CNA: Centrica PLC: Final Results UK Regulatory Announcement LONDON CENTRICA PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012 OPERATING AND FINANCIAL OVERVIEW STRONG PERFORMANCE ALLOWS US TO CONTRIBUTE OUR FAIR SHARE *Adjusted earnings up 5% to £1,406 million; 27.1 pence adjusted basic earnings per share *After a warm 2011, cooler weather saw average domestic gas consumption increase by 12% *Centrica Energy and Direct Energy benefiting from enhanced scale; adjusted operating profit in the UK up by 2%, adjusted operating profit from non-UK operations up by 78% *Adjusted Group tax charge of £1.1 billion, £773 million relating to the UK; 44% Group effective tax rate *Share repurchase of £500 million announced and full year dividend up 6% to 16.4 pence per share, benefiting over 700,000 individual shareholders and pension funds REFRESHED STRATEGIC PRIORITIES TO REFLECT CHANGING MARKET CONDITIONS *Vision to be the leading integrated energy company, with customers at our core *New leadership structure, to implement our refreshed strategic priorities: *Innovate to drive growth and service excellence *Integrate our natural gas business, linked to our core markets *Increase our returns through efficiency and continued capital discipline *Build on our distinctive capabilities downstream, with North America a more material part of the Group *Optimise and develop our upstream gas portfolio, investing where we see attractive value HELPING OUR CUSTOMERS IN DIFFICULT TIMES *Clear and simple bill design and tariffs; helping customers to understand why external costs are rising and how to find the best tariff for them, with our personalised tariff checker product *5 star customer service rating from Consumer Focus *400,000 customers to receive £130 Warm Home Discount *British Gas residential energy returned to customer account growth in the early weeks of 2013, following 1% decline in 2012 *Added over 200,000 residential customer accounts in Direct Energy; innovative offerings and high levels of customer service SECURING SUSTAINABLE AND AFFORDABLE ENERGY SUPPLIES *£2.7 billion invested in 2012 *Construction of £1.4 billion North Sea Cygnus gas field started, creating 4,000 UK jobs and producing gas for 1.5 million UK homes *First power from Lincs offshore wind farm, will supply electricity for 200,000 UK homes; first production from three gas fields in last 12 months; York and Rhyl first gas expected in coming weeks *Positive results from exploration drilling at Rodriguez and Whitehaven in early 2013, following lower levels of drilling success in 2012 *Commitments to secure gas and power for the UK totalling more than £50 billion “We have taken the lead during 2012 in helping more households save energy and supporting the people who need the most help. It’s important that Centrica makes a fair and reasonable return so that we can continue to make our contribution to society and to invest. Last year we incurred a tax charge of over £1billion and invested over £2 billion to secure new sources of energy for the UK, well in excess of our profits.” Sam Laidlaw Chief Executive Unless otherwise stated, all references to operating profit or loss, taxation and earnings numbers throughout the announcement are adjusted figures, as reconciled to their statutory equivalents in the Group Financial Review on pages 9 and 10. Statutory earnings for the year are £1,273 million. FINANCIAL PERFORMANCE For the year ended 31 2012 2011 ∆ December Revenue from continuing £23.9bn £22.8bn 5% operations Adjusted operating profit British Gas Residential energy supply £606m £544m 11% Residential services £312m £269m 16% Business energy supply £175m £192m (9%) and services Total British Gas £1,093m £1,005m 9% Centrica Energy Gas £919m £769m 20% Power £311m £254m 22% Total Centrica Energy £1,230m £1,023m 20% Centrica Storage £89m £75m 19% Direct Energy £331m £312m 6% Total adjusted operating £2,743m £2,415m 14% profit Total adjusted taxation £1,110m £891m 25% charge Total adjusted effective 44% 40% 4ppt tax rate Adjusted earnings £1,406m £1,333m 5% Adjusted basic earnings 27.1p 25.8p 5% per share Full year dividend per 16.4p 15.4p 6% share Group capital and £2,727m £1,601m 70% acquisition expenditure To align with management responsibilities and reporting, the British Gas Community Energy and British Gas New Energy businesses have been reallocated from the Residential energy supply segment to the Business energy supply and services and Residential services segments respectively. The 2011 comparatives have been restated accordingly. KEY OPERATIONAL PERFORMANCE INDICATORS For the year ended 31 December 2012 2011 ∆ UK residential energy customer accounts 15,656 15,881 (1%) (period end, ’000) UK residential services product holdings 8,402 8,484 (1%) (period end, ’000) UK business energy supply points (period end, 924 999 (8%) ’000) Centrica Energy gas production (mmth) 2,441 2,160 13% Centrica Energy liquids production (mmboe) 16.3 12.5 30% Centrica Energy total gas and liquids 56.7 48.2 18% production (mmboe) Centrica Energy total proven and probable gas 525 410 28% and liquids reserves (mmboe) Centrica Energy power generated (TWh) 21.5 26.7 (20%) Direct Energy residential energy and services 5,856 5,647 4% accounts (period end, ’000) Direct Energy business energy supply 51.4 46.4 11% electricity volumes (TWh) North America total proven and probable gas 108 109 (1%) and liquids reserves (mmboe) Lost time injury frequency rate (per 100,000 0.20 0.25 20% hours worked) UK residential services product holdings have been restated to exclude the water supply pipe product, which has been incorporated into the plumbing and drains product. STATUTORY RESULTS For the year ended 31 December 2012 *Operating profit from continuing operations: £2,625m (2011: £1,414m) *Profit from continuing operations before taxation: £2,442m (2011: £1,268m) *Earnings: £1,273m (2011: £421m) *Basic earnings per ordinary share: 24.6p (2011: 8.2p) *Earnings include £481m of exceptional charges relating to provisions for North American wind power purchase agreements, restructuring charges, an impairment relating to our decision not to proceed with nuclear new build and a restriction on the rate of tax relief on UK oil and gas decommissioning costs. CHAIRMAN’S STATEMENT REVIEW OF THE YEAR It is now three years since we defined our strategic objectives to build a more sustainable, vertically integrated, cost effective and customer focused business, with meaningful geographic diversity. We were clear that to achieve this objective we would need to grow British Gas, acquire upstream assets on value creative terms and expand the scale of our North American activity. I am pleased to confirm that in 2012 we demonstrated, through strong operational performance and acquisition, our considerable progress in achieving these strategic goals. In the UK the year brought many challenges, with periods of colder weather compared to the very mild conditions of 2011 contributing to higher energy bills, and with material changes in the regulatory environment. The management team dealt with all of the turbulence with great professionalism and commitment. British Gas took the lead in simplifying tariffs and implemented changes consistent with Ofgem’s proposals for retail market reform. In parallel we continued to innovate with smart metering, to help consumers manage their energy usage, and to support customers with free insulation to reduce their consumption. A relentless focus on cost management helped British Gas implement the lowest tariff increase of all the major energy suppliers, necessitated by higher wholesale energy costs, Government driven green energy costs and the imposition of additional infrastructure charges. Nevertheless, the very real concerns of hard pressed consumers, fuelled by external commentary, has impacted public trust in the industry and in British Gas as the nation’s largest energy supplier in particular. Centrica is one of the UK’s most important companies, employing around 40,000 people, keeping homes warm and well lit, securing future energy supplies, innovating and investing and paying substantial amounts of tax to the Treasury each year. We also have over 700,000 individual shareholders, all of whom benefit from the dividends the Company pays. Through our larger shareholders, many of them pension funds, our dividends also feed into the retirement savings of millions of people. It is important therefore that the Group continues to grow and invest. The 5% increase in adjusted earnings we achieved in 2012 enabled us to invest more and to continue to grow our dividend in real terms. The importance of winning recognition for our contribution to the UK economy and building public trust continue to be priority items on our agenda. Upstream we invested around £2 billion in helping secure gas supplies for the UK. In parallel we achieved first power from our Lincs offshore wind farm and worked with our partners in extending the life of our existing nuclear fleet. We took the decision not to participate in new nuclear construction with EDF due to higher anticipated costs and a lengthened construction schedule. This will enable us to return some of the capital we had raised for this purpose through a £500million share repurchase programme. In North America, a carefully executed strategy of operational efficiencies, organic growth and customer acquisition helped us to further expand our business – and we are well on the way to doubling profitability since 2009. With a change in the centre of gravity in our North American activities we moved the corporate headquarters from Toronto to Houston and our ambition to further extend our role in this market remains a strategic priority. The impact of shale gas in North America cannot be overstated and whilst its immediate effect has been to lower wholesale gas prices in the US market, there is no doubt it will influence global energy markets over time. Our strategic vision is to be the leading integrated energy company, with customers at our core. The way in which we achieve this must reflect the changes in markets and sources of supply together with a constant assessment of costs and return for shareholders. Our aim in 2013 and beyond will be to focus on three strategic priorities – innovate to drive growth and service excellence, integrate our natural gas business, linked to our core markets, and increase our returns through efficiency and continued capital discipline. We will achieve these goals by differentiating our UK business through our systems and innovation to provide a competitive edge and investing upstream for value, while maintaining our structural hedge. In North America we will grow our customer base and service business and seek to enhance our midstream and upstream position by acquisition, when strategic fit and returns are attractive. We believe that under the leadership of Sam Laidlaw we have developed a strong platform on which we can build a rewarding future for both customers and shareholders. This has been achieved with the considerable commitment of the management team and the skills and enthusiastic support of colleagues on both sides of the Atlantic. The period ahead will bring new challenges. In order to ensure the organisation of our management team is appropriate for the task ahead, with effect from 1 July 2013 the Group will migrate from a regional structure to an international functional structure. Chris Weston will assume responsibility for downstream operations and Mark Hanafin will assume responsibility for upstream operations across the Group. After a successful career spanning 12 years with Centrica, Phil Bentley will be stepping down from his role as ManagingDirector of British Gas, and Board member of Centrica, on 30June 2013 and will leave the Company by 31December 2013. Phil Bentley has made a substantial contribution to the development of the business, initially as Finance Director and for the last six years as Managing Director of British Gas. In his most recent role he has been instrumental in restructuring, reinvigorating and materially improving the performance of the business by raising customer service, lowering costs and increasing productivity. As Chairman, and on behalf of the Board, I thank him for all that he has achieved and wish him every success for the future. I am confident that the bench strength we enjoy, the mindset we have, the new management structure and business model we have created will continue to deliver strong cashflows, enabling us to invest in customer service, supply security and shareholder reward. Sir Roger Carr Chairman 27 February 2013 CHIEF EXECUTIVE’S REVIEW STRONG PERFORMANCE IN 2012 ALLOWS US TO CONTRIBUTE OUR FAIR SHARE Centrica performed well in 2012 in a challenging environment, delivering year-on-year adjusted earnings growth of 5%. This reflects a combination of organic growth and enhanced scale from recent acquisitions and investments, in the UK, Norway and North America, as well as a continued focus on cost efficiency across the Group. As a result we have been able to grow the full year dividend by more than the rate of inflation for the 13^th year in succession, in addition to launching a £500 million share repurchase programme in early 2013. Downstream at British Gas, we are facing increased costs in supplying energy, most of which are external to the Group. In this tough economic climate, we are committed to doing everything we can to help our customers. We have made sure that energy choices are simple and transparent, and we lead the way in standards of customer service, innovation, help for the vulnerable and energy efficiency. The weak economy continues to have an adverse impact on British Gas Business. However we were able to deliver strong double-digit profit growth in British Gas Services, largely through tight cost control coupled with continuing high standards of service. Upstream at Centrica Energy, we continue to invest to secure energy supplies for the UK. We completed three acquisitions of gas and oil assets, delivering a step change in annual production and strengthening the geographic spread of our portfolio. In power, our Lincs offshore wind farm has generated first power and will be fully operational later in 2013. While market conditions remain challenging for gas-fired plants, the nuclear fleet performed well, with increased output and seven year life extensions for Hinkley Point B and Hunterston B. In nuclear new build, while significant progress has been made, there remains uncertainty about overall project costs and the construction schedule. These factors, in particular the lengthening time frame for a return on the capital invested in a project of this scale, has led us to conclude that participation is not right for Centrica and in February 2013 we announced our decision not to participate. In Centrica Storage, we delivered an increase in profit through strong operational and commercial performance. And in North America, at Direct Energy we delivered further profit and customer growth in an environment of low gas prices and we have successfully integrated recent acquisitions into the business. We continue to see NorthAmerica as an attractive market to deploy capital, both upstream and downstream, for growth and for value. We remain on track to deliver our Group-wide £500 million cost reduction programme, sharpening the business and maintaining our competitive edge. At the same time we have retained our absolute focus on safety which continues to be a core priority across all our activities. Our downstream businesses have continued their significant reduction in accident rates, while our upstream operations have been implementing more rigorous process safety management systems. At a Group level we have developed a more comprehensive process to provide greater assurance of HSE compliance to the Board and Executive. This strong safety culture is reflected in our performance, with the Lost Time Injury Frequency Rate (LTIFR) falling by 20%. Overall, Centrica is delivering consistent earnings growth and it is this which allows us to make our fair contribution to the economy and society through investment, employment, tax payments and dividends. HELPING OUR CUSTOMERS IN DIFFICULT TIMES Taking the lead in making energy choices simple and transparent In February 2013, Ofgem announced that it was preparing for final proposals and a statutory consultation to be published around the end of March 2013 on its reforms to make the household energy market simpler, clearer and fairer for consumers. These follow on from initial findings published in March 2011 and updated proposals announced in October 2012. The headline proposals are a welcome step forward for the industry and will help to improve customer trust, engagement and understanding. However, it is important that these positive developments do not have the unintended consequence of restricting choice and innovation. We have already implemented a number of changes consistent with the headline proposals, including simplifying our tariff structures and publishing price comparison information to make it easy for customers to ensure they are on the most appropriate British Gas tariff for them. Customer service, cost efficiency and innovation remain at the heart of everything we do. British Gas operating costs fell year-on-year, but not at the expense of service, as our Net Promoter Score (NPS) increased once again, to +30, and we were awarded the top 5 star rating for customer service from Consumer Focus. Our improved online platform handled 13% more transactions than in 2011, achieving a better customer experience and lower costs. Our new ‘Remote Heating Control’ product allows customers to monitor and control their energy use when they are away from the home, and we have now installed over 800,000 smart meters for homes and businesses - substantially more than any other UK energy supplier. We also spend more than any other energy supplier on those who are most in need of support. In 2012, 400,000 of our most vulnerable customers received the Warm Home Discount, now worth £130 off their annual bill. We are also at the forefront of measures to help people use less energy, installing insulation for nearly 700,000 customers during the year. Despite the squeeze on household budgets, British Gas Services performed well. We improved retention rates across our product range, demonstrating the value which customers place on our services. However, in current economic conditions it is difficult to attract new customers and we also saw a reduction in boiler installation volumes, down 10% from last year. The economic impact was seen more clearly in British Gas Business, leading to lower profitability and a reduction in the number of accounts served in a highly competitive market. We are therefore taking steps to put this business on a stronger footing for long-term growth, including introducing new systems to improve levels of customer service, at lower cost. Over time, we also expect to achieve growth in business services, particularly through Energy Performance Contracts. Innovation in North America In North America, greater competition has been welcomed by regulators and customers in our core markets, Texas and the US North East. Acquisitions and organic growth have increased the size of our business and we now have 3.5 million residential energy customer accounts and around 6 million residential energy and services accounts in total. We continue to focus on providing attractive and innovative products to our residential and business customers, building on our Group-wide expertise in competitive markets. Our prepaid ‘Power to Go’ product in Texas continues to grow, while in the US North East the introduction of ‘Free Power Saturdays’ has encouraged customers to rephase their electricity use to off-peak times. We are specifically tailoring offers for small business customers while continuing to deliver high levels of service. And our energy services business gives us the ability to differentiate ourselves from our competitors with additional higher margin propositions. In Ontario, restrictions on competition continue to make it difficult for us both to retain customers and attract new ones. We no longer view this business as core and are managing costs to continue serving our existing customers as efficiently as possible. SECURING SUSTAINABLE AND AFFORDABLE ENERGY SUPPLIES The Group invested £2.7 billion of capital in 2012, helping to secure supplies for the UK. Around £2 billion of that was invested in North Sea gas and oil assets, including the completion of three acquisitions. This materially increased the scale and geographic diversity of the business and Norway is now a core part of our portfolio, with a number of attractive producing, development and exploration assets. Over the past three years we have developed significant capabilities in upstream and midstream, leaving us well placed for future growth. We achieved first gas from our Ensign, Seven Seas and Atla development projects during the year, with first gas expected from York and Rhyl in the coming weeks. In early 2013, we had positive results from exploration drilling at Rodriguez and Whitehaven. However we recorded a lower level of drilling success in 2012 than in previous years, including a development well failure at Ensign which resulted in a pre-tax write-off of £73 million. Construction has now begun at the £1.4billion Cygnus project. Cygnus is the largest gas discovery in the Southern North Sea in the last 25 years and will create 4,000 jobs during the construction phase, predominantly in the UK. At peak production it will be able to meet the demand of nearly 1.5 million UK homes. We achieved first power from our 270MW Lincs offshore wind farm in the year. When fully operational by the second half of 2013 it will be able to meet the annual demand of more than 200,000 homes. We were also granted planning consent for 580MW at the Race Bank offshore wind farm project. We are willing to commit £200 million for the project, and are in discussion with a financial partner and the Government concerning the economic framework. Investment in the existing nuclear fleet is ongoing, with the expectation for nuclear plant life extensions for the AGR fleet now seven years on average, compared to the five previously assumed. In gas-fired generation, we have recently sanctioned a turbine blade upgrade at our 1.2GW South Humber power station. We also have strong capabilities in gas storage, and two potentially attractive projects, Baird and Caythorpe. However the market remains challenging for new gas storage projects and we will only invest if the returns are appropriate for the level of risk undertaken. However, as with all our investment options, we will only deploy capital where we see attractive value, aligned to our core competencies. In this context, we announced in October that we would not proceed with plans to build two dedicated biomass plants, following recent clarification on the regulatory framework indicating a Government preference for coal conversion. Earlier this month, we also announced that we would not participate in the construction of up to four new nuclear reactors in the UK. While we believe that nuclear power has an important role to play in the UK’s energy mix, the likely cost and timescale of this project led us to conclude that it was not in the best interests of Centrica shareholders for us to participate. NEW STRATEGIC PRIORITIES TO REFLECT CHANGING MARKET CONDITIONS World gas markets are evolving and we have to evolve with them. Shale gas in North America and LNG globally have transformed the landscape. Gas will continue to play a major role in the UK, both in heating the overwhelming majority of homes and businesses and as part of a diverse fuel mix for power generation, with the UK Government’s Electricity Market Reform and Gas Strategy both indicating a long-term role for gas-fired generation. However, the sources of UK gas are changing, with North Sea reserves declining and becoming more expensive to develop. This places more reliance on imported pipeline gas and particularly LNG, and leaves the UK increasingly exposed to global gas prices. At the same time, the nature of low carbon power investments in the UK is changing, with affordability for consumers increasingly the focus of attention. Projects are becoming larger in scale, with higher capital costs and longer construction times, while the fixed price nature of the Contract for Difference mechanism means that output will no longer act as a hedge against downstream price volatility. Against this backdrop, our vision is to be the leading integrated energy company, with customers at our core. We have refreshed our strategic priorities to position Centrica to best advantage in this demanding but exciting new world: *Innovate to drive growth and service excellence *Lead with great service and efficient operations *Enable our customers to control their energy use in a simpler, smarter, more efficient way *Grow in selected markets, building on our leading capabilities *Integrate our natural gas business, linked to our core markets *Grow and diversify our E&P portfolio for value *Develop our midstream business to integrate along the gas value chain *Maintain a low carbon power hedge and invest where we see value *Increase our returns through efficiency and continued capital discipline *Further develop organisational capability *Continuously focus on safety *Deliver value to shareholders These strategic priorities apply across our businesses in the UK, North America and internationally. In order to reinforce delivery of the priorities we are moving to an international functional organisation with a new management structure, aligned to our core competencies downstream and upstream. And we will do all this with the clear objective of increasing our returns, through efficiency and continued capital discipline. ChrisWeston will lead the international downstream business, as we build on our distinctive capabilities in service, systems, energy services and efficiency, in the UK and North America. MarkHanafin will lead the international upstream business as we continue to develop opportunities along the gas value chain and invest where we see attractive value. Both Chris and Mark have extensive experience in the UK and NorthAmerica, and are therefore well placed to take on the task ahead. Innovate to drive growth and service excellence Underlying household energy consumption in the UK will continue to fall as appliances and homes become more efficient. However with the UK increasingly exposed to global gas prices, and non-commodity costs expected to rise year-on-year, affordability will remain an important issue. By contrast, the low gas price environment in North America makes affordability less of an issue, and favourable market conditions in the United States offer a good opportunity for growth. On both sides of the Atlantic, the roll-out of smart meters will give customers a new level of control over their energy use and we need to be innovative in the way we help them meet their evolving energy needs. In the UK, we have developed a leading online platform and leading customer systems. We will also take advantage of our strong positions in energy services and smart meters to develop exciting new propositions, with offerings increasingly tailored to the needs of individual customers. Through relentless focus on service excellence, innovation and cost efficiency, we aim to maintain stable margins in residential energy supply, and target continued expansion in residential services. In business energy we have laid the groundwork for future growth, although in the near term market conditions remain challenging. In North America too, service, innovation and cost efficiency will remain a core focus. But the continued liberalisation of markets in the United States, and the undeveloped nature of energy services provision, offer an opportunity to grow our customer base, both organically and through acquisition. We will continue to evaluate both bolt-on and larger acquisitions but remain focused on returns and will only transact where we see value. We will use our UK expertise and experience to develop our protection plan offerings in North America and we will increase the level of energy and services bundling over time. Over the next 3-5 years we are targeting a doubling of profitability in the North America downstream business, through a combination of organic growth and acquisitions, with Direct Energy downstream becoming a more material part of the Group. Integrate our natural gas business, linked to our core markets In an increasingly global market, we must secure gas from a wider range of sources and will consider at which stages of the supply chain we can add value, expanding the scope of our activities where appropriate. The aim is to connect sources of energy to our customers, building an integrated international business focused on the Atlantic basin. The UK and Norway will remain an important part of our upstream investment and activity, as we look to maintain an appropriate energy hedge. We will invest in assets with a link to existing hubs while looking to divest non-core assets. However, with the development of North Sea fields becoming increasingly expensive, particularly in the UK, we will refresh our focus on value. In North America we will consider both conventional and unconventional assets, and there is also potential for gas exports later in the decade. Overall, we will invest where we see value across our international portfolio, delivering annual production in the range 75mmboe to 100mmboe. In addition, we will look to build on our existing midstream capabilities and positions along the gas value chain, focusing on asset optimisation and gas contracting with an emerging LNG presence, provided we can do so in a capital efficient manner. Our focus in UK power generation will be to preserve our existing power hedge, investing where we have a competitive advantage and see attractive returns. We retain a number of offshore wind opportunities, at Race Bank and in the Irish Sea. However we will only invest for value and will seek to reduce our equity ownership through partnering where appropriate. We also retain options to build new CCGTs. However spark spreads remain at historically low levels and much will depend on the final outcome of Electricity Market Reform and the implementation of a capacity market in the UK. Increase our returns through efficiency and continued capital discipline In 2013, Centrica faces new challenges, including the loss of free carbon allowances. But we will continue to benefit from our cost reduction programme, from organic growth and also from the full year impact of acquisitions, both upstream in gas and oil production and in North America. In this context, it is vital that we continue to focus on operational efficiency, reducing costs wherever possible for the benefit of customers and shareholders. All this must be done without in any way compromising our strong focus on health and safety. Centrica has a robust balance sheet and generates strong cash flows and we retain a number of investment opportunities across the Group. This combination, allied to our expertise and experience both upstream and downstream, defines Centrica’s core capabilities. However we will maintain capital discipline, as evidenced by our recently announced £500 million share repurchase programme, only investing where we see value. Our aim now is to use those strengths to innovate and grow while adapting to a rapidly evolving energy world, serving our customers and delivering value to shareholders. Sam Laidlaw Chief Executive 27 February 2013 GROUP FINANCIAL REVIEW Group revenue from continuing operations was up 5% to £23.9 billion (2011: £22.8 billion). Revenue increased in British Gas due to higher gas consumption as a result of colder weather and higher retail gas and electricity prices. Revenue decreased in Centrica Energy, with the impact of lower gas-fired power generation volumes and reduced midstream activity following the closure of our German wholesale business in 2011, more than offsetting the impact of higher gas and liquid volumes. Revenue in Direct Energy was broadly flat, reflecting higher average customer numbers and increased business energy consumption, offset by lower wholesale energy prices. Throughout the Operating Review and Group Financial Review, reference is made to a number of different profit measures, which are shown in the table below: 2012 2011 Exceptional Exceptional Business items and Statutory Business items and Statutory certain certain performance re-measurements result performance re-measurements result Year ended Notes £m £m £m £m £m £m 31 December Adjusted operating profit: British Gas 1,093 1,005 Centrica 1,230 1,023 Energy Centrica 89 75 Storage Direct 331 312 Energy Total adjusted 5b 2,743 2,415 operating profit Depreciation of fair value uplifts from 10 (96) (105) Strategic Investments, before tax Interest and taxation on joint 5b (85) (102) ventures and associates Group operating 6 2,562 63 2,625 2,208 (794) 1,414 profit Net interest (183) – (183) (146) – (146) expense Taxation 6,7,8 (1,029) (140) (1,169) (810) (16) (826) Profit from continuing operations 1,350 (77) 1,273 1,252 (810) 442 after taxation Discontinued – – – 13 (34) (21) operations Profit for 1,350 (77) 1,273 1,265 (844) 421 the year Depreciation of fair value uplifts from 10a 56 68 Strategic Investments, after taxation Adjusted 1,406 1,333 earnings Total adjusted operating profit was up 14% to £2,743 million (2011: £2,415 million). In British Gas, profitability increased, with the impact of higher gas consumption and unit prices more than offsetting increased wholesale commodity, transportation and environmental costs in residential energy supply, and cost efficiency measures driving growth in residential services. In Centrica Energy, higher gas and liquids production resulting from acquisitions and higher achieved prices led to increased profitability in the gas segment, while higher nuclear power generation more than offset the impact of reduced gas-fired power generation volumes in the power segment. In Centrica Storage, improved seasonal price differentials during the final quarter of 2011 and first quarter of 2012 led to higher profitability. In Direct Energy, profitability increased, with growth in services and business energy supply more than offsetting slightly lower profitability in residential energy supply, driven by less favourable market conditions in Ontario partially offset by the impact of recent acquisitions. Net interest expense was £183 million (2011: £146 million), reflecting £1,196 million net issuance of debt during the year. The tax on adjusted profit from continuing operations was £1,029 million (2011: £810 million), reflecting a higher level of operating profit and an increased mix of more heavily taxed upstream operating profit. After adjusting for the tax impact of depreciation on the Venture fair value uplift and our share of taxation on joint ventures and associates, the adjusted tax charge from continuing operations was £1,110 million (2011:£891million) and the resultant adjusted effective tax rate for the Group was 44% (2011: 40%). An effective tax rate calculation, split UK and non-UK, is shown in the table below: 2012 2011 UK Non-UK Total UK Non-UK Total £m £m £m £m £m £m Adjusted operating 2,079 664 2,743 2,042 373 2,415 profit Share of joint ventures / (44) – (44) (58) – (58) associates interest Net interest (79) (104) (183) (71) (75) (146) expense Adjusted profit from continuing 1,956 560 2,516 1,913 298 2,211 operations before taxation Tax on adjusted profit from 692 337 1,029 682 128 810 continuing operations Tax impact of depreciation 40 – 40 37 – 37 on Venture fair value uplift Share of taxation on joint 41 – 41 44 – 44 ventures / associates Adjusted tax charge from 773 337 1,110 763 128 891 continuing operations Adjusted effective 40% 60% 44% 40% 43% 40% tax rate Reflecting all of the above, profit from continuing operations after taxation was up 8% to £1,350 million (2011:£1,252 million) and after adjusting for fair value uplifts, adjusted earnings increased by 5% to £1,406million (2011: £1,333 million). Adjusted basic earnings per share ^ (EPS) increased to 27.1 pence (2011:25.8 pence). The statutory profit for the year was £1,273 million (2011: £421 million). The reconciling items between profit from business performance and the statutory profit are related to exceptional items, certain re-measurements and discontinued operations. The increase compared with 2011 was principally due to a net gain on certain re-measurements of £404 million (2011: net loss of £322 million). The Group reported a statutory basic EPS of 24.6 pence (2011: 8.2 pence). In addition to the interim dividend of 4.62 pence per share, we propose a final dividend of 11.78 pence, giving a total ordinary dividend of 16.4 pence for the year (2011: 15.4 pence), an increase of 6%. Group operating cash flow from continuing operations before movements in working capital was higher at £3,542 million (2011: £3,065 million), reflecting the contribution from Centrica Energy acquisitions. After working capital adjustments, tax, operational interest, and cash flows associated with exceptional charges and discontinued operations, this stood at £2,820 million (2011: £2,337 million). The net cash outflow from investing activities was £2,558 million (2011: £1,400 million), as described in the business combinations and capital expenditure section on page 11. The increased outflow reflects the acquisitions of North Sea gas and oil assets. The net cash inflow from financing activities was £190 million (2011: outflow of £907 million). The inflow reflects the net issuance of borrowings during the year exceeding dividends paid. Reflecting all of the above, the Group’s net debt at 31 December 2012 was £4,047 million (2011:£3,292million). To align with management reporting, net debt has been restated to include mark-to-market values on derivative financial instruments used to hedge offsetting changes in borrowings. During the year net assets increased to £5,927 million (31 December 2011: £5,600 million), reflecting the impact of statutory profit for the year exceeding dividends paid. EXCEPTIONAL ITEMS Exceptional charges from continuing operations of £534 million were included within Group operating profit during the year (2011: £331 million). Following a decrease in North American power prices, a charge of £89 million has been made to reflect the fair value of the obligation to purchase power above its net realisable value through onerous wind farm power purchase agreements. On 4 February 2013, Centrica announced its decision not to proceed with nuclear new build investment. Accordingly, the Group has recorded an impairment of £231 million. This amount includes the carrying value of its investment in NNB Holding Company Limited as well as value attributed to nuclear new build in the British Energy acquisition. An exceptional restructuring charge of £214 million was recorded, mainly relating to staff reductions following the Group-wide cost reduction programme announced in 2012. Taxation on the total of these charges generated a credit of £93 million (2011: £69 million). On 3 July 2012, the UK government substantively enacted the restriction on the rate of tax relief on oil and gas decommissioning costs from the current 62% to 50%. An exceptional tax charge of £40 million has been recognised from revaluing the related deferred tax provisions. CERTAIN RE-MEASUREMENTS In our business we enter into a portfolio of forward energy contracts which include buying substantial quantities of commodity to meet the future needs of our customers. Primarily because these contracts include terms that permit net settlement, the rules within IAS39 require the contracts to be fair valued. In addition, the Group also enters into a range of commodity contracts designed to secure the value of its underlying production, generation, storage and transportation assets consistent with an integrated energy business in the UK and North America. Fair value movements on these commodity derivative contracts do not reflect the underlying performance of the business because the contracts are economically related to our upstream assets or downstream demand in our chosen markets, which are not typically fair valued. Therefore, these certain re-measurements are reported separately and are subsequently reflected in business performance when the underlying transaction or asset impacts profit or loss. The operating profit in the statutory results includes net gains of £597 million (2011: losses of £463 million) relating to these re-measurements, of which there are a number of elements. The profits arising from the physical purchase and sale of commodities during the year, which reflect the prices in the underlying contracts, are not impacted by these re-measurements. See note 3 for further details. BUSINESS COMBINATIONS AND CAPITAL EXPENDITURE On 30 April 2012, the Group completed the acquisitions of certain oil and gas production and development assets from Statoil and ConocoPhillips for a combined total cash consideration of £911 million. In addition, total tax liabilities of £169 million were assumed on completion of the acquisitions. During the year the Group also completed the acquisition of a portfolio of producing oil and gas assets from Total for total cash consideration of £133 million. These three acquisitions are included within the Centrica Energy gas segment. On 22 August 2012, the Group acquired 100% of the shares of New York based energy retailers Energetix Inc. and NYSEG Solutions Inc. for total cash consideration of $121 million (£77 million) including $5 million (£3 million) of deferred consideration. Goodwill of $43 million (£27 million) arose on the acquisition. The acquisition is included in the Direct Energy residential energy supply and business energy supply segments. Further details on capital expenditure and business combinations are included in notes 5(e) and 16 respectively. EVENTS AFTER THE BALANCE SHEET DATE On 4 February 2013, Centrica announced its decision not to proceed with nuclear new build investment. Accordingly, the Group has recorded an impairment of £231 million. The Group also announced on 4 February 2013 its intention to launch a £500 million share repurchase programme to return surplus capital to shareholders, which will be conducted over the next 12 months. Further details on events after the balance sheet are described in note 19. RISKS AND CAPITAL MANAGEMENT The Group’s risk management processes are largely unchanged from 31 December 2011. Details of how the Group has managed financial risks such as liquidity and credit risk are set out in note 4. Details on the Group’s capital management processes are provided under sources of finance in note 11. ACCOUNTING POLICIES UK listed companies are required to comply with the European regulation to report consolidated financial statements in conformity with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Group’s specific accounting measures, including changes of accounting presentation and selected key sources of estimation uncertainty, are explained in note 3. OPERATING REVIEW BRITISH GAS Good performance against a challenging economic backdrop British Gas performed well in 2012, in a weak economy and with continuing increases to the cost of supplying energy. This is having a real impact for both residential and business customers and, against this backdrop, it is important that we continue to focus on improving customer service and reducing costs. We also continue to lead the industry in smart metering, energy efficiency, help for the vulnerable, and in ensuring that our energy proposition is simple, fair and transparent. In residential energy supply, we delivered margins in line with our through-cycle expectations, in a period where all suppliers were faced with higher wholesale gas prices and higher non-commodity costs, including the cost of upgrading the UK’s gas and electricity grids and meeting carbon reduction targets. Weather conditions were cooler than usual, following unusually mild temperatures in 2011. Average gas consumption was therefore higher compared to the prior year, partially offset by efficiency measures taken by our customers, including the take-up of our free insulation offers and the installation of more efficient central heating systems. As a result of higher consumption and costs, the average gas and electricity bill increased year-on-year and was made up as follows: For a 2012 average gas and electricity bill of £1,188* the costs are: External Costs Wholesale energy costs £568 Delivery to your home £283 Environmental and social policies £112 Taxes £72 Our costs Operating costs £104 Our profit £49 * Based on British Gas 2012 financial results and consumption and is an average of all payment types/tarriffs/regions. In residential services, we again delivered double digit profit growth despite the challenging economic climate, primarily driven by cost efficiencies, while continued high service levels resulted in strong customer retention. The weak economy and competitive pressures continue to have an adverse impact on our business energy supply division, and we are investing in back office systems to reduce cost and enhance customer service. The health and safety of our employees and customers remains a core priority. Our lost time injury frequency rate (LTIFR) was 0.23 per 100,000 hours worked (2011: 0.29), a 21% reduction over the past year. We are also focused on maintaining high levels of employee engagement and recognising the commitment our people make to delivering excellent customer service. This was reflected in British Gas being nominated in the Sunday Times “Best Big Companies to Work For” for the fourth year in a row. Helping our customers in difficult times In February 2013, Ofgem announced that it was preparing for final proposals and a statutory consultation to be published around the end of March 2013 on its reforms to make the household energy market simpler, clearer and fairer for consumers. These follow on from initial findings published in March 2011 and updated proposals announced in October 2012. The headline proposals are a welcome step forward for the industry. However it is important that the proposals on product range, restricting each supplier to four tariff types, do not restrict customer choice or market innovation. British Gas has already implemented changes consistent with many of the headline proposals. We have simplified our tariffs, including a new standing charge and single rate structure as part of a commitment to phase out two-tier tariffs. We have also been publishing price comparison information on our annual statements since March, allowing customers to check whether they are on the most appropriate British Gas tariff, while we were awarded five stars by Which? in July for clarity of billing and account management. More recently, we have built the capability to provide a personalised price comparison on each customer’s bill, based on their actual consumption. We continued to deliver high levels of customer service in 2012. In residential energy, our average call answering and handling times were lower than in 2011 while the volume of calls received fell and in October, Consumer Focus awarded us their top 5 star customer service rating. In residential services, our customer service metrics remained strong, despite higher call volumes as a result of the colder weather. Meanwhile complaints fell, and customer churn was at its lowest ever level. The overall British Gas Net Promoter Score (NPS) increased from +26 to +30. During 2012 we further developed our online platform. We now have 3.4 million online registered customers, a 20% increase since last year, and over a third of all energy bills are now sent electronically. Seven out of ten customer own meter reads are submitted online and we have over one million accounts on EnergySmart which helps customers monitor and manage their energy usage. We have launched leading applications for both Apple and Android smart phones and have seen more than 650,000 downloads to date. Around a quarter of all website contacts are now made through mobile devices. We continue to help our most vulnerable customers and maintain the widest eligibility criteria among all energy suppliers for the Warm Home Discount, which helped 400,000 customers during the year. In October, we announced “Better Homes for Britain”, a five year partnership with Shelter to help one million British households living in private rental property improve the standard of their homes. We also lead the industry in energy efficiency. Since 2008, British Gas has installed 1.7 million insulation measures to homes across the UK through the CERT and CESP programmes. Under these schemes, British Gas was required to meet a variety of carbon emissions reduction targets by 31 December 2012. Overall we expect to fulfil our total carbon saving targets in the first quarter of 2013, although finding customers who qualify as being in the ‘Super Priority Group’ has proved challenging and this particular sub-target will not be fully met. However, Ofgem has indicated that mitigating actions undertaken after 31 December will also be taken into account when assessing delivery. Customer accounts stabilised despite competitive market conditions A slight fall in wholesale electricity prices at the end of 2011 allowed us to implement a 5% reduction in our standard domestic electricity tariff in January, re-establishing British Gas as the cheapest major electricity supplier on average in Britain. However, like the rest of the industry, we are facing higher external costs. Wholesale gas prices are 13% higher for winter 2012/13 than for winter 2011/12, while the cost of upgrading the UK’s gas and electricity grids and meeting carbon reduction targets increased by £50 per customer in 2012. As a result, in October we announced a rise in domestic gas and electricity prices by an average of 6%, which was implemented in November. The number of residential energy customer accounts on supply reduced by 1% during the year, to 15.7 million (2011: 15.9 million). This reflected a short term increase in customer churn following the implementation of the price rise, although churn of 9% over the year was at its lowest ever level reflecting good customer service. Our competitive pricing position has now improved following the implementation of price rises by all major suppliers and we have seen a return to growth in the early weeks of 2013. We have 5 million customers enrolled in the Nectar loyalty programme, which reduces our cost to serve and improves the customer experience by incentivising the use of our online platform, including the submission of meter reads and payment by direct debit. The number of residential services product holdings fell slightly to 8.4 million (2011: 8.5 million), with weak economic conditions making sales of new contracts challenging. Retention rates improved however, with strong levels of customer service supporting attractive customer propositions. We decided in the second half of the year to strengthen our Plumbing and Drains product by expanding the cover to include the water supply pipe. As a result we are no longer selling a separate water supply pipe product and our product holdings have been restated accordingly. The economic environment continued to impact boiler installation volumes, which fell 10% to 94,000 (2011: 105,000), although operating profit increased as we focused on reducing our cost base. We continue to develop new affinity relationships to enable us to offer energy and services products to a wider customer base. In July, we signed a broad strategic partnership with the RAC covering a number of areas, including roadside breakdown, joint procurement and affinity marketing, and the first sales were made in November. In electric vehicles, we are the preferred supplier of home charging solutions for five major car manufacturers. The number of business energy supply points fell by 8% over the year, to 924,000 (2011: 999,000) due to the challenging economic and competitive environment which is putting pressure on contract renewal rates and margins. However, we have recently received the letter of intent to award the renewal of a significant electricity contract from the Government Procurement Service comprising 70,000 sites for a term of four years. A new management team is in place and we continue to invest in our back office systems to reduce costs, sharpen our competitive position and enhance our customer service. In business services we have made good progress. We have now been selected as preferred contractor on seven multi-year energy performance contracts with public sector organisations and have a strong pipeline for the year ahead. More normal weather and cost reduction programme driving profit growth After an unseasonally warm 2011, total British Gas gross revenue increased to £13,857 million (2011:£12,403million) reflecting higher gas sales volumes. Total British Gas operating profit increased to £1,093million (2011:£1,005 million). We continue to make good progress on our cost reduction programme, and are on track to deliver £300 million of cost savings across British Gas by the end of 2013. We are seeing the benefit of previous investment in industry-leading IT systems and have achieved savings through a range of initiatives, including a pay freeze for employees and changes to the defined benefit pension schemes. During 2012, we closed our Southampton call centre, outsourced a number of roles in British Gas Services and British Gas Business, reduced IT costs through new working practices, offshored and transitioned to new data centres and agreed improved commercial terms with suppliers. As a result, including the impact of investment in growth areas, operating costs were 1% lower in 2012 than in the prior period, and despite the weak economy the bad debt charge as a proportion of revenue fell as the benefits of improved systems and processes were realised. In residential energy, gross revenue increased to £9,121 million (2011: £7,930 million) reflecting higher consumption and retail tariffs. Average gas consumption increased by 12%, as the impact of cooler weather conditions than in an unusually warm 2011 more than offset underlying energy efficiency reductions. Average electricity consumption was broadly flat compared to 2011. Residential energy operating profit increased to £606 million (2011: £544 million). Commodity and transportation and distribution costs both increased, while environmental costs rose by 22% to £732 million (2011: £599 million). The residential energy operating margin was 6.6% (2011: 6.9%), in line with our through-cycle expectations. In residential services, gross revenue increased slightly to £1,674 million (2011: £1,644 million) with a rise in revenue from insulation jobs more than offsetting a decline in installations revenue. Operating profit increased by 16% to £312 million (2011: £269 million), while the operating margin increased to 18.6% (2011: 16.4%) driven by cost efficiencies and an improved contribution from our new markets activity. In business energy supply and services, gross revenue increased to £3,062 million (2011: £2,829 million) with operating profit falling by 9% to £175 million (2011: £192 million), reflecting the challenging external environment. Business services revenue increased by 12% compared to 2011. Leading the transition to smart connected homes and businesses We continue to lead the industry in smart metering and have now installed over 800,000 smart meters in homes and businesses. We welcomed the Government’s confirmation of the standards for the smart meter roll-out and we are the only supplier currently installing fully compliant Phase 3 meters in customers’ homes. Smart meters are a key enabler for a range of technologies and by going early on the roll-out we have gained invaluable experience. We are also starting to see the benefit of smart meters delivering an enhanced customer experience, including significantly lower contact rates, fewer complaints and higher retention. We have made a number of investments in smart technology companies, including AlertMe, which enables a range of home automation applications and Power Plus Communications, which specialises in smart applications in complex buildings. During the year we launched our award winning ‘Remote Heating Control’ product which allows customers to monitor and control their central heating system via the internet or a smart phone. Around 15,000 customers are now using the product and, as part of a bundle, it is also driving higher sales conversion of central heating systems. For our smart meter customers, we also launched the ‘Smart Energy Report’ to provide visibility of how their energy is being used and to help them reduce their consumption. We will continue to lead the transition to smart connected homes and businesses, offering attractive propositions, which will improve customer engagement and deliver lower costs for the business. Innovate to drive growth and service excellence Performance in 2012 in a challenging economic and competitive environment has demonstrated that our business model remains sound. In residential energy supply it will be increasingly important to differentiate our offering through service excellence and innovation. Our scale and leadership in customer service, cost efficiency and systems leave us well placed to continue to deliver a fair level of margin in this business. In residential services, our focus remains on offering attractive customer propositions and delivering service excellence, while also working to reduce costs further during 2013. We expect to deliver continued profit growth in services, although not at the high levels achieved in 2012. In business energy supply, the environment remains challenging. We are investing in our back office systems to reduce costs and improve service and, over time, we expect business services to make a more material contribution. Looking to the future, smart meters are a key enabler in the trend towards the ‘smart connected home’. British Gas’ leadership in smart metering and technology will enable us to capitalise on this trend, deepening customer relationships and differentiating our energy and services offer to drive long-term growth. British Gas Total British Gas For the year ended FY FY Δ% H2 H2 Δ% 31 2012 2011 2012 2011 December Total customer accounts 24,982 25,364 (1.5) 24,982 25,364 (1.5) (period end) ('000) Total customer households 11,745 11,997 (2.1) 11,745 11,997 (2.1) (period end) ('000) Joint product households 2,149 2,207 (2.6) 2,149 2,207 (2.6) (period end) ('000) Gross Revenue 13,857 12,403 12 6,650 6,049 10 (£m): Operating cost (excluding 1,418 1,425 (0.5) 707 678 4.3 bad debt) (£m) Operating profit 1,093 1,005 9 530 487 9 (£m) 2011 gross revenue has been restated to reflect the reclassification of the British Gas New Energy business from Residential energy supply to Residential services and the reclassification of the British Gas Community Energy business from Residential energy supply to Business energy supply and services. Total customer accounts has been restated to exclude the water supply pipe product, which has been incorporated into the plumbing and drains product. Residential energy supply For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Customer accounts (period end): Gas (‘000) 8,905 9,139 (2.6) 8,905 9,139 (2.6) Electricity 6,751 6,742 0.1 6,751 6,742 0.1 (‘000) Total 15,656 15,881 (1.4) 15,656 15,881 (1.4) (‘000) Estimated market share (%): Gas 39.9 41.2 (1.3) 39.9 41.2 (1.3) ppts ppts Electricity 25.1 25.2 (0.1) 25.1 25.2 (0.1) ppts ppts Average consumption: Gas 494 443 12 218 181 20 (therms) Electricity 3,794 3,805 (0.3) 1,875 1,858 0.9 (kWh) Total consumption: Gas (mmth) 4,460 4,099 9 1,945 1,669 17 Electricity 25,683 25,602 0.3 12,696 12,600 0.8 (GWh) Gross Revenue (£m): Gas 5,884 4,903 20 2,668 2,248 19 Electricity 3,237 3,027 7 1,646 1,580 4.2 Total 9,121 7,930 15 4,314 3,828 13 Transmission and metering costs (£m): Gas 1,327 1,212 9 676 611 11 Electricity 915 782 17 477 401 19 Total 2,242 1,994 12 1,153 1,012 14 Total environmental 732 599 22 347 347 0.0 costs (£m) Total social 89 78 14 29 40 (28) costs (£m) Operating 606 544 11 261 263 (0.8) profit (£m) Operating 6.6 6.9 (0.3) 6.1 6.9 (0.8) margin (%) ppts ppts 2011 gross revenue and operating profit have been restated to reflect the reclassification of the British Gas New Energy business from Residential energy supply to Residential services and the reclassification of the British Gas Community Energy business from Residential energy supply to Business energy supply and services. The definition of total environmental costs has been restated and includes CERT, CESP, ROCs, carbon and FIT costs. Residential services For the year ended 31 FY FY Δ% H2 H2 Δ% December 2012 2011 2012 2011 Customer product holdings (period end): Central heating service 4,663 4,696 (0.7) 4,663 4,696 (0.7) contracts ('000) Kitchen appliances care (no. of 465 476 (2.3) 465 476 (2.3) customers) ('000) Plumbing and drains care 1,714 1,728 (0.8) 1,714 1,728 (0.8) ('000) Home electrical 1,444 1,462 (1.2) 1,444 1,462 (1.2) care ('000) Other contracts 116 122 (4.9) 116 122 (4.9) ('000) Total holdings 8,402 8,484 (1.0) 8,402 8,484 (1.0) ('000) Domestic central heating installations 94 105 (10) 50 51 (2.0) ('000) Gross Revenue (£m): Central heating 839 807 4.0 435 411 6 service contracts Central heating 258 295 (13) 137 144 (4.9) installations Other 577 542 6 291 278 5 Total 1,674 1,644 1.8 863 833 3.6 Operating profit (£m) 312 269 16 187 159 18 Operating margin (%) 18.6 16.4 2.2 21.7 19.1 2.6 ppts ppts 2011 gross revenue and operating profit have been restated to reflect the reclassification of the British Gas New Energy business from Residential energy supply to Residential services. UK residential product holdings have been restated to exclude the water supply pipe product, which has been incorporated into the plumbing and drains product. Business energy supply and services For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Customer supply points (period end): Gas (‘000) 322 363 (11) 322 363 (11) Electricity 602 636 (5) 602 636 (5) (‘000) Total 924 999 (8) 924 999 (8) (‘000) Average consumption: Gas 2,737 2,629 4.1 1,156 1,130 2.3 (therms) Electricity 27,521 25,732 7 14,014 12,895 9 (kWh) Total consumption: Gas (mmth) 940 986 (4.7) 399 413 (3.4) Electricity 17,110 16,731 2.3 8,581 8,320 3.1 (GWh) Gross Revenue (£m): Gas 1,014 931 9 443 416 6 Electricity 1,841 1,713 7 929 866 7 Business 207 185 12 101 106 (5) services Total 3,062 2,829 8 1,473 1,388 6 Transmission and metering costs (£m): Gas 178 188 (5) 85 94 (10) Electricity 409 372 10 212 188 13 Total 587 560 5 297 282 5 Operating 175 192 (9) 82 65 26 profit (£m) Operating 5.7 6.8 (1.1) 5.6 4.7 0.9 margin (%) ppts ppts 2011 gross revenue and operating profit have been restated to reflect the reclassification of the British Gas Community Energy business from Residential energy supply to Business energy supply and services. CENTRICA ENERGY A more balanced upstream business Centrica Energy made significant progress during 2012 on its strategy to deliver value and growth. In upstream gas and oil, we integrated three North Sea acquisitions in 2012. This delivered a step change for the business, increasing production and significantly enhancing the scale and balance of our portfolio. In power, although the operating environment for gas-fired generation remains challenging, the business benefitted from strong nuclear operational performance. We have achieved a number of key project milestones, bringing reserves into production and generating first power from our 270MW Lincs offshore wind project. We have also made important steps to develop future cornerstone assets, with good progress at the Valemon gas field and the sanctioning of the £1.4 billion Cygnus gas field, one of the largest remaining development opportunities in the UK North Sea. Total Centrica Energy operating profit increased by 20% to £1,230 million (2011: £1,023 million) with increased profit in both gas and power. This increase in profit was in part helped by the delivery of a series of cost initiatives in 2012 and the business is on track to deliver its contribution of cost savings to Group targets. These savings have not compromised on our continued focus on health, safety and environmental practices. Centrica Energy continues to progress its process safety programme, which focuses on the integrity of operating systems and processes that handle hazardous substances. We had no significant process safety events in 2012. In terms of environmental practices, we are committed to operating responsibly and will continue to engage with stakeholders, to understand and manage the environmental and social issues associated with new and existing investments. Increased gas and oil reserves and production Between November 2011 and February 2012 we announced three North Sea acquisitions, all of which completed during 2012, for a total of £1.2 billion. Overall, we added 170 million barrels of oil equivalent (mmboe) of 2P reserves in the year, as a result of acquisitions, upgrades of existing hubs such as Rhyl and bringing new projects such as Maria into the development pipeline. After taking production into account, we ended the year at 525mmboe of 2P reserves (2011: 410mmboe). Our Norwegian business now forms a significant part of the portfolio following the acquisitions, accounting for 41% of our upstream gas and oil reserves, compared to 18% at the end of 2011. Total production of gas and liquids increased by 18% to 56.7mmboe (2011: 48.2mmboe). Total gas production volumes increased by 13% to 2,441 million therms (mmth) (2011: 2,160mmth) and total liquids volumes increased by 30% to 16.3mmboe (2011: 12.5mmboe), reflecting the benefit of recent acquisitions. We now have less reliance on production from Morecambe, which in 2012 contributed 23% of total production (2011:29%) primarily due to increases from the rest of the portfolio. Performance from South Morecambe improved in the second half of the year, after we took action to stabilise the quality of gas delivered to the grid during the field’s maintenance shut-down in the summer. Gas production volumes from Norway more than trebled to 557mmth (2011: 164mmth) while liquids volumes increased to 8.9mmboe (2011: 4.7mmboe), reflecting acquisitions during the year. In 2013 we will benefit from a full year of production from the acquisitions made during 2012, and with new fields coming into production offsetting the natural decline from our existing fields, total production volumes are expected to increase by a further 15%. Adding value through gas and oil development, appraisal and exploration We achieved first gas at Seven Seas and Atla in the second half of the year, following on from Ensign having delivered first gas in May. At Ensign we have now also delivered production from the second well, however due to mechanical issues the initial production rate is below our original expectations. First gas is expected from York and Rhyl in the coming weeks, with first gas from Kew scheduled for the fourth quarter of 2013. Good progress continues to be made on the Statoil-operated Valemon project with the detailed design having been agreed towards the end of 2012 and fabrication having started early in 2013. The field is on track to produce first gas in the fourth quarter of 2014. In August we announced that the £1.4 billion Cygnus project, in which we own a 48.75% interest, had been sanctioned. Key contracts have now been placed and the fabrication of the jacket and platform deck started ahead of schedule. The development will create around 4,000 jobs, mostly in the UK, and bring 53mmboe of our reserves into production from late 2015, providing enough gas at peak production to supply 1.5 million homes. In Trinidad and Tobago, we made further progress on the Block 22 project with the award of front end engineering design contracts for upstream and subsea facilities as well as the contracting of a rig to drill two appraisal wells to prove up our resource base. We continue to explore development and partnership options for gas export. Our appraisal drilling at Rhyl North towards the end of 2012 was successful, and led to our 2P reserves being revised upwards by 7mmboe to 14mmboe. In early 2013, exploration drilling at Whitehaven confirmed that the Rhyl reservoir extends further than originally anticipated, potentially leading to additional reserve upgrades. Rhyl and Whitehaven will both utilise our existing Morecambe infrastructure. Appraisal drilling at the non-operated Maria North well, in which we own a 20% interest, showed potential gross recoverable reserves of the Maria field towards the upper end of the 70-150mmboe range published following the discovery in 2010. Accordingly we have revised our 2P reserves up by 10mmboe to 25mmboe. Appraisal drilling at Bligh and exploration drilling at Cooper both encountered hydrocarbons, but tight reservoirs meant that commercial flow rates were not achieved. We also experienced non-operated exploration failures in Trinidad and Tobago. However in early 2013 drilling at the Rodriguez prospect in Norway was successful, confirming the presence of gas condensate. In June, we extended our Memorandum of Understanding (MoU) with Statoil to collaborate on gas-focused exploration opportunities in Norway and the UK. In October, the UKCS 27th Round awarded Centrica six licenses covering 13 blocks and part-blocks. Three of the blocks will be Centrica-operated, two of which are in the West of Shetland, a new area for the company. Early in 2013 we were awarded nine blocks in the latest round of licences announced by Norway’s Energy Ministry. We will be the operator of three of these blocks, which are close to some of our existing assets. Our exploration record over the last three years has been good, with a success rate of 40% and a net finding cost of £3.5 per barrel of oil equivalent (boe). Higher gas and oil volumes and achieved prices with reduced unit costs Upstream gas and oil profitability increased by 20% to £919 million (2011: £769 million), reflecting higher production volumes and higher achieved prices. The average achieved gas sales price increased by 6% to 54.7pence per therm (p/th) (2011: 51.6p/th) while the average achieved oil and condensate price increased by 10% to £62.8 per boe (2011: £57.2/boe). On a per unit of production basis, depletion, depreciation and amortisation (DDA) costs and lifting costs both decreased slightly, to £9.8/boe (2011: £10.1/boe) and £9.7/boe (2011: £9.9/boe) respectively, with recent acquisitions incurring lower unit lifting costs. Overall production and overhead costs increased by 22% to £1,374 million (2011: £1,127 million) due to the impact of the North Sea acquisitions, new gas and oil fields coming into production, the expensing of a £73 million cost relating to the failure of a third development well at Ensign and inflationary cost increases. In addition we incurred exploration and appraisal costs of £139 million (2011: £97 million), reflecting a lower level of drilling success. Continued strong performance from nuclear; challenging market conditions for CCGTs The nuclear fleet recorded strong performance during the year, with our 20% share of output increasing by 8% to 12.0 terawatt hours (TWh) (2011: 11.2TWh). This reflects continued investment in the fleet, with no large unplanned outages during the year, underlining the quality of our original investment in the nuclear fleet. In addition, plant life extensions to the Hinkley Point B and Hunterston B nuclear power stations were announced in December, extending the life of these stations by seven years from 2016 to 2023. The expectation for nuclear plant life extensions for the AGR fleet in the UK is now for seven years on average, compared to the five years previously assumed, and this will deliver additional long-term value. The market environment remains challenging for gas-fired plant with continued low market clean spark spreads. Reliability remained high at 97% (2011: 98%), however generation volumes fell by 40% to 9.0TWh (2011:15.0TWh), with an average load factor of 26% (2011: 35%). The market conditions led to the mothballing of our 325MW Kings Lynn power plant at the beginning of the year and we have now also withdrawn our 229MW Roosecote power station from service. Our plants at Barry and Brigg continue to operate in the STOR market, with contracts in place until the end of the first quarter of 2013 while our Peterborough plant has a contract which will commence in April 2013. Against this difficult market environment, we have been successful in minimising our costs and running the plants as efficiently as possible, with high levels of availability enabling running at peak times. In February 2013, we sanctioned a turbine blade upgrade at our 1.2GW South Humber power station, which will improve the efficiency of the plant. Availability in our wind assets was 88% (2011: 92%), reflecting an outage at Inner Dowsing in the first quarter, with generated volumes down 11% to 533 gigawatt hours (GWh) (2011: 596 GWh). The load factor was 32% (2011: 36%). Power profitability increased by 22% to £311 million (2011: £254 million). Nuclear profitability increased, benefiting from a higher achieved average price of £49.6/MWh (2011: £48.5/MWh), reflecting some benefit from forward hedging, as well as the strong operational performance. Wind profitability also increased, with the sale of 50% of our Round 3 wind farm interest to Dong, in line with our established business model to partner on offshore wind, resulting in a net profit of £32 million after taking into account a charge relating to the refusal of consent at our Docking Shoal project. Our CCGT fleet made a small loss in 2012, the last year of free carbon allowances, reflecting the weak market conditions. Investing for value in power In offshore wind, our 270MW Lincs project has now generated first power and is expected to be fully operational in the second half of 2013. We have invested over £3 million in a new operations base at Grimsby docks to serve Lincs and other potential Centrica Energy wind farm developments, a substantial investment in the local area. We continue to progress towards a final investment decision on the Race Bank project, which is consented for 580MW. We are willing to commit £200 million for the project, and are in discussion with a financial partner and the Government concerning the economic framework. During 2012 we also established a joint venture with Dong Energy to co-develop the Round 3 Irish Sea wind farm zone. Formal consultation and a programme of stakeholder engagement was undertaken throughout the year. A final investment decision is expected on the first project in 2016, subject to returns being suitably attractive. In February 2013 we announced that we would not be exercising our option to participate in UK nuclear new build, taking into account the lengthening time frame for a return on capital invested in a project of this scale. The decision follows detailed appraisal of the project, with pre-development expenditure approaching the agreed £1 billion cap; accordingly Centrica’s share of project costs have been written off, with the Group recording a total impairment of £231 million. We have also decided not to proceed with planning applications to develop dedicated biomass power stations at Roosecote and Brigg, with recent clarification on the regulatory framework indicating a preference for co-firing and coal conversion. As the market becomes increasingly dependent on fixed price support mechanisms, we will leverage our competencies, investing only where we see value. Integrate our natural gas business, linked to our core markets The gas market is becoming increasingly global. We have made progress in diversifying our sources of gas, including agreements to import pipeline gas from Norway and LNG from Qatar through our regasification capacity at the Isle of Grain. We are looking to secure gas increasingly from a wider range of sources, expanding the scope of our activities where appropriate. Our aim is to connect sources of energy to our customers, building an integrated international business focused on the Atlantic basin. The UK and Norway will remain an important part of our investment and activity, as we look to maintain an appropriate energy hedge. We have a number of large scale projects ongoing, including Cygnus and Valemon, and we retain a number of attractive potential development opportunities, particularly in Norway, including at Butch where appraisal drilling is planned in late 2013. Decisions are targeted during 2013 on further infill drilling opportunities in the East Irish Sea and North Sea. However, with UK North Sea developments becoming smaller in scale and relatively more expensive, we will increasingly look to diversify our production portfolio, linked to our core markets. This is likely to include further investment in North America, possibly in shale gas, and there is also the potential for gas exports later in the decade. We will invest where we see value across our international portfolio, delivering annual production in the range 75mmboe to 100mmboe. In midstream, we have significant capabilities and presence in European and North American gas markets where we have important strategic participation in pipeline capacity, regasification capacity and gas storage. We will also look to develop our asset-based midstream trading and optimisation business over time, with an emerging presence in LNG. However we will invest only where we see value, with rewards commensurate with the scale of investment and associated risks. Centrica Energy Total Centrica Energy For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Operating 1,230 1,023 20 548 492 11 profit (£m) Gas For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Gas production volumes (mmth) Morecambe 740 817 (9) 378 418 (10) Other UK and 883 933 (5) 403 419 (3.8) Netherlands Norway 557 164 240 381 82 365 Trinidad & 261 246 6 131 162 (19) Tobago Total 2,441 2,160 13 1,293 1,081 20 Oil and condensate production volumes (mmboe) UK and 7.4 7.8 (5) 3.5 3.5 0.0 Netherlands Norway 8.9 4.7 89 5.9 2.1 181 Total 16.3 12.5 30 9.4 5.6 68 Total production 56.7 48.2 18 31.0 23.2 34 volumes (mmboe) Average gas sales price 54.7 51.6 6 56.7 52.5 8 (p/therm) Average oil and condensate 62.8 57.2 10 63.4 56.9 11 sales price (£/boe) DDA costs 9.8 10.1 (3.0) 10.1 9.5 6 (£/boe) Lifting costs 9.7 9.9 (2.0) 10.1 10.1 0.0 (£/boe) Total production 1,374 1,127 22 803 544 48 and overhead costs (£m) Exploration and appraisal 139 97 43 108 51 112 costs (£m) Operating 919 769 20 411 355 16 profit (£m) Estimated net proven and probable 2,376 2,019 18 nm nm nm reserves of gas (BCF) Estimated net proven and probable 129 73 77 nm nm nm reserves of liquids (mmboe) Total net proven and probable 525 410 28 nm nm nm reserves (mmboe) Power For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Power generated (GWh) Gas-fired 8,952 14,973 (40) 4,046 7,542 (46) Renewables 533 596 (11) 287 321 (11) Nuclear 12,004 11,157 8 6,050 4,966 22 Total 21,489 26,726 (20) 10,383 12,829 (19) Achieved Clean Spark 10.7 10.1 6 11.2 9.3 20 Spread (£/MWh) Achieved power price (including 105.7 111.2 (4.9) 111.3 124.7 (11) ROCs) (£/MWh) - renewables Achieved power price 49.6 48.5 2.3 49.8 50.4 (1.2) (£/MWh) - nuclear Operating 311 254 22 137 137 0.0 profit (£m) CENTRICA STORAGE Strong performance in a challenging market environment Centrica Storage performed well in 2012, with strong commercial performance securing the benefits of higher summer/winter price differentials seen in the first half of the 2012/13 storage year. The Rough asset achieved reliability of 92% in the year (2011: 96%), with performance in the first half similar to that experienced in the first half of 2011 but with the second half impacted by a small number of production outages. These outages had limited commercial impact and across the year asset availability was good when required to meet customer demand. The high level of stock carry-over into 2012 combined with modest withdrawal in the first quarter of the year meant that the Net Reservoir Volume (NRV) was at relatively high levels again going into the 2012 injection season. A strong injection season over the summer was followed by the final quarter of 2012 experiencing withdrawals more in line with seasonal normal levels. As a result the NRV level carried into 2013 was above the five year average level but below the level at the start of 2012. Health and safety remains one of our core priorities; this relentless focus has enabled the business to continue its strong record through 2012, with no Lost Time Incidents recorded for more than three years, corresponding to over five million man hours of work without an incident. Forward seasonal spreads have narrowed since the first quarter The business saw higher summer/winter price differentials in the final quarter of 2011 and the first quarter of 2012 compared to the first quarter of 2011, which resulted in an achieved 2012/13 storage year Standard Bundled Unit (SBU) price of 33.9p (2011/12: 25.2p). However, price differentials subsequently narrowed, reflecting colder than normal weather in the summer months and an expectation of LNG availability for the winter. Forward spreads remain relatively narrow for the 2013/14 storage year, with price volatility remaining at subdued levels. Improved operating profit Gross revenue increased by 10% in 2012 to £202 million (2011: £184 million). This reflects the higher summer/winter price differentials and benefits from the high NRV carried into 2012. SBU revenue was 4% higher in 2012 with the calendar year SBU price increasing to 31.0p (2011: 30.0p). Operating profit increased by 19% to £89 million (2011: £75 million) benefiting from higher revenue and strong cost control, partially offset by inflationary pressures and additional depreciation resulting from previous investment in Rough. From 2013 the business will benefit from additional revenue streams associated with gas processing and condensate sales at the newly constructed York processing plant. Challenging economics for new projects We retain the option to invest in our Baird and Caythorpe gas storage projects. However, the continuing relatively low levels of summer/winter price differentials and reduced price volatility, combined with an uncertain longer term outlook, mean that market conditions remain challenging for these opportunities. With the country becoming increasingly dependent on imported gas we believe that more seasonal storage is required in the UK. However we will only invest in new projects if the returns are appropriate for the level of risk undertaken. We may require a support mechanism to underpin the investment and welcomed the announcement by the Department of Energy & Climate Change (DECC) in December that it is planning to carry out further investigation into possible intervention mechanisms to encourage new storage investment. We look forward to the outcome of this review, with initial findings expected in the spring of 2013. Centrica Storage For the FY FY H2 H2 year ended 2012 2011 Δ% 2012 2011 Δ% 31 December Average SBU price (in 31.0 30.0 3.3 33.9 25.2 35 period) (pence) Gross Revenue (£m) Standard 141 136 3.7 77 58 33 SBUs Other 61 48 27 34 29 17 Total 202 184 10 111 87 28 Operating 89 75 19 53 36 47 profit (£m) DIRECT ENERGY Further profit growth in a low gas price environment Direct Energy delivered another strong performance in 2012, in a low gas price environment. Gross revenue decreased by 2% to £6,015 million (2011: £6,117 million) but operating profit increased by 6% to £331 million (2011: £312 million). There was no material impact resulting from currency movements during the year. The business has benefited from organic customer growth in the US North East and the small business customer segment, and from the successful integration of recent acquisitions. We also continue to drive operational efficiencies throughout the business, and the move of our North American headquarters to Houston, combined with overall headcount reductions, has delivered significant benefits. We will continue to drive efficiencies, with further rationalisation of IT resources due to be undertaken in 2013. The health and safety of our employees and customers continues to be our core priority and the LTIFR reduced by 45%, to 0.11 per 100,000 hours worked (2011: 0.20) and we had no significant process safety events in 2012. Benefiting from enhanced scale in residential energy supply Direct Energy Residential made good progress during the year, with organic customer growth in the US North East, the successful integration of recent acquisitions and strong increased customer satisfaction levels across the business. Overall customer accounts increased to 3.5 million (2011: 3.4 million) despite incurring further customer losses as a result of the regulatory environment in Ontario. Gross revenue decreased by 2% to £2,357 million (2011: £2,416 million), while operating profit was broadly flat at £156 million (2011: £161 million) reflecting the decline in the Ontario business, offset by the positive impacts of customer growth and acquisitions in the US. We are also seeing the benefits from operational efficiencies and billing system rationalisation, with increased scale in the US North East. In the US North East, our business is materially larger following the integration of Gateway and Vectren Source, both acquired in 2011, and the acquisition of a further 207,000 residential and 38,000 small business accounts from New York based energy retailers Energetix and NYSEG Solutions from Iberdrola USA, completed in August. The business also experienced organic growth in 2012 due to strong sales performance, despite the expected roll-off of low margin aggregation customers acquired as part of the Vectren Source acquisition. We now have 1.4 million customers in the region, up from 1.1 million at the end of 2011. Our Texas residential business is also benefiting from increased scale, following the First Choice Power acquisition in 2011. Our prepaid ‘Power to Go’ product continues to attract customers, as well as being viewed positively by regulators, who welcome the expansion of choice for all customer groups. In October, we launched a 100% renewable tariff, providing environmentally conscious customers with wind power from Texas. We delivered good sales performance in the US during the year, underpinned by a continued focus on channel efficiency, while our consolidated billing platform has helped reduce costs and bad debt. Churn reduction continues to remain a focus both in Texas and the US North East. We no longer view our residential energy supply business in Ontario as core, following the implementation of the Energy Consumer Protection Act (ECPA), which makes it difficult to sell to new customers or retain existing ones. We continue to actively manage the decline of our customer base and have more than halved operating costs since 2010 through aggressive cost management. In total we lost 95,000 customer accounts in Ontario during 2012 and now have just over 200,000 customers in the region, around half the amount we had at the end of 2010. In 2012, Ontario contributed less than 20% of our residential energy operating profit and this is expected to fall to around 5% in 2013. In Alberta, profitability rose, with increases in regulated rates leading to higher churn levels in the low margin regulated business and growth in the higher margin competitive customer base. Focus on small businesses leading to volume growth in business energy supply Direct Energy Business again delivered strong growth in the year, in a highly competitive market. Electricity volumes rose 11% to 51.4TWh (2011: 46.4TWh), while gas volumes increased by 11% to 793mmth (2011: 714mmth). Higher volumes in the small commercial business sector are driving much of the growth, and profit in this sector nearly doubled in 2012, reflecting strong sales and scale benefits resulting from recent acquisitions. The larger commercial segment is increasingly competitive, however our retention rates remain high in this sector. Gross revenue in business energy supply decreased by 2% to £2,690 million (2011: £2,748 million), with the impact of lower commodity prices more than offsetting volume growth. Operating profit increased to £129 million (2011: £110 million) while operating margin increased to 4.8% (2011: 4.0%), reflecting the positive impact of operational efficiencies and a higher proportion of small business customers. Strengthening the services platform Direct Energy Services is performing well, gaining market share in a challenging economic environment, with many of our competitors experiencing losses or credit downgrades. Our nationwide on-demand franchise has provided scale advantages, while the acquisition of Home Warranty of America (HWA), completed in March, provides the necessary licences to offer protection plan products across the United States. The number of contract relationships increased by 5% during 2012, mainly reflecting the HWA acquisition. Our Canadian business was impacted by warmer than normal weather and industrial action by a number of our unionised technicians in the first half of the year. The labour issues have now been resolved, resulting in a significant improvement to our cost base and more flexible working arrangements, improving our service to customers. Continued weak economic conditions, low consumer confidence and a slow housing market have impacted underlying growth in the US services business, leading to less lead generation and reduced demand for home services products. However we continue to focus on delivering high levels of customer satisfaction and our services Net Promoter Score increased to +61 (2011: +58), helping strong customer retention. Gross revenue increased by 2% to £532 million (2011: £520 million) and operating profit increased to £33 million (2011: £28 million), with operational efficiencies and cost control driving much of this growth. Solid upstream and wholesale performance in a low price environment Direct Energy Upstream continues to face a low wholesale price environment, although the Henry Hub natural gas price recovered slightly during the second half of the year from the record low levels seen in the first half. Alberta gas production volumes fell by 3% to 549mmth (2011: 567mmth), with the achieved gas price falling to C$3.8/MCF (2011: C$4.6/MCF). The price of liquids remains relatively high however, and the acquisition of the Carrot Creek assets, completed in January, meant that oil and liquids production volumes nearly doubled to 1.1mmboe (2011: 0.7mmboe). We added 10mmboe of reserves in North America over the year meaning that after taking account of production, 2P reserves remained broadly flat at 108mmboe (2011: 109mmboe). Texas power generation volumes increased by 21% to 6,336GWh (2011: 5,247GWh), with good asset availability and optimisation performance. Texas experienced more normal weather conditions during the summer months, meaning that spikes in power prices were less extreme than in the exceptional conditions in 2011. Overall, upstream and wholesale gross revenue was £436 million (2011: £433 million) while operating profit was flat at £13 million (2011: £13 million). Well placed to further grow and develop our North American business We have built a good platform for growth in North America, with strong capabilities in energy sourcing and supply, risk management, energy services and upstream gas and power. In 2013 we should continue to benefit from recent residential acquisitions, with integration now mostly complete, while we have created a more efficient operating base in both energy and services. Upstream, natural gas prices continue to be constrained by the impact of shale but production expansion opportunities are available and we will pursue them if value can be created. We continue to look for opportunities to grow our business across North America. Downstream, we will continue to focus on growing organically, through churn reduction and differentiation. We will also continue with our successful bolt-on acquisition strategy, delivering scale and synergies, and will consider larger opportunities where appropriate. Over the next 3 to 5 years we are targeting a doubling in profitability of our North America downstream business through organic growth and acquisition, with Direct Energy downstream becoming a more material part of the Group. We will also look for opportunities upstream, with the potential for exports over time. In each case, we will only invest where we see value and a good fit with our Group-wide capabilities. Direct Energy Total Direct Energy For the year ended FY 2012 FY 2011 Δ% H2 2012 H2 2011 Δ% 31 December Total residential energy and services 5,856 5,647 3.7 5,856 5,647 3.7 accounts (period end) ('000) Gross revenue (£m) 6,015 6,117 (1.7) 3,096 3,021 2.5 Operating profit 331 312 6 165 138 20 (£m) Residential energy supply For the year ended FY 2012 FY 2011 Δ% H2 2012 H2 2011 Δ% 31 December Customer accounts 3,455 3,364 2.7 3,455 3,364 2.7 (period end) ('000) Gross revenue (£m) 2,357 2,416 (2.4) 1,147 1,126 1.9 Operating profit 156 161 (3.1) 55 56 (1.8) (£m) Operating margin (%) 6.6 6.7 (0.1) 4.8 5.0 (0.2) ppts ppts Business energy supply For the year ended FY 2012 FY 2011 Δ% H2 2012 H2 2011 Δ% 31 December Gas sales (mmth) 793 714 11 372 297 25 Electricity sales 51,378 46,350 11 27,443 24,159 14 (GWh) Gross revenue (£m) 2,690 2,748 (2.1) 1,394 1,372 1.6 Operating profit 129 110 17 69 52 33 (£m) Operating margin (%) 4.8 4.0 0.8 4.9 3.8 1.1 ppts ppts Residential and business services For the year ended FY 2012 FY 2011 Δ% H2 2012 H2 2011 Δ% 31 December Contract relationships 2,401 2,283 5 2,401 2,283 5 (period end) ('000) On demand and installation jobs 670 703 (5) 316 372 (15) ('000) Gross revenue (£m) 532 520 2.3 279 271 3.0 Operating profit 33 28 18 22 19 16 (£m) Operating margin (%) 6.2 5.4 0.8 7.9 7.0 0.9 ppts ppts On demand and installation jobs has been restated to reflect management reporting. Upstream and wholesale energy For the year ended FY 2012 FY 2011 Δ% H2 2012 H2 2011 Δ% 31 December Gas production 549 567 (3.2) 270 287 (6) volumes (mmth) Oil and liquids production volumes 1.1 0.7 57 0.5 0.4 25 (mmboe) Total production 10.1 10.0 1.0 4.9 5.1 (3.9) volumes (mmboe) Power generated 6,336 5,247 21 3,016 2,924 3.1 (GWh) Gross Revenue (£m) 436 433 0.7 276 252 10 Operating profit 13 13 0.0 19 11 73 (£m) Estimated net proven and probable 581 603 (3.6) nm nm nm reserves of gas (BCF) Estimated net proven and probable 11 8 38 nm nm nm reserves of liquids (mmboe) Total net proven and probable reserves 108 109 (0.9) nm nm nm (mmboe) Direct Energy with comparator year of 2011 restated to remove effect of foreign exchange movements For the year FY FY H2 H2 ended 31 2012 2011 Δ% 2012 2011 Δ% December Revenue (£m) Residential energy 2,357 2,425 (2.8) 1,147 1,128 1.7 supply Business energy 2,690 2,782 (3.3) 1,394 1,378 1.2 supply Residential and 532 523 1.7 279 272 2.6 business services Upstream and 436 437 (0.2) 276 252 10 wholesale energy Direct Energy 6,015 6,167 (2.5) 3,096 3,030 2.2 revenue Operating profit (£m) Residential energy 156 163 (4.3) 55 56 (1.8) supply Business energy 129 111 16 69 52 33 supply Residential and 33 28 18 22 19 16 business services Upstream and 13 13 0.0 19 11 73 wholesale energy Direct Energy operating 331 315 5 165 138 20 profit 2011 figures restated at 2012 weighted average exchange rate. Unless otherwise stated, all references to operating profit or loss, taxation and earnings numbers throughout the announcement are adjusted figures, as reconciled in the Group Financial Review on page 9 and 10. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Group Financial Statements in accordance with applicable law, regulations and accounting standards. In preparing the Group Financial Statements, the Directors are required to: *select suitable accounting policies and then apply them consistently; *make judgements and accounting estimates that are reasonable and prudent; *state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Group Financial Statements; and *prepare the Group Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Each of the Directors confirm that, to the best of their knowledge: *the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and *the Directors’ Report – Business Review contained in the Annual Report and Accounts, from which this narrative is extracted, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. By order of the Board Sam Laidlaw Nick Luff 27 February 2013 27 February 2013 Chief Executive Group Finance Director GROUP INCOME STATEMENT Year ended 31 2012 2011 December Exceptional Exceptional items and items and Business certain re- Results Business certain re- Results for for performance measurements the year performance measurements the year Notes £m £m £m £m £m £m Group revenue 5(a) 23,942 – 23,942 22,824 – 22,824 Cost of sales before exceptional items and certain (18,676) – (18,676) (17,959) – (17,959) re-measurements Exceptional 6 – (89) (89) – (221) (221) items Re-measurement of energy 6 – 603 603 – (437) (437) contracts Cost of sales (18,676) 514 (18,162) (17,959) (658) (18,617) Gross profit 5,266 514 5,780 4,865 (658) 4,207 Operating costs before (2,844) – (2,844) (2,750) – (2,750) exceptional items Exceptional 6 – (445) (445) – (110) (110) items Operating costs (2,844) (445) (3,289) (2,750) (110) (2,860) Share of profits/(losses) in joint ventures and associates, net of interest and taxation 6,13 140 (6) 134 93 (26) 67 Group operating 5(b) 2,562 63 2,625 2,208 (794) 1,414 profit Interest income 7 254 – 254 212 – 212 Interest expense 7 (437) – (437) (358) – (358) Net interest (183) – (183) (146) – (146) expense Profit from continuing operations before taxation 2,379 63 2,442 2,062 (794) 1,268 Taxation on profit from continuing operations 8 (1,029) (140) (1,169) (810) (16) (826) Profit from continuing 1,350 (77) 1,273 1,252 (810) 442 operations after taxation Profit from discontinued 6 – – – 13 22 35 operations Loss on disposal of discontinued 6,17 – – – – (56) (56) operations Discontinued – – – 13 (34) (21) operations Profit for the 1,350 (77) 1,273 1,265 (844) 421 year Earnings per Pence Pence ordinary share From continuing and discontinued operations: Basic 10 24.6 8.2 Diluted 10 24.4 8.1 From continuing operations: Basic 10 24.6 8.6 Diluted 10 24.4 8.5 Interim dividend paid per 9 4.62 4.29 ordinary share Final dividend proposed per 9 11.78 11.11 ordinary share The notes on pages 30 to 57 form part of these Financial Statements. GROUP STATEMENT OF COMPREHENSIVE INCOME 2012 2011 Year ended 31 December £m £m Profit for the year 1,273 421 Other comprehensive income/(loss): Transfer of available-for-sale reserve to – 23 Income Statement Gains/(losses) on revaluation of 7 (4) available-for-sale securities Taxation on revaluation of available-for-sale (2) (2) securities 5 17 Net losses on cash flow hedges (27) (99) Transferred to income and expense on cash flow 108 42 hedges Transferred to assets and liabilities on cash (1) 2 flow hedges Exchange differences on translation of cash 1 (3) flow hedges in foreign operations Taxation on cash flow hedges (20) 23 61 (35) Exchange differences on translation of foreign (44) (12) operations Recycling of foreign exchange loss on disposal – (3) of business (44) (15) Net actuarial (losses)/gains on defined benefit (319) 198 pension schemes Taxation on net actuarial (losses)/gains on 69 (59) defined benefit pension schemes (250) 139 Share of other comprehensive income of joint 32 (25) ventures and associates, net of taxation Other comprehensive (loss)/income net of (196) 81 taxation Total comprehensive income for the year 1,077 502 <td class="bwsi*Story too large* GROUP STATEMENT OF CHANGES IN EQUITY Accumulated other Share Share Retained comprehensive Other Total capital premium earnings income/(loss) equity equity £m £m £m £m £m £m 1 January 2011 318 833 4,386 (319) 601 5,819 Total comprehensive – – 421 81 – 502 income Employee share 1 41 5 – 10 57 schemes Dividends – – (762) – – (762) Purchase of non-controlling – – (7) – – (7) interest Taxation – – – – (8) (8) Exchange – – – – (1) (1) adjustments 31 December 319 874 4,043 (238) 602 5,600 2011 Total comprehensive – – 1,273 (196) – 1,077 income Employee share 2 55 11 – (2) 66 schemes Dividends – – (816) – – (816) Taxation – – – – (1) (1) Exchange – – – – 1 1 adjustments 31 December 321 929 4,511 2012 [TRUNCATED]
CNA: Centrica PLC: Final Results
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