Final Results - Year Ended 31 December 1999
Centrica PLC
24 February 2000
Centrica plc
Preliminary Results
for the year ended 31 December 1999
(unaudited)
SUMMARY
Year ended Year ended
31 December 31 December
1999 1998
as restated
Turnover £7,217m £7,481m
Operating profit from continuing £365m £162m
operations
Profit before tax, exceptionals £417m £252m
and goodwill amortisation
Earnings before exceptionals £331m £176m
and goodwill amortisation
Operating cash flow before exceptionals £1,453m £870m
Earnings per share 4.3p 2.1p
Earnings per share before exceptionals 7.9p 4.0p
and goodwill amortisation
Special dividend per share - 12.0p
Ordinary dividend per share 2.5p -
- Domestic electricity targets exceeded
- AA acquisition completed
- Home Services sales growth of 13%
- Earnings per share doubled.
Commenting on the results, Chairman Sir Michael Perry said:
'1999 was a year of significant progress towards our vision of
becoming the leading supplier of products and services in and around
the home. The acquisition of the Automobile Association has added
another dimension to the range of services we can offer to
customers. Earnings growth was encouraging and operating cash flow
was once again strong. The Board proposes a final dividend of 1.5p
per share in addition to the interim dividend of 1p per share paid
in December. A special dividend of 12p per share was paid in June,
combined with a share consolidation.'
CHAIRMAN'S STATEMENT
In 1999 we made significant progress towards our vision of becoming
the leading supplier of products and services in and around the
home. We were satisfied with the levels of retention of domestic
gas customers, which stood at 73% at the end of December 1999,
particularly against a background of intensive competition in the
market place. At the end of 1999 we had 2.6 million electricity
customers who had signed to take supply, exceeding our growth target
for the year. Our Home Services business continued to grow
strongly, stimulated by new product introductions. In addition the
acquisition of the Automobile Association (AA) provides us with an
excellent base for growth into the future.
Financial Performance
I am pleased to report a substantially improved financial
performance compared with 1998. Earnings before exceptional charges
and amortisation of goodwill were £331 million compared with
£176 million last year, an increase of 88%. Lower gas costs, a
large part resulting from contract renegotiation in previous years,
and a higher level of own gas production contributed to this
improved performance. Operating cash flow before exceptionals at
£1,453 million was £583 million ahead of 1998 of which £450 million
came from a change in timing of transportation payments. At
31 December 1999 our net debt was £127 million compared with net
cash of £223 million at the previous year-end, after a net cash
outlay of £780 million to acquire the AA and payment of the special
dividend of £530 million.
Customer Service
Customer service and satisfaction continues to be a prime area of
focus and I am pleased to report that we have continued to make good
progress during 1999. However there is still much to be done and
we will be re-doubling our effort to raise standards once again in
2000.
Board
During the year Sir Sydney Lipworth and Sir Brian Shaw joined the
Board as non-executive directors. Bill Cockburn stood down as a non-
executive director and we are grateful for his valuable contribution
during an important period of our development.
Dividend
The Board proposes a final dividend of 1.5 pence per share, payable
in June 2000. When combined with the interim dividend of 1 penny
per share paid in December 1999, this gives a total ordinary
dividend in respect of 1999 of 2.5 pence. The Company also paid a
special dividend of 12 pence per share in June 1999, combined with a
share consolidation.
Strategy
The acquisition of the AA was an important milestone in the
development of our strategy. It provides the opportunity to forge
new relationships with over 10 million AA customers and brings the
considerable strength of the AA brand alongside British Gas and
Goldfish. Across the whole Group we will continue to invest for
growth, increasing our sales and developing a range of services that
will further secure mutually rewarding relationships with both new
and existing customers.
Sir Michael Perry, CBE
Chairman
24 February 2000
CHIEF EXECUTIVE'S REVIEW
Group Results
Turnover from continuing operations at £7,134 million was £178
million lower in 1999, compared with 1998. Domestic gas sales
volumes were down by 14% due to market share reductions, following
the full opening up of competition in May 1998. This decrease was
partly offset by revenue growth in the Home Services business, the
build up of electricity sales and the post acquisition turnover of
the AA of £150 million. The discontinued operations turnover of £83
million related to the Energy Centres' retail activity that was
closed during the second half of the year.
Operating profit from continuing operations of £365 million was £203
million better than in 1998. Most of the profit improvement was in
Energy Supply due to lower third party gas and storage costs and
higher gas production from our own field interests. In 1999 the
average unit cost of externally purchased gas was 15.6p compared
with 18.3p during 1998. Much of this reduction came about as a
result of the long-term take or pay gas contract renegotiations we
concluded over the last 3 years, and which largely took effect from
October 1998. Gas production volumes from our own field interests
were up by approximately 25% compared with 1998. This displaced
more expensive externally purchased gas which had the effect of
improving Group profit by approximately £50 million.
Progress continued in our Home Services business where operating
profit before exceptionals was £20 million, an improvement of £11
million compared with 1998. Following a strategic review, the
closure of the Energy Centres was announced in July 1999.
Inclusion of the AA for the last three months of the year and
further investment in growing our electricity business were the
primary reasons why underlying operating costs increased from
£1,055 million in 1998 to £1,249 million in 1999. In our gas supply
business operating costs reduced by 10% in the second half compared
to those incurred in the six months to June 1999.
Exceptional charges were £136 million (1998: £85 million) of which
£60 million was the cost of closing our Retail operations.
Restructuring costs of £36 million (1998: £3 million) comprised
£18 million in Energy Supply, £16 million in the AA and £2 million
in Home Services. In addition £10 million (1998: £19 million) was
incurred on Year 2000 computer system compliance preparations and
£30 million (1998: £63 million) in relation to gas contract
renegotiations.
Net interest payable was £7 million (1998: £39 million receivable),
after taking account of notional charges of £24 million (1998: £26
million) in connection with the unwinding of discounted long-term
liabilities. The switch to net interest payable reflects the
Group's move to a net debt position following the acquisition of the
AA and the payment of the special dividend.
The tax charge of £86 million (1998: £76 million) mainly related to
offshore gas production activities which are ring-fenced for tax
purposes. Taxable profits in other businesses are largely offset by
tax losses brought forward from earlier years.
Operating cash flow before exceptionals amounted to £1,453 million,
an increase of £583 million compared with 1998, of which £450
million arose on changes in payment arrangements for transportation
costs. In June a special dividend of £530 million was paid to
shareholders and £780 million, net of cash and money
market investments acquired, was paid in September 1999 to acquire
the AA. Net debt at the end of 1999 was £127 million, compared with
net cash of £223 million at the end of 1998.
Customer Service
We place the highest priority on quality of service to our customers
and track their perception of service delivery. In addition to
customer satisfaction tracking, undertaken by an external market
research agency, we closely monitor the level of complaints
received.
For British Gas as a whole, complaints to the Gas Consumers Council
(GCC) decreased by 3%. Complaints in our gas supply business,
excluding those relating to the switching of suppliers, fell by 18%
compared with last year. Including change of supplier complaints,
the overall levels of gas supply complaints rose in 1999 by 1%
compared with those in 1998.
During 1999, with the growth in British Gas Trading's electricity
customer base, complaints to the local offices of Ofgem (formerly
Offer) began to increase; however, over 80% of these complaints
resulted from the change of supplier process.
In our Home Services business the downward trend in complaints to
the GCC has continued, with a further fall of 11% in 1999. The AA
Roadside and Insurance businesses maintained their high standards of
customer satisfaction, with complaint levels remaining in line with
1998 levels.
Pricing Initiatives
Over the course of the year we reduced our prices to customers on
our Standard, Prompt and Prepayment gas tariffs. We also introduced
an Advance Payment tariff which offers customers a 15% saving from
standard prices.
We have guaranteed cheaper electricity prices than the local
electricity supplier until 2002 and by supplying both fuels we are
passing on administrative savings to customers.
Acquisitions
The acquisition of the AA gives us an excellent opportunity to
implement a key element of our strategy. The AA fits extremely well
with our other businesses, with its core activity of managing a
mobile patrol force having many parallels with our Home Services
business. The range of related financial services also complements
those we have been growing organically. We are honouring our pledge
to build on the AA's reputation for reliability and to invest in its
future as the 'fourth emergency service'.
Year 2000
Our computer system preparations for Year 2000 were completed on
schedule and we are pleased to report that as a result we have not
experienced any disruption to operations or customer service.
From commencement of the programme in 1997, we spent a total of £36
million on potential Year 2000 computer based issues, of which £29
million was treated as exceptional costs.
PERFORMANCE BY BUSINESS
Energy Supply
Operating profit for the year, before exceptional charges and
goodwill amortisation, was £461 million (1998: £248 million). This
improvement was largely achieved through lower unit gas and storage
costs, and a higher level of own gas production.
In the domestic gas sector, the operating profit before exceptionals
was £269 million (1998: £82 million). Higher margins
from lower gas and storage costs more than outweighed the financial
impact of a 14% volume reduction due to the effects of competition.
Our supply base in the domestic gas market at the end of December
1999 was 14.8 million homes, compared with 15.9 million homes at the
end of 1998.
Gas sales to the domestic market are particularly sensitive to
weather, which in turn can have a material impact on profits in our
gas business. In the past we have disclosed the estimated financial
impact of weather upon our performance using a long-term (65-year)
temperature average. In recent years there has been a shift in UK
weather patterns, with a tendency for average temperatures to be
generally warmer than experienced over the long-term. Accordingly
we now consider that a ten-year rolling average is more
representative of seasonally normal temperature. Using this as a
benchmark, the weather in each of the last two years was still
nevertheless regarded as 'warm'. Had the weather been normal as
defined by the ten-year rolling average, we estimate that our
operating profit in 1999 would have been £24 million higher (1998:
£10 million higher), and on a 65-year basis, operating profits would
have been £109 million higher in 1999 compared with £77 million
higher in 1998.
The domestic electricity market was fully opened to competition on
24 May 1999. By 31 December 1999 we had signed up 2.6 million
customers, an increase of 1.7 million in the year. The operating
loss sustained in 1999 of £156 million (1998: £86 million) partly
reflected our policy of expensing the costs of building up our
customer base.
In the non-domestic gas market we made an operating profit before
exceptionals of £20 million compared with a loss of £129 million in
1998. This substantial improvement reflected the benefit of lower
unit gas costs. Our Accord subsidiary made a profit of £26 million
from wholesale energy trades, £5 million lower than in 1998.
Volumes of gas traded by Accord increased by 50% but margins
declined as the UK market continued to mature.
Our own gas production contributed £302 million (1998: £350 million)
to operating profits. Production volumes from our South Morecambe
field were up substantially, resulting in total own gas production
being 25% higher than in 1998. The average unit price at which
these volumes were charged to our gas supply business was materially
lower than in the previous year. Whilst this has had a downward
effect on operating profits from gas production, there have been
corresponding benefits in terms of increased profitability in gas
supply and lower taxation on ring-fenced gas production. We have
continued to enhance our portfolio of equity gas by the purchase of
further field interests at a cost of £33 million. In January 1999,
£113 million of finance was raised from the sale and leaseback of
platform assets (1998: £92 million).
Home Services
The improvement in Home Services' financial performance continued
into 1999 with sales increasing by 13% compared with 1998. An
operating profit of £20 million before exceptionals was achieved
during 1999, compared with £9 million in 1998. This increase was
realised despite further significant levels of revenue investment in
new business ventures, including home security, electrical appliance
maintenance and plumbing cover.
In Great Britain, through our three star service product, we are the
market leader for gas appliance service and repair and we install
more monitored home security systems than any other supplier. In
1999 over 220,000 customers came to us for plumbing repair cover and
over 160,000 kitchen appliances are now protected under breakdown
contracts.
With the closure of our Energy Centres, we introduced a service to
provide cookers and fires through catalogues and the Internet.
AA
The AA was acquired on 23 September 1999. The results of AA
activities prior to that date are not included in Centrica's results
as they arose pre-acquisition. Subsequent results are mainly
included within the 'Road Services' and 'Financial Services'
segments whilst a number of smaller development activities are
included in 'Other'.
Road Services
For the last three months of 1999, the business made an operating
loss before exceptionals and goodwill amortisation of £3 million,
reflecting higher costs during the winter season. For the year as a
whole, turnover for Road Services was £438 million and the operating
loss before exceptionals was £9 million, compared with a loss of
£18 million in 1998. This was achieved primarily through increased
membership and improved efficiency. A key operating improvement was
the reduction from 8 to 3 deployment centres, made possible by
technology investment.
Customer research carried out during the year continued to reflect
the very high level of customer satisfaction displayed by members.
This was supported by the continuing focus on promptness of
attendance at breakdowns, the percentage fix rate at the roadside
and the speed of repair.
Over 4.2 million breakdown jobs were attended during the full year
and some 90% of breakdown telephone calls were answered within 15
seconds. AA Relay dealt with 940,000 recoveries during 1999 and
roadside assistance membership reached an all time high in the last
quarter with a customer base of 9.7 million.
Financial Services
The AA acquisition has expanded the Group's financial services
customer base and AA products are now being managed alongside those
under the British Gas and Goldfish brands. We are now able to offer
a broader range of loan and other personal finance products, the
majority of which are operated through joint ventures.
The Financial Services business, including the AA for the last three
months of 1999, made an operating loss before exceptionals and
goodwill amortisation, including share of joint ventures, of £8
million (1998: a loss of £12 million). The AA Insurance and
Financial Services activity for the year as a whole made an
operating profit before exceptionals, including share of joint
ventures, of £26 million, £9 million higher than in 1998.
Our Goldfish credit card joint venture now has over a million
cardholders, the customer base continues to grow and the card leads
the market in both usage and transaction value. During the year we
successfully launched a further range of cardholder services
including telecommunications and travel insurance, offered in
association with other partners. In 1999 the Group's share of the
operating loss in the credit card venture was £1 million (1998: loss
of £7 million).
We are now the UK's largest independent insurance intermediary with
1.6 million home and motor insurance policies in force by the year
end.
Retail
Following a period of further decline in retail market conditions,
the Energy Centre shops were closed at an exceptional cost of £60
million. Future retailing will be undertaken through the Internet
and the Home Services business, direct to the home.
Other Activities
Other activities include a range of AA and Goldfish branded
products, with potential for future growth. Goldfish Guides are now
available over the Internet.
Outlook
In our core energy business higher oil prices will result in an
increase in our gas costs from October 2000, whilst start up costs
in our electricity business will reduce as we benefit from the
significant customer base we have established. We anticipate that
the newly acquired AA businesses will be earnings enhancing in 2000,
before the amortisation of goodwill.
The regulatory regime under which our domestic gas supply business
operates will change from April 2000 to reflect the increasingly
competitive nature of the gas market. The regulator's final
proposals represent a demanding but acceptable settlement as part of
an overall package which will remove price controls for our Direct
Debit customers from April 2000 and signals a firm intention to
remove all price controls by April 2001, subject to continued
development of competition in the domestic gas market.
Our focus in 2000 will be to grow our core businesses in Energy
Supply, through electricity acquisition, and extend Home and Road
Services. We aim to launch our telecommunications offering including
fixed line, mobile and Internet in September 2000. This is a
natural extension to the services we already provide to our
customers and is important to our growth strategy. We also intend
to broaden our range of financial services through both Goldfish and
the AA, and we are accelerating our investment in e-commerce given
its growing importance to us as a distribution channel.
Following the recent announcement regarding the trading joint
venture with Essent NV, we have taken the first steps to position
ourselves as the energy markets liberalise in Europe. We believe
that our model as a consumer services business will serve us well
for the future.
Roy Gardner
Chief Executive
24 February 2000
Summary Group Profit and Loss Account
for the year ended 31 December 1999
Year Year
ended ended
31 December 31 December
1999 1998
£m £m
Notes as restated
Turnover: Continuing operations
before acquisitions 6,975 7,312
Acquisitions 4 159 -
Continuing operations 7,134 7,312
Discontinued operations 5 83 169
2 7,217 7,481
Cost of sales: underlying 3 (5,540) (6,212)
exceptional 6 (30) (63)
(5,570) (6,275)
Gross profit 1,647 1,206
Operating costs:underlying 3 (1,249) (1,055)
exceptional 6 (46) (22)
amortisation of goodwill 7 (13) -
(1,308) (1,077)
Operating profit/(loss):
Continuing operations before acquisitions 395 162
Acquisitions 4 (30) -
Continuing operations 365 162
Discontinued operations 5 (26) (33)
2 339 129
Share of profits less losses of
associates and joint ventures:
Continuing operations before acquisitions 5 (1)
Acquisitions (9) -
Continuing operations (4) (1)
335 128
Loss on closure of discontinued operations (60) -
Profit/(loss)on ordinary activities before interest:
Continuing operations before acquisitions 389 161
Acquisitions (28) -
Continuing operations 361 161
Discontinued operations (86) (33)
275 128
Net interest (7) 39
Profit on ordinary activities before taxation 268 167
Tax on profit on ordinary activities 8 (86) (76)
Profit for the financial year 182 91
Dividends 11 (100) (530)
Retained profit/(loss) for the financial year 82 (439)
Ordinary dividend per ordinary share 11 2.5p -
Special dividend per ordinary share 11 - 12.0p
Earnings per ordinary share:
Basic 12 4.3p 2.1p
Diluted 12 4.3p 2.0p
Adjusted Basic 12 7.9p 4.0p
There were no recognised gains or losses other than those shown
above. The prior year adjustment to reserves of £13 million is
explained in note 1.
Summary Group Balance Sheet
As at As at
31 December 31 December
1999 1998
£m £m
as
restated
Fixed assets
- Intangible 992 10
- Tangible and investments 1,913 1,937
2,905 1,947
Stock 84 127
Debtors due within one year 1,284 1,410
Debtors due after more than one year 120 173
Cash and investments 304 374
Creditors due within one year (2,138) (1,663)
Net current (liabilities)/assets (346) 421
Total assets less current liabilities 2,559 2,368
Creditors due after more than one year (178) (169)
Provision for liabilities and charges (1,414) (1,314)
Total assets less liabilities 967 885
Capital and reserves:
Share capital 222 222
Share premium 2 2
Merger reserve 467 467
Profit and loss account 276 194
Shareholders' funds 967 885
Movements in Shareholders' Funds
Year ended Year ended
31 December 31 December
1999 1998
£m £m
as restated
Shareholders' funds as at 1 January 885 1,322
Profit for the financial year 182 91
Dividends (100) (530)
Shares issued - 2
Shareholders' funds as at 31 December 967 885
Summary Group Cash Flow Statement
for the year ended 31 December 1999
Year ended Year ended
31 December 1999 31 December 1998
£m £m
as restated
Operating profit 339 129
Add back:
Exceptional charges and amortisation of goodwill 89 85
Depreciation and amortisation 269 207
Decrease in working capital 726 408
Other non-cash flow items 30 41
Operating cash flow before exceptionals:
Continuing operations before acquisitions 1,491 918
Acquisitions (20) -
Continuing operations 1,471 918
Discontinued operations (18) (48)
1,453 870
Expenditure relating to exceptional charges (135) (211)
Net cash inflow from operating activities 1,318 659
Dividends received from associates
and joint ventures 11 1
Returns on investments and servicing of finance 19 58
Taxation (163) (215)
Capital expenditure and financial investment (143) (70)
Acquisitions (1,162) (101)
Equity dividends paid (570) -
Cash (outflow)/inflow before financing (690) 332
Management of liquid resources 392 (285)
Financing 248 (42)
Net (decrease)/increase in cash (50) 5
Opening cash 19 14
Closing (overdraft)/cash (31) 19
Reconciliation of debt, net of cash
and investments £m £m
Cash and investments, net of debt as at 1 January 223 41
Money market investments/(debt) acquired 340 (139)
Net (decrease)/increase in money market investments (392) 285
Net (decrease)/increase in cash for the year (50) 5
New finance lease obligations (113) (99)
Net (increase)/decrease in other debt (135) 130
Debt, net of cash and investments
as at 31 December (i) (127) 223
(i) Debt, net of cash and investments as at 31 December 1999
comprised cash and money market investments of £304 million (1998:
£374 million), less bank overdrafts and loans of £247 million (1998:
£44 million) and finance lease obligations of £184 million (1998:
£107 million).
Notes
1 Basis of preparation
The preliminary results for the year ended 31 December 1999 are
unaudited. The financial information set out in this
announcement does not constitute the Company's statutory
accounts for the year ended 31 December 1999 or 31 December
1998. The financial information for the year ended 31 December
1998 is derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies. The
auditors reported on those accounts; their report was
unqualified and did not contain a statement under either
Section 237 (2) or Section 237 (3) of the Companies Act 1985.
The audit report on the statutory accounts for the year ended
31 December 1999 has not yet been signed. These accounts will
be finalised and delivered to the Registrar of Companies in due
course.
These results have been prepared using accounting policies
consistent with those used in preparing the Company's 1998
Annual Report and Accounts, except that Financial Reporting
Standard 12 'Provisions, Contingent Liabilities and Contingent
Assets' has resulted in full provision being made for the net
present cost of the de-commissioning of gas production
facilities. A corresponding asset has been recognised in
respect of the de-commissioning costs, which is subject to
amortisation charges on a unit of production basis. Notional
interest charges arise over time, based upon the discounted
liabilities. Previously the cost of de-commissioning
was being built up over the life of the gas fields concerned
on a unit of production basis. The effect upon current and prior years
is shown below:
Year ended Year ended
31 December 1999 31 December 1998
Within the Profit and Loss Account £m £m
Cost of sales 7 6
Net interest (3) (3)
Profit before taxation 4 3
Taxation (1) (1)
Profit for the financial year 3 2
Within the Cash Flow Statement
Operating profit after exceptionals 7 6
Depreciation and amortisation 4 4
Other non-cash flow items (11) (10)
Cash inflow from operating activities - -
As at As at
31 December 1999 31 December 1998
Within the Balance Sheet £m £m
Fixed assets 42 43
Provisions (26) (30)
Reserves 16 13
2 Segmental analysis for the year ended 31 December
Operating Operating
profit / profit /
(loss) (loss)
Turnover before after
exceptional exceptional
charges and charges and
goodwill goodwill
amortisation amortisation
1999 1998 1999 1998 1999 1998
£m £m £m £m £m £m
as as
restated restated
Energy Supply -
continuing operations 6,386 6,784 461 248 406 171
Home Services -
continuing operations 592 526 20 9 16 3
Road Services -
acquisitions 112 - (3) - (21) -
Financial Services
- continuing operations 2 - (13) (5) (13) (5)
- acquisitions 24 - 4 - (5) -
26 - (9) (5) (18) (5)
Other Activities
- continuing operations 4 2 (13) (7) (14) (7)
- acquisitions 14 - (3) - (4) -
18 2 (16) (7) (18) (7)
Continuing operations
before acquisitions 6,984 7,312 455 245 395 162
Acquisitions 150 - (2) - (30) -
Continuing operations 7,134 7,312 453 245 365 162
Discontinued operations
- Retail 83 169 (25) (31) (26) (33)
Total from operations 7,217 7,481 428 214 339 129
Share of profits less losses of
associates and joint ventures:
Energy Supply (5) 5
Financial Services 1 (7)
Other Activities - 1
424 213
Energy Supply and Home Services includes turnover from acquisitions of £2
million and £7 million respectively. The operating results from these
acquisitions were not material.
3 Underlying costs
Year ended Year ended
31 December 1999 31 December 1998
£m £m
as restated
Cost of sales - Continuing
operations before acquisitions 5,410 6,107
- Acquisitions 61 -
- Continuing Operations 5,471 6,107
- Discontinued Operations 69 105
5,540 6,212
Operating costs - Continuing
operations before acquisitions 1,119 960
- Acquisitions 91 -
- Continuing operations 1,210 960
- Discontinued operations 39 95
1,249 1,055
6,789 7,267
4 Acquisitions
On 23 September 1999 the Group acquired 100% of the share
capital of AA Corporation Limited - the Automobile Association
(AA) for a consideration of £1,119 million. After taking
account of net cash and money market investments acquired, the
Group's net cash outflow was £780 million. Goodwill arising of
£986 million has been capitalised in the Group's balance sheet
and is being amortised over 20 years. A goodwill amortisation
charge of £12 million is reflected in Centrica Group results
in the table below. The AA offers a range of roadside recovery
services, financial services and other related products. There
were no other material acquisitions during the year.
Turnover and operating profit/(loss) of the AA for the last
two years is set out below:
Operating Operating
profit / profit /
(loss) (loss)
before after
exceptional exceptional
charges and charges and
goodwill goodwill
Turnover amortisation amortisation
£m £m £m
1998
Excluded from Centrica
Group results:
Year ended 31 December 1998 590 (13) (54)
1999
Excluded from Centrica
Group results:
1 Jan 1999 to 22 Sept 1999 449 3 (49)
Included in Centrica
Group results:
23 Sept 1999 to 31 Dec 1999 150 (2) (30)
Year ended 31 Dec 1999 599 1 (79)
5 Discontinued operations
On 19 July 1999, the Group announced the closure of its Energy
Centres. The segment reported previously as 'Retail' has been
treated as 'discontinued operations' and a £60 million
exceptional charge has been recognised in the year ended 31
December 1999 in respect of closure costs.
6 Exceptional charges
Year ended Year ended
31 December 31 December
1999 1998
£m £m
Cost of sales:
Gas contract renegotiations
- continuting operations 30 63
Operating costs:
Year 2000 costs
- continuing operations
before acquisitions 9 18
- acquisitions - -
- continuting operations 9 18
- discontinued operations 1 1
10 19
Restructuring
- continuing operations
before acquisitions 20 2
- acquisitions 16 -
- continued operations 36 2
- discontinued operations - 1
36 3
Loss on closure of discontinued
operations 60 -
136 85
Year 2000 costs represent bought-in services.
7 Amortisation of goodwill
Year ended Year ended
31 December 1999 31 December 1998
£m £m
Operating costs
- continuing operations before
acquisitions 1 -
- acquisitions 12 -
13 -
8 Taxation
The charge comprised mainly corporation tax on 'ring-
fenced' offshore gas production.
9 Operating profit before exceptionals and goodwill
amortisation
Year ended Year ended
31 December 31 December
1999 1998
£m £m
as restated
Operating profit 339 129
Exceptional charge and goodwill
amortisation 89 85
Operating profit before exceptionals
and goodwill amortisation 428 214
10 Earnings before exceptionals and goodwill amortisation
Year ended Year ended
31 December 31 December
1999 1998
£m £m
as
restated
Profit on ordinary activities before
taxation 268 167
Exceptional charges and goodwill
amortisation 89 85
Loss on closure of discontinued
operations 60 -
149 85
Profit before tax, exceptionals and
goodwill amortisation 417 252
Taxation (86) (76)
Earnings before exceptionals and
goodwill amortisation 331 176
11 Dividends
A final dividend of 1.5p per share is proposed, which together
with the interim dividend of one penny per share, will bring
the total dividend for the year to 2.5p per share. The
dividend will be paid on 21 June 2000 to shareholders on the
register at 2 May 2000. In 1998, a special dividend of 12p
per share was declared, associated with a share consolidation.
This dividend was paid in June 1999.
12 Earnings per share
Basic and adjusted earnings per share (EPS) are calculated
as follows:
Year ended Year ended
31 December 1999 31 December 1998
Earnings EPS Earnings EPS
£m pence £m pence
as restated
Profit for the financial year 182 4.3 91 2.1
Add back exceptional charges and
goodwill amortisation 149 3.6 85 1.9
Earnings before exceptional charges
and goodwill amortisation 331 7.9 176 4.0
Average number of shares (million)
used in the calculation of basic and 4,186 4,419
adjusted basic earnings per share
Average number of shares (million)
used in the calculation of diluted 4,249 4,464
earnings per share
REVIEW OF THE SIX MONTHS ENDED 31 DECEMBER 1999
Group Results
Turnover from continuing operations was £45 million higher when
compared with the equivalent period in 1998. Domestic gas market
share losses were partly offset by growth in electricity sales and
in Home Services, which was up 10% compared with 1998. The
acquisition of the AA at the end of September 1999 added £150
million to turnover during the period. Discontinued operations'
turnover comprised retail activity; the closure of the Energy Centre
shops was announced in July 1999.
Operating profit from continuing operations, before acquisitions, at
£115 million was £48 million higher than in the last six months of
1998. Lower unit gas costs in Energy Supply, Home Services
improvements (£6 million better before exceptionals), and the
elimination of Retail losses following the closure of the Energy
Centres, were partly offset by higher revenue investment in
Financial Services.
Operating costs included £91 million of AA costs. The AA operating
loss of £30 million for the last three months of 1999 included
goodwill amortisation of £12 million and exceptional restructuring
costs of £16 million.
In line with expectations, the closure of the Energy Centres led to
a further exceptional charge of £18 million, in addition to the
£42 million provision booked in the first half of 1999.
Net interest payable was £14 million in the six months ended 31
December 1999 compared with net interest receivable of £22 million
in the equivalent period in 1998. This reflected the impact of the
£530 million special dividend paid in June 1999 and net outflows of
£780 million relating to the acquisition of the AA in September
1999.
Operating cash inflow before exceptionals of £552 million, was £355
million higher than in the last six months of 1998. The second half
of 1999 benefited by (£450 million) as a result of changes in
transportation payment terms.
Summary Group Profit and Loss Account
for the 6 months ended 31 December 1999
6 months 6 months
ended ended
31 December 1999 31 December 1998
Notes
£m £m
as restated
Turnover:Continuing operations
before acquisitions 3,156 3,267
Acquisitions d 156 -
Continuing operations 3,312 3,267
Discontinued operations e 18 89
b 3,330 3,356
Cost of sales: underlying c (2,518) (2,715)
exceptional f (30) (36)
(2,548) (2,751)
Gross profit 782 605
Operating costs: underlying c (663) (541)
exceptional f (22) (14)
amortisation of goodwill g (13) -
(698) (555)
Operating profit / (loss):
Continuing operations
before acquisitions 115 67
Acquisitions d (30) -
Continuing operations 85 67
Discontinued operations e (1) (17)
b 84 50
Share of profits less losses of
associates and joint ventures:
Continuing operations
before acquisitions 5 2
Acquisitions (9) -
Continuing operations (4) 2
80 52
Loss on closure of discontinued operations (18) -
Profit/(loss)on ordinary
activities before interest:
Continuing operations
before acquisitions 109 69
Acquisitions (28) -
Continuing operations 81 69
Discontinued operations (19) (17)
62 52
Net interest (14) 22
Profit on ordinary activities
before taxation 48 74
Tax on profit on ordinary activities (43) (36)
Profit for the financial period 5 38
Dividends (60) (530)
Retained loss for the financial period (55) (492)
Ordinary dividend per ordinary share 1.5p -
Special dividend per ordinary share - 12.0p
Earnings per ordinary share:
- Basic h 0.1p 0.9p
- Diluted h 0.1p 0.8p
- Adjusted Basic h 2.2p 2.0p
There were no recognised gains or losses other than those shown above. The
prior year adjustment to reserves of £13 million is explained in note 1.
Summary Group Cash Flow Statement
for the 6 months ended 31 December 1999
6 months ended 6 months ended
31 December 31 December
1999 1998
£m £m
as
restated
Operating profit 84 50
Add back:
Exceptional charges and amortisation 65 50
of goodwill
Depreciation and amortisation 135 115
Decrease/(increase) in working capital 260 (30)
Other non-cash flow items 8 12
Operating cash flow before
exceptionals:
Continuing operations before acquisitions 571 205
Acquisition (20) -
Continuing operations 551 205
Discontinued operations 1 (8)
552 197
Expenditure relating to exceptional
charges (89) (160)
Net cash inflow from operating
activities 463 37
Dividends received from associates and
joint ventures 11 1
Returns on investments and servicing
of finance 4 36
Taxation (154) (213)
Capital expenditure and financial
investment (86) (51)
Acquisitions (1,162) (94)
Equity dividends paid (40) -
Cash outflow before financing (964) (284)
Management of liquid resources 767 339
Financing 173 (40)
Net (decrease)/increase in cash (24) 15
Opening (overdraft)/ cash (7) 4
Closing (overdraft)/cash (31) 19
a Basis of preparation
The restatement of comparative figures, included within the
financial results for the 6 months ended 31 December 1999, is
explained in note 1 on page 11. The effect upon current and
prior periods is shown below:
6 months ended 6 months ended
31 December 31 December
Within the Profit and 1999 1998
Loss Account: £m £m
Cost of sales 2 2
Net interest (1) (2)
Profit before taxation 1 -
Taxation - -
Profit for the financial 1 -
period
Within the Cash Flow
Statement:
Operating profit after
exceptionals 2 2
Depreciation and
amortisation 2 2
Other non-cash flow items (4) (4)
Cash inflow from
operating activities - -
b Segmental analysis for the 6 months ended 31 December
Operating Operating
profit / profit / (loss)
(loss) after
Turnover before exceptional
exceptional charges and
charges and goodwill
goodwill amortisation
amortisation
1999 1998 1999 1998 1999 1998
£m £m £m £m £m £m
as restated as restated
Energy Supply
- continuing operations 2,847 2,984 158 115 126 71
Home Services -
- continuing operations 310 281 12 6 9 2
Road Services -
- acquisitions 112 - (3) - (21) -
Financial Services -
- continuing operations 2 1 (10) (2) (10) (2)
- acquisitions 24 - 4 - (5) -
26 1 (6) (2) (15) (2)
Other Activities -
- continuing operations 3 1 (9) (4) (10) (4)
- acquisitions 14 - (3) - (4) -
17 1 (12) (4) (14) (4)
Continuing operations
- before acquisitions 3,162 3,267 151 115 115 67
Acquisitions 150 - (2) - (30) -
Continuing operations 3,312 3,267 149 115 85 67
Discontinued operations
- Retail 18 89 - (15) (1) (17)
Total from operations 3,330 3,356 149 100 84 50
Share of profits less losses of
associates and joint ventures:
Energy Supply (8) 4
Financial Services 5 (2)
Other Activities (1) -
145 102
Energy Supply and Home Services includes turnover from acquisitions of £2
million and £4 million respectively. The operating results from these
acquisitions were not material.
c Underlying costs
6 months 6 months
ended ended
31 December 31 December
1999 1998
£m £m
as restated
Cost of sales
- Continuing operations before
acquisitions 2,437 2,660
- Acquisitions 61 -
- Continuing operations 2,498 2,660
- Discontinued operations 20 55
2,518 2,715
Operating costs
- Continuing operations before
acquisitions 574 492
- Acquisitions 91 -
- Continuing operations 665 492
- Discontinued operations (2) 49
663 541
3,181 3,256
d Acquisitions
See note 4.
e Discontinued operations
See note 5.
f Exceptional charges
6 months 6 months
ended ended
31 December 31 December
1999 1998
£m £m
Cost of sales:
Gas contract renegotiations - 30 36
Continuing operations
Operating costs:
Year 2000 costs
- Continuing operations before
acquisitions 3 10
- Acquisitions - -
- Continuing operations 3 10
- Discontinued operations 1 1
4 11
Restructuring
- Continuing operations before
acquisitions 2 2
- Acquisitions 16 -
- Continuing operations 18 2
- Discontinued operations - 1
18 3
Loss on closure of discontinued
operations 18 -
70 50
Year 2000 costs represent bought-in services.
g Amortisation of goodwill
6 months 6 months
ended ended
31 December 31 December
1999 1998
£m £m
Operating costs
- continuing operations
before acquisitions 1 -
- acquisitions 12 -
13 -
h Earnings per share
Basic and adjusted earnings per share (EPS) are calculated
as follows:
6 months 6 months
ended ended
31 December 31 December
1999 1998
Earnings EPS Earnings EPS
£m pence £m pence
as restated
Profit for the financial period 5 0.1 38 0.9
Add back exceptional charges and
goodwill amortisation 83 2.1 50 1.1
Earnings before exceptional charges
and goodwill amortisation 88 2.2 88 2.0
Average number of shares (million)
used in the calculation of basic and 3,969 4,417
adjusted basic earnings per share
Average number of shares (million)
used in the calculation of diluted 4,037 4,466
earnings per share
Enquiries
For further information please contact:
Charles Naylor, Director of Corporate Affairs
Chris Milburn, Head of Investor Relations
Telephone:
01753 758 442/3/4/5 (Press)
01753 758 112/3/4 (Shareholders and Analysts)
Facsimile:
01753 758 440 (Press)
01753 758 472 (Shareholders and Analysts)
Internet:
www.centrica.co.uk
www.gas.co.uk
www.goldfish.com
www.theaa.com
Financial Calendar
1999 Annual Report and Accounts published End of March 2000
Ex-dividend date for 1999 proposed final dividend 25 April 2000
Record date for 1999 proposed final dividend 2 May 2000
Annual General Meeting 8 May 2000
Proposed 1999 final dividend payment date 21 June 2000
2000 Interim results announcement 7 September 2000
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