CNA: Centrica plc: Half-yearly Report UK Regulatory Announcement LONDON Centrica plc Interim Results for the period ended 30 June 2014 Group results and highlights RICK HAYTHORNTHWAITE, CHAIRMAN “The first half of the year has seen challenging market conditions across the Group, both as a result of the weather and reflecting the wider political environment. We have continued our efforts to engage with our stakeholders, particularly our customers, working to restore their trust. And we are taking the steps to position the business for growth in 2015 and beyond. Trust is addressed in part through our interactions with politicians, regulators and the media, recognising the importance of Centrica to the country’s energy security. But most importantly, trust is earned through our service and relationship with the customer. We have also reached an important stage in the succession of the Group’s leadership, with the appointment of Iain Conn as Chief Executive, to succeed Sam Laidlaw, who will retire at the end of this year. Iain will bring an impressive combination of experience to our business, with deep understanding of the energy sector from a career spanning a variety of roles in one of the world’s leading energy businesses. His breadth of knowledge and commitment to customers and safety make him ideally suited to lead Centrica in the next phase of its development. Sam has shown exceptional leadership over the past eight years. Under his stewardship, Centrica has achieved greater strength and scale, and a platform for long term growth, delivering returns to shareholders and securing the future energy needs of our customers. Much remains to be achieved this year, and I am confident that under Sam’s leadership, and with the depth of management we have across the Group, we are well placed to position the business for the long-term.” RICK HAYTHORNTHWAITE Chairman 31 July 2014 FINANCIAL SUMMARY Adjusted figures for the period ended 30 2014 2013 Change June Revenue £15.7bn £13.7bn 15% Operating profit £1,032m £1,583m (35%) Taxation charge £318m £690m (54%) Effective tax rate 37% 47% (10ppt) Earnings £530m £767m (31%) Basic earnings per share (EPS) 10.5p 14.8p (29%) Interim dividend per share 5.10p 4.92p 4% Net capital expenditure and acquisitions / £409m £755m (46%) disposals Lost time injury frequency rate (per 0.12 0.16 (25%) 100,000 hours worked) *First half earnings down reflecting a challenging market environment, mild weather in the UK and the Polar Vortex in North America *Full year EPS expected to be in the range 21-22p, taking account of a £40million charge associated with writing off our Round 3 wind investment and around $110 million (£65 million) of costs attributable to the Polar Vortex *Average actual British Gas customer bill expected to be around £90 (7%) lower in 2014 than 2013; full year BGR profit per household in 2014 expected to be around £40 (£51 before tax), 20% lower than in 2013 STATUTORY RESULTS Figures for the period ended 30 June 2014 2013 Change Operating profit £1,021m £1,590m (36%) Profit before tax £890m £1,487m (40%) Profit for the period £550m £819m (33%) Basic earnings per share 10.5p 15.8p (34%) Unless otherwise stated, all references to operating profit or loss, taxation and earnings throughout the announcement are adjusted figures, as reconciled to their statutory equivalents in the Group Financial Review on pages 17 to 20. COMMITMENT TO REAL DIVIDEND GROWTH REAFFIRMED *Interim dividend 30% of 2013 full year dividend, in line with established practice *Expect to complete existing £420 million share repurchase programme in the second half of 2014 *Scrip dividend alternative to be introduced in April 2015 CONTINUED FOCUS ON STRONG BALANCE SHEET *Optimise our assets, investing where we see attractive opportunities and realising value where appropriate *Non-core asset disposals, including UK CCGTs and Ontario home services, and potential releases of capital from our gas assets in Trinidad and Tobago and our UK operational wind portfolio, expected to realise around £1 billion *Seek to maintain existing credit ratings; proceeds to be retained to strengthen the balance sheet further *Flexibility to invest along the gas value chain, in a rapidly evolving market place GOOD STRATEGIC PROGRESS IN FIRST HALF OF 2014 *Improving customer service in the UK, with increases in BGR and BGS net promoter scores; residential energy accounts stabilised in the second quarter following 1% decline in the first quarter; installed our one millionth residential smart meter in the UK *Implementation of our new BGB billing system proceeding to plan, enabling better service at lower cost *$100 million cost reduction programme in Direct Energy on track; sold DEB unit gas and electricity margins increased by around a third in the first half of 2014 compared to the second half of 2013 *Bord Gáis acquisition completed; deregulation of the Irish residential gas market confirmed *Continued progress on cost efficiency and positioning Centrica Energy for lower capital expenditure, against a backdrop of falling European wholesale gas prices *Continued investment in securing sources of gas for the UK; around £60 billion of commitments to secure energy for our customers *Recent acquisitions performing ahead of investment cases *Norwegian and Canadian gas assets delivering better than expected production, reserves and resources *Hess Energy Marketing delivering EBITDA ahead of expectations CLEAR PRIORITIES FOR SECOND HALF OF 2014 *Continued focus on service, innovation and cost efficiency to drive growth in British Gas, with specific goals to: *complete the migration of customer accounts to the combined billing and CRM system in residential energy and services *increase the number of residential smart meters installed to around 1.3 million by the end of the year *complete the implementation of the new BGB billing system; deliver process improvement and continue progressing £100 million cost reduction programme *increase sales through the launch of new propositions for residential energy and services customers *Complete the integration of Bord Gáis *Deliver the cost reduction programme in Direct Energy; continue to develop innovative customer propositions; complete the Hess integration; continue US service protection plan and joint energy and services growth *Focus on tight cost control and targeted capital expenditure in upstream gas; progress our development pipeline; progress the FERC approval process for the 5^th train at Sabine Pass *Develop investment plans for our smaller, more flexible gas-fired power plants under the proposed capacity mechanism; continue progressing the sales process for the three larger CCGTs *Position the business for earnings growth in 2015 POSITIONED FOR GROWTH IN 2015, DESPITE LOWER UK COMMODITY PRICES IMPACTING THE UPSTREAM *Expect to return to earnings growth in 2015, reflecting: *improving margins and more normal weather conditions in the US *our target to return to customer account growth in UK residential energy and services *growth in energy services on both sides of the Atlantic *cost reduction programmes in BGB and DE to improve competitiveness *a full year’s contribution from Bord Gáis SAM LAIDLAW, CHIEF EXECUTIVE “With challenging trading conditions on both sides of the Atlantic in the first half, earnings will be lower in 2014 than in 2013. However, the Group is well positioned to return to growth in 2015, and the investments we have made mean that the business is balanced and more resilient, both upstream and downstream. Our leadership in smart connected homes and innovation is helping customers reduce and control their energy consumption and offers a sustainable way to keep bills down. The combination of mild weather, and our expectation that we will not change energy prices this year, means the average actual British Gas household energy bill is expected to be around £90 lower in 2014 than in 2013. Centrica plays a vital role in helping to secure the country’s energy requirements, a role we can only undertake if the business is profitable and financially strong. We will continue to invest where we see attractive opportunities, along the gas value chain. And we will continue to drive operating efficiencies across the Group, for the benefit of both our customers and our shareholders." SAM LAIDLAW Chief Executive 31 July 2014 ENQUIRIES Investors and Analysts: Andrew Page / Martyn 01753 494 900 Espley firstname.lastname@example.org Media: Greg Wood / Sophie 0800 107 7014 Fitton email@example.com Interviews with Rick Haythornthwaite (Chairman), Sam Laidlaw (Chief Executive), Nick Luff (Chief Financial Officer), Chris Weston (Managing Director, International Downstream) and Mark Hanafin (Managing Director, International Upstream) are available on www.centrica.com. Divisional results and highlights INTERNATIONAL DOWNSTREAM British Gas: Focus on service, efficiency, innovation and growth Adjusted operating profit for the 2014 2013 Change period ended 30 June Residential energy supply (BGR) £265m £356m (26%) Residential services (BGS) £129m £135m (4%) Business energy supply and services £61m £78m (22%) (BGB) Total British Gas adjusted £455m £569m (20%) operating profit Total British Gas adjusted £355m £436m (19%) operating profit after tax Performance indicators for the 30 Jun 2014 31 Dec 2013 Change period ended Residential energy customer 15,055 15,256 (1%) accounts (period end, ’000) Residential services product 8,046 8,227 (2%) holding (period end, ’000) Business energy supply points 900 912 (1%) (period end, ’000) *British Gas operating profit down, with lower consumption due to warmer than normal weather in the UK *Average actual customer bill expected to be around £90 (7%) lower in 2014 than 2013, reflecting warmer weather and energy efficiency measures; the average bill for vulnerable customers was on average 20% lower this winter than last, due to the warm home discount and additional British Gas discounts *No change to residential energy prices expected during 2014, recognising competitive conditions in the UK energy supply market and the need to buy forward in the current uncertain environment *Gas and electricity contracted up to three years in advance; majority of requirements for next winter already purchased *Benefit of lower wholesale commodity prices in 2015 offset by higher carbon, ROC and network costs *British Gas Residential post-tax margins expected to be around 4%, lower than last year and below our long-term margin expectation of 4.5%-5%, which we believe is necessary to underpin investment in the business *Clear strategy in place to focus on three priorities: deliver great service, transform to grow, engage key stakeholders; new organisational structure in place to enable delivery of strategy *Good progress made in the first half of 2014, helping create a platform for long term sustainable growth *BGR customer accounts stabilised over the second quarter, following a 1% decline in the first quarter *Delivering improved service levels, with higher NPS in both BGR and BGS, as we target leading, high quality service for both residential and business customers *ECO delivery on track, with Affordable Warmth already completed ahead of March 2015 deadline *£100 million BGB cost reduction programme on track; implementation of new billing system to be completed in the second half of the year *Second half focus on service, efficiency and innovation to drive growth *Improve service and deliver efficiencies by simplifying key customer interactions; single billing and CRM platform for energy and services expected to be completed in the third quarter of 2014 *Growth opportunities in BGS through tailored offerings, new propositions targeted at energy customers *Development of new offerings, including business services, for valuable customer segments in BGB *Smart, connected homes key to future growth *One million residential smart meters installed; over 350,000 customers receiving smart energy report *Targeting 2.4 million residential smart meter installations by the end of 2015 *Launched smart meter enabled “Free Saturdays or Sundays” energy tariff trial *100,000 smart thermostats sold to date, with increased sales under the Hive brand Direct Energy: Focus on customer value, service and choice Adjusted operating profit/(loss) 2014 2013 Change for the period ended 30 June Residential energy supply (DER) £48m £99m (52%) Business energy supply (DEB) (£21m) £53m nm Residential and business services £14m £13m 8% (DES) Total Direct Energy adjusted £41m £165m (75%) operating profit Total Direct Energy adjusted £26m £103m (75%) operating profit after tax Performance indicators for the 30 Jun 2014 31 Dec 2013 Change period ended Residential energy customer 3,454 3,360 3% accounts (period end, ’000) Residential services product 2,625 2,608 1% holding (period end, ’000) Performance indicators for the 2014 2013 Change period ended 30 June Business energy supply gas volumes 3,193 494 546% (mmth) Business energy supply electricity 48.9 28.0 75% volumes (TWh) *Operating profit significantly down, reflecting the impact of the Polar Vortex and a narrowing of energy supply margins due to challenging market conditions *Total Polar Vortex costs of $110 million (£65 million) recognised in first half operating profit, primarily relating to additional power market charges *Sold B2B unit gross margins in the first half of 2014 increased by 35% for gas and 33% for power compared to the second half of 2013; expected to positively impact 2015 *Hess Energy Marketing business performing ahead of investment case *Further growth potential through enhanced scale, dual fuel capabilities, oil to gas switching, advantaged positions along the gas value chain and long term customer relationships *$100 million cost reduction programme on track; driving synergies from enhanced scale *Continued focus on value *Sale of Texas CCGTs generated a £219 million operating profit on disposal; downstream operations supported through contractual relationships *Agreed sale in July 2014 of Ontario home services business for $550 million (£300 million); services focus now in the US, where we see better opportunities for growth including combined energy and services offerings *Building a range of innovative energy and services product offerings, improving customer retention and attracting the highest value customers *Sales through digital channels nearly trebled in the first half of 2014 compared to the first half of 2013 *Targeting 250,000 US services protection plan customers and 100,000 bundled energy and services propositions by end of 2014 *Astrum Solar acquisition provides enhanced product range for residential customers, in a rapidly growing market *Further growth potential through connected homes and business propositions; Nest relationship supports innovation and customer value growth INTERNATIONAL UPSTREAM Centrica Energy: Securing energy supplies for our customers Adjusted operating profit/(loss) for the 2014 2013 Change period ended 30 June International gas £465m £683m (32%) UK power £61m £119m (49%) Gas-fired (£70m) (£64m) nm Renewables (operating assets) £23m £12m 92% Renewables (one-off write-offs, profit/loss (£40m) £24m nm on disposal) Nuclear £125m £122m 2% Midstream £23m £25m (8%) Total Centrica Energy £526m £802m (34%) Adjusted operating profit after tax for the 2014 2013 Change period ended 30 June International gas £235m £182m 29% UK power £42m £100m (58%) Total Centrica Energy £277m £282m (2%) Performance indicators for the period ended 2014 2013 Change 30 June International gas production (mmth)^1 1,945 1,696 15% International liquids production (mmboe) ^ 1 8.7 9.8 (11%) International total gas and liquids 40.9 37.6 9% production (mmboe) ^ 1 Total UK power generated (TWh) 10.7 10.6 1% 1. Includes a 100% share of Canadian assets held in partnership with QPI *International gas profit after tax up 29% despite lower UK wholesale commodity prices, reflecting the benefits of forward hedging and small field tax allowances; full year profit after tax expected to be broadly unchanged compared to 2013 *Underlying power operating profit slightly higher, before impact of one-off write offs and profits/losses on disposal in renewables *Previous investments performing well *Sustained strong power generation volumes from the nuclear fleet *E&P assets acquired from Statoil and Suncor both delivering production, reserves and resources in excess of investment cases *Good availability and favourable yields for operational wind farms *Clear priorities in second half in low wholesale price environment *Targeting flat E&P unit lifting and cash production costs over the next three years *Targeting a reduction in E&P spend to around £900million per year on average over the next three years; continue to optimise portfolio with targeted investment and selective divestments of non-core assets *Strategic review of gas-fired power generation portfolio completed; developing investment plans for smaller, more flexible plants and commenced sales process for three larger CCGTs CENTRICA STORAGE Making an important contribution to the UK’s security of supply Adjusted operating profit for the 2014 2013 Change period ended 30 June Centrica Storage £10m £47m (79%) *Strong operational performance; substantially lower operating profit due to low seasonal gas spreads for 2013/14 and 2014/15 storage years *Commenced programme to deliver £15 million of cost reductions through operational improvements over the next three years Performance Overview OVERVIEW Centrica has faced a range of external challenges in the first half of this year. But we have shown the flexibility and determination to tackle those challenges, all the time underpinned by a clear sense of strategic direction. Customers are at the core of our business, in the UK, Ireland and NorthAmerica. The combination of energy and services, alongside leadership positions in innovation and smart connected homes, provides us with a distinctive platform to build sustainable growth. And our vertically integrated business model enables us to direct capital where we see the most attractive returns, securing energy supplies for our customers in an increasingly international market. Overall, the quality of our recent investments across the Group has strengthened the business, forging strong relationships with world-class partners, and helping to offset the effects of market headwinds which have affected returns from existing assets. During the year to date, we have made good progress in key areas for the long term health of the business. Management succession On 29 July 2014, we announced the appointment of Iain Conn as Chief Executive, with effect from 1 January 2015. Iain will join from BPplc where he has been Chief Executive, Downstream, for the past seven years and brings an impressive combination of experience to Centrica. He heads a global consumer brand familiar to millions of people and possesses a deep understanding of the energy sector, built up over many years in the industry. Iain will succeed Sam Laidlaw who will retire from the Board on 31 December 2014. Following the announcement of his resignation on 7 January 2014, Nick Luff, Centrica’s Chief Financial Officer, will leave the company on 31 August 2014. Jeff Bell, currently Centrica’s Director of Corporate Finance, will take on the role of Chief Financial Officer on an interim basis and will join the ExecutiveCommittee on 1 September 2014. Jeff has been with Centrica since 2002, and has held a number of other senior management positions, including Group Strategy Director. It was announced on 29 May 2014 that Chris Weston, Managing Director, International Downstream had tendered his resignation. A succession process is underway, and further details regarding his succession will be given in due course. With the announcement of a new Chief Executive and interim Chief Financial Officer, we are making the transition to a new management team which has deep experience of the energy markets that shape our business and of the challenges we face in building customer trust and creating a sustainable energy future. Business performance summary We delivered good operational performance in the first half of 2014, with high reliability from our gas and oil production, power generation and gas storage assets, and improved customer service levels in our downstream businesses. We also delivered further improvements in our health and safety record during the first half of the year, with a 25% reduction in the lost time incident frequency rate compared to the first half of 2013 and no significant process safety incidents recorded during the period. Downstream in the UK, we faced challenging market conditions, continued political and regulatory scrutiny and warmer than normal weather. Against this backdrop we delivered much improved service levels in British Gas, while our residential energy customer account numbers stabilised in the second quarter following a period of sustained account losses in the fourth quarter of 2013 and early in 2014. We are targeting a return to growth in the second half. The transfer of customer accounts onto a new combined energy and services system is nearing completion and we are also making good progress on the transformation of British Gas Business, with the cost reduction programme and billing system upgrade on track. We have now completed the acquisition of Bord Gáis Energy in Ireland. The business is expected to be earnings accretive in the first full year of ownership and is expected to contribute around €40 million of EBITDA in 2015. The transaction provides Centrica with a vertically integrated energy supply business in an adjacent deregulated market, and also provides a good platform for growth. We will use our experience from the UK and US to develop innovative propositions for our customers in Ireland, in energy supply and energy services. In North America, extreme weather conditions due to the Polar Vortex held back earnings in the first half, with the business energy supply division making an operating loss, and market conditions remained challenging in residential energy supply. However margins on new B2B sales are improving, reflecting a re-pricing of risk, and the B2B energy marketing business acquired from Hess in 2013 is performing ahead of expectations. We are making good progress on developing innovative propositions across Direct Energy, and now have residential solar capability following the Astrum Solar acquisition. We are also on track to deliver our $100 million cost reduction programme. Direct Energy Services is performing well, with the focus now on delivering growth in Alberta and the United States, following our decision in July 2014 to dispose of our Ontario home services business. In upstream exploration and production, against a backdrop of falling wholesale commodity prices, we are targeting stable unit production costs and a reduction in capital expenditure over the next three years, while forward hedging and tax allowances are helping to maintain current year profit after tax. We also further strengthened our relationship with Qatar Petroleum International, announcing that they will acquire a 40% share of our wholly owned gas assets in Western Canada, fully aligning our interests in the region. In UK power generation, the nuclear fleet once again delivered strong operational performance, however market conditions remained weak for our gas-fired stations. As a result, following a review of the UK CCGT fleet, we will target investment towards our more flexible, smaller power stations, which are well positioned to benefit from the Government’s capacity market proposals, while releasing capital from the larger stations. Centrica Storage also delivered strong operational performance, with good reliability. However low seasonal gas price spreads meant that profitability was substantially lower than the first half of last year. Earnings, dividend and outlook Overall adjusted operating profit fell by 35%. This was partially offset by a lower effective tax rate, reflecting the mix of profit, the benefit of forward hedging, upstream small field allowances and a tax credit relating to the disposal of the Greater Kittiwake Area assets. As a result adjusted earnings per share (EPS) of 10.5p were 29% lower in the first half of 2014 compared to the first half of 2013. This predominantly reflects the impact of margin compression and the Polar Vortex in North America, mild weather in the UK, continued low seasonal gas storage spreads and a charge associated with writing off our Round3 offshore wind investment. For the full year, we expect EPS to be in the range 21-22p, after taking into account the Round 3 wind write-off. Looking further ahead, we expect the Group to return to earnings growth in 2015, with the prospect of underlying operating profit improvements in services and B2B in both the UK and North America, a first year of contribution from Bord Gáis and more normal weather conditions, more than offsetting the impact of lower UK gas prices on our E&P business. This remains subject to the usual variables of commodity prices, weather and asset performance, together with the downstream regulatory and competitive environment. We reaffirm our commitment to delivering real dividend growth, a core component of ensuring appropriate returns to investors commensurate with the risks undertaken. We have now also completed just over half of the current £420million share repurchase programme, having purchased 64.75million shares to date for a total cost of £213million, and expect to complete the programme later this year. In line with our established practice, the Board proposes an Interim Dividend payment of 30% of the prior year’s full year dividend, being 5.10pence per share, payable on 12 November 2014 to shareholders on the register on 26September 2014. CLEAR PRIORITIES FOR SECOND HALF OF 2014 We have clear priorities for the second half of the year, aligned to our strategic priorities. Downstream, new organisational structures are now operational on each side of the Atlantic, and we are improving our core operations to deliver better customer service, while continuing to drive efficiency improvements and working to achieve growth through innovative propositions. In British Gas, we have a clear strategy focused on three priorities - deliver great service, transform to grow and engage key stakeholders. We continue to target leading service levels for all our customers, and will drive further improvements in the second half to increase the net promoter score (NPS). We are simplifying a number of key residential customer interactions, in particular for direct debit payments and moving home, and we will complete the migration of residential customers onto a single billing and CRM platform for energy and services during the third quarter. Overall we are targeting a return to residential customer account growth through competitively priced products, the launch of innovative new propositions and a trial of the smart meter enabled “Free Saturdays and Sundays” energy tariff. In BGS, we have developed proposals to change engineer terms and conditions, which are strongly supported by the GMB Trade Union and are now subject to ballot. These changes will deliver greater operational flexibility to improve service levels for our customers and enable us to develop attractive new propositions. We are on track to have sold over 150,000 smart thermostats by the end of the year, in excess of our original target. We also continue to build our leadership position in smart, connected homes, and expect to have installed around 1.3million residential smart meters by the end of the year and 2.4 million by the end of 2015, considerably more than any other energy supplier. In BGB, we are implementing a new billing system, which is expected to be completed in the third quarter of 2014. Alongside an ongoing programme of process simplification, this should enable us to deliver improved service and lower costs, and we are on track to achieve £100 million of annual operating cost and bad debt reductions by the end of 2015. We are also looking to develop propositions tailored to valuable customer segments, driving growth through dual fuel offerings and energy efficiency packages. In Direct Energy, we are targeting disciplined margin expansion across the business, focusing on customer value and customer service and choice. In DEB, we will look to build on the sales margin increases we experienced in the first half of the year, which should position the business to deliver a material improvement in profit in 2015. The Hess Energy Marketing acquisition is performing well, and we expect to complete the integration in the second half while looking to drive growth – through our dual fuel capabilities, oil to gas switching, advantaged positions along the gas value chain and long-term customer relationships. We will also continue to drive operational efficiency across Direct Energy, having grounded initiatives to deliver our $100 million cost reduction target. In North America residential energy and services, we are targeting improved retention and attracting the highest value customers, through increased use of digital platforms and the development of attractive propositions. We expect to grow our services franchise footprint further, while we are targeting 250,000 US protection plan customers and also expect to have sold 100,000 bundled energy and services products by the end of the year. The acquisition of Astrum Solar in July 2014 will allow us to offer solar alongside our existing range of energy and services products, while smart connected homes and businesses will become increasingly important and we have an exclusive partnership with Nest to sell 100,000 smart thermostats across North America over the next 18 months. In Centrica Energy, in a lower wholesale price environment, we will focus on improving our returns through operational efficiency and capital discipline. In E&P, we will look to deliver production and capital expenditure targets, and successful drilling results, while a fourth well at York and a new well at Grove are both set to produce first gas during the second half. In Midstream, we will continue to contract for sources of gas to provide energy security for our customers at competitive prices, and develop our LNG business. We continue to work towards approvals at the fifth train at the Sabine Pass LNG export facility in the United States, with FERC approval expected around the end of the year. Securing contracts to deliver gas for our customers remains an important role for the Group. In Power, we have now commenced the sales process for the three larger gas-fired stations in our fleet, which we expect to occur within the next 12 months. We will continue to develop plans for our remaining smaller stations, evaluating investment options under the proposed capacity auction. FOCUS ON MAINTAINING A STRONG BALANCE SHEET Maintaining appropriate financial discipline, with a strong balance sheet and healthy cashflow position, is a core priority for the Group. It is also important that we maintain sufficient financial flexibility, to be able to deploy capital where we see attractive opportunities, and to realise value from non-core assets. In this context, we have initiated a programme of disposals, selling assets that are no longer core to the Group’s strategy. The programme includes the disposal of our three larger gas-fired power stations in the UK and our Ontario home services business, while we will also potentially look to release capital from our gas assets in Trinidad and Tobago and our UK operational wind portfolio. In total, we expect the programme to realise around £1billion. As part of their ongoing review of the sector, in April, Moody’s Investor Services Limited placed the Company on review for downgrade, noting the political and regulatory environment for energy supply in the UK, as well as the inherent risks upstream and in North America. In May, Standard & Poor’s Credit Market Services Europe Limited placed the Company on CreditWatch Negative, noting the challenging regulatory, political and market outlook. We continue to engage with both credit rating agencies, with a view to retaining the existing A3/A- credit ratings, underlining our position as a strong counterparty for procurement contracts to bring gas to the UK, and optimising our requirements for collateral in our trading and upstream operations. We would expect proceeds from the disposal programme to be retained to further strengthen the balance sheet and improve the Group’s financial metrics. While we do not currently anticipate initiating a further share repurchase programme until the Group’s financial metrics have been strengthened, the Group’s underlying cash flows remain strong, underpinning future financial flexibility and the ability to invest for long term growth, or return capital to shareholders where appropriate. In 2015, we expect to commence a scrip dividend programme as an alternative to the cash dividend commencing with the 2014 final dividend, subject to shareholder approval. CONTINUED STAKEHOLDER ENGAGEMENT Energy policy remains a key issue for the UK, as we seek to balance the often competing needs of energy security, climate change and affordability. With trust in the energy sector at a low level, it is vital that all stakeholders have the clear facts to form a balanced view, enabling greater understanding of the cost drivers behind energy bills and of the implications of the policy decisions being taken. To help achieve this, we will continue to engage closely with all stakeholders – policy makers, regulators, the media and above all, our customers – in an open and transparent way, to begin the task of restoring trust in the sector. We welcome the clarity which the Competition and Markets Authority (CMA) investigation into the UK energy sector will bring. This will be a full and rigorous review by an independent and respected body and we look forward to engaging constructively and comprehensively throughout the process - helping to clear the air, enabling investment to continue and consumer confidence in the sector to be restored. We believe that there is effective competition in the energy market and that it brings significant benefits to consumers, delivering consumer prices which remain low compared to many European markets. There are currently some 25 suppliers active in the British domestic retail market, with new entrants now an established competitive force. Today, over 60% of our customers receive electricity as well as gas from us – each of those electricity accounts was won in the competitive market. In the six months to March 2014, over 3.5m customer accounts moved from one supplier to another – roughly 7% of the total; and within BritishGas, we see around 20% of customer accounts switching to a different tariff each year, including in response to our ‘Tariff Check’ service. We offer exactly the same products and prices to existing and new customers. And through innovation, such as smart meters and our ‘Hive’ remote heating control product, we are able to help customers control their energy use and over time, to take advantage of time of use tariffs. However, rising retail energy prices have, understandably, become a real concern for customers. This upward trend over the past few years has been driven by increases in wholesale commodity prices, higher network charges and the rising costs of Government policies. Taken together, these factors make up around 85% of the typical British Gas dual fuel energy bill. With further upward pressure predicted, an open and honest debate about these costs, with transparency from all parties, is clearly needed. Regulation and policy interventions continue to define the way in which suppliers compete in the market. While the UK Government’s recent changes to the Energy Company Obligation and the Warm Home Discount have delivered a welcome short term reduction in costs, non-commodity costs are expected to increase because of the growing cost of decarbonisation and continued investment in energy networks. We therefore propose three principles which will help the country to meet its carbon reduction commitments in a more cost-effective way, without compromising long term ambitions: concentrate on the lowest-cost, least regret options; set simple and cost-effective decarbonisation targets; and support those most affected, whether they are energy intensive industries or vulnerable households. Together, these measures can help to ensure a sustainable, low carbon energy future for the UK, while minimising the cost for the consumer. As North Sea resources decline, Centrica plays a critical role in bringing supplies of gas to the UK. Our vertically integrated business model enables us to protect our customers from short term volatility in market prices, at lower cost than would be the case for a stand-alone supplier. We invest over £1billion each year across the Group, and have made commitments totalling around £60 billion to secure long term gas and power supplies to meet the future energy needs of our customers. We can only make this scale of contribution to the country’s security of supply if we are a profitable company with a strong balance sheet and cash flows. PREVIOUS INVESTMENTS AND CONTINUED FOCUS ON SERVICE AND COSTS LEAVE GROUP WELL PLACED Organic investments and acquisitions over recent years have left the business better balanced and more resilient. *We have invested in systems and service and developed a leadership position in innovation and smart connected homes in British Gas *We have established a larger scale downstream business in North America, providing a platform for further growth in energy supply and services *We have a more balanced upstream gas and oil business spanning the Atlantic basin, with scale positions in Norway and Western Canada in addition to the UK *We have a power generation business that benefits from low carbon baseload nuclear production alongside renewables and gas-fired generation *We have a growing midstream business, in an increasingly international energy market *We have forged strong relationships with world-class global energy partners, providing security of supply for our customers Our investments are generally performing well. The British Energy nuclear fleet is delivering sustained strong generation volumes, while in E&P, although some of our organic investments in the Southern North Sea have proved challenging, the gas and oil assets acquired from Statoil and Suncor have materially increased our upstream scale in Norway and Western Canada respectively, and have delivered reserves and production in excess of the original investment cases. In North America, the Hess Energy Marketing acquisition is delivering returns ahead of the investment case, and gives us an industry leading position in B2B energy supply in North America, as well as enhanced presence along the gas value chain. We have also successfully integrated a number of residential bolt-on acquisitions, including the Bounce Energy acquisition which provides us with the foundation to grow our digital offering and offer innovative products across DE Residential. In energy services, through the Clockwork and Home Warranty of America transactions we now have a scalable platform in a growing but highly fragmented market, with the potential for energy and services bundling, while the recent acquisition of Astrum Solar provides us with capabilities in residential solar. We have also added value through the development of a substantial wind portfolio, realising value through capital efficient financing and selective divestments, with further opportunities to realise value from the remaining five operational wind farms. By contrast, returns from our gas-fired power stations and the Rough gas storage facility have declined materially, while we suffered from the UK Government’s decision to increase the effective tax rate on upstream gas and oil assets in the 2011 Budget. Overall, these impacts broadly offset the contribution from acquisitions. Although a large proportion of investment has been in the upstream business and in North America, the UK downstream business remains core, contributing a material part of the Group’s profit after tax. Our relentless focus on improving service and reducing costs, alongside investment in new systems, has helped us to maintain our competitive position over the past few years. And our leadership position in smart, connected homes and innovation provides a platform for long term, sustainable growth. FIRST HALF PERFORMANCE BRITISH GAS British Gas Residential British Gas Residential operating profit fell by 26% compared to the first half of 2013. This reflects warmer than normal weather and an underlying consumption decline, in part due to energy efficiency measures, resulting in 24% and 9% reductions in average residential gas and electricity consumption respectively. The number of customer accounts reduced by around 1% during the first quarter of 2014, which reflected high levels of customer switching following the increase in residential prices in November 2013. However they were broadly stable over the second quarter, despite fierce competition from smaller suppliers who are currently benefiting from an exemption from some environmental obligations. This reflects British Gas being the first energy company to pass on savings in full to all our residential customers in January following the announcement of changes to the ECO programme, and the introduction of attractive fixed price propositions. Service levels in British Gas Residential significantly improved over the first half of the year. Average answering and call handling times both reduced compared to the second half of 2013, and drove a +11 point movement in our contact NPS, reflecting our focus on delivering leading, high quality service. We are targeting a significant reduction in customer complaints over the next three years. We remain on track to complete the migration of all residential customers onto our new billing and CRM platform in the second half of 2014, and the new system will deliver a more integrated customer experience. Innovation and smart connected homes We continue to lead the industry in technology, innovation and smart connected homes. Around two-thirds of our customer interactions are now made through digital channels, with around half of those initiated from a mobile or tablet device, and customer downloads of our top rated mobile App have now reached 1.3 million. We have now installed over one million residential smart meters in the UK and expect to have installed around 1.3million by the end of the year. We strongly support the 2020 mandate for full smart roll-out and are on track to support the ‘go live’ of the Data Communications Company in December next year and to lead industry testing of the new systems in mid-2015. We encourage the industry, Government and regulatory bodies to maintain momentum on all fronts to ensure the smart roll-out is delivered on schedule. Smart meters will bring significant customer benefits including an end to estimated bills, greater ability to monitor and reduce consumption, flexible time of use tariffs, and simpler and faster switching between suppliers, helping to improve trust in the UK energy industry. Over 350,000 smart meter customers now regularly receive our unique Smart Energy Report (SER). The SER provides customers with a comprehensive analysis of their energy consumption including a breakdown by type of use, benchmarking against similar homes, personalised energy saving tips and access to an online tool. The report is helping improve levels of customer satisfaction and the overall perception of British Gas. We have also taken the lead in the roll-out of smart meters to prepayment customers and are currently trialling a SMETs capable prepayment meter, the first of its kind. We plan to launch it in 2015, a year ahead of the Government’s target. Leveraging our experience in Direct Energy, we are now also trialling a new time of use energy tariff, “Free Saturdays or Sundays September 2015”, for full launch next year. We have now sold 100,000 smart thermostat products in the UK, mostly under our innovative Hive brand that was launched in September 2013. The Hive product is now available in Apple stores nationwide and has been received extremely positively, featuring in T3’s ‘The Great British Tech List’ in July this year. The brand NPS of customers using Hive is over +40, with 80% saying they would actively recommend the product. We have a strong development pipeline of further innovative products and have now commenced trials of a ‘smart connected boiler’ product and a ‘virtual in home display’, both of which we plan to launch next year. Our nationwide network of over 8,000 highly trained service engineers with trusted access to customers’ homes remains a key competitive advantage for British Gas in the connected homes market. Helping people today Helping customers to reduce and control their energy consumption is the sustainable way to keep bills down. We have made good progress in delivering our commitments under ECO, which is providing energy efficiency measures such as insulation to transform homes and communities across the UK. We are on track to meet our obligations and have already delivered the Affordable Warmth component of the scheme, well in advance of the March 2015 deadline. We do more than any other supplier to assist the most vulnerable customers. This past winter, in addition to the £135 Warm Home Discount, we made a payment of up to £60 to over 500,000 eligible customers, and these customers’ bills were on average 20% lower this winter than last. This year we have committed £9million to the British Gas Energy Trust, an independent charity giving grants to households struggling with bills, and our total donations since 2004 have now reached £65 million. We also continue to work closely with our key charity partners, Shelter and National Energy Action, to improve the safety and warmth of homes in the private rental sector and to tackle fuel poverty. We continue to support job creation in the UK with over 1,100 apprentices currently in training and a further 250 expected to be recruited this year as part of our smart meter roll-out programme. We are also working with Accenture, Princes Trust, Job Centre Plus and Global Action Plan to provide training opportunities to young people not in employment, education or training (NEETs). In addition, all of our direct UK-based employees are paid at least the ‘living wage’ rate. British Gas Services British Gas Services delivered high levels of customer service in the period, both in our contact centres and in customers’ homes. Customer complaints fell by 40% compared to last year and the NPS for our engineers increased to +64, with our investment in a more resilient operating model, in addition to the warmer weather, resulting in improved response times for breakdowns. We have developed proposals to change engineer terms and conditions, which are strongly supppoered by the GMB Trade Union and are now subject to ballot. These changes will deliver greater operational flexibility to improve service levels for our customers and enable us to develop attractive propositions to drive growth. The market for central heating installations is showing signs of recovery, with the number of boilers installed increasing by 11% compared to the same period in 2013. For contract customers, retention levels remained high, underlining the value that our products continue to provide. However, improvements in the UK economy have yet to feed through into higher contract sales, which have also been impacted by a focus on compliance training for front line staff and protecting service levels during the migration of customer accounts onto the new billing and CRM platform. As a result, the number of services product holdings fell by 181,000 during the first half of the year, although we did see an increase in the number of landlord contracts, an important growth opportunity, and we are developing new channels and propositions to increase sales in the second half of the year. British Gas Services operating profit fell slightly compared to the first half of 2013, predominantly reflecting the decline in the number of contract holdings. British Gas Business The number of British Gas Business supply points was broadly flat over the first half. However operating profit reduced compared to the same period in 2013, largely reflecting the warmer than normal weather, with total gas and electricity volumes down by 22% and 3% respectively compared to the first half of 2013. We remain on track to deliver £100million of targeted reductions in operating costs and bad debt, in part enabled by the implementation of a new billing system, which is expected to be fully operational by the third quarter of 2014, and so far this year we have removed over 300 roles from the business. We remain on track to deliver the programme by the end of 2015 and these cost efficiencies will help offset the margin pressures resulting from a competitive market and our decision in 2013 to end the auto-rollover of contracts at renewal. To drive growth in BGB, we are developing a new customer segmentation model based on external research, to drive growth through dual fuel offerings, energy efficiency packages and joint energy and services propositions. We continue to develop our business services capabilities. We have secured a contract with Sainsbury’s for ground source heat pump installations and three further energy performance contracts have entered the construction phase. Our solar business also continues to expand, with a landmark contract at Toyota’s Deeside plant nearing completion, while we recently announced our participation in the Generation Community scheme to deliver up to £60 million in solar PV solutions for Local Authority and Housing Association properties. DIRECT ENERGY Direct Energy profit was 75% lower in the first half of 2014 compared to the same period in 2013, and 73% lower after adjusting for foreign exchange movements. This was predominantly due to margin pressures on sales made during the second half of 2013, particularly in our legacy business supply division, and the one-off impact of additional ancillary and other charges resulting from the extreme weather conditions, the Polar Vortex, seen across much of North America early in the year. The total impact of these charges was approximately $110 million (£65 million) in the first half of 2014, across both residential and business energy supply. However following the Polar Vortex we have seen evidence that the C&I market is pricing in additional risk into retail power products, and have seen a material increase in our sold unit margins for both gas and power over the first half of the year. Our $100 million cost reduction programme is progressing to plan and we have now grounded initiatives to achieve the target by the end of 2014. A number of initiatives are underway, including investment in our billing systems, consolidation of our services operating systems and integration of our energy and services call centres. Direct Energy Residential The number of residential energy accounts increased by 94,000 in the first half of the year, despite the expected further decline in Ontario due to the Energy Consumer Protection Act (ECPA), as we gained accounts in the US North East following the acquisition of aggregation customers in Ohio. However Direct Energy Residential operating profit fell, as we incurred additional costs related to the extreme weather conditions and we faced a challenging competitive sales environment in both Texas and the US North East, leading to a reduction in unit margins. Against this challenging backdrop we are focused on delivering high quality customer service, and our NPS remained high and retention levels improved. We also made good progress on developing innovative products and the number of residential sales coming through digital channels nearly trebled, following the acquisition of Bounce Energy in 2013. We have now started selling bundled energy and protection plan products, and have sold over 20,000 in the year to date. We have also now sold over 10,000 smart thermostats so far this year in Alberta, and have signed an exclusive partnership with Nest to sell 100,000 additional units across North America over the next 18 months. In July 2014, we entered the rapidly growing US residential solar market through the acquisition of Astrum Solar for $54 million (£32 million). The transaction allows Direct Energy to sell solar alongside its existing range of energy and services products, as we look to develop further attractive propositions and attract the highest value customers. Direct Energy Business In business energy supply, the Hess Energy Marketing acquisition is performing ahead of our investment case. This 2013 acquisition made Direct Energy the largest C&I gas supplier on the East Coast of the US and the second largest C&I power supplier in the competitive US retail markets, and we now have a more balanced gas and power portfolio. We have retained key personnel and systems and delivered good levels of customer service, with customer retention strong as a result. Reflecting the impact of the acquisition, business gas volumes increased by over 500% while power volumes increased by 75%. Overall Direct Energy Business made an operating loss in the period, reflecting the one off impact of the Polar Vortex and also margin pressures on power sales made during 2013. However, sold margins in the first half of 2014 increased by 35% for gas and 33% for electricity compared to the second half of 2013, reflecting a re-pricing of risk following the Polar Vortex. This will improve margins over time and we expect the business to deliver a much improved result in the second half of 2014 and in 2015. We also continue to look to attract new customers who wish to switch from oil to natural gas heating and to develop innovative propositions for our C&I customers. We have a partnership agreement with BuildingIQ to offer cloud-based energy efficiency solutions for customers, while we have also partnered with Panoramic Power to offer wireless energy sensors, helping customers understand the details of their power consumption. In January, we completed the sale of our three Texas CCGTs, releasing capital and recognising a £219 million profit on disposal as a result. The three year heat rate call option agreed at the time of signing the transaction has now commenced and we believe that this arrangement, together with a liquid physical and financial power market in Texas, can support our downstream operations through contractual relationships rather than asset ownership. Direct Energy Services The number of Direct Energy Services customer accounts was up slightly over the period, with growth in our US protection plan base offsetting a decline in accounts in Canada. Our HVAC leasing proposition is also progressing well, with customers willing to undertake a higher value of work when purchased through rental payments as opposed to upfront payment. First half operating profit was up slightly compared to 2013, although after accounting for exchange rate movements it increased by 27%. In July 2014 we agreed to sell our branded Ontario home services business to EnerCare for $550 million (£300million) including normal adjustments for working capital. This is an attractive opportunity to realise value from our Ontario business and focus our attention on opportunities in the US and Alberta, where we see good prospects for growth. We also entered the rapidly growing US residential solar market through the acquisition of Astrum Solar for $54 million (£32 million). The transaction allows Direct Energy to sell solar alongside its existing range of energy and services products, as we look to develop further attractive propositions and attract the highest value customers. CENTRICA ENERGY E&P Our E&P business is benefiting from previous investments in both Norway and Canada, with production from the assets acquired from Statoil in 2012 and from Suncor in 2013 both ahead of our investment cases. Following these recent acquisitions we now have a more diverse portfolio, and the new management structure put in place last year is enabling us to maximise the full potential of our core E&P regions of UK and Netherlands, Norway and Canada. Our assets delivered high levels of availability during the first half of the year. Total gas and liquids production was up 9% compared to the same period in 2013, predominantly due to production from North America more than doubling following the acquisition of a package of assets from Suncor in the second half of 2013. In May 2014 we announced that QPI will acquire 40% of our wholly owned gas and liquids assets in Canada for C$200 million (£107 million), fully aligning our interests and further strengthening the relationship with our Qatari partners. We also announced in May that the partnership had agreed to acquire a package of natural gas assets in Alberta from Shell Canada Energy for C$42 million (£23 million). An increasing proportion of our capital is now being directed towards North America, where we are well placed to benefit from increases in gas prices through the accelerated development of our resources. In Europe, production from our core assets, such as Morecambe and Kvitebjorn, remained good. However, total production from the region decreased, partly as a result of the disposals of three packages of North Sea assets, all announced in late 2013. We continue to invest in new sources of gas for the UK, including the large-scale Cygnus and Valemon projects in the North Sea, which remain on schedule. We have completed fracking activities on our Grove project, and expect first production later in 2014, while we delivered first production from Kew in January 2014, with good initial performance. A fourth well at York has tested positively and is expected to produce first gas in the second half, following disappointing results on both the second and third wells. Two wells drilled adjacent to the Butch discovery, Butch East and Butch South West, did not find further commercial hydrocarbons, however the results contributed valuable information that should allow us to optimise the development of the main Butch field. On exploration, we drilled five wells, four of which were successful in finding hydrocarbons. Commercial development prospects are being reviewed for the Valemon North, Solberg and Cepheus wells, but the Novus exploration well in the Norwegian Sea is unlikely to be of commercial size and the Kookaburra well was dry. In the current environment, with lower forward gas prices and higher costs, new North Sea development will be directed to the best projects. We expect to spend an average of £900million over the next three years, down from 2013 levels, with capital expenditure expected to be around £1 billion in 2014 reflecting expenditure on Cygnus and Valemon. As a result, over the next few years a larger proportion of our capital employed will be productive. In 2014 we expect full year international gas and liquids production to be around 83mmboe and to remain in the 80-85mmboe per annum range in 2015 and 2016, subject to any acquisition or divestment activity. In July 2014, we agreed the disposal of the undeveloped 1a and 1b blocks in Trinidad. We are currently considering options for our remaining Trinidad and Tobago non-operated producing assets and operated undeveloped resources, to potentially release capital from the assets for value. International gas operating profit fell by 32% in the first six months of 2014 compared to 2013 despite an increased contribution from our Canadian assets, reflecting lower wholesale gas and oil prices. However profit after tax increased by 29%, reflecting the benefits from forward hedging, a production mix weighted to lower taxed assets some small field tax allowances and a tax credit associated with the disposal of the Greater Kittiwake Area assets. Unit lifting and other cash production costs in the first half were slightly up compared to the same period in 2013, and with the leadership team focused on countering inflationary impacts, we are targeting stable unit costs over the next three years. Midstream Our midstream business continued to perform well in 2014, as we managed periods of wholesale market volatility related to the Russia and Ukraine dispute and falling UK gas and power prices. We see further growth opportunities in our asset backed trading and optimisation model, including the development of our LNG activities. In 2013, we signed a 20 year contract with Cheniere to purchase approximately 89 billion cubic feet (bcf) per annum of LNG for export from the Sabine Pass liquefaction plant in Louisiana, which gives us destination rights over cargoes for the first time, and will allow us to benefit from any differential between North American gas prices and other worldwide markets. Federal Energy Regulatory Commission (FERC) approval is currently anticipated for the fifth train at Sabine Pass around the end of 2014, and if approval is received, the US Department of Energy would then assess the export licence application. Subject to these regulatory approvals being received, we expect a final investment decision on the fifth train to be made in the first half of 2015, with a target date for first commercial delivery in September 2018. Power In UK power, the performance of the nuclear fleet was once again strong, with volumes in the first half 7% higher than in the same period in 2013. This reflects continued investment in the fleet and underlines the quality of the original investment we made in 2009. Nuclear operating profit was slightly up, as the benefit from higher generation volumes was mostly offset by the impact of lower wholesale power prices and inflationary cost increases. Our renewables assets performed well, with favourable wind yields in the spring. Generation volumes increased substantially, reflecting a full contribution from the Lincs offshore wind farm, which was fully commissioned in the second half of 2013, and higher load factors due to windy weather conditions over the period. We have reviewed the economic viability of our Round 3 Irish Sea Zone project, Celtic Array, and following discussions with The Crown Estate and our partners in the project, Dong Energy, development activity has now stopped. We have recognised a charge of £40 million, principally in respect of writing off the total book value of the project, and as a result the renewables business reported an operating loss. However underlying renewables operating profit nearly doubled, when also taking account of £24 million of net one-off profit in 2013, predominantly reflecting a profit on disposal related to the sale of the Braes of Doune onshore wind farm. The market remained challenging for our fleet of gas-fired power stations, with low market clean spark spreads resulting in low load factors and continued operating losses. Against this backdrop, and with the UK generation market undergoing significant structural change and capacity payments due to be introduced from 2018, we completed a strategic review of our gas-fired power business during the first half of the year. Following this review, we announced that we intend to focus our UK gas-fired generation strategy on smaller flexible “peaking” plants and we will seek to release capital through the sale of the three larger operating power stations in our portfolio. CENTRICA STORAGE The Rough gas storage asset delivered strong operational performance during the first half, with good reliability. The warmer than normal weather meant the net reservoir volume (NRV) ended the first half at the highest level for that time of year since Centrica acquired the asset in 2002. However seasonal gas price spreads were at historically low levels towards the end of 2013 and although forward summer / winter gas price differentials for the 2014/15 storage year increased slightly over the course of the first half, the financial impact was limited. We announced in April that we had sold all SBUs for the 2014/15 storage year at 20.0p, lower than the 23.3p achieved in 2013/14 and the 33.9p achieved in 2012/13. As a result, operating profit in the first half of the year was substantially lower than for the same period in 2013. At the start of the year, Centrica Storage commenced a three year programme to deliver £15 million of cost reductions through operational improvements, starting with a reorganisation of our business and operational support functions, while maintaining a sharp focus on safety and capital discipline. Group Financial Review GROUP REVENUE Group revenue increased by 15% to £15.7 billion (2013: £13.7 billion). British Gas gross revenue decreased by 12%, predominantly reflecting the impact of warmer than normal weather on domestic and business energy consumption compared to a colder than normal first half of 2013. Residential energy supply gross revenue fell by 17%, with total gas consumption 27% lower and total electricity consumption 11% lower, only slightly offset by the impact of higher retail tariffs. Residential services gross revenue was broadly flat, with higher central heating installation volumes and inflationary price increases offset by lower contract volumes. Business energy supply and services gross revenue fell by 3%, with lower consumption only partially offset by higher retail tariffs. Direct Energy gross revenue more than doubled. This predominantly reflects additional business energy supply revenue following the Hess Energy Marketing acquisition, which completed in the second half of 2013. As a result, business energy supply gross revenue broadly trebled. Residential energy supply gross revenue increased by 7%, reflecting a slightly higher number of customer accounts and additional gas and power volumes as a result of extreme weather conditions across much of North America, while residential and business services gross revenue fell by 7%. Centrica Energy gross revenue fell by 11%. International gas gross revenue fell by 13%, despite increased production resulting from the acquisition of Canadian assets from Suncor in 2013, reflecting lower European wholesale gas prices. Power gross revenue fell by 1%. Centrica Storage gross revenue fell by 35%, reflecting lower seasonal gas price spreads. OPERATING PROFIT Throughout the statement, reference is made to a number of different profit measures, which are shown in the table below: 2014 2013 Exceptional Exceptional Business items and Statutory Business items and Statutory certain certain performance re-measurements result performance re-measurements result Period ended 30 Notes £m £m £m £m £m £m June Adjusted operating profit British Gas 455 569 Direct Energy 41 165 Centrica Energy 526 802 Centrica 10 47 Storage Total adjusted operating 4b 1,032 1,583 profit Depreciation of fair value uplifts from Strategic 4b (40) (51) Investments (British Energy post tax) Share of joint ventures’ / associates’ 4b (63) (47) interest and taxation Group operating 4b, 6 929 92 1,021 1,485 105 1,590 profit Net finance 7 (131) - (131) (103) - (103) cost Profit before 798 92 890 1,382 105 1,487 taxation Taxation 6, 8 (281) (59) (340) (649) (19) (668) Profit for the 517 33 550 733 86 819 year Attributable to non-controlling (17) - interests Depreciation of fair value uplifts from 9 30 34 Strategic Investments, after taxation Adjusted 530 767 earnings British Gas operating profit fell by 20%. Profitability in residential energy supply fell by 26%, with lower revenue only partially offset by lower total commodity costs. Residential services profit, which includes the receipt of an ECO management fee from residential energy supply, fell slightly, predominantly reflecting a lower average number of contracts. Business energy and services operating profit fell by 22%, reflecting the warmer than normal weather and lower margins as a result of challenging market conditions and our decision to end the auto-rollover of contracts at renewal. Direct Energy operating profit fell by 75%. This predominantly reflects challenging market conditions leading to a narrowing of margins in both residential and business energy supply, in particular in our legacy B2B power business, and additional ancillary and other charges incurred as a result of the Polar Vortex, estimated at approximately $110million (£65 million). Residential energy supply profitability broadly halved, while the business energy supply division recorded an operating loss. Residential and business services profitability increased slightly. Centrica Energy operating profit fell by 34%, with lower profitability in both the gas and power segments. Gas operating profit fell by 32%, despite higher production, reflecting the impact of lower achieved European gas prices in a lower wholesale price environment. Total costs increased reflecting higher volumes, with unit DDA rates falling reflecting a higher mix of production from North America. Unit lifting and other cash production costs increased reflecting our European production mix moving towards more recently developed fields and industry inflation. Power profitability fell by 49%. This predominantly reflects the impact of a £40 million charge associated with the impairment of our Round 3 wind interest in 2014, compared to one-off profits of £24 million in 2013, predominantly reflecting a profit on disposal related to the Braes of Doune wind farm. Centrica Storage operating profit fell by 79%, reflecting the impact of low seasonal gas price spreads. GROUP FINANCE CHARGE AND TAX Net finance cost increased to £131 million (2013: £103 million), with higher average levels of debt in the period reflecting $1.35 billion raised in the US bond market in October 2013. The taxation charge reduced to £281 million (2013: £649 million) and after taking account of tax on joint ventures and associates and the impact of fair value uplifts, the adjusted tax charge was £318 million (2013: £690 million). The resultant adjusted effective tax rate for the Group was 37% (2013: 47%), reflecting the mix of profit, the impact of forward hedging in the upstream gas business, upstream small field tax allowances and a tax credit relating to the disposal of the Greater Kittiwake Area assets. An effective tax rate calculation, showing the UK and non-UK components, is shown in the table below: 2014 2013 Period ended 30 June UK Non-UK Total UK Non-UK Total £m £m £m £m £m £m Adjusted operating 779 253 1,032 1,140 443 1,583 profit Share of joint ventures (36) - (36) (23) - (23) / associates interest Net finance cost (81) (50) (131) (61) (42) (103) Adjusted profit before 662 203 865 1,056 401 1,457 taxation Taxation on profit 137 144 281 376 273 649 Tax impact of depreciation on Venture 10 - 10 15 2 17 fair value uplift Share of joint ventures 27 - 27 24 - 24 / associates taxation Adjusted tax charge 174 144 318 415 275 690 Adjusted effective tax 26% 71% 37% 39% 69% 47% rate GROUP EARNINGS AND DIVIDEND Reflecting all of the above, profit for the period fell to £517 million (2013:£733 million) and after adjusting for profits attributable to non-controlling interests and fair value uplifts, adjusted earnings were £530 million (2013: £767 million). Adjusted basic earnings per share (EPS) were 10.5 pence (2013: 14.8 pence). The Group is currently reviewing its definition of adjusted earnings, with the possibility that it may change for the full year results. It expects to provide a further update around the time of its November Interim Management Statement. The statutory profit for the period was £550 million (2013: £819 million). The reconciling items between Group profit for the period from business performance and statutory profit are related to exceptional items and certain re-measurements. The decrease compared with 2013 is principally due to lower profit from business performance and a net loss from certain re-measurements of £107 million (2013:gain of £86million), partially offset by a net exceptional gain of £140 million (2013: £nil) relating to the disposal of gas-fired power stations in Texas. The Group reported a statutory basic EPS of 10.5pence (2013: 15.8 pence). An interim dividend of 5.10 pence per share (2013: 4.92 pence per share) will be paid on 12 November 2014 to shareholders on the register on 26 September 2014, in line with our established practice of paying an interim dividend of 30% of the prior year’s full year dividend. GROUP CASH FLOW, NET DEBT AND BALANCE SHEET Group operating cash flow before movements in working capital was lower at £1,495 million (2013: £2,058 million), reflecting the reduced profit from business performance. After working capital adjustments, tax, and payments relating to exceptional charges, net cash flow from operating activities was £1,054 million (2013: £1,411 million). The net cash outflow from investing activities was lower at £355 million (2013: £647 million), including the £411 million receipt from the disposal of the Texas gas-fired power stations. The net cash outflow from financing activities was £587 million (2013: £897 million). The outflow reflects dividend and interest payments and shares repurchased under the programme announced in February, and was lower than in 2013 due to higher cash inflow from the net issuance of debt of £300 million (2013: £20 million). Reflecting all of the above, the Group’s net debt at 30 June 2014 was £5,197 million (31 December 2013: £5,049million; 30 June 2013: £4,251 million). During the period net assets decreased slightly to £4,984 million (31 December 2013: £5,257 million). Impacts of the Group’s share repurchase programme, dividend payments, and foreign currency movements on the retranslation of foreign subsidiaries more than offset the retained earnings for the period and actuarial gains on the Group’s defined pension schemes. EXCEPTIONAL ITEMS On 22 January 2014 the Group disposed of its Texas gas-fired power stations to Blackstone for consideration of £411 million. As a result, an exceptional pre-tax gain of £219 million was recognised within Group operating profit during the period. Taxation on this gain generated a charge of £79 million, resulting in an exceptional post-tax gain of £140 million. No exceptional items were recorded during the six months ended 30 June 2013. CERTAIN RE-MEASUREMENTS As an integrated energy business the Group enters into a number of forward energy trades to protect and optimise the value of its underlying production, generation, storage and transportation assets (and similar capacity or off-take contracts), as well as to meet the future needs of our customers. A number of these arrangements are considered to be derivative financial instruments and are required to be fair-valued under IAS39. The Group has shown the fair value adjustments on these commodity derivative trades separately as certain re-measurements, as they do not reflect the underlying performance of the business because they are economically related to our upstream assets, capacity/off-take contracts or downstream demand, which are typically not fair valued. The operating profit in the statutory results includes net pre-tax losses of £127 million (2013: gains of £105 million) relating to these re-measurements. The Group recognises the realised gains and losses on these contracts in business performance when the underlying transaction occurs. The profits arising from the physical purchase and sale of commodities during the period, which reflect the prices in the underlying contracts, are not impacted by these re-measurements. See note 3 for further details. BUSINESS COMBINATIONS On 27 June 2014, the Group acquired natural gas assets in the Foothills region of Alberta from Shell Canada Energy for $42 million (£23 million). The assets were acquired by the CQ Energy Canada Partnership (CQECP), the 60:40 partnership with Qatar Petroleum International (QPI). As part of the transaction, the Group disposed of its interests in the Burnt Timber gas processing plant and the Waterton undeveloped lands in south-west Alberta. On 30 June 2014, the Group acquired Bord Gáis Energy’s (BGE) gas and electricity supply business in the Republic of Ireland, including the Whitegate gas-fired power station for total consideration of €197 million (£160 million). Further details on business combinations, plus details of asset purchases, disposals and disposal groups are included in notes 4(d) and 11. EVENTS AFTER THE BALANCE SHEET DATE On 24 July 2014, the Group announced it had agreed to sell its Ontario home and small commercial services business to Enercare Inc. for C$550 million (£300 million) including normal adjustments for working capital, comprising of C$450 million in cash and C$100 million in ordinary equity. The transaction is expected to complete towards the end of 2014. On 29 July 2014, the Group acquired the US residential solar business, Astrum Solar, for $54 million (£32 million). The transaction provides Direct Energy with a position in the rapidly growing US residential solar market. Further details of events after the balance sheet are described in note 16. PRINCIPAL RISKS AND UNCERTAINTIES The Group’s principal risks and uncertainties are largely unchanged from those set out in its 2013 Annual Report and Accounts. Details of how the Group has managed financial risks such as liquidity and credit risk are set out in note 18. Details on the Group’s capital management processes are provided under sources of finance in note 12. 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. Key Performance Indicators BRITISH GAS Total British Gas Performance indicators for the H1 2014 H1 2013 Δ% FY 2013 period ended Total customer accounts (period 24,001 24,933 (4) 24,395 end) (’000) Total customer households (period 10,961 11,334 (3) 11,120 end) (’000) Joint product households (period 2,174 2,364 (8) 2,257 end) (’000) Gross Revenue (£m) 6,928 7,912 (12) 14,226 Operating cost (excluding bad debt) 704 686 3 1,392 (£m) Operating profit 455 569 (20) 1,030 (£m) Operating profit 355 436 (19) 777 after taxation (£m) Lost Time Injury 0.12 0.15 (20) 0.11 Frequency Rate Residential energy supply For the period ended H1 2014 H1 2013 Δ% FY 2013 Customer accounts (period end): Gas (’000) 8,466 8,846 (4) 8,603 Electricity (’000) 6,589 6,828 (4) 6,653 Total (’000) 15,055 15,674 (4) 15,256 Estimated market share (%): Gas 37.6 39.3 (1.7) 38.2 ppts Electricity 24.3 25.3 (1.0) 24.5 ppts Average consumption: Gas (therms) 236 311 (24) 492 Electricity (kWh) 1,765 1,936 (9) 3,688 Total consumption: Gas (mmth) 2,009 2,763 (27) 4,342 Electricity (GWh) 11,667 13,146 (11) 25,078 Gross Revenue (£m): Gas 2,899 3,726 (22) 6,033 Electricity 1,652 1,760 (6) 3,454 Total 4,551 5,486 (17) 9,487 Operating profit 265 356 (26) 571 (£m) Operating profit 207 273 (24) 423 after taxation (£m) Post-tax margin (%) 4.5 5.0 (0.5) 4.5 ppts Residential services For the period ended H1 2014 H1 2013 Δ% FY 2013 Customer product holdings (period end): Central heating service contracts 4,470 4,617 (3) 4,575 (’000) Kitchen appliances care (no. of 432 460 (6) 453 customers) (’000) Plumbing and 1,652 1,711 (3) 1,683 drains care (’000) Home electrical 1,397 1,445 (3) 1,420 care (’000) Other contracts 95 114 (17) 96 (’000) Total holdings 8,046 8,347 (4) 8,227 (’000) Domestic central heating 51 46 11 101 installations (’000) Gross Revenue (£m): Central heating 404 411 (2) 841 service contracts Central heating 135 121 12 263 installations Other 265 273 (3) 551 Total 804 805 (0) 1,655 Operating profit 129 135 (4) 318 (£m) Operating profit 101 103 (2) 241 after taxation (£m) Post-tax margin (%) 12.6 12.8 (0.2) 14.6 ppts Business energy supply and services For the year ended H1 2014 H1 2013 Δ% FY 2013 Customer supply points (period end): Gas (’000) 307 317 (3) 310 Electricity (’000) 593 595 (0) 602 Total (’000) 900 912 (1) 912 Average consumption: Gas (therms) 1,188 1,480 (20) 2,476 Electricity (kWh) 14,196 14,651 (3) 28,852 Total consumption: Gas (mmth) 366 472 (22) 784 Electricity (GWh) 8,487 8,756 (3) 17,260 Gross Revenue (£m): Gas 431 531 (19) 904 Electricity 1,004 983 2 1,951 Business Services 138 107 29 229 Total 1,573 1,621 (3) 3,084 Operating profit 61 78 (22) 141 (£m) Operating profit 47 60 (22) 113 after taxation (£m) Post-tax margin (%) 3.0 3.7 (0.7) 3.7 ppts DIRECT ENERGY TotalDirect Energy For the period ended H1 2014 H1 2013 Δ% FY 2013 Total residential energy and services accounts (period end) 6,079 5,838 4 5,967 (’000) Gross revenue (£m) 6,469 3,191 103 7,325 Operating profit (£m) 41 165 (75) 276 Operating profit after taxation 26 103 (75) 189 (£m) Lost Time Injury Frequency Rate 0.09 0.13 (31) 0.12 Residential energy supply For the period ended H1 2014 H1 2013 Δ% FY 2013 Customer accounts (period end) (’000) Texas 793 719 10 787 Canada regulated 758 779 (3) 766 Canada deregulated 446 501 (11) 480 US North East 1,457 1,398 4 1,327 Total 3,454 3,397 2 3,360 Gross revenue (£m) 1,399 1,308 7 2,517 Operating profit (£m) 48 99 (52) 163 Operating profit after taxation 30 62 (52) 111 (£m) Post-tax margin (%) 2.1 4.7 (2.6) ppts 4.4 Post-tax underlying margin (%) 3.6 4.7 (1.1) ppts 4.4 H1 2014 post-tax underlying margin (%) excludes £21m (£33m pre-tax) of costs associated with the Polar Vortex. Business energy supply For the period ended H1 2014 H1 2013 Δ% FY 2013 Gas sales (mmth) 3,193 494 546 1,839 Electricity sales (GWh) 48,894 27,999 75 63,919 Gross revenue (£m) 4,814 1,609 199 4,238 Operating profit / (loss) (£m) (21) 53 nm 77 Operating profit / (loss) after (14) 33 nm 53 taxation (£m) Post-tax margin (%) (0.3) 2.1 (2.4) ppts 1.3 Post-tax underlying margin (%) 0.4 2.1 (1.7) ppts 1.8 FY 2013 post-tax underlying margin (%) excludes £25m (£36m pre-tax) relating to amortisation of customer intangibles and integration costs associated with the Hess Energy Marketing acquisition. H1 2014 post-tax underlying margin (%) excludes £9m (£13m pre-tax) relating to amortisation of customer intangibles and integration costs associated with the Hess Energy Marketing acquisition and £22m (£33m pre-tax) of costs associated with the Polar Vortex. Residential and business services For the period ended H1 2014 H1 2013 Δ% FY 2013 Contract relationships 2,625 2,441 8 2,608 (period end) (’000) On demand and installation 351 350 0 748 jobs (’000) Gross revenue (£m) 256 274 (7) 570 Operating profit (£m) 14 13 8 36 Operating profit after 10 8 25 25 taxation (£m) Post-tax margin (%) 3.9 2.9 1.0 ppts 4.4 Direct Energy (with comparator year of 2013 restated to remove effect of foreign exchange movements) For the period ended H1 2014 H1 2013 Δ% FY 2013 Gross revenue (£m) Residential energy supply 1,399 1,168 20 2,301 Business energy supply 4,814 1,456 231 3,924 Residential and business 256 245 4 520 services Direct Energy revenue 6,469 2,869 125 6,745 Operating profit / (loss) (£m)Residential energy supply Residential energy supply 48 90 (47) 152 Business energy supply (21) 49 nm 73 Residential and business 14 11 27 33 services Direct Energy operating 41 150 (73) 258 profit 2013 figures restated at H1 2014 weighted average exchange rate CENTRICA ENERGY Total Centrica Energy For the period ended H1 2014 H1 2013 Δ% FY 2013 Operating profit (£m) 526 802 (34) 1,326 Operating profit after taxation 277 282 (2) 468 (£m) Lost Time Injury Frequency Rate 0.19 0.18 6 0.10 International gas For the period ended H1 2014 H1 2013 Δ% FY 2013 Gas production volumes (mmth) East Irish Sea 328 344 (5) 718 Other UK and Netherlands 490 541 (9) 1,071 Norway 378 436 (13) 828 North America 616 252 144 701 Trinidad & Tobago 133 123 8 239 Total 1,945 1,696 15 3,557 Liquids production volumes (mmboe) UK and Netherlands 2.4 3.5 (31) 6.3 Norway 5.1 5.8 (12) 11.0 North America 1.2 0.5 140 1.4 Total 8.7 9.8 (11) 18.7 Total production volumes (mmboe) 40.9 37.6 9 77.3 Average achieved gas price (p/therm) Europe 56.0 65.8 (15) 65.0 North America and Trinidad & Tobago 24.1 20.5 18 20.9 Total 44.0 55.7 (21) 53.7 Average oil and condensate sales price (£/boe) Europe 59.9 64.5 (7) 62.9 North America and Trinidad & Tobago 47.1 46.8 1 43.3 Total 58.4 63.7 (8) 61.6 DDA costs (£/boe) Europe 12.5 12.9 (3) 12.9 North America and Trinidad & Tobago 5.2 7.0 (26) 6.1 Total 10.0 11.9 (16) 11.4 Lifting and other cash production costs (£/boe) Europe 14.6 13.0 12 13.5 North America and Trinidad & Tobago 9.2 8.5 8 9.7 Total 12.8 12.2 5 12.6 Exploration & appraisal costs (£m) 48 47 2 154 Operating profit (£m) 465 683 (32) 1,155 Operating profit after taxation 235 182 29 325 (£m) UK power For the period ended H1 2014 H1 2013 Δ% FY 2013 Power generated (GWh) Gas-fired 4,058 4,531 (10) 8,897 Renewables 483 290 67 753 Nuclear 6,173 5,763 7 12,097 Total 10,714 10,584 1 21,747 Load factor Gas-fired 24% 27% (2.9) ppts 27% Renewables 38% 33% 5.4 ppts 36% Nuclear 80% 76% 4.2 ppts 79% Achieved Clean Spark 9.8 10.0 (2) 11.7 Spread (£/MWh) Achieved power price (including ROCs) 113.2 104.3 9 114.5 (£/MWh) - renewables Achieved power price 51.0 52.1 (2) 51.9 (£/MWh) - nuclear Operating profit / (loss) (£m) Gas-fired (70) (64) nm (133) Renewables (operating assets) 23 12 92 36 Renewables (one off write-offs, (40) 24 nm (11) profit/loss on disposal) Nuclear 125 122 2 250 Midstream 23 25 (8) 29 Operating profit (£m) 61 119 (49) 171 Operating profit after taxation 42 100 (58) 143 (£m) CENTRICA STORAGE Total Centrica Storage For the H1 H1 Δ% FY period ended 2014 2013 2013 Average SBU price (in 22.2 30.3 (27) 26.7 period) (pence) Gross Revenue (£m) Standard 50 69 (28) 121 SBUs Optimisation 20 38 (47) 67 / other Total 70 107 (35) 188 Operating 10 47 (79) 63 profit (£m) Operating profit after 7 36 (81) 48 taxation (£m) Lost Time Injury 0.07 0.06 17 0.06 Frequency Rate Statement of Directors’ Responsibilities The Directors are responsible for preparing the Interim Results for the six month period ended 30 June 2014 in accordance with applicable law, regulations and accounting standards. In preparing the condensed interim Financial Statements, the Directors are responsible for ensuring that they give a true and fair view of the state of affairs of the Group at the end of the period and the profit or loss of the Group for that period. The Directors confirm that the condensed interim Financial Statements have been prepared in accordance with IAS 34: ‘Interim Financial Reporting’, as adopted by the European Union and that the Interim Results includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: *an indication of the important events that have occurred during the first six months and their impact on the condensed interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and *material related party transactions in the first six months of the year and any material changes in the related party transactions described in the last annual report. The Directors of Centrica plc are listed in the Group’s 2013 Annual Report and Accounts. A list of current Directors is maintained on the Centrica plc website which can be found at www.centrica.com. By order of the Board SAM LAIDLAW NICK LUFF 31 July 2014 31 July 2014 Chief Executive Chief Financial Officer Independent Review Report to Centrica plc REPORT ON THE CONDENSED INTERIM FINANCIAL STATEMENTS Our conclusion We have reviewed the condensed interim Financial Statements, defined below, in the Interim Results of Centrica plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed interim Financial Statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. This conclusion is to be read in the context of what we say in the remainder of this report. What we have reviewed The condensed interim Financial Statements, which are prepared by Centrica plc, comprise: *the Group Balance Sheet as at 30 June 2014; *the Group Income Statement and Group Statement of Comprehensive Income for the period then ended; *the Group Cash Flow Statement for the period then ended; *the Group Statement of Changes in Equity for the period then ended; and *the explanatory notes to the condensed interim Financial Statements. As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed interim Financial Statements included in the Interim Results have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. What a review of condensed interim Financial Statements involves We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We have read the other information contained in the Interim Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed interim Financial Statements. RESPONSIBILITIES FOR THE CONDENSED INTERIM FINANCIAL STATEMENTS AND THE REVIEW Our responsibilities and those of the Directors The Interim Results, including the condensed interim Financial Statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Results in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. Our responsibility is to express to the Company a conclusion on the condensed interim Financial Statements in the Interim Results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. PricewaterhouseCoopers LLP Chartered Accountants 31 July 2014 London Notes The maintenance and integrity of the Centrica plc website is the responsibility of the Directors; the work carried out by the auditors (i) does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and (ii) dissemination of financial information may differ from legislation in other jurisdictions. Group Income Statement 2014 2013 Exceptional Results Exceptional Business items and for Business items and Results certain certain for performance re-measurements the performance re-measurements the period period Six months Notes £m £m £m £m £m £m ended 30 June Group revenue 4(a) 15,748 – 15,748 13,651 – 13,651 Cost of sales before exceptional (13,472) – (13,472) (10,886) – (10,886) items and certain re-measurements Re-measurement of energy 6(b) – (146) (146) – 104 104 contracts Cost of sales (13,472) (146) (13,618) (10,886) 104 (10,782) Gross profit 2,276 (146) 2,130 2,765 104 2,869 Operating costs before (1,398) – (1,398) (1,332) – (1,332) exceptional items Exceptional 6(a) – 219 219 – – – items Operating costs (1,398) 219 (1,179) (1,332) – (1,332) Share of results of joint ventures and 5 51 19 70 52 1 53 associates, net of interest and taxation Group operating 4(b) 929 92 1,021 1,485 105 1,590 profit Financing costs 7 (155) – (155) (129) – (129) Investment 7 24 – 24 26 – 26 income Net finance (131) – (131) (103) – (103) cost Profit before 798 92 890 1,382 105 1,487 taxation Taxation on 8 (281) (59) (340) (649) (19) (668) profit Profit for the 517 33 550 733 86 819 period Attributable to: Owners of the 500 33 533 733 86 819 parent Non-controlling 17 – 17 – – – interests Earnings per Pence Pence ordinary share Basic 9 10.5 15.8 Diluted 9 10.5 15.7 The notes on pages 33 to 50 form part of these condensed interim Financial Statements. Group Statement of Comprehensive Income Six months ended 30 June 2014 2013 £m £m Profit for the period 550 819 Other comprehensive income/(loss): Items that will be or have been recycled to the Group Income Statement: Gains on revaluation of available-for-sale 2 – securities, net of taxation Net gains on cash flow hedges 9 2 Transferred to income and expense on cash flow 16 12 hedges Taxation on cash flow hedges (7) (4) 18 10 Exchange differences on translation of foreign (130) 42 operations Share of other comprehensive (loss)/income of joint (3) 12 ventures and associates, net of taxation (113) 64 Items that will not be recycled to the Group Income Statement: Net actuarial gains/(losses) on defined benefit 103 (198) pension schemes Taxation on net actuarial result on defined benefit (20) 48 pension schemes 83 (150) Share of other comprehensive loss of joint ventures (11) (15) and associates, net of taxation Other comprehensive loss, net of taxation (41) (101) Total comprehensive income for the period 509 718 Attributable to: Owners of the parent 494 718 Non-controlling interests 15 – Group Statement of Changes in Equity Non- Share Share Retained Other controlling Total capital premium earnings equity Total interests equity £m £m £m £m £m £m £m 1 January 321 931 4,255 (315) 5,192 65 5,257 2014 Total comprehensive – – 533 (39) 494 15 509 income Employee – – (3) 49 46 – 46 share schemes Purchase of treasury – – (1) (212) (213) – (213) shares (note 9) Cancellation of treasury (7) – (382) 389 – – – shares Dividends – – (610) – (610) – (610) Taxation – – – (5) (5) – (5) 30 June 2014 314 931 3,792 (133) 4,904 80 4,984 Non- Share Share Retained Other controlling Total capital premium earnings equity Total interests equity £m £m £m £m £m £m £m 1 January 321 929 4,186 491 5,927 – 5,927 2013 Total comprehensive – – 819 (101) 718 – 718 income Employee – 2 (6) 35 31 – 31 share schemes Purchase of treasury – – – (213) (213) – (213) shares (note 9) Dividends – – (611) – (611) – (611) Taxation – – – 14 14 – 14 Exchange – – – (2) (2) – (2) adjustments 30 June 2013 321 931 4,388 224 5,864 – 5,864 The notes on pages 33 to 50 form part of these condensed interim Financial Statements. Group Balance Sheet 30 June 31 December 2014 2013 Notes £m £m Non-current assets Property, plant and equipment 6,767 7,446 Interests in joint ventures and 2,668 2,658 associates Other intangible assets 2,166 1,905 Goodwill 2,701 2,819 Deferred tax assets 112 105 Trade and other receivables 100 150 Derivative financial 293 227 instruments Retirement benefit assets 13(c) 276 205 Securities 12(b) 205 202 15,288 15,717 Current assets Trade and other receivables 4,835 5,446 Inventories 471 530 Derivative financial 834 573 instruments Current tax assets 149 151 Securities 12(b) 11 9 Cash and cash equivalents 12(b) 815 719 7,115 7,428 Assets of disposal groups 11(c) 766 301 classified as held for sale 7,881 7,729 Total assets 23,169 23,446 Current liabilities Derivative financial (960) (506) instruments Trade and other payables (5,092) (5,630) Current tax liabilities (468) (645) Provisions for other (342) (258) liabilities and charges Bank overdrafts, loans and 12(c) (1,118) (859) other borrowings (7,980) (7,898) Liabilities of disposal groups 11(c) (187) (99) classified as held for sale (8,167) (7,997) Non-current liabilities Deferred tax liabilities (1,398) (1,426) Derivative financial (386) (431) instruments Trade and other payables (154) (64) Provisions for other (2,745) (2,934) liabilities and charges Retirement benefit obligations 13(c) (131) (165) Bank overdrafts, loans and 12(c) (5,204) (5,172) other borrowings (10,018) (10,192) Total liabilities (18,185) (18,189) Net assets 4,984 5,257 Share capital 314 321 Share premium 931 931 Retained earnings 3,792 4,255 Other equity (133) (315) Total shareholders’ equity 4,904 5,192 Non-controlling interests 80 65 Total shareholders’ equity and 4,984 5,257 non-controlling interests The notes on pages 33 to 50 form part of these condensed interim Financial Statements. Group Cash Flow Statement *Story too large* Six months ended 30 June Notes 2014 2013 £m £m Group operating profit including share of results of 1,021 1,590 joint ventures and associates Less share of profit of joint ventures and (70) (53) associates Group operating profit before share of results of 951 1,537 joint ventures and associates Add back/(deduct): Depreciation, amortisation, write-downs and 623 679 impairments Profit on disposals (196) (30) Decrease in provisions (23) (27) Defined benefit pension service cost and 3 (3) contributions Employee share scheme costs 26 23 Unrealised losses/(gains) arising from 111 (121) re-measurement of energy contracts Operating cash flows before movements in working 1,495 2,058 capital Decrease in inventories 59 149 Decrease/(increase) in trade and other receivables 704 (36) ^(i) Decrease in trade and other payables ^(i) (729) (227) Operating cash flows before payments relating to 1,529 1,944 taxes and exceptional charges Taxes paid (413) (401) Payments relating to exceptional charges (62) (132) Net cash flow from operating activities 1,054 1,411 Purchase of businesses, net of cash and cash (113) (2) equivalents acquired Sale of businesses, net of cash and cash equivalents 433 5 disposed of Purchase of property, plant and equipment and 4(d) (741) (789) intangible assets Sale of property, plant and equipment and intangible 9 6 assets Investments in joint ventures and associates (10) (34) Dividends received from joint ventures and 43 103 associates Repayments of loans to, and disposal of investments 13 59 in, joint ventures and associates Interest received 13 11 Purchase of securities 12(b) (2) (6) Net cash flow from investing activities (355) (647) Issue and surrender of ordinary share capital for 20 9 share awards Purchase of treasury shares under share repurchase (207) (203) programme Financing interest paid (124) (116) Realised net foreign exchange gain on cash settlement of derivative contracts [TRUNCATED]
CNA: Centrica plc: Half-yearly Report
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