt of $45 million. This
is expected to be finalised later in 2021 but no adjustment has
been made in the Interim accounts for the potential outcome of this
dispute.
Details of the assets and liabilities of the disposal group at 5
January 2021 are shown below.
Direct
Energy
GBPm
======================================================================================== =======
Non-current assets
Property, plant and equipment 82
Other intangible assets 228
Goodwill 1,490
Deferred tax assets 342
Derivative financial instruments 93
Other non-current financial assets 14
======================================================================================== =======
2,249
======================================================================================== =======
Current assets
Trade and other receivables, and contract-related assets 1,543
Inventories 79
Derivative financial instruments 67
Current tax assets 79
Cash and cash equivalents 132
======================================================================================== =======
1,900
======================================================================================== =======
Assets of disposal groups classified as held for sale 4,149
======================================================================================== =======
Current liabilities
Derivative financial instruments (181)
Trade and other payables, and contract-related liabilities (1,236)
Current tax liabilities (20)
Provisions for other liabilities and charges (21)
Lease liabilities (12)
======================================================================================== =======
(1,470)
======================================================================================== =======
Non-current liabilities
Deferred tax liabilities (404)
Derivative financial instruments (59)
Provisions for other liabilities and charges (12)
Retirement benefit obligations (21)
Lease liabilities (24)
======================================================================================== =======
(520)
======================================================================================== =======
Liabilities of disposal groups classified as held for sale (1,990)
======================================================================================== =======
Net assets of disposal groups classified as held for sale 2,159
======================================================================================== =======
Consideration received (net of transaction costs of GBP31 million ) (i) 2,687
======================================================================================== =======
Recycling of foreign currency translation and net investment hedge reserves on disposal 69
======================================================================================== =======
Gain on disposal before taxation 597
======================================================================================== =======
(i) The net cash inflow from the disposal of Direct Energy of
GBP2,582 million reported in the Group Cash Flow Statement is
stated net of cash disposed of GBP132 million and hedging receipts
of GBP27 million.
Because the disposal group represents a separate major line of
business and geographical operations, its results have been
presented as discontinued operations in the Group Income Statement,
Group Statement of Other Comprehensive Income and Group Cash Flow
Statement.
Set out below are the cash flows arising from discontinued
operations, which have been presented net within the Group Cash
Flow Statement.
2021 2020
Six months ended 30 June GBPm GBPm
============================================================= ===== =====
Group operating profit including share of results of joint
ventures and associates - 203
============================================================= ===== =====
Add back/(deduct):
Depreciation, amortisation, write-downs, impairments and
write-backs - 37
Decrease in provisions - (9)
Employee share scheme costs - 5
Unrealised gains arising from re-measurement of energy
contracts - (136)
Exceptional charges reflected directly in operating profit - 2
============================================================= ===== =====
Operating cash flows before movements in working capital
relating to business performance and payments relating
to taxes and exceptional charges - 102
Decrease in inventories - 17
Decrease in trade and other receivables and contract-related
assets relating to business performance - 365
Decrease in trade and other payables and contract-related
liabilities relating to business performance - (198)
============================================================= ===== =====
Operating cash flows before payments relating to taxes
and exceptional charges - 286
Taxes paid - (6)
Payments relating to exceptional charges in operating
costs - (11)
============================================================= ===== =====
Net cash flow from operating activities - 269
============================================================= ===== =====
Purchase of property, plant and equipment and intangible
assets - (13)
Sale of businesses 2,582 -
Net cash flow from investing activities 2,582 (13)
============================================================= ===== =====
Financing interest paid - (2)
Repayment of borrowings and capital element of leases - (6)
Net cash flow from financing activities - (8)
============================================================= ===== =====
Net increase in cash and cash equivalents 2,582 248
============================================================= ===== =====
All other disposals undertaken by the Group were immaterial,
both individually and in aggregate.
12. Sources of Finance
(a) Capital structure
The Group seeks to maintain an efficient capital structure with
a balance of net debt and equity as shown in the table below:
31 December
30 June 2020 (restated)
2021 (i)
GBPm GBPm
===================== ======= ================
Net debt 93 2,998
Shareholders' equity 2,446 957
===================== ======= ================
Capital 2,539 3,955
===================== ======= ================
(i) Net debt has been restated to remove the adjustment for
collateral posted/(received). See part (b) of this note.
Debt levels are restricted to limit the risk of financial
distress and, in particular, to maintain a strong credit profile.
The Group's credit standing is important for several reasons: to
maintain a low cost of debt, limit collateral requirements in
energy trading, hedging and decommissioning security arrangements,
and to ensure the Group is an attractive counterparty to energy
producers and long-term customers.
The Group monitors its current and projected capital position on
a regular basis, considering a medium-term view of at least three
years, and different stress case scenarios, including the impact of
changes in the Group's credit ratings and significant movements in
commodity prices.
A number of financial ratios are monitored, including those used
by credit rating agencies.
The level of debt that can be raised by the Group is restricted
by the Company's Articles of Association. Borrowings is limited to
the higher of GBP10 billion and a gearing ratio of three times
adjusted capital and reserves. The Group funds its long-term debt
requirements through issuing bonds in capital markets and taking
bank debt. Short-term debt requirements are met primarily through
commercial paper or short-term bank borrowings.
The Group maintains substantial committed facilities and uses
these to provide liquidity for general corporate purposes,
including short-term business requirements and back-up for
commercial paper.
British Gas Insurance Limited (BGIL) is required under PRA
regulations to hold a minimum capital amount and has complied with
this requirement in 2021 (and 2020). BGIL's capital management
policy and plan is subject to review and approval by the BGIL
board. Reporting processes provide relevant and timely capital
information to management and the board. A medium-term capital
management plan forms part of BGIL's planning and forecasting
process, embedded into approved timelines, management reviews and
board approvals.
(b) Net debt summary
Net debt predominantly includes capital market borrowings offset by
cash, securities and certain hedging financial instruments used to
manage interest rate and foreign exchange movements on borrowings.
Presented in the derivatives and current and non-current borrowings,
leases and interest accruals columns shown below are the assets and
liabilities that give rise to financing cash flows.
Other assets and liabilities
================================================
Cash
Current and cash
and non-current equivalents, Current
borrowings, net of and
leases bank non-current
and interest Gross overdrafts securities Sub-lease Net debt
accruals Derivatives debt (i) (ii) (iii) assets (vi)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ================ =========== ======= ============= ============ ========= ========
1 January 2021 (4,877) 346 (4,531) 1,393 138 2 (2,998)
Disposal of business (iv) 36 - 36 (132) (4) - (100)
Cash outflow for payment of
capital
element of leases 86 - 86 (86) - - -
Cash outflow for repayment
of
borrowings (v) 650 (106) 544 (544) - - -
Remaining cash inflow, and
movement
in collateral cash
posted/received
under margin and collateral
agreements
(iv) - - - 3,127 - - 3,127
Revaluation 74 (93) (19) - 1 - (18)
Financing interest paid 93 (8) 85 (111) - - (26)
Increase in interest payable
and amortisation of
borrowings (100) - (100) - - - (100)
New lease agreements and
re-measurement
of existing lease
liabilities (7) - (7) - - - (7)
Exchange adjustments 39 - 39 (10) - - 29
============================ ================ =========== ======= ============= ============ ========= ========
30 June 2021 (4,006) 139 (3,867) 3,637 135 2 (93)
============================ ================ =========== ======= ============= ============ ========= ========
Other assets and liabilities
================================================
Cash
Current and cash
and non-current equivalents, Current
borrowings, net of and
leases bank non-current
and interest Gross overdrafts securities Sub-lease Net debt
accruals Derivatives debt (i) (ii) (iii) assets (vi)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ================ =========== ======= ============= ============ ========= ========
1 January 2020 (4,795) 234 (4,561) 794 255 5 (3,507)
Net cash inflow from sale
and
settlement of securities - - - 122 (122) - -
Cash outflow from payment of
capital element of leases 83 - 83 (83) - - -
Remaining cash inflow, and
movement
in collateral and margin
cash
posted/received - - - 741 - (1) 740
Revaluation (94) 148 54 - (2) - 52
Financing interest paid 98 (28) 70 (85) - - (15)
Increase in interest payable
and amortisation of
borrowings (109) - (109) - - - (109)
New lease agreements and
re-measurement
of existing lease
liabilities (124) - (124) - - - (124)
Exchange adjustments (119) - (119) 14 3 - (102)
============================ ================ =========== ======= ============= ============ ========= ========
30 June 2020 (5,060) 354 (4,706) 1,503 134 4 (3,065)
============================ ================ =========== ======= ============= ============ ========= ========
(i) Cash and cash equivalents includes GBP400 million (2020:
GBP174 million) of restricted cash, of which GBP250 million relates
to cash on escrow in favour of the UK defined benefit pension
schemes. See note 13. Restricted cash also includes GBP8 million
(2020: GBP46 million) within the Spirit Energy business that is not
restricted by regulation, but is managed by Spirit Energy's own
treasury department.
(ii) Cash and cash equivalents are net of GBP96 million bank
overdrafts (2020: GBP100 million).
(iii) Securities balances include GBP83 million (2020: GBP78
million) of debt instruments and GBP52 million (2020: GBP56
million) of equity instruments, all measured at fair value.
(iv) Disposal of business represents the net debt items disposed
of as part of the sale of Direct Energy, and the cash received for
the sale is shown as part of remaining cash inflow
(see note 11)
(v) Bond repayment comprises GBP650 million repayment of a 3%
Euro bond which the group had the right to repay at par on 10 April
2021 net of GBP106 million FX gain on a euro bond derivative.
(vi) Net debt has been restated to remove the adjustment for
collateral posted/(received). Following the disposal of Direct
Energy collateral is significantly lower and less volatile, and is
no longer included in the definition of net debt.
Collateral is posted or received to support energy trading and
procurement activities. It is posted when contracts with marginable
counterparties are out of the money and received when contracts are
in the money. These positions reverse when contracts are settled
and the collateral is returned. Collateral received or posted is
included in the following lines of the Group Balance Sheet:
30 June 31 December
2021 2020
GBPm GBPm
===================================================== ======= ===========
Collateral (received)/posted included within:
Trade and other payables (101) (68)
Trade and other receivables 81 56
Net derivative liabilities (36) 86
Net collateral (received)/posted (56) 74
===================================================== ======= ===========
Discontinued operations collateral (received)/posted - 155
===================================================== ======= ===========
Group collateral (received)/posted (56) 229
===================================================== ======= ===========
Disclosed net debt at 31 December 2020: 2,769
Remove collateral posted 229
======================================== =====
Restated net debt at 31 December 2020: 2,998
======================================== =====
(c) Borrowings, leases and interest accruals summary
30 June 2021 31 December 2020
============================= =============================
Coupon
rate Principal Current Non-current Total Current Non-current Total
% m GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== ========= ======= =========== ======= ======= =========== =======
Bank overdrafts (96) - (96) (534) - (534)
Bank loans (> 5 year
maturity) (137) (137) - (144) (144)
Bonds (by maturity date):
======= =========== ======= ======= =========== =======
22 February 2022 3.680 HK$450 (42) - (42) - (42) (42)
10 March 2022 (i) 6.375 GBP246 (250) - (250) - (253) (253)
16 October 2023 (i) 4.000 US$302 - (228) (228) - (233) (233)
4 September 2026 (i) 6.400 GBP52 - (57) (57) - (59) (59)
16 April 2027 5.900 US$70 - (50) (50) - (51) (51)
13 March 2029 (i) 4.375 GBP552 - (578) (578) - (604) (604)
5 January 2032 (ii) Zero EUR50 - (63) (63) - (65) (65)
19 September 2033 (i) 7.000 GBP770 - (793) (793) - (823) (823)
16 October 2043 5.375 US$367 - (262) (262) - (264) (264)
12 September 2044 4.250 GBP550 - (538) (538) - (538) (538)
25 September 2045 5.250 US$50 - (36) (36) - (36) (36)
10 April 2075 (i) (iii) 5.250 GBP450 - (462) (462) - (472) (472)
10 April 2076 (iv) 3.000 EUR750 - - - - (671) (671)
======= =========== ======= ======= =========== =======
(292) (3,067) (3,359) - (4,111) (4,111)
Obligations under lease
arrangements (130) (293) (423) (171) (334) (505)
Interest accruals (87) - (87) (82) - (82)
========================== ====== ========= ======= =========== ======= ======= =========== =======
(605) (3,497) (4,102) (787) (4,589) (5,376)
========================== ====== ========= ======= =========== ======= ======= =========== =======
(i) Bonds or portions of bonds maturing in 2022, 2023, 2026,
2029, 2033 and 2075 have been designated in a fair value hedge
relationship.
(ii) EUR50 million of zero coupon notes have an accrual yield of
4.200%, which will result in a EUR114 million repayment on
maturity.
(iii) The Group has the right to repay at par on 10 April 2025
and every interest payment date thereafter.
(iv) The Group had the right to repay at par on 10 April 2021
and that right was exercised.
13. Post-retirement benefits
The Group manages a number of final salary and career average defined
benefit pension schemes. It also has defined contribution schemes.
The majority of these schemes are in the UK.
(a) Summary of main post-retirement benefit schemes
Name of scheme Type of benefit Status Country
===================== ============================ ========================= ===========
Centrica Engineers Defined benefit final salary Closed to new members UK
Pension Scheme pension in 2006
Defined benefit career Open to service engineers UK
average pension only
===================== ============================ ========================= ===========
Centrica Pension Defined benefit final salary Closed to new members UK
Plan pension in 2003
===================== ============================ ========================= ===========
Centrica Pension Defined benefit final salary Closed to new members UK
Scheme pension in 2003
Defined benefit career Closed to new members UK
average pension in 2008
Defined contribution pension Open to new members UK
===================== ============================ ========================= ===========
Bord Gáis Energy Defined benefit final salary Closed to new members Republic
Company Defined pension in 2014 of Ireland
Benefit Pension
Scheme
===================== ============================ ========================= ===========
Bord Gáis Energy Defined contribution pension Open to new members Republic
Company Defined of Ireland
Contribution Pension
Plan
===================== ============================ ========================= ===========
The Centrica Engineers Pension Scheme (CEPS), Centrica Pension
Plan (CPP) and Centrica Pension Scheme (CPS) form the significant
majority of the Group's defined benefit obligation and are referred
to below as the 'Registered Pension Schemes'. The other schemes are
individually, and in aggregate, immaterial.
Independent valuations
The Registered Pension Schemes are subject to independent
valuations at least every three years, on the basis of which the
qualified actuary certifies the rate of employer contributions,
which together with the specified contributions payable by the
employees and proceeds from the schemes' assets, are expected to be
sufficient to fund the benefits payable under the schemes.
The technical provisions deficit for the Registered Pension
Schemes was GBP1,402 million at the date of the last agreed
actuarial valuation as at 31 March 2018. The Group has committed to
additional annual cash contributions to fund this pension deficit.
The overall deficit contributions, including the previously
disclosed asset-backed contribution arrangements, amounts to GBP175
million per annum from 2020 to 2025, with a balancing payment of
GBP93 million in 2026. The Trustees security package over the
Group's equity shareholding in the Direct Energy business was
released in January 2021, as part of the Direct Energy disposal. In
exchange, the Group provided replacement security of GBP745 million
of letters of credit and GBP250 million cash in escrow. The current
triennial review as at 31 March 2021 is currently being considered
and negotiated with the Pension Trustees. The valuation methodology
and assumptions may differ from those previously used. The latest
full actuarial valuations for the Bord Gáis Energy Company Defined
Benefit Pension Scheme was 1 January 2020.
For the purpose of meeting the requirements of IAS 19: 'Employee
benefits' all valuations have been updated to 30 June 2021 using
the accounting assumptions disclosed in section (b) of this note.
Investments held in all schemes have been valued for this purpose
at market value.
Governance
The Registered Pension Schemes are managed by trustee companies
whose boards consist of both company-nominated and member-nominated
Directors. Each scheme holds units in the Centrica Combined Common
Investment Fund (CCCIF), which holds the majority of the combined
assets of the Registered Pension Schemes. The board of the CCCIF is
currently comprised of nine directors: three independent directors,
three directors appointed by Centrica plc (including the Chairman)
and one director appointed by each of the three Registered Pension
Schemes.
Under the terms of the Pensions Act 2004, Centrica plc and each
trustee board must agree the funding rate for its defined benefit
pension scheme and a recovery plan to fund any deficit against the
scheme-specific statutory funding objective. This approach was
first adopted for the triennial valuations completed at 31 March
2006, and has been reflected in subsequent valuations, including
the 31 March 2018 valuation.
(b) Accounting assumptions
The accounting assumptions for the Registered Pension Schemes
are given below:
30 June
31 December
2021 2020
Major assumptions used for the actuarial valuation % %
=================================================== ======= ===========
Rate of increase in employee earnings:
Subject to 2% cap 1.7 1.6
Other not subject to cap 2.5 2.2
Rate of increase in pensions in payment 3.1 2.8
Rate of increase in deferred pensions:
In line with CPI capped at 2.5% 2.3 2.0
In line with RPI 3.1 2.8
Discount rate 1.9 1.5
=================================================== ======= ===========
The assumptions relating to longevity underlying the pension
liabilities at the balance sheet date have been based on a
combination of standard actuarial mortality tables, scheme
experience and other relevant data, and include an allowance for
future improvements in mortality.
For the Registered Pension Schemes, marginal adjustments to the
assumptions used to calculate the pension liability, or significant
swings in bond yields or stock markets, can have a large impact in
absolute terms on the net assets of the Group. Reasonably possible
changes to one of the actuarial assumptions would have affected the
scheme liabilities as set out below:
31 December
Impact of changing material assumptions 30 June 2021 2020
============================ ============================
Indicative Indicative
effect effect
Increase/ on scheme Increase/ on scheme
decrease liabilities decrease liabilities
in assumption % in assumption %
============================================== ============== ============ ============== ============
Rate of increase in employee earnings subject
to 2% cap 0.25% +/-0 0.25% +/-0
Rate of increase in pensions in payment and
deferred pensions 0.25% +/-4 0.25% +/-4
Discount rate 0.25% -/+6 0.25% -/+6
Inflation assumption 0.25% +/-5 0.25% +/-5
Longevity assumption 1 year +/-4 1 year +/-4
============================================== ============== ============ ============== ============
The indicative effects on scheme liabilities have been
calculated by changing each assumption in isolation and assessing
the impact on the liabilities. For the reasonably possible change
in the inflation assumption, it has been assumed that a change to
the inflation assumption would lead to corresponding changes in the
assumed rates of increase in uncapped pensionable pay, pensions in
payment and deferred pensions.
(c) Amounts included in the Group Balance Sheet
30 June 31 December
2021 2020
GBPm GBPm
======================================================= ======== ===========
Fair value of plan assets 10,088 10,070
Present value of defined benefit obligation (10,218) (10,671)
======================================================= ======== ===========
Net liability recognised in the Group Balance Sheet (130) (601)
======================================================= ======== ===========
Pension liability presented in the Group Balance Sheet
as:
Retirement benefit assets 111 -
Retirement benefit liabilities (241) (601)
======================================================= ======== ===========
The Trust Deed and Rules for the Registered Pension Schemes
provide the Group with a right to a refund of surplus assets
assuming the full settlement of scheme liabilities. No asset
ceiling restrictions have been applied.
Included in the Group Balance Sheet within non-current
securities are GBP110 million (31 December 2020: GBP108 million) of
investments, held in trust on behalf of the Group as security in
respect of the Centrica Unfunded Pension Scheme. Of the pension
scheme liabilities above, GBP65 million (31 December 2020: GBP66
million) relates to this scheme.
14. Trade and other receivables, and contract-related assets
Trade and other receivables include accrued income and are amounts
owed by our customers for goods we have delivered or services we
have provided. These balances are valued net of provisions for bad
debt. Other receivables include payments made in advance to our suppliers.
Contract-related assets are balances arising as a result of the Group's
contracts with customers in the scope of IFRS 15.
31 December
30 June 2021 2020
==================== ====================
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
================================================== ======= =========== ======= ===========
Financial assets:
Trade receivables 1,552 - 1,379 -
Unbilled downstream energy income 478 - 532 -
Other accrued energy income 778 - 791 -
Other accrued income 108 - 114 -
Cash collateral posted 81 - 56 -
Other receivables (including loans and contract
assets) 204 29 219 31
================================================== ======= =========== ======= ===========
3,201 29 3,091 31
Less: provision for credit losses (625) - (591) -
================================================== ======= =========== ======= ===========
2,576 29 2,500 31
================================================== ======= =========== ======= ===========
Non-financial assets: prepayments, other
receivables and costs to obtain or fulfill
a contract
with a customer 350 106 301 114
================================================== ======= =========== ======= ===========
2,926 135 2,801 145
================================================== ======= =========== ======= ===========
The amounts above include gross amounts arising from the Group's
IFRS 15 contracts with customers of GBP1,454 million (31 December
2020: GBP1,302 million). Additionally, accrued income of GBP666
million (31 December 2020: GBP624 million) arising under IFRS 15
contracts is included.
Trade and other receivables include financial assets
representing the contractual right to receive cash or other
financial assets from residential customers, business customers and
treasury, trading and energy procurement counterparties as
follows:
31 December
30 June 2021 2020
==================== ====================
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
=========================================== ======= =========== ======= ===========
Financial assets by class:
Residential customers 1,450 - 1,249 -
Business customers 843 25 930 25
Treasury, trading and energy procurement
counterparties 908 4 912 6
=========================================== ======= =========== ======= ===========
3,201 29 3,091 31
Less: provision for credit losses (625) - (591) -
=========================================== ======= =========== ======= ===========
2,576 29 2,500 31
=========================================== ======= =========== ======= ===========
Credit losses and provisions for Trade and other receivables
Receivables from residential and business customers are
generally considered to be credit impaired when the payment is past
the contractual due date. The Group applies different definitions
of default for different groups of customers, ranging from 60 days
past the due date to six to twelve months from the issuance of a
final bill. Receivables are generally written off only once a
period of time has elapsed since the final bill. Contractual due
dates range from falling due upon receipt to falling due in 30 days
from receipt.
The table below shows credit impaired balances in gross
receivables (those that are past due) and those that are not yet
due and therefore not considered to be credit impaired. The
comparative disclosure includes trade and other receivables in the
Direct Energy business which are presented as assets held for sale
on the face of the Group Balance Sheet.
30 June 31 December
Gross trade and other receivables (including those classified 2021 2020
as assets held for sale) GBPm GBPm
========================================================================================= ======= ===========
Balances that are not past due
Included in trade and other receivables 2,003 2,029
Included in assets held for sale - 1,276
========================================================================================= ======= ===========
2,003 3,305
========================================================================================= ======= ===========
Balances that are past due
Included in trade and other receivables 1,198 1,062
Included in assets held for sale - 238
========================================================================================= ======= ===========
1,198 1,300
========================================================================================= ======= ===========
Total gross financial assets within trade and other receivables and assets held for sale 3,201 4,605
========================================================================================= ======= ===========
Included in:
========================================================================================= ======= ===========
Trade and other receivables 3,201 3,091
========================================================================================= ======= ===========
Assets held for sale - 1,514
========================================================================================= ======= ===========
The IFRS 9 impairment model is applicable to the Group's
financial assets including trade receivables, contract assets and
other financial assets. As the majority of the relevant balances
are trade receivables and contract assets to which the simplified
model applies, this disclosure focuses on these balances.
The provision for credit losses for trade receivables and
contract assets is based on an expected credit loss model that
calculates the expected loss applicable to the receivable balance
over its lifetime. Expected credit losses on receivables due from
treasury, trading and energy procurement counterparties are not
significant. For residential and business customers default rates
are calculated initially by operating segment considering
historical loss experience and applied to trade receivables within
a provision matrix. The matrix approach allows application of
different default rates to different groups of customers with
similar characteristics. These groups are determined by a number of
factors including; the nature of the customer, the payment method
selected and where relevant, the sector in which they operate. The
characteristics used to determine the groupings of receivables are
the factors that have the greatest impact on the likelihood of
default. The rate of default increases once the balance is 30 days
past due.
Concentration of credit risk in Trade and other receivables
Treasury, trading and energy procurement counterparty
receivables are typically with customers with external, published
credit ratings. Such receivables have typically much lower credit
risk than downstream counterparties, and that risk is assessed
primarily by reference to the credit ratings rather than to the
ageing of the relevant balance.
The majority of the Group's credit exposure arises in the
British Gas Energy and Centrica Business Solutions segments and
relates to residential and business energy customers. The credit
risk associated with these customers is assessed as described
above, using a combination of the age of the receivable in
question, internal ratings based on a customer's payment history,
and external data from credit rating agencies. The disclosures
below reflect the information that is reported internally for
credit risk management purposes in these segments.
British Gas Energy credit risk
Of the Group total of GBP1,552 million billed trade receivables,
the British Gas Energy reporting segment contributes GBP1,078
million. British Gas Energy now includes small business customers
previously included within Centrica Business Solutions on the basis
that their profile closely matches those of residential customers.
As described above, credit risk is concentrated in receivables from
energy customers who pay in arrears. Gross receivables from these
customers amount to GBP699 million and are analysed below.
Trade receivables due from
British Gas residential
energy customers as at (i) 30 June 2021 31 December 2020
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(ii) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Direct debits (iii)
Gross receivables 65 68 50 183 28 20 34 82
Provision - - (2) (2) - - (2) (2)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 65 68 48 181 28 20 32 80
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Payment on receipt of bill
(iii)
Gross receivables 67 24 241 332 76 21 222 319
Provision (2) (4) (115) (121) (2) (3) (106) (111)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 65 20 126 211 74 18 116 208
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Final bills (iv)
Gross receivables 12 13 159 184 11 10 140 161
Provision (3) (6) (125) (134) (2) (5) (114) (121)
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Net 9 7 34 50 9 5 26 40
==================================== ===== ===== ======== ===== ===== ===== ======== =====
Total net British Gas residential
energy customers trade receivables 139 95 208 442 111 43 174 328
==================================== ===== ===== ======== ===== ===== ===== ======== =====
(i) The receivables information presented in this table relates
to downstream customers who pay energy bills using the methods
presented. It excludes low residual credit risk amounts, such as
balances in the process of recovery through pay-as-you-go energy
(PAYGE) arrangements and amounts receivable from PAYGE energy
vendors. Gross amounts in the process of recovery through PAYGE
arrangements at 30 June 2021 are GBP170 million (31 December 2020:
GBP168 million), against which a provision of GBP131 million is
held (31 December 2020: GBP126 million).
(ii) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to residential energy customers. Amounts paid on receipt
of a bill (PORB), which are settled using bank transfers, cash or
cheques are typically due within 14 days of invoicing. Direct debit
customers typically pay in equal installments over a twelve-month
period.
(iii) Receivables settled by direct debit are deemed to present
a lower credit risk than PORB amounts. This is reflected in the
relative level of provision held for these types of
receivables.
(iv) Final bill customers are those who are no longer customers
of the Group and have switched energy supplier. These balances are
deemed to have the highest credit risk.
During 2021 the British Gas segment has been further refined and
separated into two operating segments, British Gas Energy and
British Gas Services and Solutions. As a result of this change,
small business customers in the UK are now included in British Gas
Energy. Gross receivables from British Gas Energy small business
customers amount to GBP168 million and are analysed below.
Trade receivables due from
British Gas small business
energy customers as at 30 June 2021 31 December 2020
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(i) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
============================ ===== ===== ======== ===== ===== ===== ======== =====
Small businesses
Gross receivables 17 8 143 168 23 12 141 176
Provision - (1) (109) (110) - (1) (100) (101)
============================ ===== ===== ======== ===== ===== ===== ======== =====
Total net British Gas small
business energy customers
trade receivables 17 7 34 58 23 11 41 75
============================ ===== ===== ======== ===== ===== ===== ======== =====
(i) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for
small business customers are 10 working days.
Unbilled downstream energy income at 30 June 2021 includes gross
balances of GBP373 million in respect of British Gas Energy
customers (31 December 2020: GBP373 million), against which a
provision of GBP17 million is held (31 December 2020: GBP20
million).
Centrica Business Solutions energy credit risk
Of the Group total of GBP1,552 million billed trade receivables,
the Centrica Business Solutions reporting segment contributes
GBP264 million. As described above, credit risk is concentrated in
receivables from business energy customers who pay in arrears.
Gross receivables from these customers amount to GBP203 million and
are analysed below.
Trade receivables due from
Centrica Business Solutions
business energy customers
as at 30 June 2021 31 December 2020
============================= =============================
< 30 30-90 < 30 30-90
Days beyond invoice date days days >90 days Total days days >90 days Total
(i) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ===== ===== ======== ===== ===== ===== ======== =====
Risk profile
============================= ===== ===== ======== ===== ===== ===== ======== =====
Commercial and industrial
(ii)
Gross receivables 23 35 67 125 18 35 76 129
Provision - - (19) (19) - - (27) (27)
============================= ===== ===== ======== ===== ===== ===== ======== =====
Net 23 35 48 106 18 35 49 102
============================= ===== ===== ======== ===== ===== ===== ======== =====
Medium-sized entities (ME)
Gross receivables 11 6 61 78 13 7 50 70
Provision - - (38) (38) - - (32) (32)
============================= ===== ===== ======== ===== ===== ===== ======== =====
Net 11 6 23 40 13 7 18 38
============================= ===== ===== ======== ===== ===== ===== ======== =====
Total net Centrica Business
Solutions business energy
customers trade receivables 34 41 71 146 31 42 67 140
============================= ===== ===== ======== ===== ===== ===== ======== =====
(i) This ageing analysis is presented relative to invoicing
date, and presents receivables according to the oldest invoice
outstanding with the customer. There are a range of payment terms
extended to business energy customers. Average credit terms for ME
customers are 10 working days. Credit terms for Commercial and
Industrial customers are bespoke and are set based on the
commercial agreement with each customer.
(ii) This category includes low credit risk receivables,
including those from public sector and customers with high turnover
(greater than GBP100 million).
Unbilled downstream energy income at 30 June 2021 includes gross
balances of GBP101 million in respect of Centrica Business
Solutions business energy customers (31 December 2020: GBP118
million), against which a provision of GBP3 million is held (31
December 2020: GBP5 million).
Sensitivity to changes in assumptions
Typically, the most significant assumption included within the
expected credit loss provisioning model that gives rise to
estimation uncertainty is that future performance will be
reflective of past performance and that there will be no
significant change in the payment profile or recovery rates within
each identified group of receivables. To address this risk, the
Group reviews and updates default rates, by segment, on a regular
basis to ensure they incorporate the most up to date assumptions
along with forward-looking information where available and
relevant. The Group also considers regulatory changes and customer
segment specific factors that may have an impact, now or in the
future, on the recoverability of the balance.
The specific consideration of forward-looking information in the
impairment model does not usually give rise to significant changes
in the levels of credit losses. However, the impacts of the global
COVID-19 pandemic and associated government responses in
geographies in which the Group operates continue to cause
uncertainty in economic outlook. Although restrictions have
gradually eased over the first half of the year, the economic
recovery remains vulnerable and there remains a level of estimation
uncertainty inherent in determining credit loss provisions for the
Group's trade receivables.
Where customers experience difficulties in settling balances,
the increased ageing of these amounts results in an increase in
provisions held in respect of them under the provision matrix
approach employed. The Group has also considered changes in
customer payment patterns, the specific circumstances of the
customers and the economic impacts of COVID-19 on the sectors in
which they operate. Whilst economic recovery is expected, a level
of unpredictability remains apparent.
The Group has considered macroeconomic forecasts in determining
the level of provisions for credit losses. Customers have been
shielded from the full impact of the pandemic through the
implementation of Government support schemes, however the legacy of
COVID-19 financial impacts on customers is likely to persist
particularly once such schemes are fully withdrawn. Unbilled energy
income is more susceptible to credit risk from such forward-looking
factors due to the length of time between the balance sheet date
and collection of the amounts in cash. The Group considers that
further deterioration in the economic outlook originally forecast
in 2020 is not expected, but economic recovery remains
tentative.
During the period, the Group recognised impairment charges of
GBP66 million (2020: GBP98 million) in respect of financial assets,
representing 1.0% of Group revenue (2020: 1.5%) and 0.8% of Group
revenue from business performance (2020: 1.3%). As described above,
the majority of the Group's credit exposure arises in respect of
downstream energy receivables in British Gas Energy and Centrica
Business Services. Credit losses in respect of these assets
amounted to GBP63 million (2020: GBP82 million). This represents
1.4% (2020: 1.9%) of total UK downstream energy supply revenue from
these segments of GBP4,572 million (2020: GBP4,402 million).
Further details of segmental revenue are provided in note 4.
Due to the different level of risks presented by billed and
unbilled receivables, these asset groups are considered separately
in the analysis below.
Billed trade receivables
30 June 31 December
2021 2020
GBPm GBPm
========================= ======= ===========
Gross billed receivables 1,552 1,379
Provision (605) (566)
========================= ======= ===========
Net balance 947 813
========================= ======= ===========
30 June 31 December
2021 2020
% %
===================================================== ======= ===========
Provision coverage 39 41
===================================================== ======= ===========
Sensitivity GBPm GBPm
===================================================== ======= ===========
Impact on billed receivables/ operating profit from
1 percentage point (increase)/decrease in provision
coverage (i) (16)/16 (14)/14
===================================================== ======= ===========
(i) Credit risk in the Group is impacted by a large number of
interacting factors.
Cash collection relative to billing has remained strong
throughout 2021, continuing the trends seen throughout the
pandemic. However, delays in customer payments and higher billings
due to seasonality of winter consumption in the Group's downstream
operations have driven some increase in provisions. Whilst the
credit risk arising from macroeconomic conditions has been
mitigated by government support schemes in place for the benefit of
customers, these are proposed to end in the second half of 2021.
There remains uncertainty around the possible increase in bad debt
as a result of the increase in forecast unemployment (using the
Office for Budget Responsibility's most recent unemployment
forecast from March 2021, peaking in the final quarter of 2021 at
7%). As part of management's assessment of the adequacy of the bad
debt provision, no change has been made to the GBP30 million
provision that was booked (for both billed and unbilled debt) at
the year ended 31 December 2020. It remains highly uncertain when
unemployment might peak and at what rate and how this might
ultimately reduce the collection of debt. The table above and the
unbilled section below provides details of the sensitivity of
moving the bad provision by a further 1%.
The Group's services, upstream and trading operations are less
susceptible to credit risk. No significant deterioration of credit
risk has been experienced or is expected in the relevant segments
in respect of billed trade receivables recognised at 30 June 2021,
taking into account cash collection cycles in those areas of the
Group and credit rating information.
Unbilled downstream energy income
The table below shows the impact of the worsening economic
conditions and outlook on unbilled downstream energy income for the
Group as a whole.
30 June 31 December
2021 2020
GBPm GBPm
=========================== ======= ===========
Gross unbilled receivables 478 532
Provision (20) (25)
Net balance 458 507
=========================== ======= ===========
30 June
31 December
2021 2020
% %
============================================================================================= ======= ===========
Provision coverage 4 5
============================================================================================= ======= ===========
Sensitivity GBPm GBPm
============================================================================================= ======= ===========
Impact on unbilled receivables/ operating profit from 1 percentage point (increase)/decrease
in provision coverage (i) (5)/5 (5)/5
============================================================================================= ======= ===========
(i) Credit risk in the Group is impacted by a large number of
interacting factors.
Unbilled downstream energy income is typically provided at a
significantly lower rate than billed debt. This is because a large
proportion of this debt once billed will be subject to the very
short cash collection cycles of the Group's downstream energy
supply businesses.
15. Financial instruments
The fair value of a financial instrument is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The Group has documented internal policies for determining
fair value including methodologies used to establish valuation adjustments
required for credit risk.
(a) Fair value hierarchy
Financial assets and financial liabilities measured and held at
fair value are classified into one of three categories, known as
hierarchy levels, which are defined according to the inputs used to
measure fair value as follows:
-- Level 1: fair value is determined using observable inputs
that reflect unadjusted quoted market prices for identical assets
and liabilities;
-- Level 2: fair value is determined using significant inputs
that may be directly observable inputs or unobservable inputs that
are corroborated by market data; and
-- Level 3: fair value is determined using significant
unobservable inputs that are not corroborated by market data and
may be used with internally developed methodologies that result in
management's best estimate of fair value.
30 June 31 December
2021 2020 (i)
===== ======= ===== ======= ===== ======= ===== ===========
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ===== ======= ===== ======= ===== ======= ===== ===========
Financial assets
Derivative financial
instruments:
Energy derivatives - 2,868 78 2,946 21 1,199 91 1,311
Interest rate derivatives - 110 - 110 - 185 - 185
Foreign exchange derivatives - 88 - 88 - 253 - 253
Debt instruments 83 - - 83 84 - - 84
Equity instruments 27 - 25 52 25 - 29 54
Cash and cash equivalents - 3,048 - 3,048 - 1,049 - 1,049
=============================== ===== ======= ===== ======= ===== ======= ===== ===========
Total financial assets
at fair value 110 6,114 103 6,327 130 2,686 120 2,936
=============================== ===== ======= ===== ======= ===== ======= ===== ===========
Financial liabilities
Derivative financial
instruments:
Energy derivatives (17) (2,373) (34) (2,424) - (983) (129) (1,112)
Interest rate derivatives - (1) - (1) - (1) - (1)
Foreign exchange derivatives - (55) - (55) - (55) - (55)
=============================== ===== ======= ===== ======= ===== ======= ===== ===========
Total financial liabilities
at fair value (17) (2,429) (34) (2,480) - (1,039) (129) (1,168)
=============================== ===== ======= ===== ======= ===== ======= ===== ===========
(i) The table above includes GBP159 million derivative assets,
GBP240 million derivative liabilities and GBP4 million equity
instruments which were classified as held for sale on the Group
Balance Sheet.
Included in derivative liabilities above is GBP32 million (31
December 2020: GBP77 million) relating to virtual gas storage
arrangements. These contracts give the parties rights to put and
call gas volumes over their term, economically mirroring physical
storage arrangements. Optimisation of virtual storage contracts
under related commodity sale and purchase arrangements with the
same parties has given rise to net operating cash inflows of GBP5
million as at 30 June 2021 (31 December 2020: GBP40 million). These
cash flows arise from the normal commodity trading activities of
the Group, and are therefore operating in nature, but are
separately disclosed because the timing of cash flows under the
arrangements can give rise to a cash flow benefit akin to a
financing arrangement.
The reconciliation of the Level 3 fair value measurements during
the period is as follows:
2021 2020
======================= =======================
Financial Financial Financial Financial
assets liabilities assets liabilities
Period ended 30 June GBPm GBPm GBPm GBPm
============================================== ========= ============ ========= ============
Level 3 financial instruments
1 January 120 (129) 256 (90)
Total realised and unrealised gains/(losses):
Recognised in Group Income Statement 36 75 78 (50)
Purchases, sales, issuances and settlements
(net) (i) (53) 20 1 -
30 June 103 (34) 335 (140)
============================================== ========= ============ ========= ============
Total gains/(losses) for the period for Level
3 financial instruments
held at the end of the reporting period 36 75 78 (50)
============================================== ========= ============ ========= ============
(i) During 2021, Level 3 financial assets, and financial
liabilities of GBP53 million and GBP20 million respectively were
disposed as part of the Direct Energy sale.
(b) Valuation techniques used to derive Level 2 and Level 3 fair
values and Group valuation process
Level 2 interest rate derivatives and foreign exchange
derivatives comprise interest rate swaps and forward foreign
exchange contracts. Interest rate swaps are fair valued using
forward interest rates extracted from observable yield curves.
Forward foreign exchange contracts are fair valued using forward
exchange rates that are quoted in an active market, with the
resulting market value discounted back to present value using
observable yield curves.
Level 2 energy derivatives are fair valued by comparing and
discounting the difference between the expected contractual cash
flows for the relevant commodities and the quoted prices for those
commodities in an active market. The average discount rate applied
to value this type of contract during the period was 1% (Europe)
per annum (31 December 2020 average discount rate of 1% (Europe)
and 3% (North America) per annum).
For Level 3 energy derivatives, the main input used by the Group
pertains to deriving expected future commodity prices in markets
that are not active as far into the future as some of the Group's
contractual terms. This applies to certain contracts within Europe
and North America. Fair values are then calculated by comparing and
discounting the difference between the expected contractual cash
flows and these derived future prices using an average discount
rate of 1% (Europe) and 1% (North America) per annum (31 December
2020 average discount rate of 1% (Europe) and 3% (North America)
per annum).
Active period of markets Gas Power Coal Emissions Oil
========================= === ===== ==== ========= ===
UK (years) 4 4 3 3 4
Up to Up to
North America (years) 5 5 N/A 5 4
========================= === ===== ==== ========= ===
Because the Level 3 energy derivative valuations involve the
prediction of future commodity market prices, sometimes a long way
into the future, reasonably possible alternative assumptions for
gas, power, coal, emissions or oil prices may result in a higher or
lower fair value for Level 3 financial instruments. Given the
relative size of the volumetric exposures and these fair values, it
is unlikely that the impact of these reasonably possible changes
would be significant when judged in relation to the Group's profit
and loss or total asset value.
It should be noted that the fair values disclosed in the tables
above only concern those contracts entered into that are within the
scope of IFRS 9. The Group has numerous other commodity contracts
that are outside of the scope of IFRS 9 and are not fair valued.
The Group's actual exposure to market rates is constantly changing
as the Group's portfolio of energy contracts changes.
The Group's valuation process includes specific teams of
individuals that perform valuations of the Group's derivatives for
financial reporting purposes, including Level 3 valuations. The
Group has an independent team that derives future commodity price
curves based on available external data and these prices feed in to
the energy derivative valuations, subject to adjustments to ensure
they are compliant with IFRS 13: 'Fair value measurement'. The
price curves are subject to review and approval by the Group
Financial Controller and the Group Chief Financial Officer. The
valuations of all derivatives, together with other contracts that
are not within the scope of IFRS 9 are also reviewed regularly as
part of the overall risk management process.
Where the fair value at initial recognition for contracts which
extend beyond the active period differs from the transaction price,
a day-one gain or loss will arise. Such gains and losses are
deferred and amortised to the Group Income Statement based on
volumes purchased or delivered over the contractual period until
such time as observable market data becomes available. The amount
that has yet to be recognised in the Group Income Statement
relating to the differences between the transaction prices and the
amounts that would have arisen had valuation techniques used for
subsequent measurement been applied at initial recognition, less
subsequent releases, is immaterial.
(c) Fair value of financial assets and liabilities held at
amortised cost
The carrying values of the Group's financial assets and
liabilities measured at amortised cost are approximately equal to
their fair value except as listed below:
30 June 31 December
2021 2020
======== ========== =========== ======== =========== ===========
Carrying Fair Carrying Fair
value Fair value value value Fair value value
Notes GBPm GBPm hierarchy GBPm GBPm hierarchy
======================= ===== ======== ========== =========== ======== =========== ===========
Level Level
Bank loans 12 (137) (176) 2 (144) (195) 2
Level Level
Bonds Level 1 12 (3,254) (3,944) 1 (4,004) (4,825) 1
Level Level
Level 2 12 (105) (139) 2 (107) (148) 2
======================= ===== ======== ========== =========== ======== =========== ===========
16. Commitments and contingencies
(a) Commitments
Commitments are not held on the Group's Balance Sheet as these are
executory arrangements, and relate to amounts that we are contractually
required to pay in the future as long as the other party meets its
contractual obligations.
The Group's commitments primarily relate to the acquisition of
property, plant and equipment and intangible assets, commodity
purchase contracts, and contracts for LNG, transportation and other
capacity.
Commodity purchase contract commitments have decreased by GBP3.1
billion since 31 December 2020 to GBP31.7 billion. The reduction is
predominantly as a result of the disposal of Direct Energy.
Other commitments, including the acquisition of property, plant
and equipment and intangible assets, have decreased by GBP1.6
billion to GBP8.8 billion since 31 December 2020. The reduction is
predominantly as a result of the disposal of Direct Energy.
(b) Contingent liabilities
At the period end, a partner on a jointly operated exploration
and production field was in default of the joint operating
agreement. Subsequent to the period end, the Group agreed to accept
its pro-rata share of the defaulting party's licence holding which,
unless an alternative remedy can be secured, is expected to give
rise to an increase in the Group's decommissioning obligations of
c.GBP46m, before associated tax benefit.
17. Events after the balance sheet date
The Group updates disclosures in light of new information being received,
or a significant event occurring, in the period between 30 June 2021
and the date of this report.
There are no significant post balance sheet events other than
disclosed above in note 16.
18. Related party transactions
The Group's principal related party is its investment in Lake Acquisitions
Limited, which owns the existing EDF UK nuclear fleet. The disclosures
below, including comparatives, only refer to related parties that were
related in the current reporting period.
During the period, the Group entered into the following arm's
length transactions with related parties who are not members of the
Group, and had the following associated balances:
2021 2020
======================= ========================
Purchase Purchase
of goods Amounts of goods Amounts
and services owed and services owed
(i) to (ii) (i) to (iii)
GBPm GBPm GBPm GBPm
================= ============= ======== ============= =========
Associates:
Nuclear (191) (26) (250) (49)
Joint Ventures - - (5) -
================= ============= ======== ============= =========
(191) (26) (255) (49)
================= ============= ======== ============= =========
(i) Six months ended 30 June.
(ii) As at 30 June.
(iii) As at 31 December.
During the period there were no material changes to commitments
in relation to joint ventures and associates. No provision for bad
or doubtful debts relating to amounts owed from related parties was
required in any of the periods disclosed above.
At the balance sheet date, the Group had committed facilities to
the Lake Acquisitions Group totalling GBP120 million (31 December
2020: GBP120 million), although nothing has been drawn down at 30
June 2021 (31 December 2020: GBPnil).
19. Financial Risk Management
The Group's normal operating, investing and financing activities expose
it to a variety of financial risks: market risk (including commodity
price risk, currency risk, and interest rate risk), credit risk and
liquidity risk. These condensed interim Financial Statements do not
include all financial risk management information and disclosures
included in note S3 of the Group's consolidated Financial Statements
for the year ended 31 December 2020.
The Group's normal operating, investing and financing activities
expose it to a variety of risks. Risk management is fundamental to
the way the Group is governed and managed. The Group's system of
risk management and internal control is set out in the 2020 Annual
Report and Accounts.
The Group's financial performance and price competitiveness is
dependent upon its ability to manage exposure to wholesale
commodity prices for gas, oil, carbon and power, interest rates for
long-term borrowing, fluctuations in various foreign currencies,
and environmental factors. Financial risk is reviewed quarterly by
the senior Finance stakeholders and the executive Group Ethics Risk
Assurance Control and Compliance Committee to review Group
financial exposures and assess compliance with risk limits.
The four main areas of financial risk are managed as
follows:
-- commodity price risk management is carried out in accordance
with individual business unit policies and directives including
appropriate escalation routes;
-- treasury risk management, including management of currency
risk, interest rate risk and liquidity risk is carried out by a
central Group Treasury function in accordance with the Group's
financing and treasury policy, as approved by the Board;
-- wholesale credit risks associated with commodity trading and
treasury positions are managed in accordance with the Group's
credit risk policy; and
-- downstream customer credit risk management is carried out in
accordance with individual business unit credit policies.
Credit risk is the risk of loss associated with a counterparty's
inability or failure to discharge its obligations under a contract.
The Group continually reviews its rating thresholds for
counterparty credit limits, with current reference to COVID-19 and
forecast macroeconomic impacts, and updates these as necessary
based on a consistent set of principles. It continues to operate
within its limits and maintains a balance between exchange-based
trading and bilateral transactions. This allows for a reasonable
balance between counterparty credit risk and potential liquidity
requirements. In addition, the Group actively manages the trade-off
between credit and liquidity risks by optimising the use of
contracts with collateral obligations and physically settled
contracts without collateral obligations.
The Group has a number of treasury and risk policies to monitor
and manage liquidity risk. Cash forecasts identifying the Group's
liquidity requirements are produced regularly and are stress tested
for different scenarios, including, but not limited to, reasonably
possible increases or decreases in commodity prices and the
potential cash implications of a credit rating downgrade, as well
as downside risks from COVID-19. The Group seeks to ensure that
sufficient financial headroom exists for at least a 12-month period
to safeguard the Group's ability to continue as a going
concern.
It is the Group's policy to maintain committed facilities and/or
available surplus cash resources of at least GBP1,200 million,
raise at least 75% of its gross debt (excluding non-recourse debt)
in the debt capital markets, and to maintain an average term to
maturity in the recourse long-term debt portfolio greater than five
years.
At 30 June 2021 the Group had undrawn committed credit
facilities of GBP3,198 million (31 December 2020: GBP3,637 million)
and GBP3,237 million (31 December 2020: GBP1,139 million) of
unrestricted cash and cash equivalents, net of outstanding
overdrafts. 89% (31 December 2020: 93%) of the Group's gross debt
has been raised in the long-term debt market, and the forecast
average term to maturity of the long-term debt portfolio was 11.4
years (31 December 2020: 10.3 years).
The Group's liquidity is impacted by the cash posted or received
under margin and collateral agreements. The terms and conditions of
these depend on the counterparty and the specific details of the
transaction. Cash is generally returned to the Group or by the
Group within two days of trade settlement. Refer to note 12 for
movement in collateral posted or received.
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions. As a result of this, amounts reported for the
six-month period ended 30 June 2021 may not be indicative of the
amounts that would be reported for a full year due to seasonal fluctuations
in customer demand for gas, electricity and services, the impact of
weather on demand and commodity prices, and market changes in commodity
prices and retail tariffs.
Customer demand for gas in the UK and the Republic of Ireland is
driven primarily by heating load and is generally higher in the
winter than in the summer, and higher from January to June than
from July to December. Customer demand for electricity in the UK
and the Republic of Ireland generally follows a similar pattern to
gas, but is more stable.
Customer demand for home services in the UK is generally higher
in the winter than it is in the summer, and higher in the earlier
part of the winter as that is typically when heating systems tend
to break down most, so that customer demand from July to December
is higher than from January to June.
Gas production volumes are generally higher in the winter when
gas prices are higher. Gas production volumes are generally higher
from January to June than they are from July to December as outages
are generally planned for the summer months when gas demand and
prices are at their lowest.
The impact of seasonality on customer demand and wholesale
prices has a direct effect on the Group's financial performance and
cash flows.
In addition to the effects of seasonality described above, there
is significant uncertainty surrounding the timing and shape of any
economic recovery from the effects of the COVID-19 pandemic. The
response of the global economy to the pandemic and withdrawal of
related government support and stimulus schemes could have a
significant impact on the performance of the Group in the second
half of 2021.
Additional Information - Explanatory Notes
Definitions and reconciliation of adjusted performance
measures
Centrica's 2021 Interim Results include a number of non-GAAP
measures. These measures are chosen as they provide additional
useful information on business performance and underlying trends.
They are also used to measure the Group's performance against its
strategic financial framework. They are not however, defined terms
under IFRS and may not be comparable with similarly titled measures
reported by other companies. Where possible they have been
reconciled to the statutory equivalents from the primary statements
(Group Income Statement ('I/S'), Group Balance Sheet ('B/S'), Group
Cash Flow Statement ('C/F')) or the notes to the Financial
Statements.
Adjusted revenue, adjusted gross margin, adjusted operating
profit, adjusted earnings and free cash flow have been defined and
reconciled separately in notes 3, 4 and 9 to the Financial
Statements where further explanation of the measures is given.
Additional performance measures are used within this announcement
to help explain the performance of the Group and these are defined
and reconciled below.
EBITDA
EBITDA is a business performance measure of operating profit,
after adjusting for depreciation and amortisation. It provides a
performance measure in its own right, and provides a bridge between
the Income Statement and the Group's key cash metrics.
2021 2020
Six months ended 30 June Notes GBPm GBPm Change
=================================================================================== ===== ===== ===== ======
Continuing group operating profit/(loss) I/S 1,003 (338)
Exceptional items included within Group operating profit before taxation 6 (373) 1,044
Certain re-measurements before taxation 6 (368) (442)
Share of losses of joint ventures and associates, net of interest and taxation (i) I/S 36 2
Depreciation and impairments of PP&E (i) 4 265 350
Amortisation, write-downs and impairments of intangibles (i) 4 119 134
Continuing EBITDA 682 750 (9%)
=================================================================================== ===== ===== ===== ======
Discontinued operations EBITDA - 119
=================================================================================== ===== ===== ===== ======
Group total EBITDA 682 869 (22%)
=================================================================================== ===== ===== ===== ======
(i) These line items relate to business performance only.
The below table shows how EBITDA reconciles to free cash
flow:
2021 2020
Six months ended 30 June Notes GBPm GBPm
========================================================= ===== ===== =====
Continuing EBITDA 682 750
========================================================= ===== ===== =====
Group operating profit/(loss) including share of joint
ventures and associates, from exceptional items and
certain
re-measurements I/S 741 (602)
Share of profits of joint ventures and associates, net
of interest and taxation, from exceptional items and
certain
re-measurements I/S - (2)
Depreciation, amortisation, write downs, impairments
and write-backs, from exceptional items and certain
re-measurements 6 (397) 791
Loss/(profit) on disposals C/F 27 (3)
(Decrease)/increase in provisions C/F (47) 69
Cash contributions to defined benefit schemes (in excess
of)/less than service cost income statement charge C/F (243) 37
Employee share scheme costs C/F 3 23
Unrealised gains arising from re-measurement of energy
contracts C/F (239) (425)
Exceptional charges reflected directly in operating
profit C/F 5 23
Net movement in working capital C/F 33 66
Taxes refunded/(paid) C/F 41 (43)
Payments relating to exceptional charges in operating
profit C/F (48) (50)
========================================================= ===== ===== =====
Net cash flow from continuing operating activities 558 634
========================================================= ===== ===== =====
Purchase of businesses, net of cash acquired C/F (13) -
Sale of businesses C/F 4 108
Purchase of property, plant and equipment and intangible
assets C/F (174) (285)
Sale of property, plant and equipment and intangible
assets C/F 32 2
Disposal of joint ventures and associates C/F 2 -
Dividends received from joint ventures and associates C/F 1 23
UK Pension deficit payments 4 243 76
Movements in variation margin and collateral (including
GBP1 million rounding in 2020) 4 (129) (54)
Free cash flow from continuing operations 4 524 504
========================================================= ===== ===== =====
Profit/(loss) on disposals
2021 2020
Six months ended 30 June Notes GBPm GBPm
===================================================== ===== ===== =====
Loss/(profit) on disposal C/F 27 (3)
Less: Exceptional loss on disposal 6 (31) -
===================================================== ===== ===== =====
Profit on disposals relating to business performance (4) (3)
===================================================== ===== ===== =====
Group net investment
With an increased focus on cash generation, capital discipline
and reducing net debt, Group net investment provides a measure of
the Group's capital expenditure from a cash perspective and allows
the Group's capital discipline to be assessed.
2021 2020
Six months ended 30 June Notes GBPm GBPm Change
======================================================= ====== ===== ===== ======
Capital expenditure (including small acquisitions) (i) 187 285
Net disposals (ii) (38) (110)
=============================================================== ===== ===== ======
Group net investment 149 175 (15%)
=============================================================== ===== ===== ======
Dividends received from joint ventures and associates C/F (1) (23)
Receipt of sub-lease capital payments C/F - (1)
Interest received C/F (2) (3)
Sale and settlement of securities C/F - (122)
======================================================= ====== ===== ===== ======
Net cash flow used in continuing investing activities C/F 146 26 462%
======================================================= ====== ===== ===== ======
(i) Capital expenditure is the net cash flow on capital
expenditure and purchases of businesses (less than GBP100 million).
See table (a).
(ii) Net disposals is the net cash flow from sales of
businesses, property, plant and equipment and intangible assets,
net of investments in joint ventures and associates. See table
(b).
Group net investment is capital expenditure including
acquisitions less net disposals. It excludes cash flows from
investing activities not associated with capital expenditure as
detailed in the table above.
(a) Capital expenditure (including small acquisitions)
2021 2020
Six months ended 30 June Notes GBPm GBPm Change
================================================================ ====== ===== ===== ======
Purchase of property, plant and equipment and intangible assets C/F 174 285
Purchase of businesses, net of cash acquired C/F 13 -
Capital expenditure (including small acquisitions) 187 285 (34%)
======================================================================== ===== ===== ======
(b) Net disposals
2021 2020
Six months ended 30 June GBPm GBPm Change
============================================================ ==== ===== ===== =======
Sale of businesses C/F (4) (108)
Sale of property, plant and equipment and intangible assets C/F (32) (2)
Disposal of joint ventures and associates C/F (2) -
============================================================ ==== ===== ===== =======
Net disposals (38) (110) (65%)
================================================================== ===== ===== =======
Reconciliation from free cash flow to change in net debt
The following tables provide additional information to help
readers when reconciling between different parts of the
consolidated Financial Statements, and the Group Cash Flow
Statement.
2021 2020
Six months ended 30 June Notes GBPm GBPm
======================================================== ===== ===== =====
Free cash flow from continuing operations 4 524 504
======================================================== ===== ===== =====
Discontinued operations free cash flow (including tax) 4 2,582 245
Group total free cash flow 4 3,106 749
Financing interest paid (i) C/F (111) (85)
Interest received C/F 2 3
UK Pension deficit payments 4 (243) (76)
Proceeds from sale of forfeited share capital/(payments
for own shares) C/F 1 (1)
Movements in variation margin and collateral (i) 4 129 67
======================================================== ===== ===== =====
Cash flows affecting net debt 2,884 657
======================================================== ===== ===== =====
Discontinued operations non-cash movements in net debt 32 -
Non-cash movements in net debt (11) (215)
======================================================== ===== ===== =====
Change in net debt 2,905 442
======================================================== ===== ===== =====
Opening net debt 12 2,998 3,507
======================================================== ===== ===== =====
Closing net debt 12 93 3,065
======================================================== ===== ===== =====
(i) Prior period comparatives relate to the results for the
group and therefore, are not visible within the related notes.
Payments relating to exceptional charges in operating costs
2021 2020
Six months ended 30 June Notes GBPm GBPm
============================================================= ====== ===== =====
Restructuring costs incurred during the year and utilisation
of prior year liabilities (48) (50)
Payments relating to exceptional charges in continuing
operating costs C/F (48) (50)
============================================================= ====== ===== =====
Depreciation, amortisation, write-downs, impairments and
write-backs
2021 2020
Six months ended 30 June Notes GBPm GBPm
=============================================================== ===== ===== =====
Cash flow from depreciation, amortisation, write-downs,
impairments and write-backs, from exceptional
items (continuing) (397) 791
=============================================================== ===== ===== =====
Made up of:
Impairment of E&P assets 6 (397) 381
Impairment of power assets 6 - 404
Impairment of property 6 - 6
=============================================================== ===== ===== =====
Cash flow from depreciation, amortisation, write-downs,
impairments and write-backs, from business performance
(continuing) 384 484
=============================================================== ===== ===== =====
Made up of:
Business Performance PP&E depreciation 4 265 350
Business Performance intangibles amortisation 4 95 119
Business Performance intangibles impairments and write-downs 4 3 -
Business Performance E&E write-downs 4 21 15
=============================================================== ===== ===== =====
Cash flow from depreciation, amortisation, write-downs,
impairments and write-backs (continuing) (13) 1,275
=============================================================== ===== ===== =====
Reconciliation in receivables and payables to Group Cash flow
Statement
2021 2020
Six months ended 30 June Notes GBPm GBPm
========================================================= ====== ======= =======
Receivables opening balance B/S 2,946 4,993
Less receivables closing balance B/S (3,061) (4,089)
Payables opening balance B/S (3,836) (5,685)
Less payables closing balance B/S 4,094 5,113
========================================================= ====== ======= =======
Net reduction in receivables and payables 143 332
================================================================= ======= =======
Non-cash changes, and other reconciling items:
Movement in discontinued operations - (167)
Transferred to held for sale and business disposals - (3)
Movement in capital creditors 20 62
Movement in ROCS and emission certificate intangible
assets (137) (177)
Other movements (including foreign exchange movements) 5 (3)
Non-cash charges, and other reconciling items (112) (288)
================================================================= ======= =======
Movement in trade and other receivables, trade and
other payables and contract related assets relating
to continuing business performance C/F 31 44
========================================================= ====== ======= =======
Pensions
2021 2020
Six months ended 30 June Notes GBPm GBPm
======================================================== ====== ===== =====
Cash contributions to defined benefit schemes (in
excess of)/ less than service cost income statement
charge C/F (243) 37
======================================================== ====== ===== =====
Ordinary employer contributions 26 34
UK Pension deficit payments 243 76
Contributions by employer in respect of employee salary
sacrifice arrangements 11 14
Total current service cost (54) (56)
Termination benefit 17 (105)
================================================================ ===== =====
Discontinued operations free cash flow
2021 2020
Six months ended 30 June Notes GBPm GBPm
===================================================== ===== ===== =====
Discontinued operations free cash flow 4 2,582 245
Movement in variation margin and collateral 4 - 11
===================================================== ===== ===== =====
2,582 256
===================================================== ===== ===== =====
Net cash flow from discontinued operating activities C/F - 269
Net cash flow from discontinued investing activities C/F 2,582 (13)
===================================================== ===== ===== =====
2,582 256
===================================================== ===== ===== =====
Disclosures
Disclaimers
This announcement does not constitute an invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any
Centrica shares or other securities.
This announcement contains certain forward-looking statements
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
A pre-recorded results presentation will be available on
Centrica.com at 8am (UK) on 22 July 2021 and Centrica will host a
conference call for institutional investors and analysts at 09.30am
(UK) on 22 July 2021. To register for the conference call please
visit:
https://webcasts.centrica.com/centrica116/vip_connect
If you would like to join in listen only mode, please register
at: https://webcasts.centrica.com/centrica116
An archived webcast and full transcript of the presentation and
the question and answer session will be available on the Centrica
website on Monday 26 July 2021.
Enquiries
Investors and analysts: Investor Relations
Telephone: 01753 494 900
Email: ir@centrica.com
Media: Media Relations
Telephone: 01784 843 000
Email: media@centrica.com
Financial calendar
For more information on Centrica's financial calendar please
visit: https://www.centrica.com/investors/financial-calendar/
Registered office
Millstream, Maidenhead Road, Windsor, Berkshire, SL4 5GD.
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END
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