Interim Results
Centrica PLC
Centrica plc Interim Results for the six months ended 30 June 2004 (unaudited)
Financial Highlights:
-- Turnover from continuing operations, excluding Accord, up 3% at £6.3bn.
-- 10% increase in operating profit* to £763m, with operating margin up to 12%.
-- Earnings* at a record level, up 9% to £520m.
-- Adjusted basic earnings per share up 8% to 12.2p.
-- Operating cash inflow £769m, compared with £730m in 2003.
-- Interim dividend 2.5p per share, up 47% on 2003.
Operating Overview:
-- Refocus on energy and related home services following announced sale of AA.
-- Significant future spend planned in LNG.
-- Energy supply profits strong.
-- Energy consumption up on 2003 with more seasonally normal weather.
-- Further growth in the gas and power asset portfolio.
-- British Gas transformation progressing on timeline presented in February
2004.
-- Home Services profits increased by 24%, with product relationships up 12%.
-- 63% increase in operating profit from Centrica Storage.
Statutory Results:
-- Turnover £9,220m (2003: £9,345m).
-- Operating profit £600m, after exceptional items of £98m and goodwill
amortisation of £65m (2003: £605m, after goodwill amortisation of £89m).
-- Earnings £383m, after exceptional items net of tax of £72m and goodwill
amortisation of £65m (2003: £390m, after goodwill amortisation of £89m).
-- Basic earnings per share 9.0p (2003: 9.2p).
'These results, achieved in a challenging period, show that Centrica's
fundamental business model is robust and will continue to deliver the profitable
growth which underpins shareholder value.'
-- Sir Roy Gardner, Chief Executive
CHAIRMAN'S STATEMENT
The first half of 2004 has been a challenging time for energy supply businesses
and our results reflect the skill and professionalism of our management team.
Oil, gas and power prices have risen to levels we have not seen for many years.
Once again we have seen actual commodity prices considerably higher than forward
predictions, with an even greater impact currently forecast for the second half
of the year. Some companies in our industry have already responded with consumer
price rises and it is very likely, at these levels, that more will be forced to
follow.
The energy marketplace is changing. The UK has traditionally been a major
exporter of gas but, with North Sea gas reserves diminishing, within the next
few years it will need to start importing gas through new pipelines and other
means including LNG (Liquefied Natural Gas). With this in mind, at the beginning
of July, we announced our intention to reinforce the energy focus of the company
to ensure we remain well placed in the global energy market. We will commit
significant upstream investment to secure competitive supplies of gas and
electricity for our customers in all of our chosen markets.
As part of this reinforced focus we also announced the proposed sale of the AA.
This sale will crystallise the value we have created over the last five years
and enable us to return cash to shareholders while retaining the flexibility to
fund our increased investment plans. The board is clear that it is only by
implementing our core strategy with vigour and determination that we can
economically satisfy customer demand, secure long term energy supply and fairly
reward our shareholders in the future.
Dividend
The board of directors has declared an interim dividend for 2004 of 2.5 pence
per share, an increase of 47% on the 2003 dividend. This is in line with our
stated commitment to increase our payout ratio to 40% in 2004 and to 50% in
2005.
When we announced the disposal of the AA we also set out our intention to pay a
special dividend totalling £1 billion, which should equate to approximately 23p
per share, in conjunction with a share consolidation to offset the dilutive
effects of this on the share price. The payment of the dividend is dependent on
the approval of the consolidation at an Extraordinary General Meeting; the
timing will be announced in due course. We may commence our share buyback
programme ahead of completion of the disposal of the AA should appropriate
conditions apply.
The board of directors
It was a privilege to succeed Sir Michael Perry as Chairman of Centrica at the
Annual General Meeting on 10 May. Sir Michael had served as Chairman since July
1997 and I would like to thank him for the wise counsel and clear guidance he
has provided to the board and his colleagues over the years.
I am very pleased to welcome Mary Francis to the board as a non-executive
director. Mary is currently Director General of the Association of British
Insurers and a Director of the Bank of England. She will bring wide ranging
experience to bear in this role.
Roger Carr 29 July 2004
Chairman
Earnings and operating profit numbers are stated, throughout the commentary,
before exceptional items and goodwill amortisation where applicable. The
directors believe this measure assists with better understanding the underlying
performance of the group. The equivalent amounts after exceptional items and
goodwill amortisation are reflected in note 1 and are reconciled at group level
in the group profit and loss account, with descriptions of the exceptional items
in note 3. Adjusted earnings and adjusted basic earnings per share are
reconciled to their statutory equivalents in note 7.
All current financial results listed are for the 6 months ended 30 June 2004.
All references to 'the prior period', '2003' and 'last year' mean the 6 months
ended 30 June 2003 unless otherwise specified.
CHIEF EXECUTIVE'S REVIEW
Turnover and profitability
Group turnover from continuing operations (excluding Accord trading revenue) was
£6.3 billion in the first half of 2004, up 3% from the same period last year.
Turnover grew in British Gas in both energy, as a result of price increases and
more seasonally normal consumption, and in Home Services. We saw a similar
effect in energy in Centrica Business Services and continued growth in both the
AA and the One.Tel business units. This was partially offset by a decrease in
our North American trading activity and in the revenue from the Texas business
where customer numbers in the price-to-beat regions were lower. The disposal of
Goldfish in the second half of 2003 also negatively impacted overall
year-on-year turnover comparisons.
Group operating profit* of £763 million was up 10% from £694 million in 2003,
with improved performance in British Gas, the AA, Centrica Storage, One.Tel and
the removal of losses with the disposal of Goldfish.
Cash flow, capital expenditure and acquisitions
Group operating cash flow was £769 million for the first half 2004 compared with
£730 million for the same period in 2003. This is due to an increase of £35
million to £970 million in operating profit* before depreciation from continuing
operations.
Acquisition expenditure net of disposals increased compared with the prior year
to £168 million (2003: £66 million). The first half of the year brought the
completion of several transactions including the acquisition of the Killingholme
power station in the UK and the Bastrop power station in Texas, along with the
acquisition of one million customers and a gas producer in Alberta.
The group's net cash inflow (before management of liquid resources and
financing) was £192 million against £398 million for the prior year period. Net
capital expenditure and financial investment was up by £34 million at £126
million.
Net interest, net debt and net assets
Net interest payable was £18 million (2003: £29 million) and was covered 42
times by operating profit* (2003: 24 times).
The group ended the half year with net cash on the balance sheet (excluding the
£206 million of non-recourse debt in respect of the Canadian water heaters) of
£390 million versus net debt of £96 million at 30 June 2003 (excluding the
Goldfish bank working capital facility). Net assets grew by 9% over 2003, from
£2.8 billion to £3.0 billion, due to retained earnings.
Taxation
The taxation charge of £216 million for the first six months of 2004 represents
an effective 29% rate on profits adjusted for goodwill amortisation and
exceptional items (2003: £186 million, representing an effective rate of 28%).
The overall charge reflects the recognition of deferred tax assets during 2004
which were unrecognised at the last year-end, offset by higher tax rates for
offshore gas production and in North America.
International Financial Reporting Standards (IFRS)
UK public companies are required to comply with IFRS from 1 January 2005. The
specific areas which are likely to be most relevant to Centrica are the need to:
-- mark to market energy contracts that are not for own use or do not qualify
as hedges under International Accounting Standard (IAS) 39. The form and
timing of IAS 39 is still uncertain.
-- confirm a final, industry treatment for Petroleum Revenue Tax (PRT). There
is uncertainty over whether PRT should be treated as an income tax or a
production cost which impacts the method of calculation.
-- record the pension deficit, net of deferred tax, on the balance sheet under
IAS 19; this standard is still subject to revision.
-- subject goodwill to an annual impairment test rather than an amortisation
charge.
We will be ready to report under IFRS from 1 January 2005 and will provide
comparatives for 2004. However we currently do not intend to publish any
IFRS-based numbers in this calendar year, until these key uncertainties are
resolved by the International Accounting Standards Board.
Outlook
As announced on 1 July, we are reinforcing the focus of the group on the supply
of energy and related home services. We are targeting substantial upstream
investment over the next five years to ensure that we have a strong base of
energy assets to underpin our competitive cost of goods as the energy market
continues to globalise. Our strengthened upstream position will be a key enabler
in our continued drive to enhance the value of our customer offering.
A central part of this drive is the transformation programme within British Gas.
This remains on the timeline we showed in February 2004. The rollout of the
second phase of Siebel functionality which facilitates dynamic targeted
marketing and cross-selling will be complete by the end of this year. The new
SAP billing will begin rollout on schedule in the first half of 2005. The
transformation programme will deliver its contribution towards the British Gas
margin target of 8% in 2005.
Market prices for gas and electricity in 2004 are 28% and 20% higher than in
2003, with the forward prices for 2005 higher again by 20% and 23% respectively.
This continued rise will particularly impact our cost of goods in the fourth
quarter and we currently anticipate considerably lower margins in the second
half; this will be the key factor in our next decision on retail tariffs.
In Home Services we anticipate continued growth in our newer products supported
by our core central heating cover offering. The improved operational performance
in the second half will be dampened by heavier expensed investment as we build
the engineer deployment capability.
Centrica Business Services has maintained its position in a very competitive
marketplace. However, the current forecast increase in input commodity costs,
particularly in the fourth quarter, is expected to erode second half margins.
We continue to expect total gas production volumes in 2004 to be at the same
level as 2003. Since our estimation in 2002 of a 10% per annum fall in
production levels, the actual level has fallen in total by only 4%. Given this,
we currently anticipate around a 25% reduction in 2005. The Industrial and
Wholesaling business is likely to remain unprofitable in the second half of 2004
and into 2005 as the price escalators to customers lag the exceptionally high
forward gas input prices.
Centrica Storage has benefited from the sustained increase in the summer/winter
gas price differential. With the storage pricing year running from May to April
and the improving situation around asset reliability, the second half of the
year is expected to deliver further profit growth.
We announced the sale of the AA on 1 July and expect to complete this
transaction at or before the end of September. There will be continued
involvement by Centrica over the next twelve months as we assist the new owners
with a smooth transition to deliver continuity of service for members and
increased certainty for staff.
We are continuing to expand and develop our position in North America and to
concentrate on underpinning our retail positions with an appropriate level of
asset cover. In line with our statement earlier this year, we expect operating
profit in 2004 to be slightly down on 2003, due to the effect of currency
movements. We intend to acquire further power generation capacity in Texas where
our electricity load is high and continue to look for further gas reserves to
support our Canadian businesses. Initial response to our customer offering in
the larger customer segment of the commercial sector has been very encouraging
and we will continue to use our technical capabilities to create competitive
advantage as we expand our reach and build a scale position.
In summary, the second half of 2004 will be even more challenging than the
first, with commodity costs for the fourth quarter of particular concern.
However, Centrica's fundamental business model is robust and we are confident
that our full year performance will meet expectations and form a solid base for
further improvement in 2005.
Sir Roy Gardner 29 July 2004
Chief Executive
SEGMENTAL BUSINESS COMMENTARY
British Gas Residential
This was another challenging start to a year for the energy supply market with
outturn commodity costs in the first quarter higher than expected. With the
price rise in January, however, turnover in the first half rose by 11% to £3.7
billion (2003: £3.3 billion) with operating profit* up by 37% to £274 million
(2003: £200 million).
The transformation programme has progressed well during the first half and
remains on the timeline we showed in February 2004. Roll out of the second phase
of Siebel functionality for the second release of the CRM platform began in the
middle of June. This will facilitate targeted marketing campaigns and cross
selling. This functionality is now expected to be rolled out to all frontline
agents by the end of 2004. The build stage of the new SAP billing engine (third
release) is going to plan and preparatory work for the comprehensive testing
phase is almost complete.
Total spend to date on the British Gas transformation programme is £343 million
(of which £45 million was expensed) with £4 million expensed in 2004 (2003: £7
million). We have made further progress towards our cross-product holdings
target with average products per customer now standing at 1.64, up from 1.60 at
the same point last year.
We are progressing the reorganisation we announced in June. This will remove
1,100 positions from British Gas and result in an ongoing annual saving after
2004 of £50 million. We have taken an exceptional charge of £54 million at the
half year in respect of this.
Energy
Turnover rose by 11% to £3.2 billion (2003: £2.9 billion) due mainly to the
effect of price rises and a more seasonal weather pattern than in 2003. The
effect of weather on consumption added £20 million to gross margin compared with
last year, although it was still warmer than Seasonal Normal Temperature (SNT).
We experienced higher than anticipated gas customer losses during the middle of
the first half - a reaction to the January price rise - although churn levels
returned to a more normal level in the second quarter with annualised churn
running at 12% in gas and 18% in electricity.
Operating profit* was up 35% at £228 million (2003: £169 million), driven
primarily by the increase in turnover but partially offset by unexpectedly high
commodity prices over and above those anticipated in our price rise. We estimate
the impact of the unanticipated rise in commodity costs was £38 million.
Margins in the second half of the year are traditionally considerably lower than
the first half as a result of seasonal demand and relatively fixed operating
costs. We expect 2004 to follow this pattern with the additional impact of
increased commodity costs in the fourth quarter.
We have continued to develop our approach to the government's Energy Efficiency
Commitment (EEC) to achieve the maximum impact and brand awareness for the
investment made. EEC spend in the first half was £38 million (2003: £19
million).
In addition, there was an exceptional profit of £51 million from the reduction
of a provision made for future payments relating to a number of life-of-field
take or pay gas purchase agreements where the third party field reserves have
been reassessed downwards and therefore the amount to be settled by Centrica
will be lower. These contracts hedge demand in the residential business.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer numbers (period end) (000):
Residential gas 12,294 12,761 (3.7%) 12,590
Residential electricity 6,191 6,042 2.5% 6,189
Estimated market share (%):
Residential gas 60 63 (3 ppts) 62
Residential electricity 24 24 - 24
Average consumption:
Residential gas (therms) 373 354 5% 614
Residential electricity (kWh) 2,104 2,039 3% 4,178
Weighted average sales price:
Residential gas (p/therm) 50.21 46.67 8% 47.57
Residential electricity (p/kWh) 6.55 6.15 7% 6.19
Weighted average unit costs:
Residential gas (WACOG, p/therm) 24.06 22.06 9% 22.65
Residential electricity (WACOE,
p/kWh) 2.75 2.48 11% 2.46
Transportation & distribution (£m):
Residential gas 704 690 2% 1,305
Residential electricity 244 226 8% 479
Total 948 916 3.5% 1,784
Turnover (£m):
Residential gas 2,337 2,129 10% 3,742
Residential electricity 846 739 14% 1,547
Total 3,183 2,868 11% 5,289
Operating profit (£m)*
Residential energy 228 169 35% 136
Operating margin (%)
Residential energy 7 6 1 ppt 2.6
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British Gas product holding**
Average British Gas products per
customer (period end): 1.64 1.60 2.5% 1.62
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** British Gas Brand
Home Services
Turnover increased by 10% to £452 million (2003: £411 million) due mainly to the
continued increase in product holdings. Total product relationships grew by 12%
to 7.2 million (2003: 6.4 million).
Operating profit* increased by 24% to £51 million (2003: £41 million), due to
the increase in turnover and the partly fixed nature of the cost base creating
operational leverage in the business model. The period has seen continued strong
growth particularly in our newer home service products, reflecting the expanding
market for these services, and demonstrating our ability to generate value from
our increasing engineer workforce. 2004 also brought the first investment in the
new engineer deployment infrastructure which is necessary for the effective
deployment of up to 10,000 engineers by 2006. This programme will cost around
£40 million of which approximately £7 million will be expensed during 2004 and
2005.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer product holdings (period end)
(000):
Central heating service contracts 3,298 3,154 4.6% 3,250
Other central heating service
contracts 827 841 (1.7%) 837
Kitchen appliances care (no. of
appliances) 1,222 969 26% 1,109
Plumbing & drains care 1,142 965 18% 1,084
Electrical care 666 467 43% 598
Home security 27 28 (3.6%) 28
Total holdings 7,182 6,424 12% 6,906
Central heating installations 42 43 (2.3%) 86
Turnover (£m)
Central heating service contracts 214 191 12% 391
Central heating installations 111 115 (3.5%) 228
Other 127 105 21% 228
Total 452 411 10% 847
Engineering staff employed 7,786 6,981 12% 7,160
Operating profit (£m)*
Home services 51 41 24% 84
Operating margin (%)
Home services 11 10 1 ppt 10
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British Gas Communications
Turnover increased by 19% to £31 million (2003: £26 million) as a result of
growth in fixed line customer numbers and an increase in the average revenue per
user (ARPU) due mainly to the continued take-up of fixed price calling plans and
the growth in the Carrier Pre-Selection (CPS) base, with 92% of the fixed line
base now on a CPS tariff. The operating loss* has been halved with the
achievement of an enhanced margin per customer due to better carrier
negotiations, offset slightly by competitive pricing pressures.
Churn levels increased slightly after BT's line rental increases, which impact
all of our customers, especially those on a CPS tariff. In June we responded to
BT's new pricing with a marketing campaign and an even more competitive tariff
structure.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer numbers (fixed line) (period
end) (000) 390 378 3.2% 376
Average minutes used per month (fixed
line) 420 366 15% 374
ARPU (monthly fixed line) (£) 13.03 11.23 16% 11.86
Turnover (£m) 31 26 19% 56
Operating loss (£m)
British Gas Communications (5) (10) 50% (14)
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Centrica Business Services
Turnover rose by 7% to £615 million (2003: £575 million) due mainly to price
rises and higher average gas consumption driven by the growth in the proportion
of larger industrial and commercial customers.
Operating profit* rose by 9% to £47 million (2003: £43 million). The impact of
high commodity costs in the period of £24 million was offset by price rises.
There were further savings from a salesforce restructure which should also
benefit future years. Energy costs have continued to rise into the second half
of the year and it is currently unlikely that these costs can be fully recovered
in 2004.
Design work commenced on a programme to deliver a new billing platform and an
enhanced customer experience. Total spend between 2004 and 2006 is expected to
be £40 million of which £4 million was spent in the first half of this year - £2
million of this was expensed.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer supply points (period end)
(000):
Gas 363 393 (8%) 370
Electricity 527 523 0.8% 535
Total 890 916 (2.8%) 905
Average consumption:
Gas (therms) 1,945 1,737 12% 3,124
Electricity (kWh) 12,090 12,299 (1.7%) 25,700
Weighted average sales price:
Gas (p/therm) 39.26 37.47 4.8% 37.75
Electricity (p/kWh) 5.01 4.91 2.0% 4.84
Weighted average unit costs:
Gas (WACOG, p/therm) 22.98 21.32 8% 21.56
Electricity (WACOE, p/kWh) 2.40 2.30 4.3% 2.29
Transportation & Distribution (£m):
Gas 64 67 (4.5%) 130
Electricity 104 102 2.0% 221
Total 168 169 (0.6%) 351
Turnover (£m):
Gas 286 253 13% 455
Electricity 329 322 2.2% 670
Total 615 575 7% 1,125
Operating profit (£m)* 47 43 9% 51
Operating margin (%) 8 7 1 ppt 4.5
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Centrica Energy
Operating profit* was down by 20% against the same period last year to £287
million (2003: £357 million) due mainly to higher gas input costs affecting the
Industrial and Wholesaling business.
Gas production
Operating profit* from the gas production business remained flat at £284 million
(2003: £282 million). The effect of lower production volumes, with some
production deferred to the second half of the year in anticipation of higher
prices, and a 50% increase in Petroleum Revenue Tax costs due to increases in
forward gas prices, were offset by the increase in gas selling prices for the
production portfolio, as the contracted transfer price rose alongside external
market prices. During the first six months of 2004 our equity production
provided 42% of downstream retail requirements.
The Rose field suffered water breakthrough into the well, resulting in the well
being shut-in. Remedial work is currently underway to isolate the water
producing zone. Due to the water ingress, however, it is now anticipated that
the maximum recoverable gas volume will be no more than 24bcf, compared with
45bcf at the end of 2003. In recognition of this, we have taken exceptional
write-off costs of £50 million.
During the first half we commissioned the regular independent audit of our gas
reserves portfolio. This reconfirmed the aggregate levels of proven and probable
reserves which we have previously quoted. In March, we acquired a 33% interest
in the UK side of the Statfjord oil and gas field from Chevron Texaco. This
acquisition added 120 million therms of gas and 9 million barrels of oil to
Centrica's portfolio. We are committed to acquiring further gas production
assets to increase our equity hedge position.
Industrial and wholesaling
Sales volumes were down by 16% on the same period last year due to the
expiration of a number of industrial sales contracts and lower wholesaling
activity than the previous year, when sales were abnormally high due to low
demand in the residential supply business.
Profit margins on the supply contracts to industrial customers were
significantly impacted as gas cost increases outstripped selling price
increases. Sales prices for industrial customers are mainly linked to a mix of
published energy indices produced from survey data, which can incorporate long
term purchase agreements and therefore do not reflect the higher wholesale
prices. Most of these contracts were entered into prior to demerger. In
addition, a number of wholesale forward sales contracts have become loss making
as gas costs have increased. As a result, the industrial and wholesale business
made a loss in the half year of £8 million (2003: £62 million profit).
Electricity generation
In July 2004, Centrica completed the acquisition of the 652MW Killingholme CCGT
power station in North Lincolnshire taking total equity generation capacity to
2,910MW. In addition, in April, we acquired the option to purchase the total
share capital in a subsidiary of Carlton Power Limited, which owns land and
consents for developing a gas fired station of up to 1,000MW at Langage in
Devon. The total electricity generated in the first half of the year was 4.6TWh
(satisfying 21.3% of downstream residential demand), 25% higher than the same
period last year reflecting the increased size of the portfolio. The average
overall portfolio load factor for the first half was 57%.
Renewable energy
The development of the renewables portfolio continues with the award in July of
the EPIC (Engineering, Planning, Installation & Construction) contract for the
90MW Barrow offshore wind project to a consortium of KBR and Vestas. In
addition, geotechnical surveys are underway for the Inner Dowsing and Lynn
offshore wind projects which have first round licences for a capacity of 180MW.
Accord energy
Despite continuing thin liquidity in the traded markets, Accord made an
operating profit* of £11 million in the first half (2003: £13 million). Physical
volumes traded during this time were 1.5 times the gas and 2.4 times the
electricity volumes supplied to our UK downstream customers.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Gas production:
Production volumes (m therms)
Morecambe 1,971 2,079 (5%) 3,429
Other 240 258 (7%) 457
Total 2,211 2,337 (5%) 3,886
Average sales price (p/therm) 23.9 21.5 11% 22.4
Turnover (£m) 555 528 5% 919
External turnover (£m) 31 30 3.3% 54
Operating costs (£m):
Petroleum revenue tax 102 68 50% 128
Volume related production costs 121 125 (3.2%) 213
Other production costs 48 53 (9%) 98
Total 271 246 10% 439
Operating profit (£m)* 284 282 0.7% 480
Power stations
Power generated (GWh) 4,649 3,721 25% 8,668
Industrial & wholesale:
External sales volumes (m therms) 1,778 2,129 (16%) 3,679
Average sales price (p/therm) 21.3 21.1 0.9% 21.9
Turnover (£m) 384 460 (17%) 809
Operating profit/(loss) (£m)* (8) 62 n/m 64
Accord
Traded volumes (physical)
Gas (m therms) 7,987 11,438 (30%) 21,681
Electricity (GWh) 52,860 55,178 (4.2%) 108,692
Turnover (£m) 2,876 3,121 (8%) 6,218
Operating profit (£m)* 11 13 (15%) 17
Centrica Energy operating profit (£m)* 287 357 (20%) 561
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Centrica Storage
Centrica Storage, as owner and operator of Rough, the UK's largest gas storage
facility, continues to enjoy the benefits of a strong market for gas storage
services while addressing issues arising from under-investment in the asset
before acquisition.
Operating profit for the half year was £26 million (2003: £16 million). The
improvement is largely the result of market increases in storage prices. The
average price of a standard bundled unit (SBU) increased by 25% between the
2002/03 and 2003/04 storage years and by a further 70% between the 2003/04 and
2004/05 storage years (storage years run from May to April). The 2004/05
increase is due to both the widening summer/winter gas price spread and the
expiry of all of the long term contracts entered into by previous owners at
prices below current market levels.
Sales of all SBUs for the 2004/05 storage year were completed without the need
for an auction despite the sales period being compressed to just three months as
a result of last year's Competition Commission inquiry. The benefit of the
2004/2005 prices (average 28.46p per SBU) will be seen largely in the second
half of the year.
An outage in January reinforced the priority being given to investment in plant
and people to maintain safety and improve reliability in order to secure maximum
value from the asset. The second quarter injection performance was very
encouraging compared to the same period last year.
One.Tel
In the first half of 2004, turnover grew by 19% to £100 million over the same
period in 2003 (£84 million) with a 4% increase in total customer base. Fixed
line ARPU has risen by 8% to £16.83 (2003: £15.63) while average minutes per
user has grown by 34% to 415 (2003: 309) due mainly to the take-up of fixed
price calling plans and the increase in the number of CPS customers, who now
form 45% of the fixed line base (2003: 20%). Revenue from the fixed price
calling plans now makes up around 13% of the total residential turnover.
Operating profit* grew to £6 million (2003: Nil) as we made strong progress with
establishing a competitive cost base. The call centre set-up in Bangalore
progressed more rapidly than expected and is now running at full capacity. While
headline customer numbers have remained flat since the end of 2003, this masks
the underlying trend of lower value customers being replaced by higher value
customers, as indicated by the growth of ARPU in the period.
OFCOM's investigation of BT's pricing has resulted in the recognition of the
large cost differential in local call conveyancing between BT and other telecom
operators. We welcome the introduction of the interim pricing measures with
effect from the 1 July 2004 in advance of a long term solution being made
available by BT. Technical trials of a Wholesale Line Rental (WLR) product were
completed during the first half. Although the full solution is not currently
available we anticipate a basic version will begin to be rolled out in the
fourth quarter of this year.
We continue to contribute actively to OFCOM's strategic review of the telecoms
market. We welcome this review and hope that it will result in a clearer
regulatory framework where all participants can compete on an equal footing.
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For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer numbers (period end) (000):
Fixed line 795 764 4.1% 793
Mobile 69 62 11% 73
Other services 208 204 2% 218
Total (30 day tolling) 1,072 1,030 4.1% 1,084
Average minutes used per month (fixed
line) 415 309 34% 345
ARPU (monthly fixed line) (£) 16.83 15.63 8% 16.18
ARPU (monthly mobile) (£) 16.63 13.58 22% 14.44
Average products per customer (period
end) 1.30 n/a n/a 1.29
Turnover (£m) 100 84 19% 178
Operating profit/(loss) (£m)* 6 Nil n/m 4
Operating margin (%) 6 - 6 ppts 2.2
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Centrica North America
We have continued to expand and develop our presence in North America through a
number of further acquisitions in 2004 both upstream and downstream. We acquired
around one million gas and electricity customers in Alberta (£30 million), the
Bastrop power station in Texas (£79 million) and additional gas reserves in
Alberta (£18 million).
Turnover fell by 17% to £1,060 million (2003: 1,275 million) due mainly to
higher than anticipated customer losses in our incumbent businesses in Texas,
coupled with a one-off industry reconciliation of customers and consumption,
reduced trading activity and the impact of the year-on-year movement in the
exchange rate.
Overall operating profit* fell by 14% to £63 million (2003: £73 million). In our
core businesses, lower profits in our gas and electricity markets were offset by
increased profits in Home and Business Services. There was a further impact of a
reduction in energy trading profits of £5 million and foreign exchange
differences of £3 million.
Residential and small commercial gas
Turnover in this segment reduced by 2% over 2003, reflecting lower customer
numbers both in Ontario, where the sales environment remains difficult, and
northern US markets (including the exit from Georgia), partially offset by the
addition in May of the acquired Alberta customers. Operating profit* in this
sector fell by 42% to £7 million (2003: £12 million), driven by the fall in
customer numbers in Ontario, initial start-up losses in Alberta and the
different year-on-year profit phasing of some multi-year customer contracts in
one of the US markets due to commodity cycle movements.
In our US gas markets, the regulatory climate, together with a volatile gas
price environment, has continued to make it difficult to add value-creating
customers. As previously indicated, we will participate only in markets that
offer an appropriate return on capital, and accordingly we completed our
withdrawal from Georgia during the first half of the year and have moved our
focus more towards the commercial and small business market sector.
Residential and small commercial electricity
Turnover in this segment fell by 20% to £461 million (2003: £574 million) driven
partly by lower net customer numbers in Texas, particularly in the commercial
sector, where organic gains did not offset the losses in our incumbent business
in West and South Texas. In addition, a one-off market reconciliation in Texas
between the marketers, the system operator (ERCOT) and the distribution
companies (TDSPs) resulted in a reduction in our estimate of the level of
revenue unbilled at the end of 2003. This reduced turnover in the first half of
2004 by £22 million. Processes surrounding the competitive market in Texas are
continuing to improve which should lead to a smoother interaction between the
key parties in future. The margin impact of this true-up reduced operating
profit* in Texas by approximately £16 million, although this was partially
offset by the improving performance of the organic business. In May our
application to move our Price To Beat tariffs upwards in our two incumbent
regions was approved. We made a second upward filing in June and await the
results. Overall operating profit* in this business segment was 13% lower at £35
million (2003: £40 million).
The Ontario electricity market for residential and small commercial customers
remains effectively closed to further growth under the price cap introduced in
November 2002. The short term impact of this is that customer churn has reduced
and margins remain strong. The Ontario government recently published draft
legislation under which the price cap will be lifted and has now entered a
period of consultation with all stakeholders.
Home & business services
First half turnover reduced by 11% to £84 million (2003: £94 million) due mainly
to the withdrawal in 2003 from the loss-making Pennsylvania operations and the
closure of the nine retail stores in Ontario. Operating profit* rose by 80% to
£18 million. We are continuing the process of transforming the home services
operation with learnings from the UK being used to improve service standards and
position the business for further growth.
Initial response to our Business Services proposition has been very encouraging.
We are offering an end-to-end product where the supply of the basic commodity is
supported by energy management technology and our maintenance and repair
business. We are growing to a scale demand with the signing of some high profile
contracts in our key markets which complement our current retail positions.
Upstream and trading activities
Gas production volumes declined by 10% compared with the first half of 2003
despite continuing progress on the new well development programme to offset the
natural decline rates inherent in mature fields. As part of our policy to retain
an equity gas hedge we announced the acquisition of Quintana Minerals in May.
Our production met 15% (21% in the equivalent period of 2003) of our customer
requirements in Canada and the northern US. Average gas selling prices decreased
by 8% compared with the same period in 2003 despite large market price
increases, reflecting the nature of the transfer pricing mechanism where
production is pre-allocated to support fixed price retail contracts. Operating
profit* fell by 73% to £3 million due to the reduced level of our limited
proprietary trading activity in Calgary.
-------------------------------------------------------------------------------------
For the six months ended 30 June H1 2004 H1 2003 ^% FY 2003
Customer numbers (period end):
Residential and small commercial gas
(000) 1,878 1,252 50% 1,116
Residential and small commercial
electricity (000) 1,429 1,366 4.6% 1,318
Home & business services (000) 1,719 1,654 3.9% 1,690
Average consumption:
Residential and small commercial gas
(therms) 828 880 (6%) 1,340
Residential and small commercial
electricity (kWh) 7,602 8,558 (11%) 16,630
Gas production:
Gas production volumes (m therms) 164 182 (10%) 362
Average sales price (p/therm) 18.4 19.9 (8%) 19.3
Turnover (£m):
Residential and small commercial gas 340 347 (2%) 531
Residential and small commercial
electricity 461 574 (20%) 1,144
Home & business services 84 94 (11%) 193
Gas production & energy trading
(including I&C) 175 260 (33%) 501
Total 1,060 1,275 (17%) 2,369
Operating profit/(loss) (£m)*:
Residential and small commercial gas 7 12 (42%) 1
Residential and small commercial
electricity 35 40 (13%) 87
Home & business services 18 10 80% 29
Gas production & energy trading
(including I&C) 3 11 (73%) 13
Total 63 73 (14%) 130
Operating margin (%)
Total North America 6 6 - 5
-------------------------------------------------------------------------------------
Europe
We have maintained our number two position in the Flanders market through
Luminus while continuing to grow our commercial base organically in Spain
through the Luseo Energia brand, which now has signed almost 2000 contracts
nationally. The Energy Directives are being implemented across Europe, with
clear evidence of this in the opening of the professional market on 1 July 2004.
This enables suppliers to sell competitive contracts to the non-residential
sector. Our current positions continue to give us a voice in Europe and an
improving understanding of the marketplace as we decide on which other markets
offer the best long-term value.
The AA
The AA made excellent progress during the first half of the year with turnover
up 8% at £420 million (2003: £389 million). Since the end of 2003, roadside
membership is up by 1.5 million to over 15 million. The fixed term loan book has
risen to £1.3 billion and the number of motor and home insurance policies now
stands at over 1.65 million. All of these factors had a positive impact on
operating profit* which was up by 49% at £58 million for the half year (2003:
£39 million).
As announced on 1 July, we have agreed to sell the AA to a company formed by CVC
Capital Partners Ltd and Permira Advisers Ltd for a total consideration of £1.75
billion. After adjustments for items such as working capital and pension costs,
the net consideration is expected to be £1.63 billion. We expect to receive the
relevant approvals to be able to complete this disposal by the end of September
2004.
Ownership of the AA has brought great value to the Centrica group over the last
5 years, particularly in terms of customer service, mobile workforce deployment
and supply chain management. However, as there was limited room for further
material synergies, we felt that this offer appropriately valued the AA with
reference to its anticipated future cashflows.
It is currently intended that the results for the AA will be reported as a
discontinued operation in the full year financial statements.
* including joint ventures and associates, before exceptional items and goodwill
amortisation - see Note 1
Independent review report to Centrica plc on the financial information for the
six months ended 30 June 2004
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprises a summary group profit and
loss account, group balance sheet at 30 June 2004, statement of total recognised
gains and losses, group cash flow statement, reconciliation of net cash flow to
movement in net debt and notes 1 to 16. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information. This report, including the conclusion, has been
prepared for and only for the company for the purpose of the Listing Rules of
the Financial Services Authority and not for any other purpose. We do not, in
producing this report, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place,
London
WC2N 6RH
29 July 2004
Summary Group Profit and Loss Account
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
Notes £m £m £m
Turnover:
Continuing operations (excluding Accord energy
trading) 6,344 6,161 11,612
Accord energy trading 2,876 3,121 6,218
-------------- -------------- --------------
Continuing operations 1 9,220 9,282 17,830
Discontinued operations 1 - 63 101
-------------- -------------- --------------
Group turnover 1 9,220 9,345 17,931
Cost of sales 2 (7,316) (7,497) (14,572)
-------------- -------------- --------------
Gross profit 1,904 1,848 3,359
Operating costs before exceptional items and
goodwill amortisation 2 (1,177) (1,181) (2,367)
Exceptional items and goodwill amortisation 3 (160) (85) (155)
-------------- -------------- --------------
Group operating profit 567 582 837
Share of profits less losses in joint ventures and
associates - continuing operations 33 23 60
-------------- -------------- --------------
Operating profit including joint ventures and
associates:
-------------- -------------- --------------
Continuing operations 1 600 642 935
Discontinued operations 1 - (37) (38)
-------------- -------------- --------------
1 600 605 897
Continuing operations:
-------------- -------------- --------------
Loss on closure of business 3 - - (16)
Discontinued operations:
Loss on disposal of business 3 - - (51)
-------------- -------------- --------------
3 - - (67)
Net interest payable (18) (29) (52)
-------------- -------------- --------------
Profit on ordinary activities before taxation 582 576 778
Taxation on profit on ordinary activities 5 (190) (186) (266)
-------------- -------------- --------------
Profit on ordinary activities after taxation for the
period 392 390 512
Minority interests (equity and non-equity) (9) - (12)
-------------- -------------- --------------
Profit attributable to the group 383 390 500
Dividends 6 (108) (73) (229)
-------------- -------------- --------------
Transfer to reserves 275 317 271
============== ============== ==============
Dividend per ordinary share 6 2.5p 1.7p 5.4p
Earnings per ordinary share
Basic 7 9.0p 9.2p 11.8p
Diluted 7 8.8p 9.1p 11.6p
Adjusted Basic 7 12.2p 11.3p 16.8p
-------------- -------------- --------------
Group Balance Sheet
30 June 2003 31 Dec 2003
As restated As restated
30 June 2004 (note 16) (note 16)
Notes £m £m £m
Fixed assets
Intangible assets 1,564 1,801 1,614
Tangible assets 2,899 2,739 2,730
Investments: 8
-------------- -------------- --------------
Share of gross assets of joint ventures 1,130 923 1,014
Share of gross liabilities of joint ventures (1,027) (824) (920)
-------------- -------------- --------------
103 99 94
Other investments 3 4 3
-------------- -------------- --------------
4,569 4,643 4,441
Current assets
Stocks 121 136 173
Debtors:
Debtors (amounts falling due within one year) 2,559 2,577 2,921
Debtors (amounts falling due after more than one
year) 94 111 117
Goldfish Bank debtors (amounts falling due within
one year) - 850 -
Goldfish Bank debtors (amounts falling due after
more than one year) - 64 -
Current asset investments 1,139 733 992
Cash at bank and in hand 19 36 34
-------------- -------------- --------------
3,932 4,507 4,237
Creditors (amounts falling due within one year)
Borrowings (185) (276) (298)
Goldfish Bank borrowings - (234) -
Other amounts falling due within one year:
-------------- -------------- --------------
Creditors (3,520) (3,245) (3,698)
Goldfish Bank customer deposits - (600) -
-------------- -------------- --------------
(3,520) (3,845) (3,698)
-------------- -------------- --------------
(3,705) (4,355) (3,996)
-------------- -------------- --------------
Net current assets 227 152 241
-------------- -------------- --------------
Total assets less current liabilities 4,796 4,795 4,682
-------------- -------------- --------------
Creditors (amounts falling due after more than one
year)
-------------- -------------- --------------
Borrowings due after more than one year (789) (812) (781)
Creditors due after more than one year (101) (108) (104)
-------------- -------------- --------------
(890) (920) (885)
Provisions for liabilities and charges (890) (1,098) (1,060)
-------------- -------------- --------------
Net assets 3,016 2,777 2,737
============== ============== ==============
Capital and reserves - equity interests
Called up share capital 237 237 237
Share premium account 557 549 549
Merger reserve 467 467 467
Other reserves (1) (10) (4)
Profit and loss account 1,546 1,319 1,271
-------------- -------------- --------------
Shareholders' funds 9 2,806 2,562 2,520
Minority interests (equity and non equity) 210 215 217
-------------- -------------- --------------
Capital employed 3,016 2,777 2,737
============== ============== ==============
Statement of Total Recognised Gains and Losses
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Profit for the period 383 390 500
Exchange translation differences - - (4)
-------------- -------------- --------------
Total recognised gains and losses for the period 383 390 496
============== ============== ==============
Group Cash Flow Statement
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
Notes £m £m £m
Cash inflow from continuing operating activities 10 769 754 1,293
Cash outflow from discontinued operating activities 10 - (24) (301)
-------------- -------------- --------------
Cash inflow from operating activities 10 769 730 992
Dividends received from joint ventures and
associates 6 3 28
Returns on investments and servicing of finance 11 4 - (15)
Taxation paid (135) (67) (181)
Capital expenditure and financial investment 12 (126) (92) (282)
Acquisitions and disposals 13 (168) (66) 292
Equity dividends paid (158) (110) (182)
-------------- -------------- --------------
Cash inflow before use of liquid resources and
financing 192 398 652
Management of liquid resources (149) (411) (669)
Financing 14 (16) 34 (13)
-------------- -------------- --------------
Net increase/(decrease) in cash 27 21 (30)
============== ============== ==============
Reconciliation of net cash flow to movement in debt, net of cash and current
asset investments
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Increase/(decrease) in net cash 27 21 (30)
Movement in Goldfish Bank working capital facility - 196 -
Repayment of Goldfish Bank working capital facility - - 430
Cash outflow/(inflow) from decrease in other debt and lease
financing 51 (1) 53
Cash outflow from increase in liquid resources 149 411 669
-------------- -------------- --------------
Change in debt, net of cash and current asset investments
resulting from cash flows 227 627 1,122
Net debt acquired (2) - -
Exchange adjustments and other non-cash movements 12 (25) (20)
-------------- -------------- --------------
Movement in debt, net of cash and current asset investments 237 602 1,102
Debt, net of cash and current asset investments at
1 January (53) (1,155) (1,155)
-------------- -------------- --------------
Cash/(debt), net of cash and current asset investments at
30 June/31 December 184 (553) (53)
============== ============== ==============
Of which:
Net cash/(debt) (excluding Goldfish Bank and non-recourse
debt) 390 (96) 163
Goldfish Bank working capital facility - (234) -
Consumers' Waterheater Income Fund (non-recourse) debt (206) (223) (216)
-------------- -------------- --------------
184 (553) (53)
============== ============== ==============
Notes
1 Segmental analysis including share of profits and losses of joint ventures and
associates 6 months ended 30 June (i)
Operating Operating
profit/(loss) before profit/(loss) after
exceptional items and exceptional items and
Turnover goodwill amortisation goodwill amortisation
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
Continuing operations:
----------- ----------- ----------- ----------- ----------- -----------
Residential Energy 3,183 2,868 228 169 225 169
Home Services 452 411 51 41 51 40
British Gas Communications 31 26 (5) (10) (5) (10)
----------- ----------- ----------- ----------- ----------- -----------
British Gas residential 3,666 3,305 274 200 271 199
Centrica Business Services 615 575 47 43 42 39
----------- ----------- ----------- ----------- ----------- -----------
Industrial sales and wholesaling
384 460 (8) 62 (8) 62
Gas production 31 30 284 282 234 282
Accord energy trading 2,876 3,121 11 13 10 13
----------- ----------- ----------- ----------- ----------- -----------
Centrica Energy 3,291 3,611 287 357 237 357
Centrica Storage 63 41 26 16 26 16
The AA 420 389 58 39 33 14
One.Tel 100 84 6 - 4 (2)
Centrica North America 1,060 1,275 63 73 33 27
Other operations 5 2 2 (4) (46) (8)
----------- ----------- ----------- ----------- ----------- -----------
9,220 9,282 763 724 600 642
Discontinued operations:
Goldfish Bank - 63 - (30) - (37)
----------- ----------- ----------- ----------- ----------- -----------
9,220 9,345 763 694 600 605
=========================================================================
(i) The analysis of operating profit for certain business segments
includes an allocation of the group's total commodity costs,
reflecting their respective supply requirements.
1 Segmental analysis including share of profits and losses of joint ventures and
associates (continued)
Year ended 31 December 2003 (i)
Operating Operating
profit/(loss) before profit/(loss) after
exceptional items and exceptional items and
Turnover goodwill amortisation goodwill amortisation
£m £m £m
Continuing operations:
---------------------- ---------------------- ----------------------
Residential Energy 5,289 136 136
Home Services 847 84 83
British Gas Communications 56 (14) (14)
---------------------- ---------------------- ----------------------
British Gas residential 6,192 206 205
Centrica Business Services 1,125 51 40
---------------------- ---------------------- ----------------------
Industrial sales and wholesaling
809 64 64
Gas production 54 480 480
Accord energy trading 6,218 17 17
---------------------- ---------------------- ----------------------
Centrica Energy 7,081 561 561
Centrica Storage 82 40 40
The AA 797 93 44
One.Tel 178 4 1
Centrica North America 2,369 130 50
Other operations 6 - (6)
---------------------- ---------------------- ----------------------
17,830 1,085 935
Discontinued operations:
Goldfish Bank 101 (27) (38)
---------------------- ---------------------- ----------------------
17,931 1,058 897
====================== ====================== ======================
(i) The analysis of operating profit for certain business segments
includes an allocation of the group's total commodity costs,
reflecting their respective supply requirements.
2 Costs (before exceptional items and goodwill amortisation)
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Cost of sales:
Continuing operations 7,316 7,466 14,529
Discontinued operations - 31 43
-------------- -------------- --------------
7,316 7,497 14,572
-------------- -------------- --------------
Operating Costs:
Continuing operations 1,177 1,119 2,282
Discontinued operations - 62 85
-------------- -------------- --------------
1,177 1,181 2,367
-------------- -------------- --------------
Total costs recognised in arriving at group operating
profit 8,493 8,678 16,939
============== ============== ==============
3 Exceptional items and goodwill amortisation
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Exceptional operating items:
Business restructuring costs (i) 99 - -
Gas field impairment (ii) 50 - -
Renegotiation provision (iii) (51) - -
-------------- -------------- --------------
98 - -
============== ============== ==============
Goodwill amortisation:
Continuing operations 62 78 144
Discontinued operations - 7 11
-------------- -------------- --------------
62 85 155
Goodwill amortisation within joint ventures and
associates 3 4 6
-------------- -------------- --------------
65 89 161
============== ============== ==============
Non-operating exceptional charges:
Continuing operations
Loss on closure of business - - 16
Discontinued operations
Loss on disposal of business - - 51
------------------------------------------
- - 67
==========================================
(ii) Business restructuring costs comprise £99 million resulting
from staff reductions at the corporate centre and IS as well
as the acceleration of elements of the British Gas
transformation programme.
(iii) Unforeseen water break-through into the Rose well has
resulted in the well being shut-in. A work-over of the well is
currently underway to isolate the water producing zone.
However, due to water ingress it is now anticipated that the
maximum recoverable volume is up to 25bcf. This has resulted
in an impairment charge of £50 million.
(iv) In 1997 Centrica re-negotiated certain long term Take or Pay
contracts which would have resulted in commitments to pay for
gas that would be excess to requirements and/or at prices
above likely market rates. A provision was made covering the
net present cost of estimated further payments resulting from
those renegotiations including one due for future settlement
in 2008 based on the reserves in a group of third party
fields. Published estimates of these reserves during the year
have indicated a reduction from the 1997 forecast level of
reserves. The provision has been reduced by £51 million based
on a conservative view of the revised reserve levels.
4 Earnings before exceptional items and goodwill amortisation
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Operating profit including joint ventures and
associates (before exceptional items) 698 605 897
Add back goodwill amortisation (note 3) 65 89 161
-------------- -------------- --------------
Operating profit before goodwill amortisation 763 694 1,058
Net interest payable (18) (29) (52)
Taxation on ordinary activities (before exceptional
items) (216) (186) (282)
Minority interest (before exceptional items) (9) - (10)
-------------- -------------- --------------
Earnings before exceptional charges and goodwill
amortisation 520 479 714
============== ============== ==============
5 Taxation
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Taxation charge before exceptional items 216 186 282
Tax on exceptional items (26) - (16)
-------------- -------------- --------------
190 186 266
============== ============== ==============
6 Dividends
It is intended to pay the interim dividend of 2.5 pence per share (2003: 1.7
pence per share) to shareholders together with the special dividend. The
payment date will be confirmed following completion of the AA sale. The
final 2003 dividend of 3.7 pence per share was paid in June 2004.
7 Earnings per share
6 months ended 6 months ended Year ended
30 June 2004 30 June 2003 31 Dec 2003
Earnings EPS Earnings EPS Earnings EPS
£m Pence £m Pence £m Pence
Earnings - basic 383 9.0 390 9.2 500 11.8
Exceptional items after tax and
minority interests 72 1.7 - - 53 1.2
Goodwill amortisation 65 1.5 89 2.1 161 3.8
------------ --------- ----------- ----------- ----------- ----------
Earnings - adjusted basic 520 12.2 479 11.3 714 16.8
============ ========= =========== =========== =========== ==========
Earnings - diluted 383 8.8 390 9.1 500 11.6
------------ --------- ----------- ----------- ----------- ----------
Weighted average number of
shares (million) used in the
calculation of basic and
adjusted basic EPS 4,246 4,229 4,235
Weighted average number of
shares (million) used in the
calculation of diluted EPS 4,331 4,280 4,296
------------ --------- ----------- ----------- ----------- ----------
8 Fixed asset investments
30 June 2003 31 Dec
As restated 2003
(note 16) As restated
30 June 2004 £m (note 16)
£m £m
Joint Ventures
Share of gross assets 1,130 923 1,014
Share of gross liabilities (1,027) (824) (920)
Other investments 3 4 3
-------------- -------------- --------------
106 103 97
============== ============== ==============
The group's share of joint ventures principally comprised its interest in
Humber Power Limited (electricity generation), Centrica Personal Finance
Limited (AA and British Gas personal loans activities), AA Financial
Services (AA credit card activities) and Luminus NV (energy supply).
Share of joint ventures' assets and liabilities
30 June 2004
Centrica
Humber Personal AA
Power Finance Financial Luminus
Limited Limited Services NV Other Total
£m £m £m £m £m £m
Share of gross assets 333 638 40 107 12 1,130
Share of gross liabilities (300) (633) (38) (50) (6) (1,027)
----------- ----------- ----------- ----------- ----------- -----------
33 5 2 57 6 103
=========== =========== =========== =========== =========== ===========
Net debt included in share of
gross assets and share of
gross liabilities (206) (631) (37) (17) (3) (894)
----------- ----------- ----------- ----------- ----------- -----------
9 Movements in shareholders' funds
6 months ended Year ended 31
30 June 2003 Dec 2003
6 months ended As restated As restated
30 June 2004 (note 16) (note 16)
£m £m £m
1 January 2,520 2,226 2,226
-------------- -------------- --------------
Profit attributable to the group 383 390 500
Dividends (108) (73) (229)
Exchange translation differences - - (4)
Issue of shares net of reserves movement on employee
share schemes 8 11 13
Shares to be distributed under long term incentive
scheme 3 8 14
-------------- -------------- --------------
Net movement in shareholders' funds for the period 286 336 294
-------------- -------------- --------------
Shareholders' funds at end of the 30 June/ 31 December
2,806 2,562 2,520
============== ============== ==============
10 Reconciliation of group operating profit to operating cash flow
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Continuing operations
Group operating profit 567 619 875
Add back:
Goodwill amortisation 62 78 144
Depreciation and impairment 257 211 394
Employee share scheme costs 4 8 16
Profit on sale of investments - (8) (8)
Profit on sale of fixed assets (2) - (3)
Provisions 105 30 (159)
(Increase)/decrease in working capital (217) (184) 34
-------------- -------------- --------------
Operating cash flow before exceptional payments:
Continuing operations 776 754 1,293
Payments relating to exceptional charges (7) - -
-------------- -------------- --------------
Cash inflow from continuing operations after
exceptional payments 769 754 1,293
-------------- -------------- --------------
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Discontinued operations
Operating loss - (37) (38)
Add back:
Goodwill amortisation - 7 11
Depreciation and impairment - 8 11
Provisions - (4) (3)
Decrease/(increase) in working capital - 2 (282)
-------------- -------------- --------------
Cash outflow from discontinued operations - (24) (301)
-------------- -------------- --------------
Cash inflow from operating activities after
exceptional payments 769 730 992
============== ============== ==============
Group operating cashflow from continuing operations includes the effect of
operating exceptional items. Group operating profit is stated after
exceptional items of £98m, depreciation includes £50m in relation to
exceptional items and the movement on provisions includes £47m in relation
to exceptional items.
11 Returns on investments and servicing of finance
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Interest received 30 20 54
Interest paid (23) (16) (61)
Interest element of finance lease rental payments (3) (4) (8)
-------------- -------------- --------------
4 - (15)
============== ============== ==============
12 Capital expenditure and financial investment
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Purchase of tangible fixed assets (137) (112) (323)
Sale of tangible fixed assets 10 20 39
Loans to joint ventures repaid 1 - 2
-------------- -------------- --------------
(126) (92) (282)
============== ============== ==============
13 Acquisitions and disposals
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Acquisitions:
Subsidiary undertakings and businesses (177) (40) (77)
Joint ventures and associates (1) (9) (10)
Deferred consideration - (26) (30)
-------------- -------------- --------------
Total cash payments (178) (75) (117)
Cash acquired 7 - -
Disposals:
Receipt on disposal of Goldfish credit card and loan
business 3 - 1,095
Repayment of Goldfish Bank working capital facility - - (701)
Proceeds from other disposals - 9 15
-------------- -------------- --------------
(168) (66) 292
============== ============== ==============
14 Financing
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Commercial paper:
Issued 45 236 204
Repaid (77) (236) (236)
Capital element of finance lease rentals (19) (19) (38)
Bonds issued - 20 17
Realised net foreign exchange gain/(loss) 36 (23) (12)
Investment by equity and non-equity minority
shareholders (8) 45 41
Issue of ordinary share capital 7 11 11
-------------- -------------- --------------
(16) 34 (13)
============== ============== ==============
15 Pensions
These statements have been prepared under SSAP 24. The group's main pension
schemes are subject to independent actuarial valuations for SSAP 24 purposes
at least every three years. The date of the most recent actuarial valuation
was 31 March 2001. The total pension and other retirement benefit costs
arising in the year and the reconciliation to the balance sheet provision
were as follows:
6 months ended 6 months ended Year ended 31
30 June 2004 30 June 2003 Dec 2003
£m £m £m
Pension and other retirement benefits provision at
1 January 30 75 75
Profit and loss charge 46 38 79
Employer contributions paid (71) (57) (124)
-------------- -------------- --------------
Pension and other retirement benefits provision at
30 June/31 December 5 56 30
============== ============== ==============
A triennial valuation of the defined benefit pension schemes as at 31 March
2004 is due to be received from the independent actuary before the end of
the year. For the purposes of the Interim Statement, without the results of
that valuation, the company has continued to calculate SSAP24 pensions costs
based on the last valuation at 31 March 2001. The surplus arising at the
last valuation has continued to be amortised for the 3 months to 31 March
2004, giving rise to a credit to the profit and loss account in the period
of £7 million. Any revisions to the pension fund contribution arising once
the latest valuation is completed will be reflected in the results for the 6
month period to 31 December 2004.
Set out below is indicative information on changes in net assets which
would arise from valuation of the pension scheme assets and liabilities
in accordance with FRS 17.
The major assumptions used for the actuarial valuation were:
30 June 2003 31 Dec
30 June 2004 % 2003
% %
Rate of increase in employee earnings 4.4 4.5 4.25
Rate of increase in pensions in payment and deferred
pensioner 2.9 2.5 2.75
Discount rate 5.8 5.5 5.5
Inflation 2.9 2.5 2.75
-------------- -------------- --------------
On this basis, the market value of the assets in the schemes
and the present value of the liabilities in the schemes were:
30 June 2003 31 Dec
30 June 2004 £m 2003
£m £m
Total fair value of assets 2,486 2,074 2,359
Present value of schemes' liabilities (3,454) (3,192) (3,430)
-------------- -------------- --------------
Deficit in the schemes (968) (1,118) (1,071)
Related deferred tax asset 290 335 321
-------------- -------------- --------------
Net pension liability (678) (783) (750)
============== ============== ==============
Under SSAP24 the group balance sheet includes a provision of £5
million at 30 June 2004. Had FRS17 been implemented in full at
that date, the net assets of the group would have been reduced by
£673 million.
Had FRS17 been implemented in full for the 6 months to June 2004, the charge
for pension costs in the profit and loss account would have increased by £38
million compared with that under SSAP24 as set out below:
FRS 17 SSAP 24 Increase
£m £m £m
Amount charged to operating profit 81 46 35
Amount charged to interest 3 - 3
-------------- -------------- --------------
Charge to profit and loss account 84 46 38
============== ============== ==============
16 Basis of preparation
(i) The financial information contained in this report is
unaudited, but has been formally reviewed by the auditors and
their report to the company is set out on page 14. The
information shown for the year ended 31 December 2003 does not
constitute statutory accounts within the meaning of Section
240 of the Companies Act 1985 and has been extracted from the
statutory accounts for the year ended on that date, except
that comparative information has been restated as a result of
the adoption of UITF 38 'Accounting for ESOP Trusts' ('UITF
38') as described in note 16 (ii). The report of the auditors
on the statutory accounts for the year ended 31 December 2003
was unqualified and did not contain a statement under Section
237 of the Companies Act 1985.
(ii) The interim financial statements have been prepared on the
basis of accounting policies set out in the group's 2003
statutory accounts, with the exception of the group's policy
in respect of own shares held under trust.
The group has implemented UITF 38 from 1 January 2004. UITF 38
requires own shares held under trust to be deducted in
arriving at shareholders' funds. Previously own shares held
under trust were presented as fixed asset investments.
Accordingly own shares held under trust at a book value of £17
million have been reclassified from fixed asset investments to
shareholders funds resulting in a reduction to the group's
previously reported net assets of £17 million at 31 December
2003. The reduction to the group's previously reported net
assets at 30 June 2003 as a result of this change in
accounting policy is £18 million. The implementation of UITF
38 had no material impact on the group's previously reported
profits and losses. Comparative figures have been restated in
the balance sheet and related notes.
The group has also implemented Revised UITF Abstract 17
'Employee Share Schemes' ('Revised UITF 17') from 1 January
2004. Revised UITF 17 requires the minimum profit and loss
charge for share options granted to be determined as the
intrinsic value. Previously the charge was based on either
intrinsic value or, where purchases of shares were made by an
ESOP trust at fair value, by reference to the cost of shares
available for the award less any contributions payable by the
employees. The implementation of Revised UITF 17 had no
material impact on the group's previously reported profits and
losses.
Enquiries
For further information please contact:
Kath Kyle, Director of Investor Relations
Tess Kershaw, Director of Media Relations
Telephone:
01753 494 085 (Media)
01753 494 900 (Investors and Analysts)
Facsimile:
01753 494 090 (Media)
01753 494 909 (Investors and Analysts)
Websites
www.centrica.com
www.house.co.uk
www.britishgasbusiness.co.uk
www.onetel.co.uk
www.centrica-sl.co.uk
www.directenergy.com
www.energyamerica.com
www.cplretailenergy.com
www.wturetailenergy.com
www.business.directenergy.com
www.luminus.be
www.luseoenergia.com
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Millstream
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