Interim Results
Centrica PLC
05 September 2002
Centrica plc
Interim Results for the six months ended 30 June 2002
(unaudited)
2002 ^% 2001
For the six months ended 30 June....
Turnover (including Accord trading) £7,107m +5% £6,753m
Operating profit (including joint ventures & associates)* £627m +43% £437m
Earnings (before exceptionals and goodwill) £431m +30% £332m
Earnings (after exceptionals and goodwill) £350m +25% £279m
Earnings per share (adjusted basic)* 10.4p +25% 8.3p
Dividend per ordinary share (interim) 1.4p +17% 1.2p
Operating cash flow £330m -2% £337m
Capital expenditure £154m +95% £79m
Net debt (excluding Goldfish facilities) £465m +7% £433m (31 Dec)
Net assets £2,264m +47% £1,536m (31 Dec)
* Operating profit and earnings per share are stated before exceptionals and
goodwill amortisation
'Our relentless focus on what customers want has enabled us to succeed in highly
competitive markets.' -- Sir Michael Perry GBE, Chairman
Highlights:
• UK energy operating profit up 31%
• 49% of UK operating profit derived from customer-facing activities
• Centrica Business Services launched, and operating profit doubled; margin
up to 8% from 6% for prior year comparative operation
• AA: growth in roadside membership (8%), insurance contracts (10%) and
loans (62%)
• UK Telecoms: losses halved and improving competitive environment
• North America: 4.6 million customer relationships (including agreed
acquisitions), with entry into Services
• Group operating margin (excluding Accord) of 12%, up from 9%, reflecting
increasing scale and profitability of customer-facing activities
• Interim dividend up by 17% to 1.4 pence per share
'Against a backdrop of economic and market uncertainty, the Group continued to
demonstrate its unique blend of defensive and growth-oriented qualities'
-- Sir Roy Gardner, Chief Executive
CHAIRMAN'S STATEMENT
Centrica's performance in the first half of 2002 reflects our progress in
creating shareholder value through the delivery of our vision of 'taking care of
the essentials'. With adjusted earnings per share up 25% (before exceptional
items and goodwill amortisation) over the first half of 2001, these Interim
Results are particularly encouraging against a backdrop of highly competitive
markets and economic uncertainty.
Business Environment
The first half of this year has seen further consolidation in international
energy markets around a smaller number of increasingly powerful brands and our
asset management expertise, strong consumer marketing credentials and financial
and operational scale make Centrica a strong competitor in this sector. In the
UK, our recently-signed gas contracts with Gasunie and Statoil have not only
secured long-term supplies for our customers, but are expected to result in new
transportation links to meet the country's future gas demand. In electricity, we
have seen the competitive framework strengthened by the continuing success of
NETA.
This experience of competitive energy markets has enabled us to play a key role
in the deregulation of North American markets. While progress towards
liberalisation is by no means universal, we are a major challenger in markets
already opened to competition and are actively supporting its development in a
number of key states. The opening of European energy markets is frustratingly
slow, however, and while the Barcelona summit agreed the principles of
competition, we continue to push for the pan-European structure which will
underpin its success.
Conversely, in the UK telecommunications market, there have been a number of
encouraging regulatory developments which mark a significant step towards the
level playing field for which we have argued so strongly. We expect these
developments to enable us to build closer relationships with our customers and
to offer a wider range of competitively priced services.
This determination to improve the range of services we provide to customers has
underpinned our strategy for the AA, where we have integrated its financial and
roadside services for the first time in its recent history. This new market
positioning, which now includes service centres, is currently being promoted
through the highly successful 'Just AAsk' campaign.
Dividend
I am pleased to report that the Board has declared an interim dividend for 2002
of 1.4 pence per share, an increase of 17% compared to the same period in 2001.
This substantial increase reflects the positive medium-term outlook we see for
both earnings and operating cash flow.
The Board
Sir Sydney Lipworth retired from the Board at the Annual General Meeting in May.
We are most grateful for the enormous contribution he made to the development of
Centrica. I am pleased to announce that Ms Helen Alexander has recently accepted
our invitation to become a non-executive director.
Outlook
Our relentless focus on what customers want has enabled us to succeed in highly
competitive markets. We have a strong team, an excellent business and a clear
strategy which, I am confident, will deliver value to customers and shareholders
alike.
Sir Michael Perry GBE, Chairman
5th September 2002
CHIEF EXECUTIVE'S REVIEW
In the first half of 2002, the Group built upon its strong 2001 performance. The
results show that, against a backdrop of economic and market uncertainty, the
Group continues to deliver through its combination of defensive and
growth-oriented qualities. The benefits of our UK energy market position, the
hedging effect of our energy asset management and the scale of our broader
customer relationship activities were all in evidence. The evolving profile of
the business is reflected in a larger proportion of our UK profitability (49%)
than last year (16%) deriving from our customer-facing activities.
First half 2002 turnover and profitability
Group turnover (excluding Accord trading revenue) was £5.16 billion for the
first half of 2002, up 7% from the prior year period; 6% of the 2002 turnover is
attributable to acquisitions since July 2001. Higher sales to our business
customers - through Centrica Business Services - was complemented by an increase
in residential electricity sales, growth across the AA's roadside and personal
finance units, in Home Services and One.Tel and in North America. Gas sales
volumes were lower.
Group operating profit (including joint ventures and associates, before
exceptionals and goodwill amortisation) of £627 million was up 43% from £437
million in the first half of 2001, with improved performance across most brand
units, particularly British Gas. Aggregate Group gross and operating margins
(excluding Accord) were 31% and 12%, up from 25% and 9% respectively in 2001's
first half.
Cash flow, capital expenditure and acquisitions
Group operating cash flow (from continuing operations, before exceptional
payments) was £330 million during the first half of 2002, versus £337 million in
2001. An increase of £204 million in operating profit before depreciation
(including joint ventures and associates, before exceptionals and goodwill
amortisation) was more than offset by changes in working capital and provisions
caused largely by accelerated gas transportation prepayments, petroleum revenue
tax ('PRT') and gas production royalty payments of £92 million, £108 million and
£31 million respectively.
Total capital expenditure was £154 million this year, up from £79 million in the
2001 period. This was due primarily to an increase of £65 million in capitalised
information technology investments, which consisted largely of new hardware,
professional fees and software associated with our new Customer Relationship
Management (CRM) infrastructure. Acquisition expenditures were £523 million in
the first half, consisting primarily of our Enbridge Services and Brigg power
plant transactions (2001: £103 million). The Group's net cash outflow before
financing was, as a result, £468 million, against a net inflow of £53 million a
year earlier.
Net interest, net debt and net assets
Net interest payable was £29 million (2001: £20 million) and was covered 29
times by operating profit (including joint ventures and associates) before
depreciation, exceptionals and goodwill amortisation compared with 31 times a
year earlier. Higher net interest was due to higher average indebtedness
compared with the first half of 2001.
Net debt (excluding the Goldfish facility) increased to £465 million at 30 June
2002 from £433 million at 31 December 2001. The increase was the result of
higher operating profit and an equity placement of £426 million being more than
offset by increases in working capital, capital expenditure and acquisition
payments. Net assets grew by 47%, from £1.54 billion to £2.26 billion, over the
first half of 2002, reflecting retained earnings and the equity placement during
the period. Our resulting ratio of net debt (excluding Goldfish Bank facilities)
to book capitalisation was 17% at 30 June 2002 (Dec 2001: 22%).
Taxation
The ongoing taxation charge of £168 million for the first half of 2002
represents a 28% rate on profits adjusted for goodwill amortisation (2001
comparative rate 22%). The increase in effective rate is due to higher taxation
on offshore gas production, including the introduction of a 10% corporation tax
surcharge with effect from 17 April which increased the tax charge by £11
million. The overall charge is still less than the UK 30% statutory rate,
however, primarily because we are recognising deferred tax assets during 2002
which were previously unrecognised at the last year end.
The exceptional tax charge of £25 million represents the one-off cost of
restating the offshore gas production deferred tax liability at the new rate of
40%.
Customer satisfaction
The AA's flagship breakdown service has achieved the highest levels of customer
satisfaction recorded to date. The AA has also regained the J D Power award for
customer satisfaction, winning it for the 3rd time in 4 years. Customer
satisfaction with the AA Insurance service and theAA.com has also increased.
The focus on improving further both customer service and customer satisfaction
within British Gas has continued in the first half of 2002. In the first quarter
of the year a decline in service and satisfaction measures reflected customer
reaction to the gas price increase and the industry wide issue of mis-selling.
By the middle of the year all key customer satisfaction measures had recovered
to at least 2001 first half year levels. Year on year, more customers rated
British Gas performance as 'meeting their needs' and expressed a likelihood of
recommending British Gas.
Outlook
In the delivery of our strategy, Centrica is focused on the application of six
core competencies across the Group:
• Deeper customer understanding and insights
• Product innovation and appropriate cross-selling
• Service standards to win and retain customers
• Employee programmes to develop world class customer relationship and brand
building talent across the Group
• Value maximising upstream asset and strategic procurement activities
• Leveraging operational synergies and best practice across the Group
Centrica's application of these principles will deliver across the Group a
consistent approach to growing and developing durable and profitable customer
relationships. These will be supported by continuing a strategic level of
vertical integration within the energy sector, as our gas and electricity assets
serve to hedge and underpin our growth plans.
For British Gas, residential gas price increases are combining with more stable
wholesale gas and electricity costs to yield a recovery towards a sustainable
level of industry profitability. We will continue to implement our advanced
customer relationship management systems, the costs of which will have a
temporary adverse impact on operating profit margins until the end of 2004. The
winding down of these costs complemented by subsequent annual synergies and
higher gross margins, should together result in further growth in British Gas
operating margins in the medium term.
We expect underlying profitability of the AA to continue to improve, driven by
current investments in both brand marketing and information technology.
We expect to increase market share and profitability in the UK commercial energy
sector. Through the launch of Centrica Business Services, our management focus
and product portfolios in this sector are being significantly enhanced.
The North American market continues to represent a significant value creation
opportunity, given our unique focus on the marketing and service elements of
deregulated energy and service provision. While deregulation has proceeded
inconsistently, we believe its progress will continue and will benefit from the
experiences of competitive markets such as those in Ontario and Texas. Our
primary concern relates to the willingness of regulators to maintain incumbent
pricing at levels which allow sufficient and stable gross margin headroom to
attract committed new market entrants, which could dampen organic growth
opportunities in the near term. We are maintaining a diversified approach to
customer acquisition, including both organic growth and the acquisition of
incumbent customer bases, similar to the recent AEP transaction in Texas. Where
markets are yet to deregulate, we continue to assess opportunities to acquire
regulated customer bases. We also expect to generate cash proceeds from the
divestiture of water heater assets, acquired earlier this year with Enbridge
Services in Canada.
In our telecommunications units, we remain on track with our plan to halve
year-on-year operating losses in 2002. We believe that OFTEL-led moves towards
full competition in the UK residential fixed line telephony sector will afford
us good medium term prospects for profitable growth across the residential
communications product mix. 2002 financial results for Goldfish Bank are
expected to be very similar to those reported for 2001, with initial banking
platform implementation expenses outweighing credit card profitability.
After our strong performance in the first half, and taking account of planned
levels of investment and the outlook for margins across the group, we expect to
achieve good progress for the year as a whole. Over the medium term, higher
operating profitability across the Group should combine with lower cash PRT
payments and reduced CRM investments to yield significant increases in
Centrica's free cash flow generation.
Sir Roy Gardner
Chief Executive
5th September 2002
SEGMENTAL BUSINESS COMMENTARY
Note: All financial results listed are for the six months ended 30 June 2002.
All references to 'the prior-year period', '2001' and 'last year' mean the six
months ended 30 June 2001 unless otherwise specified. All operating profit
numbers are stated before exceptionals and goodwill amortisation unless
otherwise stated.
We draw attention to the fact that Centrica financial results are reported in
respect of the brand unit divisions that now are utilised in the day-to-day
management of the business. These have been structured to mirror the
brand-focused customer relationships that are at the core of our business model.
British Gas Residential
Aggregate turnover for British Gas Residential including British Gas
Communications was up 1.6% in the first half of 2002, at £3.26 billion (2001:
£3.21 billion). Lower residential gas revenues were offset by continued growth
in residential electricity supply revenues as well as further increases in Home
Services revenue.
Operating profit improved significantly to £193 million (2001: £28 million)
representing an operating margin of 5.9% (2001: 0.9%). A significant improvement
in residential gas profitability was complemented by continued progress in Home
Services, a further improvement in residential electricity, and a reduction in
operating losses in British Gas Communications.
British Gas share of the aggregate residential energy customer base in Great
Britain remained steady against the same time last year, at 40%. Net losses in
gas customers were in line with the previous period. Electricity sales growth
was tempered by a reduction in commission-only sales agents and a greater focus
on value. Whilst relatively high churn rates have persisted this year,
management believes that our premium British Gas brand, customer service and
breadth of branded Home Service offerings will continue to afford us significant
competitive advantage.
Substantial increases in residential energy gross profits for the six-month
period were partially offset by the expensed portions of our investment in CRM,
infrastructure (£11 million) and by higher spending on British Gas brand
marketing of £54 million (2001: £50 million). General and administrative
expenses were higher as a result of higher manpower costs, increased spending on
Energy Efficiency Commitments (EEC) and higher debtor provisions.
Key residential energy performance indicators:
For the six months ended 30 June 2002 2001 ^%
Customer numbers (period end) (000):
Residential gas.................................... 13,025 13,598 (4%)
Residential electricity............................ 5,592 4,326 29%
Estimated market share (000):
Residential gas.................................... 65% 68% (3 ppts)
Residential electricity............................ 22% 17% 5 ppts
Average consumption:
Residential gas (therms)........................ 346 394 (12%)
Residential electricity (kWh)................... 2,049 1,988 3%
Weighted average sales price:
Residential gas (p/therm)....................... 46.6 42.6 9%
Residential electricity (p/kWh)................. 6.06 6.03 0.5%
Weighted average unit costs:
Residential gas (WACOG, p/therm)......... 22.3 21.4 4%
Residential electricity (WACOE, p/kWh)... 2.47 2.55 (3%)
Transportation & metering charges (£m):
Residential gas.................................. 663 873 (24%)
Residential electricity.......................... 231 165 40%
Total.................................................... 894 1,038 (14%)
Sales and marketing expenses (% of turnover) 4% 3% 0.6 ppts
Average products per customer (*).............. 1.50 1.42 6%
Turnover (£m):
Residential gas................................... 2,176 2,370 (8%)
Residential electricity........................... 674 491 37%
Total................................................ 2,850 2,861 (0.4%)
Operating profit (£m):
Residential gas................................... 172 55 213%
Residential electricity........................... 25 14 79%
Total................................................ 197 69 186%
Operating margin (%):
Residential gas................................... 8% 2% 6 ppts
Residential electricity........................... 4% 3% 0.8 ppts
Total................................................ 7% 3% 4 ppts
* Includes all British Gas branded products: gas, electricity, home services and
telecoms.
Residential gas
Increased gross margin from higher average selling prices (following price
increases in April 2001 and January 2002) was offset by a reduction in average
consumption reflecting the warmer UK winter weather in 2002 and the net loss of
0.6 million customers. Overall weather impact on operating profit was £44
million adverse versus last year.
The weighted average cost of gas increased 4% over the same period last year,
reflecting higher market prices during 2001 which influenced prevailing contract
costs during the current 'gas year' commencing in October 2001. Gross profit
grew by 52% to £466 million (2001: £306 million). Transportation and metering
costs were reduced due to lower gas sales volumes and the recovery of
overspending on the National Transmission System entry fees in mid-2001 through
the consequential lower overall transportation charges in late 2001 and early
2002.
Wholesale gas procurement contracts will take another step in the latter part of
2002 towards greater linkage to wholesale gas prices due to an underlying change
in our gas contract portfolio, bringing our cost structure closer to that of our
competitors. The proportion of our total gas procurement (including our own
equity gas) which will be linked to UK wholesale gas prices will increase from
under a third to over a half by the end of 2002. British Gas secured two
long-term wholesale gas price-linked gas supply contracts in June 2002. Both
contracts are expected to commence in 2005, delivering approximately 13 billion
cubic metres per year over a ten-year period; this equates to around 30% of
current demand.
Residential electricity
Despite a reduction in prices last year, our weighted average selling price was
approximately unchanged from the same period in 2001 whilst average consumption
increased 3%. This results from a change in the customer mix, in particular the
rapid customer growth in the prepayment market which operates on a higher tariff
given related administrative cost levels.
Our net increase of 1.3 million customers (29% over the prior-year period)
continued to grow the business. We continue to win customers in all areas due to
a strong national presence and our focus on customer service, combined with a
good value customer proposition vis-a-vis our competition.
The 3% decrease in weighted average cost of electricity was driven by lower
wholesale market prices, from which the group benefited for part of its
procurement. Much of the reduction in market prices has been for baseload power,
with the Group now securing a substantial proportion of its requirement for
mid-merit and peak 'shape' through use of our own power stations. Resulting
gross profit grew by 42% to £163 million (2001: £115 million).
Home Services
British Gas Home Services continued to report strong growth in the first half.
Higher 3-Star central heating cover and installation revenues were complemented
by good contributions from our newer products.
Our engineering staff numbers (including installation engineers) were 5,729 at
30 June 2002, up from 5,211 a year earlier. Access to adequate skilled
engineering staff is a key source of competitive advantage in the home services
sector, and during the first half of this year we announced our intention to
recruit and train approximately 3,000 engineers by 2005.
Increased turnover and improved gross margin percentage have generated a £29
million improvement in gross profit which has been partly offset by increased
operating costs, mainly due to higher manpower and British Gas marketing
expenses. The resulting growth of 100% in Home Services operating profit
illustrated the continuing scalability of our Home Services business model as
increases in our customers and product range yield sustained profitability
improvement.
Key Home Services performance indicators:
For the six months ended 30 June 2002 2001 ^%
Customer numbers (period end) (000):
Central heating service contracts............... 3,324 3,279 1%
Kitchen appliances cover......................... 651 535 22%
Plumbing & drains cover.......................... 921 624 48%
Electrical cover...................................... 262 19 nm
Other................................................... 28 19 47%
Total........................................................ 5,186 4,476 16%
Turnover (£m):
Central heating service contracts............... 194 179 8%
Central heating installations...................... 120 112 7%
Other ............................................. ..... 74 48 54%
Total......................................................... 388 339 14%
Engineering staff employed (000)................... 5,729 5,211 10%
Sales & marketing expenses (% of turnover).... 5% 5% (0.4 ppts)
Total operating profit (£m)............................. 22 11 100%
Operating margin (%).................................. 6% 3% 3 ppts
British Gas Communications
Turnover increased by 86% to £26 million, driven primarily by a 41% increase in
customer numbers to 385,000 (2001: 273,000). Our average monthly revenue per
customer remained relatively flat at around £11.00. Our focus for this year has
been on increasing the value of the customer base through enhanced product
offerings and operational efficiencies. Gross margins for 2002 improved to 27%
(2001: 26%).
The net contribution of British Gas Communications was an operating loss of £26
million, reduced from £52 million last year as a result of curtailed marketing
activities and the completion of the integration with acquired One.Tel billing
systems and other infrastructure. The continued operating loss reflects the fact
that the underlying infrastructure was put in place to service a much larger
customer base. The migration of the British Gas Communications call volumes on
to the One.Tel switches later in 2002 will reduce transmission costs by using
the lowest cost routing capability resulting in improvements in gross margin.
A number of initiatives to reduce operating costs through back office
consolidation and realise the synergy benefits of the One.Tel acquisition were
completed in the first half of the year. The largest of these was the successful
migration of the British Gas Communications customer base onto the One.Tel
customer care and billing system which will deliver savings in operating costs
in the order of £1 million per month and ongoing savings in system development
costs, particularly on the launch of new products.
Following recent OFTEL announcements the medium term competitive outlook for
British Gas Communications has improved. Please refer to page 14 below for
further discussion of the positive impact of these changes.
Key British Gas Communications performance indicators:
For the six months ended 30 June 2002 2001 ^%
Customer numbers (period end)(000).................. 385 273 41%
Average minutes use per month (fixed line).......... 344 357 (4%)
ARPU (£)................................................... 11 11.4 (4%)
Gross margin (%)........................................... 27% 26% 0.8 ppts
Sales & marketing expenses (% of turnover)......... 9% 22% (14 ppts)
Turnover (£m)............................................... 26 14 86%
Operating profit (£m).................................... (26) (52) 50%
Centrica Business Services
Centrica continued to increase its market presence in the UK commercial energy
sector. Following the creation of Centrica Business Services and the acquisition
of Enron Direct and (in August) Electricity Direct, significant additional focus
and impetus has been provided to serve and expand this customer base. Following
these acquisitions, we estimate our aggregate share of the total UK commercial
energy market to be 26%, made up of 52% for gas and 19% for electricity,
measured as a percentage of total supply points.
Current operations primarily include gas and electricity supply to approximately
760,000 business customers at 30 June 2002 (of which 160,000 were acquired
through Enron Direct). Average customer billings decreased due to relatively
warm winter weather and a shift in customer mix towards electricity, driven by
the acquisition of Enron Direct and organic growth in the electricity supply
market. Gross profit was £80 million for the first half of this year, up from
£36 million last year.
In addition to gas and electricity sales, Centrica Business Services is
structuring broader bundled offerings for these customers which may include
energy-related products, communications, vehicle fleet management, financial and
other services, according to customer needs.
Sales and marketing costs (as a percentage of turnover) increased moderately,
driven by an active organic growth campaign and the inclusion of Enron Direct.
Operating profit grew by 111% to £40 million.
Key Centrica Business Services performance indicators:
For the six months ended 30 June 2002 2001 ^%
Customer numbers (period end) (000):
Gas.................................................. 380 337 13%
Electricity.......................................... 380 118 222%
Total.............................................. 760 455 67%
Average consumption:
Gas (therms)...................................... 1,887 2,377 (21%)
Electricity (kWh)................................. 10,491 5,622 87%
Weighted average sales price:
Gas (p/therm)..................................... 37.1 32.9 13%
Electricity (p/kWh)............................... 4.88 5.58 (13%)
Weighted average unit costs:
Gas (WACOG, p/therm)....................... 21.6 20.7 4%
Electricity...(WACOE, p/kWh)................. 2.34 2.67 (12%)
Transportation & metering charge (£m):
Gas................................................. 64 69 (7%)
Electricity.......................................... 75 12 525%
Total.................................................... 139 81 72%
Sales & marketing expenses (% of turnover) 3% 2% 1 ppt
Turnover (£m):
Gas................................................. 266 263 1%
Electricity.......................................... 208 37 462%
Total.................................................... 474 300 58%
Operating profit (£m):
Gas................................................. 25 15 67%
Electricity......................................... 15 4 275%
Total.................................................... 40 19 111%
Operating margin (%):
Gas................................................. 9% 6% 3 ppts
Electricity......................................... 7% 11% (4 ppts)
Total.................................................... 8% 6% 2 ppts
CEMG
The Centrica Energy Management Group (CEMG) consists of gas production
operations, electricity generation (managed for British Gas Residential and
Centrica Business Services), large volume industrial and wholesale gas sales,
and our energy procurement, optimisation and scheduling operations as well as
Accord trading. This unit is fundamental - through its provision of appropriate
and advantaged access to energy supplies - to the success of the customer-facing
operations that are at the core of Centrica's consumer marketing business model.
The energy supplies procured for the Group must match downstream demand
requirements at competitive cost levels in relation to the scale and 'shape' of
our customer needs. We continue to believe that, over the short term and given
current market dynamics (e.g. price trends, liquidity, volatility, forward curve
shape, and our downstream market position), it will be optimal for CEMG to
provide around a quarter of the Group's downstream gas and electricity
requirements from internal sources of supply.
The energy assets currently owned by the Group are of high quality and feature
substantial inherent flexibility that affords both value and competitive
advantage to our supply operations. The production levels of our major gas
fields can be altered in response to variations in demand quantities or market
movements, whilst our electricity generation plants are gas-fired and flexible
by nature, predominantly providing mid-merit and peak supplies on a scale which
would be otherwise difficult to procure.
In a market context including relatively warm UK weather (reducing gas demand)
and low recent wholesale electricity prices (reducing the 'spark spread'
profitability of power stations), CEMG reported operating profit of £336
million, down from £351 million last year. A 14% reduction in gas production
operating profit, due to field rescheduling, was partly offset by better results
in industrial sales and Accord trading, as detailed below.
Key CEMG performance indicators:
For the six months ended 30 June 2002 2001 ^%
Gas production :
Production volumes (m therms):
Morecambe..................................... 2,130 2,425 (12%)
Other............................................... 214 218 (2%)
Total................................................ 2,344 2,643 (11%)
Average sales price (p/therm).................. 22.6 22.7 (0.4%)
Turnover (*) (£m).................................... 564 632 (11%)
Operating costs (% of Turnover):
Royalties.......................................... 8% 8% -
Petroleum Revenue Tax...................... 8% 8% -
Production and other........................... 33% 31% 2 ppts
Total................................................ 49% 47% 2 ppts
Operating profit: (£m).............................. 290 336 (14%)
Industrial & Wholesale:
Sales volumes (m therms)........................ 2,725 3,224 (15%)
Average sales price (p/therm)................... 19.9 20.0 (0.5%)
Operating profit (£m)............................... 31 5 520%
Accord :
Traded volumes (physical):
Gas (million therms)......................... 9,713 9,585 1%
Electricity (GWh)............................. 37,178 n/a n/a
Operating profit (£m)................................ 15 10 50%
CEMG operating profit (£m)........................... 336 351 (4%)
(*) Of which 94% is to entities within the Group.
Gas Production
Wholesale gas prices remained relatively high during late 2001 and early 2002,
impacting the pricing of our upstream gas production (which is subject to a 3-9
month lag to market pricing). A reduction in aggregate production volumes was
largely due to unseasonably warm winter weather, as well as a more recent
significant reduction in spot wholesale gas prices which is enabling us to
profitably procure in the open market whilst rescheduling equity production to a
subsequent period.
Industrial sales and wholesaling
Industrial and European gas sales, which largely take place under contracts
entered into prior to the Centrica demerger from British Gas plc, fell in value
due to wholesale spot market price decreases, the early termination of one large
contract and lower sales to third party UK power stations. The operating profit
contribution from these sales was up due to higher gross margins, caused by
differential time lags on escalation factors (linked to various commodity
markets including oil products, PPI, etc.) in gas sales contracts compared with
certain gas purchase contracts, as well as losses on the termination of certain
out-of-the-money contracts last year. A profit of £9 million was recognised in
connection with the early termination of an in-the-money gas supply contract.
Electricity generation
We currently have interests in four power stations with peak capacity of 1.7 GW
and a 0.9 GW tolling agreement with Intergen on its Spalding plant which should
be operational by the end of 2004. Income is received by our power stations in
the form of 'tolling fees'. CEMG, upon scheduling a power production period to
match our downstream requirements, provide gas for conversion to power. For the
half year, the volume of production at our generation plants was 3,436 GWh.
The value of our plants remains in their flexible mid-merit and peak generation
capacity amid a less liquid market for peak supplies. The strategic importance
of these plants, and those which we acquire in future, will rise as our
downstream demand increases and as volatility remains or prices increase in
wholesale baseload and peak power markets.
Accord
Our Accord trading operations continued to support our strategic procurement
requirements and take additional trading positions within permitted limits based
on our wholesale market outlook. Volumes traded during the first half of 2002
were equal to 1.1 times and 1.8 times, respectively, the gas and electricity
volumes supplied to our downstream customers.
The value-at-risk (VaR) limit allocated to these trading activities continues to
be limited to £21 million (in addition to £4 million for our North American
activities). This VaR limit is based on historic volatility (over the last 90
days of pricing data) such that the absolute value at risk on the Accord trading
portfolio is capped with a 95% degree of confidence and a 30-day liquidation
timeframe. This limit is automatically reduced through the year if the realised
position shows a loss, such that when the latter is combined with the
mark-to-market on the open position, the loss in any calendar year should be
'capped' by the VaR limit. The VaR limit operates at a gross level (£21 million)
and at an individual trading book level for gas, power and weather.
VaR is further supported by open volume limits to protect from sudden very
significant volatility changes, credit checking and individual counter party
trading limits.
In the first half of 2002 Accord's operating profit was £15 million (2001: £10
million), mainly due to increased contribution from gas trading. Physical traded
gas volumes were stable year-on-year, whilst electricity volumes grew to 37,178
GWh for the first half of this year following the initiation of wholesale
electricity procurement and trading under the UK's New Electricity Trading
Arrangements.
The AA
The AA continues to perform well. Record Roadside Services membership (46%
market share) was accompanied by strong continuing growth in the AA's Personal
Finance operations as well as the addition of AA (formerly Halfords) Service
Centres (AASCs).
Operating profit of the AA's Roadside and Personal Finance units, excluding
results of the AA's other operations, was up almost 24% to £47 million in 2002.
Growth in Personal Finance profits of 35% represented the majority of this
increase, together with a growth in Roadside Services profit of 14%. These
increases were partially offset by losses in AA Traffic & Travel. The AA also
expensed its acquisition of Tyreserve, which complements the Service Centres and
mobile tyre service sales as part of a national network.
The AA has commenced a substantial new brand campaign around the theme of 'Just
AAsk', designed to focus consumer attention on the wide variety of products and
services offered by the AA beyond Roadside Services and across the spectrum of
motoring needs. Total AA marketing expenditure, including this campaign, was £41
million for the first half of 2002 (2001: £31 million).
In addition, the AA is implementing a new Customer Relationship Management (CRM)
infrastructure to leverage and support its relationships across the AA Brand,
enabling both cost efficiencies and greater cross-selling opportunities. This is
a three-year programme, and in the first half of 2002 £1.7 million was expensed
with additional investment of £2.3 million being capitalised.
The AA's new route guidance system has improved the quality of service for
members through faster average 'call to arrive' times. The AA remains at the
forefront of technology in this sector. Further new systems are being field
tested to reap the benefits of even better fault diagnostics and communications
technology.
A new product providing Parts and Labour Cover for car breakdowns not repairable
at the roadside has been launched. Over 45,000 customers have taken this product
in the first six months of 2002, directly as a result of cross selling to the
current customer base.
Demand for car and personal loan products was very encouraging as the fixed term
loan book (in joint venture with HBOS plc) grew by 62% from a year earlier to
£605 million. Other receivables took the total asset book to £720 million. Over
40,000 loans were written during the first half of this year, double the number
written during the same period last year, due to more focused marketing
activities including television advertising. Increased gross profit from the
expanding loan book was offset by sales and marketing expenditure to drive
continuing customer growth.
The AA's other units now include the AA Service Centres, providing a physical AA
retail presence for integration with Roadside Services activities and for the
cross-selling of other products. Out of a total 129 sites, 110 have been
upgraded and rebranded with the remainder due for completion by the year end.
AASC turnover was £21 million of a total of £53 million for all AA Other
Operations, which also includes its Publishing, Traffic & Travel, Driving School
and Signs unit. Joining this mix of established businesses is Tyreserve, Golf
England and AA Buyacar.
Key AA Performance Indicators
For the six months ended 30 June 2002 2001 ^%
Roadside Services:
Customer numbers (period end) (000).......... 12,587 11,649 8%
Customer renewal rate (%)........................ 83% 83% -
Average transaction value (£).................... 40.5 42.9 (6%)
Roadside patrols employed....................... 3,680 3,669 0.3%
Personal Finance:
Insurance customers (000):
Motor............................................... 952 865 10%
Home............................................... 647 591 9%
Overall renewal rate (%)........................... 81% 78% 3 ppts
Average annual premium (£)..................... 262 256 2%
Total insurance revenue (£m)........................ 44 40 10%
Loans (fixed term) book size (£m)............... 605 374 62%
Loan book (fixed term) operating profit (£m). 10 9 11%
Number of fixed term personal loans (000)... 106 71 49%
AA Service Centres:
Site numbers......................................... 129 n/a n/a
Average turnover per site (£000)............... 164 n/a n/a
Turnover (£m):
Roadside services. ................................. 233 232 0.4%
Personal finance.................................... 83 69 20%
Other operations.................................... 53 29 83%
Total......................................................... 369 330 12%
Sales & marketing expenses (% of turnover) 11% 9% 2 ppts
Operating profit (£m):
Roadside services.................................. 24 21 14%
Personal finance.................................... 23 17 35%
Other operations.................................... (11) (3) (267%)
Total....................................................... 36 35 3%
Operating margin (%)................................. 10% 11% (1 ppt)
One.Tel
Management's focus for this year has been on increasing the value of the
customer base through enhanced product offerings and operational efficiencies.
Turnover saw sequential growth of 15% from the second half of 2001, as a result
of an increase in our customer base and average revenue per user (ARPU) for
fixed line and narrowband internet services.
Our variable gross margin of 51% reflects the successful operation of our
lowest-cost switched call routing system. Excess capacity and competition
between carriers provided further opportunities to negotiate improved
transmission charges, resulting in an increase of 3.6% in variable gross margin.
Our switched reseller business model relies on the use of networks of a variety
of infrastructure owners (13 at 30 June 2002), mitigating risks associated with
network failure or carrier financial distress. Operating profit (before
exceptional charges, goodwill amortisation and interest) was £4.7 million after
customer acquisition costs of £7.7 million.
One.Tel has successfully participated in trials of the revised industry process
for Carrier Pre-Selection (CPS), which resulted in implementation of an enhanced
system in July. This introduction should have a positive impact on ARPU and
reduce customer losses, as customers will have the opportunity to switch
permanently their default call supplier from BT, using a more customer friendly
transfer process.
OFTEL's June decision, following its review of BT's retail price controls,
requires BT to provide a viable Wholesale Line Rental (WLR) product which will
enable us to provide full fixed line services with a variety of line rental and
call tariffs and a single billing customer relationship. An interim product is
due for September, with the full solution expected in the first half of 2003.
Centrica believes that both enhanced CPS and WLR are positive developments which
will help to provide a more level playing field for competition in the fixed
line residential market with BT.
One.Tel has launched several new products during the period. A new preferred
distribution agreement was agreed with Vodafone, enabling the launch of One.Tel
mobile service with a £4.99 monthly line rental charge. One.Tel broadband
internet service was launched at a retail price of £27.99 per month. We believe
that both of these offerings are highly attractive to UK retail customers. In
the medium term, we believe that these crucial industry developments, together
with the launch of our new mobile and broadband internet products, provide us
with a sound platform to exploit profitably substantial developing market
opportunities in the UK.
Key One.Tel performance indicators:
For the six months ended 30 June 31 Dec ^%
2002 2001
Customer numbers (30 day tolling) (period end)(000) 870 785 11%
Average minutes use per month (fixed line).......... 283 277 2%
ARPU (fixed line) (£)....................................... 16.4 15.9 3%
Variable Gross margin (%)................................. 51% 47% 4 ppts
Sales & marketing expenses (% of turnover)......... 10% n/a* -n/a-
Turnover (£m) **............................................. 75 65 15%
Operating profit (£m)........................................ 4.7 3.5 34%
Operating margin (%)....................................... 6% 5% 1 ppts
* Cost classifications in line with Centrica accounts standards are available
beginning 1/1/02
** 2001 turnover is from date of acquisition (3 July 2001)
Goldfish Bank
Our Goldfish Bank joint venture (with Lloyds TSB) has continued to build its
business platform, with credit cards in force and average spending per active
card up by 2.7% and 13.1% respectively during the first half of 2002 compared
with the same period last year.
Credit card profit contribution was £7m (2001: £2 million). Total net interest
income was £18 million (2001: £14 million) and was accompanied by fee and other
income of £25 million. Bad debt expense continued to remain well controlled at
less than 3% of outstanding card balances. Loyalty scheme costs reduced by 1% to
32% of income. Goldfish Bank is currently completing preparation for the
transfer of all card processing operations from our former partner (to which we
continue to pay processing fees) to our own infrastructure, including both call
centres and billing platforms.
In addition to the credit card contribution, Goldfish Bank incurred operating
expenses comprising £2.4 million for brand marketing and £22 million for banking
systems infrastructure and product development costs. A further £22 million was
invested (capitalised) in the development of Goldfish Bank's IT platform
infrastructure. This scalable platform is intended to support our multi-product
offering plans and completion is due in December 2003.
Recent awareness and advertising campaigns have begun to increase the profile of
the Goldfish brand, prompting increasing customer card use and preparing the
market for a wider range of product offerings. We believe the Goldfish product
set, as it is launched over the next two years, will be innovatively positioned
between the traditional UK banking sector, which has consolidated considerably
in recent years, and single-product competition which often lacks high levels of
brand recognition. Beyond the credit card, 65,500 additional Goldfish products
were sold during the period.
August saw the full launch of both an online instant access savings account with
a competitive 'best buy' rate and an unsecured personal loan product which has
the unique feature of a combination of no early repayment penalties and a
loyalty bonus of Goldfish points consistent with the credit card scheme.
Key Goldfish Bank Performance Indicators:
For the six months ended 30 June 2002 2001 ^%
Credit cards in force (000)......................... 1,050 1,022 3%
Average monthly spend per active card ( £ )... 512 452 13%
Gross card receivables (000)...................... 671 661 2%
Net interest margin (%)............................. 6% 4% 2 ppts
Credit Card Income (£m)
Net interest income............................... 18 14 29%
Fee revenue and other Income............... 25 25 -
Total (before deduction of loyalty costs)........ 43 39 10%
Loyalty scheme costs (% of income)............. 32% 33% (1 ppt)
Card processing costs (% of income)........... 19% 15% 4 ppts
Credit losses (% of receivables).................. 3% 4% (0.7 ppts)
Credit card profit contribution (£m). *............ 7 2 250%
Goldfish non-credit card products income (£m) 1.6 0 -
Sales & marketing expenses (% of income).... 5% 0% 5 ppts
Goldfish operating profit/(loss), before minority interest (£m).... (17) (22) 23%
* Prior to allocation of a portion of aggregate Goldfish operating expenses.
Centrica North America
Centrica operates in North America under the Direct Energy and Energy America
brands and, in accordance with transitional arrangements in respect of the
services business, under the Enbridge Services brand.
Energy supply turnover of £412 million for the first six months of 2002
represented an increase of 11% from the prior year period, largely due to the
combined effects of higher average gas selling prices up 14% and organic growth
in the new Ontario and Texas electricity markets, partially offset by an
unusually warm winter in Ontario. The mix of this turnover shifted significantly
towards residential gas and electricity (versus industrial and commercial
sales); these residential sales grew by 41% to £328 million.
In electricity, at 30 June 2002, we were serving or processing applications to
serve approximately 500,000 and 75,000 consumers eligible for electricity
supplier choice in Ontario and Texas respectively. The size of our residential
gas customer base increased by 4% but was hindered in some states where
regulatory regimes have allowed incumbent utilities to undercut our fixed price
offers by passing through sharp falls in wholesale prices.
Energy supply gross profit was £42 million, up 14% from the 2001 period due to a
turnover increase of 11%. Operating profit was impacted by £20 million in market
entry costs related to the openings of the Texas and Ontario residential
electricity sectors. Our investment in marketing, information technology,
training and other employee and office infrastructure reflects the positioning
required to continue expansion in our core business and build a business model
which parallels Centrica's in the UK.
To encourage the smooth deregulation of new energy markets we continue our
cooperative dialogue with regulators in states and provinces which have
expressed a desire to pursue, but have not yet fully completed, deregulation.
In May Centrica acquired the retail home and business services operation of
Enbridge Inc. for a cash consideration of C$1.0 billion (£437 million). The
acquisition supports Centrica's strategic initiative of becoming the premier
innovative consumer marketer in the energy and home services market in North
America. During the period from 7 May to 30 June 2002, the services segment
generated a gross profit contribution of £24 million on turnover of £39 million.
These results are in line with the financial returns expected at the time of
acquisition.
Development of our gas fields in Alberta continues. We drilled, completed and
began production at 182 wells during the first half of 2002, compared with 73 in
2001. Production volumes grew by 12% to 183.7 million therms during the 2002
period, representing 20% of our North American downstream gas sales. Gross
profitability was, however, reduced substantially due to wholesale spot price
reductions of approximately 31%.
Centrica carefully monitors and manages its trading counterparty risk exposures
and has not suffered significant losses from the deterioration of US energy
industry credit quality. The vast majority of commodity and related contracts
are undertaken with the sole objective of procuring commodity to meet customer
requirements in a manner designed to minimize commodity price and supply risk.
The balance of trading operations remain small, with a value-at-risk limit of
C$8 million (£4 million).
Operating profit for the first six months of 2002 declined by £4 million as
increases in residential gas profit and a first time contribution for 7 weeks
from Enbridge Services were more than offset by start-up costs in the Ontario
and Texas electricity markets and lower wholesale gas prices upstream.
Key North America Performance Indicators
For the six months ended June 30, 2002 2001 ^%
Customer numbers (period end):
Residential and small commercial gas (000)...... 1,297 1,250 4%
Residential electricity (000).............................. 575 - n/a
Home & Business services (000)....................... 1,733 -- n/a
I&C energy (sites served)............................... 49 46 7%
Average consumption:
Residential and small commercial gas (therms):... 685 612 12%
Residential electricity (kwh):............................ 3,711 9.6 n/a
Industrial and commercial energy (m therms)...... 9.4 (2%)
Weighted average sales price:
Residential and small commercial gas (pence per therm) 33.6 29.4 14%
Residential electricity (pence per kwh)............... 2.65 - n/a
Industrial and commercial gas (pence per therm) 18.1 31.8 (43%)
Weighted average unit costs (p/kWh):
Gas (WACOG) (pence per therm )................... 27.9 26.8 4%
Electricity (WACOE) (pence per kwh)................ 2.28 - n/a
Gas production and energy trading:
Gas production volumes (m therms):................. 183.7 164.4 12%
Average sales price (pence per therm)............... 22.6 32.8 (31%)
Production operating costs (£000).................... 6,262 5,387 16%
Turnover ( £m ):
Residential and small commercial gas............... 297 232 28%
Residential electricity..................................... 31 - n/a
Home & Business services............................. 39 - n/a
Gas production............................................ 48 61 (21%)
I&C energy.................................................. 84 139 (40%)
Total...................................................... 499 432 16%
Sales & marketing expenses (% of turnover).......... 1% 3% (2 ppts)
Operating profit ( £m):
Residential and small commercial gas ... 21 5 320%
Residential electricity..................................... (20) (9) (122%)
Home & Business services............................. 6 - n/a
I&C energy.................................................. 1 2 (50%)
Gas production & energy trading...................... 17 31 (45%)
Total....................................................... 25 29 (14%)
Operating margin %:........................................... 5% 7% (2 ppts)
Other Operations
The operating profit result for other operations was £9 million, which includes
a profit of £12 million on disposal of our interest in the Spalding power plant
and the developmental European operations.
Europe
Our Luminus joint venture in Belgium is progressing well. The Flemish market
above the 1 GWh level opened on 1 January 2002 and Luminus retained its share of
approximately 21% of the Flanders market. It is now preparing for the broader
commercial market opening in early 2003, followed closely by the residential
market opening in July 2003 for both electricity and gas. The business is
positioned as the number two player in the Flemish market. When the residential
market opens the business expects to have nearly 600,000 residential electricity
customers and nearly 200,000 residential gas customers.
Independent review report to Centrica plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2002 which comprises the profit and loss account,
the balance sheet, the cash flow statement and the related notes. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2002.
PricewaterhouseCoopers
Chartered Accountants
1 Embankment Place
London WC2N 6RH
5 September 2002
Summary Group Profit and Loss Account
6 months ended 6 months ended Year ended 31
30 June 2002 30 June 2001 December 2001
Notes
. . £m £m £m
Turnover: . . . .
Continuing operations before acquisitions . 7,067 6,753 12,611
Acquisitions . 40 - -
Continuing operations 1 7,107 6,753 12,611
Cost of sales 2 (5,515) (5,524) (10,224)
Gross profit 1,592 1,229 2,387
Operating costs before exceptional charges and goodwill 2 (993) (805) (1,755)
amortisation
Exceptional charges and goodwill amortisation 3 (53) (53) (166)
Group operating profit 546 371 466
Share of profits less losses in joint ventures and associates 25 13 45
- continuing operations
Operating profit including joint ventures and associates: . . . .
Continuing operations before acquisitions 568 384 511
Acquisitions 3 - -
Continuing operations 1 571 384 511
Net interest payable (29) (20) (43)
Profit before taxation 4 542 364 468
Taxation 5 (168) (91) (164)
Exceptional Tax Charges 3 (25) - 9
Profit after taxation 349 273 313
Minority interest 1 6 10
Profit after taxation and minority interest 350 279 323
Dividends 6 (62) (48) (124)
Retained profit for the financial period 288 231 199
Dividend per ordinary share 6 1.4p 1.2p 3.1p
Earnings per ordinary share: . . . .
Basic 7 8.4p 7.0p 8.1p
Diluted 7 8.3p 6.9p 8.0p
Adjusted Basic 7 10.4p 8.3p 12.1p
There are no gains or losses for the period other than those recognised in the
profit and loss account.
Summary Group Balance Sheet
. 30 June 2002 30 June 2001 31 December 2001
Note £m £m £m
Fixed assets
Intangible assets 1,632 1,347 1,524
Tangible assets 2,346 1,841 2,058
Investments (including joint ventures) 8 175 105 167
. . 4,153 3,293 3,749
Stocks 125 140 193
Goldfish bank debtors 658 - 673
Debtors due within one year 1,903 1,604 1,923
Debtors due after more than one year . 62 42 130
Cash and investments 392 241 526
Goldfish bank borrowings (616) - (610)
Borrowings due within one year (273) (329) (361)
Creditors due within one year (2,462) (2,244) (2,871)
Net current liabilities (211) (546) (397)
Total assets less current liabilities 3,942 2,747 3,352
Borrowings due after more than one year (584) - (598)
Creditors due after more than one year (32) (144) (34)
Provisions for liabilities and charges (1,062) (1,070) (1,184)
Total assets less liabilities 2,264 1,533 1,536
Shareholders' funds 2,225 1,533 1,502
Minority interest 39 - 34
Total capital and reserves 2,264 1,533 1,536
Movements in Shareholders' Funds
. . 6 months ended 6 months ended Year ended 31
30 June 2002 30 June 2001 December 2001
£m £m £m
Shareholders' funds at 1 January 1,502 1,298 1,298
Profit for the financial period 350 279 323
Dividends (62) (48) (124)
Issue of shares net of reserves transfer 435 6 7
Goodwill adjustment - (2) (2)
Shareholders' funds as at 30 June/31 December 2,225 1,533 1,502
Summary Group Cash Flow Statement
. 6 months ended 6 months ended Year ended 31
30 June 2002 30 June 2001 December 2001
Notes
£m £m £m
Cash inflow from operating activities 9 330 337 825
Dividends received from joint ventures and associates . 13 13 16
Returns on investments and servicing of finance 10 (9) (15) (15)
Taxation paid (58) (32) (109)
Capital expenditure and financial investment 11 (154) (79) (337)
Acquisitions and disposals 12 (511) (103) (607)
Equity dividends paid (79) (68) (115)
Cash (outflow)/inflow before use of liquid resources and (468) 53 (342)
financing
Management of liquid resources 69 (37) (257)
Financing 282 15 686
(Decrease)/increase in net cash (117) 31 87
Reconciliation of debt, net of cash and investments 6 months ended 30 6 months ended Year ended 31
June 2002 30 June 2001 December 2001
£m £m £m
Debt, net of cash and investments as at 1 January (1,043) (117) (117)
Debt acquired 1 (28) (37)
Net (decrease)/increase in money market investments (69) 37 257
Net (decrease)/increase in cash for the period (117) 31 87
Net decrease/(increase) in other debt 156 7 (1,245)
Exchange adjustments (9) (17) 12
Debt, net of cash and investments as at 30 June/31 December (i) (1,081) (87) (1,043)
Of which:
Goldfish Bank (616) - (610)
Other businesses (465) (87) (433)
(1,081) (87) (1,043)
i. Debt, net of cash and investments as at 30 June 2002 comprised cash and money
market investments of £392 million (30 June 2001: £ 241 million), less bank
overdrafts and loans of £1,353 million (30 June 2001: £ 187 million) and
finance lease obligations of £120 million (30 June 2001: £141 million).
ii. Cash and investments included £172 million held by the Group's insurance
subsidiary undertakings, £3 million of margin call deposits held as security
in relation to energy trading positions, £50 million deposit held as
security in relation to outstanding consideration in relation to the
acquisition of the Goldfish credit card and £9 million held by the Law
Debenture Trust, on behalf of the Company, as security to cover unfunded
pension liabilities. These amounts were not readily available to be used for
other purposes within the Group.
Notes
1. Segmental analysis including share of profits and losses of joint ventures
and associates
for the 6 months ended 30 June
Operating profit/(loss) Operating profit/(loss)
before exceptional charges after exceptional charges
Turnover and goodwill amortisation and goodwill amortisation
2002 2001 2002 2001 2002 2001
£m £m £m £m £m £m
British Gas: Residential Gas Supply 2,176 2,370 172 55 172 53
British Gas: Residential Electricity Supply 674 491 25 14 25 14
Home Services 388 339 22 11 21 8
British Gas Communications 26 14 (26) (52) (26) (52)
British Gas Residential 3,264 3,214 193 28 192 23
. . . . . . .
Centrica Business Services: Gas Supply 266 263 25 15 25 15
Centrica Business Services: Electricity 208 37 15 4 14 4
Supply
Centrica Business Services 474 300 40 19 39 19
. . . . . . .
Industrial Sales and Wholesaling (i) 401 497 31 5 31 5
Gas Production 41 42 290 336 290 336
Accord: Energy Trading 1,951 1,936 15 10 15 10
Centrica Energy Management Group 2,393 2,475 336 351 336 351
. . . . . . .
The AA 369 330 36 35 10 2
Centrica North America 499 432 25 29 9 14
Goldfish Bank 31 - (17) (22) (24) (22)
One.Tel 75 - 5 - 3 -
Other Operations (ii) 2 2 9 (3) 6 (3)
. . . . . . .
Total from operations 7,107 6,753 627 437 571 384
. . . . . . .
Continuing operations before acquisitions 7,067 6,753 622 437 568 384
Acquisitions 40 - 5 - 3 -
. . . . . . .
Total from operations 7,107 6,753 627 437 571 384
1 Segmental analysis including share of profits and losses
of joint ventures and associates - continued
for the year ended 31 December 2001
. Operating profit/(loss) Operating profit/(loss)
before exceptional charges after exceptional
Turnover and goodwill amortisation charges and goodwill
amortisation
. 2001 2001 2001
£m £m £m
. . . .
British Gas: Residential Gas Supply 4,029 (8) (20)
British Gas: Residential Electricity Supply 1,121 27 25
Home Services 722 36 30
British Gas Communications 37 (101) (116)
British Gas Residential 5,909 (46) (81)
. . . .
Centrica Business Services: Gas Supply 460 36 29
Centrica Business Services: Electricity Supply 121 8 8
Centrica Business Services 581 44 37
. . . .
Industrial Sales and Wholesaling 921 5 5
Gas Production 80 552 552
Accord: Energy Trading 3,570 16 (14)
Centrica Energy Management Group 4,571 573 543
. . . .
The AA 689 72 8
Centrica North America 768 68 39
Goldfish Bank 22 (32) (37)
One.Tel 65 4 5
Other Operations 6 (4) (3)
. . . .
Total from operations 12,611 679 511
(i) The Group recognised a profit of £9 million in connection with the
early termination of an in-the-money gas supply contract.
(ii) Other operations include the Group's European activities, and a
profit of £12 million which was recognised in the period in respect of the
sale of the Group's interest in Spalding Energy Company Limited, the value
of which had been impaired in prior years.
(iii) Centrica financial results are being reported in respect of the
brand unit divisions that now are utilised in the day-to-day management of
the business.
2 Costs (before exceptional charges and goodwill amortisation)
6 months ended 30 6 months ended Year ended 31
June 2002 30 June 2001 December 2001
. £m £m £m
Cost of sales: . . .
Continuing operations before acquisitions 5,497 5,524 10,224
Acquisitions 18 - -
. 5,515 5,524 10,224
Operating costs: . . .
Continuing operations before acquisitions 976 805 1,755
Acquisitions 17 - -
. 993 805 1,755
3 Exceptional charges and goodwill amortisation
6 months ended 30 6 months ended Year ended 31
June 2002 30 June 2001 December 2001
.
. £m £m £m
Exceptional costs: . . .
Business integration costs - 13 35
Energy trading costs - - 37
Other - - 8
. - 13 80
Goodwill amortisation: . . .
Continuing operations 51 38 86
Acquisitions 2 2 -
. 53 40 86
. . . .
Exceptional Charges and goodwill amortisation 53 53 166
. . . .
Goodwill amortisation on joint ventures and associates 3 - 2
. . . .
Exceptional tax charges (i) 25 - (9)
(i) The exceptional tax charge in 2002 comprised an increase in deferred
tax provisions arising from the increase in the corporate tax rate
applicable to profits on 'ring-fenced' offshore gas production.
4 Earnings before exceptionals and goodwill amortisation
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
£m £m £m
Profit before taxation 542 364 468
Add back: Exceptional charges and goodwill amortisation 56 53 168
. . . .
Profit before taxation, exceptionals and goodwill amortisation 598 417 636
. . . .
Taxation on ordinary activities (before exceptional items) (168) (91) (164)
. . . .
Minority interest 1 6 10
. . . .
Earnings before exceptionals and goodwill amortisation 431 332 482
5 Taxation
The charge comprised mainly corporation tax on 'ring-fenced' offshore gas
production. The charge incorporates the increase in corporation tax from 30% to
40% on profits from offshore production announced in the Budget. This has
increased the first half tax charge by £11 million and has resulted in an
exceptional charge of £25 million disclosed in note 3.
The tax charge for the 6 months ended 30 June 2001 is after a prior year
adjustment resulting from the introduction of FRS 19, as disclosed in the 2001
Annual Report. The effect of this prior year adjustment was to increase the tax
charge by £11 million for the 6 months ended 30 June 2001.
6 Dividends
An interim dividend of 1.4 pence per share (2001: 1.2 pence) will be paid to
shareholders on 27 November 2002. The final 2001 dividend of 1.9 pence per share
was paid in June 2002.
7 Earnings per share
Basic and adjusted basic earnings per share (EPS) are calculated as follows:
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
Earnings EPS pence Earnings EPS pence Earnings £m EPS
£m £m pence
Profit for the financial period 350 8.4 279 7.0 323 8.1
Add back exceptional charges and goodwill 81 2.0 53 1.3 159 4.0
amortisation
Earnings before exceptional charges and goodwill 431 10.4 332 8.3 482 12.1
amortisation
Average number of shares (million) used in the 4,159 3,980 3,984
calculation of basic and adjusted basic EPS
Average number of shares (million) used in the 4,211 4,059 4,062
calculation of diluted EPS
8. Fixed asset investments
30 June 2002 31 December 2001
. £m £m
Joint ventures: . .
Share of gross assets 787 709
Share of gross liabilities (660) (597)
Other investments 48 55
. 175 167
The Group's share of joint ventures' gross assets and gross liabilities
principally comprised its interests in Humber Power Limited (a power station),
Centrica Personal Finance Limited (The AA and British Gas personal loans
activities), AA Financial Services (The AA credit card activities) and Luminus
NV (energy supply).
Share of joint ventures' assets and liabilities as at 30 June 2002
Humber Power Centrica Personal AA Financial Luminus NV Other Total
Limited Finance Limited Services
£m £m £m £m £m £m
Share of gross assets 352 303 45 67 20 787
Share of gross liabilities (309) (284) (43) (11) (13) (660)
43 19 2 56 7 127
9. Reconciliation of operating profit to operating cash flow
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
£m £m £m
Group operating profit 546 371 466
Add back:
Profit on sale of fixed assets (13) - (7)
Profit on sale of investments - - (6)
Exceptional charges and goodwill amortisation 53 53 166
Depreciation 203 189 351
(Increase) / decrease in working capital (228) (12) 72
(Decrease) in provisions (215) (234) (173)
Operating cash flow before exceptionals:
Continuing operations before acquisitions 340 368 773
Acquisitions 6 (1) 96
Continuing operations 346 367 869
Expenditure relating to exceptional charges (16) (30) (44)
Cash inflow from operating activities 330 337 825
10 Returns on investments and servicing of finance
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
£m £m £m
Interest received 10 16 27
Interest paid (14) (23) (28)
Interest element of finance lease rental payments (5) (8) (14)
(9) (15) (15)
11 Capital expenditure and financial investment
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
£m £m £m
Purchase of tangible fixed assets (159) (78) (312)
Sale of tangible fixed assets 1 1 11
Purchase of own shares - - (14)
Loans to joint ventures 4 (2) (22)
. (154) (79) (337)
12 Acquisitions and disposals
6 months ended 30 6 months ended 30 Year ended 31
June 2002 June 2001 December 2001
£m £m £m
Subsidiary undertakings:
Goldfish Bank - - (710)
Other businesses (490) (41) (402)
Joint ventures - (37) (80)
Deferred consideration (33) (9) (17)
Total cash payments (523) (87) (1,209)
Cash acquired - - 17
Overdraft acquired - (16) (12)
Drawdown from Goldfish
working capital facility - - 590
Proceeds from disposals 12 - 7
(511) (103) (607)
13. Pensions
These statements have been prepared under SSAP 24. As envisaged in the
transitional arrangements of FRS17, the Group's 2001 Annual Report provides
information on the effect on the balance sheet and the results for the year,
had FRS17 been adopted in the preparation of the financial statements. Set
out below is indicative information on changes in net assets which would
arise from valuation of the pension schemes assets and liabilities in
accordance with FRS17 principles as at 30 June 2002. The assumptions adopted
are as shown in the 2001 Annual Report except that the discount rate used in
calculating the present value of the schemes' liabilities was 6.0% (31
December 2001: 5.8%).
On this basis, the market value of the assets in the schemes and the present
value of the liabilities in the schemes were:
6 months ended 30 6 months ended 30
June 2002 June 2001
£m £m
Total of fair value of assets 2,093 2,193
Present value of schemes liabilities (2,549) (2,526)
Deficit in the schemes (456) (333)
Related deferred tax asset 137 100
Net pension liability (319) (233)
Under SSAP24 the balance sheet on page 21 includes a provision of £99
million as at 30 June 2002 (31 December 2001: £116 million). Had FRS17 been
implemented in full as at that date, the net assets of the Group would have
been reduced by £220 million (31 December 2001: £117 million).
Had FRS17 been implemented in full for the 6 months to 30 June 2002, then
the net charge for the pension costs in the profit and loss account would
have increased by £21 million compared with that under SSAP24 as set out
below:
. FRS17 SSAP24 Increase/
(decrease)
£ £m
Amount charged to operating profit 65 35 30
Amount credited to net finance income (9) - (9)
Net charge to profit and loss account 56 35 21
14. Basis of preparation
The financial information contained in this report is unaudited and does not
comprise statutory accounts within the meaning of Section 240 of the Companies
Act 1985.
These results have been prepared using accounting policies consistent with those
used in preparing the Group's 2001 Annual Report and Accounts.
Enquiries
For further information please contact:
Charles Naylor, Director of Corporate Affairs
Gary Leibowitz, Director, Investor Relations
Telephone:
01753 494 085 (Media)
01753 494 900 (Shareholder and Analysts)
Facsimile:
01753 494 090 (Media)
01753 494 909 (Shareholder and Analysts)
Websites
www.centrica.com
www.britishgasbusiness.co.uk
www.onetel.co.uk
www.goldfish.com
www.theaa.com
www.house.co.uk
www.directenergy.com
www.energyamerica.com
Financial Calendar
Ex-dividend date for 2002 interim dividend 9 October 2002
Record date for 2002 interim dividend 11 October 2002
2002 interim dividend payment date 27 November 2002
2002 preliminary results announcement 13 February 2002
2002 Annual Report and Accounts published End of March 2003
Annual General Meeting 12 May 2003
Registered Office
Millstream
Maidenhead Road
Windsor
Berkshire
SL4 5GD
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