Preliminary results for the year ended 31 December 2019

Centrica Group

Year ended 31 December

2019

2018

Change

Total recordable injury frequency rate (per 200,000 hours worked) 1

1.06

1.02

4%

Total customers (year end)

13,024

13,021

0%

Customer account holdings (year end)

26,208

25,831

1%

Total customer energy consumption (TWh)

508

496

2%

Direct Group headcount 2

26,932

30,520

(12%)

1. Group, Divisional and Business Unit total recordable injury frequency rate (per 200,000 hours worked) is on a 12 month rolling basis.
2. Direct Group headcount excludes contractors, agency and outsourced staff.

Centrica Consumer

Year ended 31 December

2019

2018

Change

Total recordable injury frequency rate (per 200,000 hours worked)

1.47

1.35

9%

Brand NPS

 

 

 

British Gas

12

9

3pt

Bord Gáis Energy

23

33

(10pt)

Direct Energy

29

32

(3pt)

Hive

39

38

1pt

Customers (‘000)

 

 

 

UK energy only

5,255

5,575

(6%)

UK services only

1,860

1,896

(2%)

UK energy and services

1,825

1,726

6%

Home Solutions only (active customers not taking energy or services)

290

204

42%

Total UK

9,230

9,401

(2%)

Ireland

500

499

0%

North America

2,782

2,618

6%

Total customers (‘000)

12,512

12,518

(0%)

Customer account holdings (‘000)

 

 

 

UK energy supply

11,846

12,132

(2%)

UK services

7,876

7,512

5%

Home Solutions (active customers) 3

1,202

902

33%

Ireland 4

726

730

(1%)

North America energy supply

2,760

2,545

8%

North America services 5

608

799

(24%)

Total customer account holdings (‘000)

25,018

24,620

2%

Account holdings per customer 6

2.00

1.95

3%

Gross margin per UK energy customer (£)

128

165

(22%)

Cost per UK energy customer (£) 7

109

103

6%

Revenue per UK services customer (£)

388

388

0%

Cost per UK services customer (£)

330

348

(5%)

Adjusted gross revenue (£m)

11,956

11,870

1%

Adjusted gross margin (£m)

2,315

2,606

(11%)

Adjusted operating profit (£m)

505

750

(33%)

Adjusted operating cash flow (£m)

913

1,019

(10%)

3. Active Home Solutions customers only. The equivalent figure for cumulative customers can be found in the Business Unit KPIs appendix on pg16.
4. Includes services account holdings. 2018 has been restated accordingly.
5. Redefined to exclude minor contract add-ons on home warranty contracts. 2018 has been restated accordingly and includes 182,000 accounts associated with the Clockwork divestment.
6. Excludes Clockwork customers and accounts in 2018.
7. 2018 includes a one-off bad debt credit of £8 per customer.

Centrica Business

Year ended 31 December

2019

2018

Change

Total recordable injury frequency rate (per 200,000 hours worked)

0.40

0.61

(34%)

Brand NPS

 

 

 

British Gas Business

1

(12)

13pt

Direct Energy Business

32

28

4pt

Centrica Business Solutions

29

29

0pt

Customers (‘000)

 

 

 

UK

342

320

7%

North America

170

183

(7%)

Total customers (‘000)

512

503

2%

Customer accounts (‘000)

 

 

 

UK energy supply and services 8

709

700

1%

North America energy supply

475

505

(6%)

Centrica Business Solutions (sites)

6.1

5.6

9%

Total customer accounts (‘000)

1,190

1,211

(2%)

Customer energy consumption

 

 

 

UK electricity (TWh)

10.8

10.5

3%

UK gas (mmth)

484

433

12%

North America electricity (TWh)

80.7

84.3

(4%)

North America gas (mmth)

7,753

7,064

10%

Total customer energy consumption (TWh)

332

314

6%

Centrica Business Solutions revenue (£m)

285

209

36%

Centrica Business Solutions order book (£m)

663

559

19%

Adjusted gross revenue (£m)

13,759

14,492

(5%)

Adjusted gross margin (£m)

1,030

882

17%

Adjusted operating profit (£m)

217

75

189%

Adjusted operating cash flow (£m)

282

214

32%

8. Includes services account holdings. 2018 has been restated accordingly.

Upstream

Year ended 31 December

2019

2018

Change

E&P total recordable injury frequency rate (per 200,000 hours worked)

0.26

0.20

30%

E&P process safety incident rate – tier 1 & 2 (per 200,000 hours worked)

0.05

0.09

(44%)

E&P total gas production volumes (mmth)

2,339

2,592

(10%)

E&P total liquids production volumes (mmboe)

14.2

16.2

(12%)

E&P total production volumes (mmboe)

52.3

57.9

(10%)

E&P average achieved gas sales prices (p/therm)

42.9

49.3

(13%)

E&P average achieved liquid sales prices (£/boe)

44.1

41.2

7%

E&P Lifting and other cash production costs (£/boe)

15.2

14.3

6%

Nuclear power generated (GWh) 9

10,199

11,820

(14%)

Nuclear achieved power price (£/MWh) 9

49.2

45.1

9%

Upstream adjusted operating profit (£m)

179

567

(68%)

Upstream adjusted operating cash flow (£m)

635

1,012

(37%)

E&P free cash flow (£m) 10

141

483

(71%)

More:  Centrica donates £1m to Carers UK to help support carers during Coronavirus crisis

9. Centrica share of generation and achieved sales price.
10. See pages 64 to 65 for an explanation of the use of adjusted performance measures.

2019 performance
Centrica delivered customer account growth, higher net promoter scores in most businesses and significant cost efficiencies in excess of its target in 2019. However, the Company’s portfolio was impacted by a challenging environment, with the implementation of the UK default tariff cap, low UK natural gas prices and extensions to outages at the non-operated Hunterston B and Dungeness B nuclear power stations.

Reflecting these factors, adjusted operating profit and adjusted earnings per share were both down 35% and adjusted operating cash flow was down 18% compared to 2018. We also recognised £1,103m of net pre-tax exceptional charges, largely relating to impairments of E&P and Nuclear assets due to the reduction in commodity price forecasts and restructuring costs associated with the Group’s cost efficiency programme. Reflecting these exceptional charges and including the impact of a loss from certain re-measurements, the statutory loss attributable to shareholders for the period was £1,023m in 2019 compared to a profit of £183m in 2018.

Adjusted operating cash flow of £1,830m was within the Group’s 2019 targeted range of £1.8-£2.0bn and closing net debt of £3,181m was within the Group’s 2019 targeted range of £3.0-£3.5bn. We also delivered significantly higher adjusted earnings and adjusted operating cash flow in the second half of the year compared to the first half, as we indicated was expected in the Interim Results in July 2019. We delivered £315m of efficiency savings during the year, in excess of original £250m target. The proposed 2019 full year dividend per share is 5.0p, in line with the rebasing announced in July 2019.

Overall Consumer customer account holdings were up 722,000 in 2019. Importantly, UK Home accounts were up 78,000, with growth in services offsetting a 286,000 decline in energy supply. This decline was significantly reduced compared to a 742,000 decline in 2018 and was lower in the second half of 2019 than in the first half.

Strategic progress
We provided a strategic update alongside our Interim Results in July 2019. Since 2015 we have been repositioning Centrica towards the customer and we announced in July that we would be completing this shift by exiting oil and gas production, in addition to our previously announced intention to exit from Nuclear power generation. Centrica will become an international Energy Services and Solutions provider which will focus on its distinctive strengths of energy supply and its optimisation, and services and solutions centred around energy, with a major emphasis on helping our customers transition to a lower carbon future.

We are making progress towards delivering the business unit objectives we laid out in July, specifically the fundamental rebasing of UK Home, the refocusing of our Home Solutions activity towards the UK and Ireland, improving returns in North America Business and growing Centrica Business Solutions.

In addition, the simplified portfolio will enable further rebasing and focusing of Centrica, unlocking material additional efficiencies as be target becoming the lowest cost provider in all our markets by 2022, consistent with our chosen brand positioning and propositions. This will enable us to stabilise and grow customer numbers and gross margin. Including the £315m savings achieved in 2019, we have now delivered over £1.25bn of annualised cost efficiencies since 2016 and we are targeting to have delivered £2bn by 2022, including around £350m in 2020.

Outlook
In addition to pursuing the planned divestments of Spirit Energy and Nuclear, our focus in 2020 is on continuing to grow customer relationships, delivering further efficiencies, continuing to build on our customer-facing capabilities and maintaining financial discipline.

Our customer facing activities in Centrica Consumer and Centrica Business are expected to benefit from adjusted earnings and cash flow momentum in 2020, reflecting the improved performance in the second half of 2019. However, we expect the remaining legacy gas contract in Centrica Business to be loss-making in 2020. In addition, recent significant commodity price falls are expected to negatively impact achieved prices in both E&P and Nuclear in 2020, despite some benefit from forward hedging.

More:  British Gas reverses prepayment minimum top up level

Taking these factors into account, at 31 December 2019 commodity prices and assuming the current portfolio, we expect 2020 adjusted operating cash flow to be in the range £1.6bn-£1.8bn. This is lower than adjusted operating cash flow in 2019. However, the adjusted earnings impact from the lower commodity price environment is likely to be much less material, which includes the impact of lower depreciation resulting from the year-end impairments. As a result, we would expect the positive earnings momentum from our core customer-facing businesses to be broadly offset by the negative earnings impact from the legacy gas contract and the Upstream portfolio.

With 2020 capital expenditure expected to be around £800m in 2020, in line with 2019 and reflecting our continued focus on capital discipline, we expect Group sources and uses of cash flow to be broadly balanced in 2020. Reflecting this, we are expecting 2020 Group net debt to be in the range £3.2bn-£3.6bn, including an additional £0.2bn of lease commitments, before any impact from the planned disposals of Spirit Energy and Nuclear.

Adjusted operating profit and earnings

  • Group adjusted gross margin fell by £401m or 9% to £3,852m and adjusted operating profit fell by £491m or 35% to £901m compared to 2018.
  • Centrica Consumer adjusted gross margin was down £291m or 11% to £2,315m and adjusted operating profit was down £245m or 33% to £505m.
    • This includes a £300m negative revenue impact resulting from the implementation of the UK residential energy supply default tariff cap.
    • We delivered cost efficiencies of £229m in Consumer in 2019 and we also recognised a £34m credit relating to the renegotiation of one of our smart metering contracts. These positive impacts more than offset a negative effect from competitive pressures on underlying margins in energy supply and the non-recurrence of a bad debt provision release of £59m in UK Home in 2018.
  • Centrica Business adjusted gross margin was up £148m or 17% to £1,030m and adjusted operating profit was up £142m or 189% to £217m.
    • These increases reflect a significant improvement in achieved power retail margins in North America, good European trading and optimisation performance and a benefit from the decision to defer delivery of gas from 2019 into 2020 from the one remaining large legacy gas contract. Centrica Business also delivered £40m of cost efficiencies in 2019.
  • Upstream adjusted operating profit was down £388m or 68% to £179m.
    • Nuclear adjusted operating profit was down £27m or 59% to £19m largely reflecting lower output. This predominantly relates to extensions to outages at the Dungeness B and Hunterston B nuclear power stations, the impact of which was not fully offset by a higher achieved power price.
    • Exploration & Production adjusted operating profit was down £361m or 69% to £160m, including reduced achieved gas sales prices due to the lower wholesale commodity price environment and lower volumes from the Rough field reflecting the field’s natural decline. We also saw higher depreciation and amortisation rates following asset write-backs at the end of 2018 and a production mix shift to higher DDA rate fields, and higher field specific write-offs.
  • The net finance charge decreased by 7% to £255m, reflecting lower gross debt levels resulting from a bond repurchase programme completed in March 2018 and the maturity of a bond in September 2018.
  • The Group adjusted effective tax rate reduced from 41% to 34%, predominantly due to the more highly taxed E&P business contributing a significantly lower proportion of adjusted operating profit.
  • Adjusted earnings attributable to shareholders reduced by 34% to £419m and adjusted EPS fell by 35% to 7.3p.


More from: | Category: Finance and Utilities Company News