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CNA: Centrica plc: Interim Management Statement

  CNA: Centrica plc: Interim Management Statement

UK Regulatory Announcement

LONDON

13 May 2013

Centrica Interim Management Statement

Against a backdrop of sustained cold weather and periods of higher commodity
prices, Centrica has performed well in the year to date. This strong
performance enables the business to continue to invest in customer service and
price competitiveness and full year earnings growth is expected to be in line
with market expectations. We have also made good progress towards our
refreshed strategic priorities, having announced a North American LNG export
agreement with Cheniere in March and the acquisition of Canadian natural gas
assets from Suncor in partnership with Qatar Petroleum International (QPI) in
April.

Downstream in the UK, our residential energy supply business has had a good
start to the year, with the number of accounts increasing by 28,000 over the
first four months. This reflects a competitive pricing position and continued
good levels of customer service, leading to higher levels of customer
retention. We also continue to lead the industry in ensuring our energy
proposition is simple, fair and transparent, and our unique, proactive ‘Tariff
Check’ gives customers confidence that they are on the right tariff for them.

As a result of the unusual period of extended cold weather, average
residential gas consumption was 18% higher in the first four months of 2013
than in the same period in 2012, and average residential electricity
consumption was 3% higher. Recognising the economic pressures facing many of
our customers, the Board has determined that any benefit arising from the
exceptionally cold weather will be used to maintain our price competitiveness.
As a result of this decision, we expect the residential energy supply business
to deliver an operating profit for the full year in line with expectations,
weighted towards the first half.

The number of UK residential services accounts is broadly unchanged since the
start of the year, with strong levels of retention in a weak economic
environment, which also continues to impact the central heating installation
business. The sustained cold weather also had an impact on the services
business, with additional costs incurred in response to high call out levels.

We continue to develop and improve our services product range. Over 20,000
customers are now using our ‘Remote Heating Control’ product, while we have
recently launched British Gas branded home insurance in partnership with AXA.
Longer term, smart meters will provide us with additional opportunities for
growth, and we have now installed over 1,000,000 smart meters in homes and
businesses.

In UK business energy supply, the number of supply points is slightly down
since the start of the year, and continuing competitive market conditions are
putting some pressure on margins. Under our new leadership team, we continue
to focus on improving customer service at reduced cost, and the implementation
of new back office systems is proceeding to plan, as we look to offset the
impact of challenging economic conditions. We also continue to develop our
business services proposition and have recently signed multi-year energy
performance contracts with Cornwall and Peterborough Local Authorities.

Downstream in North America, the business continues to perform well, albeit
with some narrowing of margins as gas and power prices have risen. In Direct
Energy Residential we are benefiting from the impact of the NYSEG Solutions
and Energetix acquisition in 2012 with consolidation of call centres on target
for completion this year. In Direct Energy Business, power volumes were 19%
higher in the first four months of 2013 than for the same period in 2012,
reflecting small business growth. In Direct Energy Services, the number of
accounts has grown slightly since the start of the year, and we have made good
progress in preparing for nationwide roll-out of protection plan sales through
the Clockwork franchise network.

Performance in our international upstream gas and oil business has been good
in the year to date. We expect total production from existing assets to be
around 75mmboe in 2013, up from 67mmboe in 2012, and we also expect to benefit
from higher achieved gas prices. We have also made significant progress
towards our refreshed strategic priorities, announced in February. In April,
we announced the acquisition of a package of producing conventional gas and
crude oil assets in the Western Canadian Sedimentary Basin from Suncor, in
partnership with QPI. The assets are expected to produce around 15mmboe in
2013 and the transaction is expected to close in the third quarter of this
year. This is the first acquisition made under the Memorandum of Understanding
signed with QPI in 2011 and we look forward to working together to further
expand the scale and scope of our joint North American operations.

On upstream development projects, we achieved first gas from York and Rhyl
during the first quarter, while our other approved projects at Kew, Grove,
Valemon and Cygnus remain on track to bring 86mmboe of reserves into
production over the next three years. In exploration, two out of three wells
were successful in the first quarter. Drilling at the Rodriguez well in Norway
in January confirmed the presence of gas condensate, while drilling at
Whitehaven in the East Irish Sea in February confirmed a satellite field
adjacent to the Rhyl reservoir.

In March, we announced a 20 year agreement with Cheniere to purchase
91,250,000 mmbtu (89 billion cubic feet) per annum of liquefied natural gas
(LNG) volumes for export from the fifth train at the Sabine Pass liquefaction
plant in Louisiana in the United States. The target date for first commercial
delivery is September 2018 and in early April the export licence application
was filed with the US Department of Energy. The contract is an important step
in delivering our new strategy, as we look to link our positions across the
gas value chain and invest in new sources of gas on both sides of the
Atlantic, where we see attractive opportunities.

In UK power generation, the nuclear fleet continues to perform well, with our
share of nuclear output for the first four months up 8% compared to 2012, to
4.2TWh. Low market spark spreads are continuing to make market conditions
challenging for our CCGT fleet, with gas-fired generation volumes of 3.2TWh
for the first four months broadly unchanged compared to the same period in
2012. However our stations at Barry, Brigg and Peterborough were all
successful in bidding for new National Grid short term operating contracts.

In offshore wind, all the turbines have now been installed at our 270MW Lincs
project, and the wind farm is expected to become fully operational during the
second half of 2013. On our Race Bank project we have made a proposal to
Government regarding the economic framework, to deliver investment alongside a
financial partner. Discussions continue, however they may take some time to
resolve.

In UK gas storage, the Rough asset performed well during sustained cold
weather in the first quarter, which resulted in the reservoir volume reaching
a record low level in April. We have now sold all SBUs for the 2013/14 storage
year at an average price of 23.3p, compared to a 2012/13 price of 33.9p. This
reflects the relatively low level of summer/winter price differentials seen
over the previous 12 months. Overall we expect to see a decline in storage
profitability in 2013 compared to 2012, with the impact of a reduction in SBU
revenue only partially offset by the impact of additional revenue arising from
the opening of the York gas processing terminal.

The Group’s interest charge is expected to be around £230 million this year,
reflecting the amendment to the IAS19 accounting standard, which increases
non-cash pension charges. Based on current pre-tax profit expectations, the
Group’s effective tax rate for the full year is expected to be around 46%,
reflecting the higher proportion of operating profit from our upstream gas and
oil business. At the end of April net debt stood at £4.0 billion.

The Group has now commenced its £500 million share repurchase programme and to
date has purchased 18.7 million shares for a total cost of £66.5 million.

Centrica is due to release its Interim Results for the first six months of
2013 on 31July2013.

Enquiries:

Centrica Investor Relations 01753 494900
Centrica Media Relations 0800 107 7014

Contact:

Centrica plc