OilVoice - Centrica Announces 2009 Interim Results

Centrica Announces 2009 Interim Results

Thursday, July 30, 2009

Operating and financial overview:
- Strong UK downstream performance from British Gas; improved residential retail price competitiveness and energy accounts now ahead for the year to date
- Direct Energy impacted by low commodity prices and one-off charge downstream
- Upstream results lower due to weak wholesale commodity price environment
- Group effective tax rate* down to 39%
- Improved agreement to acquire a 20 per cent stake in British Energy for £2.3bn and disposal of 51% stake in SPE for €1,325m (£1.2bn)
- Announced disposal of remaining downstream businesses in Continental Europe
- Cash offer made for Venture Production plc, valuing business at £1.3bn
- Raising new skilled and ‘green-collar’ job commitment to over 3,000
"The changes we are making to the business model make Centrica more resilient to volatile commodity prices. The new business structure in British Gas will continue to improve the way we serve our customers, particularly those in economic hardship, and the value of the propositions we offer.

Sam Laidlaw, Chief Executive said:
Tough economic conditions also present opportunities for Centrica, a business with a strong balance sheet and a good track record of investment. We will continue to target our capital at areas which provide strong returns for shareholders and address the important issues of security of supply and climate change in the UK and North America."

Performance review
Centrica produced another sound performance in the first half of 2009, as the global economy weakened further in the wake of the 2008 financial crisis. Underlying demand for gas dropped as large industry responded through temporary site closures, adding to the uncertainty in wholesale gas prices. The gap between gas and oil prices widened, with oil recovering through the period and gas continuing to fall due to the perceived global oversupply in the short term and the increasing supply from non-traditional sources in North America.

Overall, the financial results were good, as lower results in upstream gas production due to the drop in natural gas prices were offset by stronger performance downstream. The wholesale price drop also enabled British Gas to take the lead in reducing retail tariffs twice during the period, to become on average the lowest priced dual fuel provider for direct debit customers in the UK. The other downstream businesses in the UK performed very well, with record results at both British Gas Services and British Gas Business. In North America the economic backdrop provided a difficult environment for Direct Energy which was impacted by the low commodity prices and by a one-off bad debt charge in the mass markets business.

Throughout the period, we concentrated on delivering against our strategic agenda, improving the efficiency, customer service and growth potential of our downstream businesses and building a more robust Group structure through increased vertical integration. Good progress was made on bringing together the three segments of British Gas under one management structure. This will provide a better platform from which to serve our customers and grow the business.

To further balance our business, we announced an improved agreement with EDF to take a 20% equity stake in the British Energy generation fleet and the right to participate in nuclear new build. That deal also involves the sale of our Belgian business, SPE, and we now plan to exit our remaining small downstream positions elsewhere in Continental Europe. This move will allow us to focus on building on our strong positions in the UK and North America. That will include looking for opportunities to improve our vertical integration in both geographies. To that end, we have recently taken our stake in Venture Production plc to 29.9% and announced a cash offer for the remainder of the business.

Dividend
The Board of Directors is proposing an interim dividend of 3.66 pence per share to be paid in November 2009, in line with our stated policy of paying an interim dividend of 30% of the prior year full year dividend.

Board changes
Deryk King, President and Chief Executive Officer of Direct Energy retired in July, and was succeeded by Chris Weston who also joined the Board of Directors of Centrica plc on 1 July 2009. Chris was previously the Managing Director of British Gas Services.

As part of combining the divisions of British Gas into a single organisation, Phil Bentley took on responsibility for the whole UK downstream business. Phil remains a Director of Centrica plc.

Paul Walsh, a Non-Executive Director of Centrica stepped down from the Centrica Board at the Annual General Meeting on 11 May 2009. Paul joined the Board in March 2003. The search for a replacement is underway.

The future
We expect the future to remain challenging. Centrica is well funded and has a range of opportunities to deploy capital where it will add most value for our shareholders; gas development, nuclear new build, new gas storage, renewable power generation and in North America. Making investments of this magnitude and longevity requires strong ongoing profitability.

The economy remains weak and credit remains scarce and this will provide a difficult backdrop for all industries. Our industry will also face its own unique challenges and we will need to strike the right balance between securing the commodity required for our customers, meeting our environmental obligations and achieving satisfactory returns for our shareholders in competitive markets. I am confident however, that we will deal with these challenges with a leaner, more competitive and more robust Group structure and build on the strong performance already achieved by the management team.

Roger Carr, Chairman

* including joint ventures and associates stated net of interest and taxation, and before exceptional items and certain re-measurements