Half-yearly Report

2nd Aug 2007 07:00

Centrica plc Interim results for the period ended 30 June 2007 (Unaudited) Financial overview: -- Revenue down to £8.6bn (2006: £8.7bn) -- Operating profit* up to £1,248m (2006: £692m) -- Group effective tax rate* reduced to 34% (2006: 51%) due to profits mix -- Earnings* up to £788m (2006: £277m) -- Adjusted basic earnings per share up to 21.5p (2006: 7.6p) -- Interim ordinary dividend of 3.35p/share (2006: 3.15p/share) Operating overview: -- British Gas Residential added customers in second quarter following two price cuts -- British Gas Residential profits boosted by first quarter peak -- Investment in improving customer service and increasing efficiency -- Gas production and development operating profits* down 83%; I&C contracts profitable -- British Gas Business operating profits* up £37m to £48m -- British Gas Services record first half with strong operational performance -- North American underlying performance strong; impacted by exchange rate movements -- Invested £220 million in UK upstream gas and power assets "Lower commodity prices have enabled us to reduce retail prices twice for our UKresidential customers and to return British Gas Residential to more sustainableprofit levels after the first quarter peak. We remain focussed on improvingcustomer service, reducing cost and increasing efficiency across the business sothat we can remain competitive in an uncertain commodity price environment. Byachieving this we will be able to continue to secure future energy supplies forour customers and invest in our growth businesses." Sam Laidlaw, Chief Executive Statutory results: The statutory results include exceptional items and certain re-measurementswhich are explained in the Group financial summary and disclosed in note 4. -- Operating profit £1,622m (2006: £157m) -- Earnings £1,006m (2006: Loss of £60m) -- Basic earnings per ordinary share 27.4p (2006: Basic loss per ordinary share 1.7p) Chairman's Statement Performance review The Group produced strong results in the first half of the year against thebackdrop of lower wholesale gas and power prices. This was due to low customerdemand caused by the mild winter and new supplies of gas to the UK. Theseadditional supplies came through the new pipelines from Norway and TheNetherlands, which were completed late in 2006, underpinned by long term gascontracts entered into by British Gas. British Gas was the first of the major UK suppliers to pass on the benefit oflower wholesale prices to customers through tariff cuts announced in Februaryand April. This more competitive pricing was a key factor in British Gas onceagain beginning to add to its customer base. The profitability of the UK residential business reached a high point in thefirst quarter of the year before the price reductions could take effect. Theseprofits partially offset the low returns incurred in previous years when retailprice rises failed to keep pace with rapidly escalating wholesale prices. Wecurrently anticipate that the second half of the year will be more in line withour stated aim of delivering long term sustainable margins. Improving customer service in British Gas remains a top priority. We made someprogress towards the end of the first half and additional investment is beingmade to further improve our service levels. The Board is clear that deliveringexcellent customer service is fundamental to the long term health of thebusiness. Upstream, Centrica Energy suffered the downside of the falling commodity priceswith a marked reduction in gas production profits. However, the unusual natureof the profit mix, with the much heavier weighting towards the lower taxedretail profits, meant that the Group tax rate in the first half was low. We donot currently expect this to be repeated in the second half. The Group also delivered strong performance from the growth businesses ofBritish Gas Business, British Gas Services and North America, all of whichproduced significant operating profit growth. In the first half management's rigorous approach to efficiency and cost controlcontinued. Headcount in the UK has been reduced by over 1,000 and British Gas ispart way through its restructuring programme designed to increase control andaccountability and deliver a significant reduction in its operating cost base. Dividend In line with our policy of paying an interim dividend equivalent to 30% of theprior year's full year dividend, the board of Directors has declared an interimdividend of 3.35 pence per share to be paid in November 2007. Board changes Early in the year we finalised the structure of our executive management teamwith Phil Bentley taking on the role of Managing Director of British GasResidential and Business, Jake Ulrich adding Europe to his responsibilities asManaging Director of our upstream activities and Nick Luff joining Centrica fromP&O as Group Finance Director. I believe that under the leadership of SamLaidlaw this creates a strong and well balanced team to take the businessforward and deliver on the priorities. Our employees Our employees are our most important asset and have worked hard to support thechange in systems, working practices, organisation and management within theCompany and I thank them all for their loyalty, hard work and dedication. It isa credit to them that British Gas Business and British Gas Services have bothbeen named amongst the 50 best companies to work for in the UK. The future As we move into the second half we will retain our focus on the priorities.British Gas Residential will concentrate on improving the quality of itscustomer service. Here and across the wider business we will continue to apply arigorous approach to cost control. It also remains a priority to reduce ourexposure to short-term commodity price movements by adding further assets andcontracts for both gas and power to the portfolio. In doing this we willmaintain financial discipline and continue to monitor balance sheet efficiency,with shareholder value remaining at the top of the agenda. The results in the first six months have been due to exceptional circumstancesand will not be repeated in the second half. Forward commodity prices for thecoming winter have become more challenging in recent weeks, but we believe thecombination of our competitive price levels and continued management endeavourwill provide the foundations for customer retention and more sustainableprofits. Roger Carr, Chairman 2 August 2007 Operating profit, interest, tax and earnings numbers are stated, throughout thecommentary, before exceptional items and certain re-measurements whereapplicable - see note 2 for definitions. The Directors believe this measureassists with better understanding the underlying performance of the Group. Theequivalent amounts after exceptional items and certain re-measurements arereflected in note 3 and are reconciled at Group level in the Group IncomeStatement. Certain re-measurements and exceptional items are described in note4. Adjusted earnings and adjusted basic earnings per share are reconciled totheir statutory equivalents in note 8. All current financial results listed are for the 6 months ended 30 June 2007.All references to 'the prior-period', 'the prior-year', '2006' and 'last year'mean the 6 months ended 30 June 2006 unless otherwise specified. Chief Executive's Review Overview of the first half 2007 Centrica performed well through the first half of 2007. Wholesale gas andelectricity prices were significantly lower through the first six months due toboth reduced demand and increased supply. Demand was lower as the UK experiencedan unusually mild winter and gas supply increased as significant incremental gasflowed to the UK through two new pipelines from Norway and The Netherlandsunderpinned by contracts with British Gas. British Gas Residential led the industry in passing on the lower wholesaleenergy costs to customers, with price cuts in March of 17% in gas and 11% inelectricity and further reductions in April of 3% in gas and 6% in electricity.In March we also launched our Essentials tariff as the only social tariffinitiative, providing some relief for vulnerable customers from energy bills.These measures drew a very positive reaction from consumers. In the secondquarter we gained 46,000 customers accounts and we have seen continued growth inJuly. The low wholesale prices in the first two months which enabled us toreduce prices resulted in high margins in British Gas during this time.Following our price reductions margins returned to more sustainable levels. In March we completed the migration of the final customer accounts to the newbilling system. During the migration we experienced some degradation inpreviously high levels of customer service and improving this has been our keypriority during the first half. Our cost reductions will be slightly delayed aswe invest an additional one-off £60 million during the year to achieve this. Ourinvestment is beginning to make a positive difference. The time taken to respondto customer contacts is reducing and the number of customer complaints isfalling. We have still some way to go but the progress to date is encouraging. British Gas Business delivered an exceptional result in the first half as profitmargins increased against the backdrop of the lower commodity prices. We alsocontinued to renew over 95% of SME contract customers and reduced churn in thetariff book to below 5%. This and the differentiated service model we havecreated through dedicated account managers enabled us to continue to grow thecustomer base. In British Gas Services, following the reorganisation in 2006, we significantlyimproved our operational and customer service levels in the first half of 2007and maintain our strong growth in customer product holdings. This resulted in arecord first half operating profit*. In April we launched British Gas New Energy to address the rapidly escalatingdemand for products and services to help residential and business customersimprove their energy efficiency and reduce their impact on climate change. Thisbuilds on our position as the energy supplier with the lowest carbon-intensitypower generation fleet in the UK. Centrica Energy was also materially affected by the low wholesale gas priceenvironment. This resulted in a fall in gas production volumes and a lowerachieved price compared with the prior period. This reduction in profit* waspartially offset by a significant improvement in the profitability of theindustrial and commercial gas sales contracts. We also separated out powergeneration profits* where we benefited from higher spark spreads. During theperiod we invested £220 million in the ongoing construction of our power stationat Langage and the wind farms at Lynn and Inner Dowsing, and in developing ourcurrent gas fields and securing further gas exploration acreage. In Centrica Storage we completed the sale of all of the SBU (Standard BundledUnit) capacity for the 2007/08 storage year. Our ongoing investment in theinfrastructure at the Rough storage field also enabled us to develop aninnovative non-asset specific virtual storage product. At the end of June theRough field was 84% full. Internationally we continued to make progress in our North American business.Here our growing Commercial and Industrial (C&I) Energy business moved close tobreak-even for the first time, Upstream and Wholesale Energy doubled itscontribution and the services business continued to expand. The North Americanreported sterling result was held back by weakening local currencies. In Europewe grew our customer bases in both Belgium and The Netherlands, with bothbusinesses becoming firmly profitable and maintained our presence in Spain,taking advantage of opportunities in an evolving energy market. Business outlook Overall we expect 2007 to be a strong year for Centrica with a significant shiftin profit* contributions from upstream to downstream. However the wholesale gasprices for the coming winter are high and there is still uncertainty over thelevel of price volatility and customer demand due to unpredictable weatherpatterns. British Gas Residential's very strong performance in the first half of the yearis not expected to be repeated in the second half. Given our tariff reductionsand the forward market for gas and power, we expect margins in the second halfof the year to be more reflective of our long term ambitions. Although we madereal progress on customer service in the first half of 2007, our number onepriority remains to return to among the best in the industry. Achieving thisobjective, coupled with our competitive pricing position, will ultimately assistus in maintaining the recent stability we have created in the size of ourcustomer base. In Centrica Energy the current forward commodity prices are consistent withhigher production volumes which would bring the volume of gas produced for theyear close to 2006 levels. In contrast, if sustained, the higher prices wouldmove the industrial and commercial gas sales contracts into a loss position inthe second half. We will continue to work on developing our gas and power assetbase with the most immediate focus being on the power station at Langage and thewind farms at Lynn and Inner Dowsing, which combined, represent an investment ofover £700 million on low carbon-intensity generation. The growth businesses are continuing to perform strongly. We expect British GasBusiness to continue its improved performance as it continues to grow itscustomer base through sales and contract renewals and further differentiates itsservice proposition by completing the roll-out of dedicated account managers.British Gas Services will concentrate on building on the high quality servicelevels it has developed to drive further growth in customer numbers whilstcontrolling operating costs, leading to a strong second half. In Centrica Storage we will continue to invest in the capability of the Roughstorage field to further enhance rates of injection and withdrawal. Furthersuccess here will enable us to continue to design more innovative storagesolutions for our customers. Internationally in North America we expect to see further growth in our C&IEnergy business. We also forecast the normal seasonal uplift in the servicesbusiness which should post full year profits ahead of 2006. However, at a retaillevel the competitive nature of the Texas market is likely to provide challengesin the second half. In Europe the businesses in Belgium, The Netherlands andSpain continue to trade solidly and are expected to have a strong second half. Overall the outlook for Centrica is good across the Group. However, thewholesale commodity market remains the key uncertainty and current forwardprices for the coming winter are high. It is therefore clear that the verystrong results of the first half will not be repeated in the second, where moresustainable profitability is likely to be achieved. We will continue to focus onimproving customer service and delivering greater efficiencies from ouroperations to enable us to remain competitive in all our key markets and investfor the future. Sam Laidlaw, Chief Executive 2 August 2007 Business Commentary Group Financial Summary Group revenue from continuing operations was down 1.6% at £8.6 billion (2006:£8.7 billion) driven primarily by decreases in British Gas Residential andIndustrial and commercial which both had lower customer numbers and consumption.This was partially offset by increases across the growth businesses and thefirst recognised external revenues from our Power generation segment. Group operating profit* from continuing operations was up 80% at £1,248 million(2006: £692 million), with the strong growth in British Gas Residential, BritishGas Business, Industrial and commercial and British Gas Services partiallyoffset by reduced profits* from Gas production and development due to lowervolumes and prices. Group earnings* on a continuing basis were up by 184% to £788 million (2006:£277 million). As well as the increase in operating profits*, earnings*benefited from a lower interest charge as net debt reduced and a reduction inthe Group tax rate* to 34% (2006: 51%) due to the significantly lowerproportional contribution from high tax rate upstream gas production. Thestatutory earnings for the period were £1,006 million (2006: loss of £60million). The reconciling items between Group earnings* and the statutoryearnings are exceptional items and certain re-measurements that are explainedbelow. Group net cash inflow from operating activities was significantly higher at£1,261 million (2006: outflow of £96 million) primarily due to improvedprofitability and lower seasonal working capital outflows. The net cash outflowfrom investing activities reduced slightly to £342 million (2006: £381 million)as the cash outflow for the purchase of Statfjord in early 2006 was replaced bythe cash outflow for the development of Langage power station and the wind farmsat Lynn and Inner Dowsing. The net cash outflow from financing activitiesincreased to £424 million (2006: £187 million) as only £67 million of additionaldebt was raised in the first half 2007 compared with £408 million in 2006. The improved cash generation in the first half resulted in the Group's netrecourse debt level at 30 June 2007 reducing to £942 million (30 June 2006:£1,926 million). Net interest* expense was £48 million (2006: £123 million). During the period net assets increased to £2,726 million from £1,642 million asat 31 December 2006. In addition to the retained earnings, net assets wereincreased by actuarial gains on the Group's defined benefit pension schemes andby positive movements on the mark-to-market of the Group's financialinstruments. Certain re-measurements In our business we enter into a portfolio of forward energy contracts whichinclude buying substantial quantities of commodity to meet the future needs ofour customers. A number of these arrangements are considered to be derivativefinancial instruments and are required to be fair-valued under IAS 39. Fairvaluing means that we apply the prevailing forward market prices to thesecontracts. The Group has shown the fair value adjustments separately as certainre-measurements as they are unrealised and non-cash in nature. 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 thesere-measurements. The statutory results include net credits to operating profit* relating to thesere-measurements of £374 million (2006: net charges of £493 million), primarilyfrom marking-to-market some contracts relating to our energy procurementactivities. As gas and power were delivered under these contracts, the netout-of-the-money mark-to-market positions were unwound generating a net creditto the Income Statement in the period of £309 million (2006: net charge of £173million). As the forward prices reduced in 2007 the portfolio of contracts fairvalued under IAS 39 reported a net credit on revaluation of £75 million (2006:charge of £290 million). The remaining £10 million charge (2006: charge of £30million) reflects the proprietary trading positions relating to cross-bordercapacity and storage contracts. The £67 million charge (2006: £34 millioncredit) to interest income relates to the re-measurement of the publicly tradedunits of The Consumers' Waterheater Income Fund. British Gas Residential During the first half the UK experienced lower and more stable commodity pricesas the new pipelines which opened at the end of 2006 continued to deliverincremental gas to the UK and warm weather reduced consumption across both gasand power. In March we were the first supplier to pass through the benefits of the lowercommodity prices to customers, with a 17% cut in gas prices and an 11% cut inelectricity prices. We then announced a second price reduction in April of 3% ingas and 6% in electricity. These reductions lowered the average annual customerdual fuel bill by over £200 and delivered more sustainable margins from April toJune. Following significant customer account losses in the first three months inresponse to 2006 price increases, we added 46,000 customer accounts to ourenergy customer base in the second quarter. We now have 15.8 million customeraccounts. In March we transferred the final customers onto the new billing system and weconcentrated in this period on rectifying issues with the system. Theimprovements we make to the system will enhance customer service, and whilst wehave some way to go, we have progressively strengthened our performance in thisarea. In July we answered inbound customer service telephone calls in 60 secondson average, 48% faster than in January, and complaint levels have fallen by 25per cent between April and June. Revenue for the period decreased by 13% to £3,497 million (2006: £4,038 million)with the effect of the 2006 price increases more than offset by lower customernumbers, the two price reductions during the period and significantly reducedconsumption levels. More than offsetting the revenue decrease, the lower wholesale energy pricescombined with lower customer numbers and consumption reduced the total cost ofcommodity by £1,174 million to £1,612 million. The Energy Efficiency Commitment(EEC) cost of £43 million (2006: £45 million), which is a mandatory cost ofsupply, is now reported within gross margin rather than operating expenses, withthe comparative figures for 2006 restated accordingly. Operating costs decreased to £413 million (2006: £443 million) as we continuedto transform the business and maintain tight control over cost-to-serve. Weinvested in customer service in the first half which we believe will help ensurethe continued success of the business and deliver lower operating costs in thefuture. Operating profit* for the period increased to £533 million (2006: £143 millionloss), with the majority of this delivered in the first three months, before theretail price reductions. \* TFor the six months ended 30 June H1 2007 H1 2006 ^% FY 2006--------------------------------------------------------------------------------------------------Customer numbers (period end):Residential gas ('000) 10,004 10,749 (7) 10,263Residential electricity ('000) 5,817 5,870 (0.9) 5,759--------------------------------------------------------------------------------------------------Total ('000) 15,821 16,619 (4.8) 16,022--------------------------------------------------------------------------------------------------Estimated market share (%):Residential gas@ 46 52 (6ppt) 49Residential electricity 22 23 (1ppt) 22--------------------------------------------------------------------------------------------------Average consumption:Residential gas (therms) 293 361 (19) 569Residential electricity (kWh) 1,955 2,129 (8) 4,069--------------------------------------------------------------------------------------------------Total consumption:Residential gas (mmth) 2,966 3,962 (25) 6,120Residential electricity (TWh) 11.2 12.6 (11) 23.8--------------------------------------------------------------------------------------------------Transportation & distribution costs (£m):Residential gas 606 639 (5) 1,110Residential electricity 268 254 6 511--------------------------------------------------------------------------------------------------Total 874 893 (2.1) 1,621--------------------------------------------------------------------------------------------------Energy Efficiency Commitment (£m):EEC 43 45 (4.4) 90--------------------------------------------------------------------------------------------------Operating costs (£m):British Gas Residential 413 443 (7) 939--------------------------------------------------------------------------------------------------Revenue (£m):Residential gas 2,447 2,884 (15) 4,832Residential electricity 1,050 1,154 (9) 2,280--------------------------------------------------------------------------------------------------Total 3,497 4,038 (13) 7,112--------------------------------------------------------------------------------------------------Operating profit/(loss) (£m)*British Gas Residential 533 (143) nm 95--------------------------------------------------------------------------------------------------Operating margin (%)British Gas Residential 15 (3.5) 19ppt 1.3--------------------------------------------------------------------------------------------------\* T @ Gas market share for 2007 is based on the new market size of 21,567,261, asused by ofgem in its Domestic Market Retail Report - June 2007. British Gas Business British Gas Business also benefited from the falling wholesale prices for bothgas and electricity. During the period we increased our total supply points by4.4% to 956,000 (2006: 916,000). We held gross churn among tariff customersbelow 5%, renewed over 95% of our SME contract customers and continued toacquire further SME and large corporate customers. Revenue increased by 8% to £1,267 million (2006: £1,169 million) due to higheraverage selling prices, higher customer numbers in both fuels and higher averageconsumption in electricity driven by a higher proportion of large corporatecustomers. This was partially offset by lower average consumption in gas as aresult of warm weather in the first half. Operating profit* was up £37 million to £48 million (2006: £11 million) asmargins increased in both the tariff and contract book as the wholesalecommodity price softened and remained low during the period. This result alsoincluded an advantageous short term electricity procurement contract which rollsoff in 2008. During the first half we transferred 268,000 customers to a new gas billingsystem which provides greater control over our tariff pricing decisions. Wecontinued to train more dedicated account managers and the differentiatedservice level they provide is already having a positive impact on customersatisfaction. \* TFor the six months ended 30 June H1 2007 H1 2006 ^% FY 2006----------------------------------------------------------------------------------------------Customer supply points (period end):Gas ('000) 408 397 2.8 400Electricity ('000) 548 519 6 532----------------------------------------------------------------------------------------------Total ('000) 956 916 4.4 932----------------------------------------------------------------------------------------------Average consumption:Gas (therms) 2,137 2,311 (8) 3,990Electricity (kWh) 15,416 14,875 3.6 29,844----------------------------------------------------------------------------------------------Total consumption:Gas (mmth) 859 915 (6) 1,597Electricity (TWh) 8.3 7.8 6 15.9----------------------------------------------------------------------------------------------Transportation & distribution costs (£m):Gas 85 78 9 149Electricity 142 124 15 261----------------------------------------------------------------------------------------------Total 227 202 12 410----------------------------------------------------------------------------------------------Revenue (£m):Gas 596 623 (4.3) 1,115Electricity 671 546 23 1,188----------------------------------------------------------------------------------------------Total 1,267 1,169 8 2,303----------------------------------------------------------------------------------------------Operating profit (£m)*British Gas Business 48 11 Nm 87----------------------------------------------------------------------------------------------Operating margin (%)British Gas Business 3.8 0.9 2.9ppt 3.8----------------------------------------------------------------------------------------------\* T British Gas Services British Gas Services performed very well in the first half. The changes we madeduring 2006 in the business significantly enhanced customer service and droveimproved engineer deployment efficiency and systems stability, providing bothadditional flexibility in managing workload and a strong platform for growth. The number of customer product relationships grew by 6% to 7.4 million (2006:6.9 million) underpinned by the improved customer service, more effectivecross-selling and increased marketing activity to heighten customer awareness ofthe breadth of the product range. We also launched our On-demand service andcarried out 86,000 jobs during the period. This growth, combined with structuralchanges to pricing to more accurately reflect our cost-to-serve and an increasein the number of central heating installations, resulted in revenue increasingby 18% to £616 million (2006: £521 million). Operating profit* increased by 43% to £63 million (2006: £44 million) due to theproduct growth and the increasing percentage of newer higher margin, careproducts. In addition, profitability in the central heating installationbusiness grew as the number of installations, including those for the ScottishExecutive, increased 31% to 55,000 (2006: 42,000). During the first half we largely completed the transfer to the new NationalDistribution Centre which is now providing national coverage for partsdistribution. We also made good progress on the restructuring announced at theend of last year with 350 jobs removed from the business and a further 100 rolesidentified for removal. \* TFor the six months ended 30 June H1 2007 H1 2006 ^% FY 2006--------------------------------------------------------------------------------------------------Customer product holdings (period end):Central heating service contracts ('000) 4,444 4,337 2.5 4,392Kitchen appliances care (no. of customers) ('000) 405 376 8 387Plumbing and drains care ('000) 1,452 1,330 9 1,384Home electrical care ('000) 1,072 904 18 986--------------------------------------------------------------------------------------------------Total holdings ('000) 7,373 6,947 6 7,149--------------------------------------------------------------------------------------------------Central heating installations ('000) 55 42 31 91--------------------------------------------------------------------------------------------------Revenue (£m):Central heating service contracts 336 298 13 614Central heating installations 161 114 41 264Other 119 109 9 226--------------------------------------------------------------------------------------------------Total 616 521 18 1,104--------------------------------------------------------------------------------------------------Engineering staff employed 9,151 8,531 7 8,676--------------------------------------------------------------------------------------------------Operating profit (£m)*British Gas Services 63 44 43 102--------------------------------------------------------------------------------------------------Operating margin (%)British Gas Services 10 8 2 ppt 9--------------------------------------------------------------------------------------------------\* T Centrica Energy The commodity price environment was very different to the same period last year.Wholesale month-ahead gas prices fell by 58% to 24.85p/therm (2006:58.61p/therm) due to increased gas supply, primarily through the Langeled andBBL pipelines which came on-line late in 2006 and lower gas demand as a resultof warm weather. The reduction in the wholesale gas price also reduced wholesaleelectricity prices by 48% to £26.38/MWh (2006: £50.29/MWh). This lower wholesale price environment also affected the economics of our gasproduction business, resulting in lower volumes and a reduction in the priceachieved. This was partially offset by improved profitability in the industrialand commercial contracts resulting in overall operating profit* being down 42%to £337 million (2006: £579 million). The segmental reporting disclosure for Centrica Energy now includes the resultsfrom our UK power generation assets as a separate segment, with sales from thissegment to the downstream business based on market prices for power. Theoperating costs of Centrica Energy that were previously held within theIndustrial sales and wholesaling segment have been allocated across theappropriate business areas. As the power stations were accounted for on adifferent basis in 2006, prior period figures have not been restated and noresult is reported for the Power generation segment for 2006. Gas production and development Gas production and development includes all of the activities relating toproducing gas and exploring for and developing gas production opportunities. Itcontains both our fully owned and the Group's share of joint venture assets. Operating profit* was down 83% to £123 million (2006: £704 million) impacted byboth price and volume reductions. The weighted average sales price for gas fell60% to 23.7p/therm (2006: 59.2p/therm) driven by both the fall in market gasprices and our renegotiation of the Morecambe pricing formula with Her Majesty'sRevenue and Customs to month-ahead prices. We produced 1,054mmth of gas, 23%less than last year (2006: 1,364mmth) primarily due to our decision to switchoff the Morecambe fields when it proved more economic to buy gas in thewholesale markets. This was partially offset by an 11% increase in oil andcondensate production volumes mainly due to the full-period effect of ouracquisition in June 2006 of an increased share in the Statfjord field. Totalhydrocarbon volumes have reduced 19% to 20.2 Mboe (2006: 25.0 Mboe). During the period we invested £88 million in maintaining and developing ourupstream portfolio of assets. Of this, £14 million was invested in thedepressurisation of the Statfjord field to increase the level of gas reservesand £34 million on the development of the Maria field. During the period we continued to create opportunities to develop a diverseportfolio of future gas supplies. Our increased presence in Norway, through ouroffice in Stavanger, enabled us to win a share in four gas exploration blocks inNorway and we acquired a further two blocks during the period. In April wegained a further block in Trinidad in addition to blocks already held in the UK,Egypt and Nigeria. Industrial and commercial The Industrial and commercial segment contains the results from the largelong-term legacy gas sales contracts. These delivered a profit* of £148 millionas the weighted average selling price increased by 19% and the cost of gasreduced significantly year-on-year. The volume of gas delivered reduced by 31%as three contracts ended in September 2006 and customers took less gas under theremaining contracts due to the availability of low price wholesale market gas. Power generation This segment contains the results from all of the generation assets includingthe Spalding power station which is recognised on the Group Balance Sheet. Totaloperating profit* for the period was £47 million. We generated 11.6TWh of power in the period (2006: 6.4TWh) from our 4.1GW fleetof gas-fired power stations, up 81% on the prior year as spark spreadsincreased. For periods during the first half some of our gas fired stationsgenerated baseload power, displacing competitors' coal stations in the meritorder, resulting in the overall load factor increasing to 66% (2006: 36%). During the first half we generated 78GWh from our 71MW fleet of wind farms andinvested £52 million in the ongoing development of the two 90MW wind farms atLynn and Inner Dowsing. The onshore cabling is now complete and one quarter ofthe foundations are in place. First power from this project is expected in thethird quarter of 2008. In January we submitted a planning application for the250MW Round Two Lincs offshore wind farm. In July, we acquired a 50% ownershipin the 72MW Braes of Doune wind farm from Airtricity for £42 million. We have progressed the groundworks for the 885MW gas-fired plant at Langage inDevon, in which we are investing £400 million, and expect to commence commercialoperations in the first quarter of 2009. We also continued our feasibility studyfor the potential development on Teesside of an Integrated Gasification CombinedCycle (IGCC) power station with the ability to sequestrate carbon. Energy procurement In May we bought additional gas import capacity at the Isle of Grain allowing usto import 2.4BCM per annum for 19 years from 2010/11. This increases our totalcapacity at the Isle of Grain terminal to 5.8BCM per year. In March we submittedan appeal to the rejection of our planning application for the construction ofan LNG terminal at Canvey Island. \* TFor the six months ended 30 June H1 2007 H1 2006 ^% FY 2006--------------------------------------------------------------------------------------------------Gas production and development:Gas production volumes (mmth) Morecambe 742 937 (21) 1,207 Other 312 427 (27) 709-------------------------------------------------------------------------------------------------- Total 1,054 1,364 (23) 1,916--------------------------------------------------------------------------------------------------Average gas sales price (p/therm) 23.7 59.2 (60) 53.1Oil and condensate production volumes (Mboe) 3.0 2.7 11 5.6Average oil and condensate sales price (£/boe) 33.1 34.9 (5) 33.8Revenue (£m) 366 931 (61) 1,291External revenue (£m) 137 152 (10) 323Operating costs (£m): Volume related production costs 128 151 (15) 262 Other production costs 115 76 51 170-------------------------------------------------------------------------------------------------- Total 243 227 7 432--------------------------------------------------------------------------------------------------Operating profit (£m)* 123 704 (83) 864--------------------------------------------------------------------------------------------------Power generation:Power generated (GWh) 11,723 6,488 81 14,567Operating profit (£m)* 47 n/a n/a n/a--------------------------------------------------------------------------------------------------Industrial & commercial:External sales volumes (mmth) 1,058 1,532 (31) 2,667Average sales price (p/therm) 36.3 30.5 19 31.3Revenue (£m) 395 484 (18) 883Operating profit (£m)* 148 n/a n/a n/a--------------------------------------------------------------------------------------------------Industrial sales & wholesale:Operating (loss) (£m)* n/a (132) n/a (210)--------------------------------------------------------------------------------------------------Accord:Operating profit (£m)* 19 7 nm 32--------------------------------------------------------------------------------------------------Centrica Energy operating profit (£m)* 337 579 (42) 686--------------------------------------------------------------------------------------------------\* T Centrica Storage Centrica Storage had a strong first half. Operating profit* was up 38% at £128million (2006: £93 million) in line with the increase in the average StandardBundled Unit (SBU) price for the period, up 31% to 61.5p (2006: 47.1p). By the end of January we sold all SBUs for the storage year commencing 1 May2007 at an average price of 53.4p, down 19% on 2006/07. This reflected thenarrowing of the summer/winter spread for forward gas prices due to an improvingUK gas supply position as new import infrastructure has come on-stream. Operationally the Rough field performed well, with continued investmentdelivering injection and production availability of more than 99%. At the end ofJune, Rough was 84% full. We also launched V Store '07, a new virtual storage product enabled by theinvestment made in both the injection and withdrawal capability at the Roughfield. V Store '07 units have the equivalent rights to SBUs but delivery of thegas is to the National Balancing Point and is not affected by the performance ofthe Rough field. \* TFor the six months ended 30 June H1 2007 H1 2006 ^% FY 2006--------------------------------------------------------------------------------------------------Average SBU price (calendar year) (pence) 61.5 47.1 31 56.5--------------------------------------------------------------------------------------------------Revenue (£m):Standard SBUs 139 107 30 254Extra space 17 13 31 30Gas sales 28 25 12 58Other 12 6 100 16--------------------------------------------------------------------------------------------------Total 196 151 30 358--------------------------------------------------------------------------------------------------External revenue (£m) 162 126 29 294Cost of gas (£m) 29 28 3.6 58--------------------------------------------------------------------------------------------------Operating profit (£m)* 128 93 38 228--------------------------------------------------------------------------------------------------\* T Centrica North America Our North American business, which trades as Direct Energy, had a good firsthalf. However, the reported results were impacted by the weakness of the localcurrencies of US and Canadian dollars against sterling year-on-year. Althoughsterling reported revenue was broadly unchanged at £2.10 billion (2006: £2.09billion), in local currency revenue was up 11%, with particularly strong growthin Commercial and Industrial Energy. Operating profit* was up 18% in localcurrency, with the sterling reported result being up 9% to £132 million (2006:£121 million). During the first half we restructured Direct Energy into four pan-North Americanlines of business. The description of each segment is included in the commentaryfor the period. This enables greater focus on common customer classes andefficiencies of scale through shared operations. The business reports for thefirst time on this basis below. Mass Markets Energy This segment comprises natural gas and electricity sales to residential andsmall commercial customers across North America. Here we suffered from difficult trading conditions during the first half, ascustomer numbers fell due to increased competitive pressures in our Texasbusiness and the expiry of five-year electricity contracts in Ontario signed atmarket opening in 2002. The impact of these was felt towards the end of thefirst half and both issues will be more significant in the second half. Revenue was slightly up in local currency terms but, after an exchange rateimpact of £142 million, ended down 9% at £1,339 million (2006: £1,468 million).Operating profit* was up 7% in local currency but, once translated, was 1% downat £88 million (2006: £89 million). Profit growth in our organic business inTexas was offset by lower profits in the north eastern states and our incumbentTexas businesses with the transfer from Price-to-Beat to fully competitivemarket pricing structure. Commercial and Industrial Energy The C&I Energy segment comprises natural gas and electricity sales to medium andlarge-sized businesses, public institutions and government. Revenue here was up 31% to £483 million (2006: £370 million) despite adverseexchange movements of £47 million, with volumes up 19% and 55% in gas andelectricity respectively. The operating loss* was significantly reduced to £1million (2006: loss* of £6 million) with improving profits in our more matureCanadian business offset by the costs of the rapid growth in the north easternUS. Home and Business Services This segment comprises both home and business services across North America andthe financial results of The Consumers' Waterheater Income Fund which continueto be fully consolidated. A 2% decrease in revenue in local currency, primarily due to the US housingmarket downturn, after exchange rate movements translated into a decrease of 10%to £191 million (2006: £213 million). The acquisition in January of Mabe, aprovider of cover for white goods, enabled us to launch an appliance protectionand repair business across Canada. In the US, our residential new constructionbusiness weathered the severe housing market downturn well and is gaining marketshare. Our business services operation was close to break-even in the firsthalf, following the restructuring at the end of 2006. Overall this resulted inoperating profit of £25 million in what is traditionally the weaker half of theyear (2006: £28 million, including the £7 million gain on the sale of the incomefund units). Upstream and Wholesale Energy This segment consists of our upstream and midstream activities. These areupstream gas, power generation, gas storage and transportation leases, wholesalepower and gas transactions, wind power purchase agreements and proprietarytrading. As indicated at the end of 2006, we have increased resources in this area tobuild on our existing downstream procurement expertise and have generated newprofit streams to build a more balanced North America business portfolio. Thisbusiness delivered operating profit* of £20 million, up 100% on last year (2006:£10 million). \* T For the period ended 30 June H1 2007 H1 2006 ^% FY 2006----------------------------------------------------------------------------------------------Customer numbers (period end):Mass Markets Energy ('000) 3,187 3,444 (7) 3,386Home and Business Services ('000) 2,000 1,871 7 1,964----------------------------------------------------------------------------------------------Volumes:Gas production (mmth) 150 149 0.7 304Electricity generation (GWh) 2,549 2,258 13 4,450C&I Gas sales (mmth) 356 300 19 557C&I Electricity sales (GWh) 6,553 4,240 55 11,221----------------------------------------------------------------------------------------------Revenue (£m):Mass Market Energy 1,339 1,468 (9) 2,765Commercial and Industrial Energy 483 370 31 847Home and Business Services 191 213 (10) 425Upstream and Wholesale Energy 82 37 122 60----------------------------------------------------------------------------------------------Total 2,095 2,088 0.3 4,097----------------------------------------------------------------------------------------------Operating profit/(loss) (£m)*:Mass Market Energy 88 89 (1.1) 156Commercial and Industrial Energy (1) (6) nm (12)Home and Business Services 25 28 (11) 60Upstream and Wholesale Energy 20 10 100 19----------------------------------------------------------------------------------------------Total 132 121 9 223----------------------------------------------------------------------------------------------Operating margin (%)*Total North America 6 6 0 ppt 5----------------------------------------------------------------------------------------------\* T Europe During the year our European segment performed well, delivering a £11 millionoperating profit* (2006: operating loss* £4 million). In Belgium we transferred 500,000 Wallonian residential customers into our SPEbusiness on 1 January 2007 to increase our total customer base to 1.5 million.We also made several key appointments to consolidate the management team anddrive future growth. In The Netherlands, we grew our customer base through our Oxxio brand and nowsupply 669,000 customer accounts. We continued the roll out of smart meters andhave worked with the regulator to ensure Oxxio's meters are compatible withfuture industry standards. Our Spanish operation rebranded during the period to Centrica Energia. As marketconditions improved we successfully re-entered the electricity supply market andhave already contracted 0.5TWh of annual consumption. We also continued to growour portfolio of energy managed on behalf of "special regime" generators to500MW. In Germany we started selling energy to the commercial supply market throughCentrica Energie GmbH, based in Dusseldorf. This is in direct response topositive developments in the legal and regulatory framework for competition inGerman energy markets. * including joint ventures and associates net of interest and taxation, andbefore exceptional items and certain re-measurements Independent review report to Centrica plc on the financial information for thesix months ended 30 June 2007 Introduction We have been instructed by the Company to review the consolidated financialinformation for the six months ended 30 June 2007 which comprises the Groupinterim Balance Sheet as at 30 June 2007 and the related Group interimstatements of Income, Cash Flows and Recognised Income and Expense for the sixmonths then ended and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the Directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared inaccordance with the basis set out in Note 2. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the Company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. \* TPricewaterhouseCoopers LLPChartered Accountants1 Embankment PlaceLondonWC2N 6RH2 August 2007\* T \* T Group Income Statement 2007 2006 (as restated) (ii) --------------------------------------------- ------------------------------------------------ Results Results for the period for the period Exceptional before Exceptional before items and exceptional items and exceptional certain items and certain certain items and certain re- re-measurements re-measurements Results for re-measurements measurements Results for Six months ended 30 (i) (i) the period (i) (i) the period June Notes £m £m £m £m £m £m ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Continuing operations Group revenue 3 8,592 - 8,592 8,728 - 8,728 Cost of sales (ii) (6,219) - (6,219) (6,893) - (6,893) Re-measurement of energy contracts (i) 3,4 - 379 379 - (493) (493) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Gross profit 2,373 379 2,752 1,835 (493) 1,342 ----------------- --------------- ----------- ----------------- -------------- --------------- Operating costs before exceptional items (ii) (1,135) - (1,135) (1,143) - (1,143) Rough storage incident 4 - - - - (42) (42) Systems write-down 4 - - - - - - Business restructuring costs 4 - - - - - - ----------------- --------------- ----------- ----------------- -------------- --------------- Operating costs (ii) (1,135) - (1,135) (1,143) (42) (1,185) Share of profits / (losses) in joint ventures and associates, net of interest and taxation (i) 10 (5) 5 - - - ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Group operating profit 3 1,248 374 1,622 692 (535) 157 ----------------- --------------- ----------- ----------------- -------------- --------------- Interest income (i) 5 83 - 83 77 34 111 Interest expense (i) 5 (131) (67) (198) (200) - (200) ----------------- --------------- ----------- ----------------- -------------- --------------- Net interest (expense) / income (48) (67) (115) (123) 34 (89) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Profit from continuing operations before taxation 1,200 307 1,507 569 (501) 68 Taxation on profit from continuing operations 6 (411) (89) (500) (291) 164 (127) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Profit / (loss) from continuing operations after taxation 789 218 1,007 278 (337) (59) ----------------- --------------- ----------- ----------------- -------------- --------------- Loss on disposal of discontinued operations - - - - - - ----------------- --------------- ----------- ----------------- -------------- --------------- Discontinued operations - - - - - - ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Profit / (loss) for the period 789 218 1,007 278 (337) (59) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Attributable to: Equity holders of the parent 788 218 1,006 277 (337) (60) Minority interests 1 - 1 1 - 1 ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- 789 218 1,007 278 (337) (59) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Pence Pence Pence Pence ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Earnings / (loss) per ordinary share From continuing and discontinued operations: Basic 8 27.4 (1.7) Adjusted basic 8 21.5 7.6 Diluted 8 27.0 (1.7) From continuing operations: Basic 8 27.4 (1.7) Adjusted basic 8 21.5 7.6 Diluted 8 27.0 (1.7) ------------------------------------------ --------------- ----------- ----------------- -------------- --------------- Prior year final dividend per share 7 8.00 7.40 Interim dividend per share 7 3.35 3.15 ------------------------------------------ --------------- ----------- ----------------- -------------- ---------------\* T (i) Certain re-measurements (notes 2 and 4) included within operating profitcomprise re-measurement arising on our energy procurement activities andre-measurement of proprietary trades in relation to cross-border transportationor capacity contracts. Certain re-measurements included within interest comprisere-measurement of the publicly traded units of The Consumers' Waterheater IncomeFund. All other re-measurement is included within results before exceptionalitems and certain re-measurements. (ii) Restated to present costs incurred under the Energy Efficiency Commitmentprogramme in cost of sales. Note 2 details the change of accountingpresentation. \* T Group Income Statement 2006 (as restated) (ii) ---------------------------------------------------- Results for the year before Exceptional exceptional items and items and certain certain re- re- Results for measurements (i) measurements (i) the year Year ended 31 December Notes £m £m £m ------------------------------------------------------------------------------------ ------------------ --------------- Continuing operations Group revenue 3 16,450 - 16,450 Cost of sales (ii) (12,739) - (12,739) Re-measurement of energy contracts (i) 3,4 - (916) (916) ------------------------------------------------------------------------------------ ------------------ --------------- Gross profit 3,711 (916) 2,795 ----------------- ------------------ --------------- Operating costs before exceptional items (ii) (2,272) - (2,272) Rough storage incident 4 - (48) (48) Systems write-down 4 - (196) (196) Business restructuring costs 4 - (87) (87) ----------------- ------------------ --------------- Operating costs (ii) (2,272) (331) (2,603) Share of profits / (losses) in joint ventures and associates, net of interest and taxation (i) 3 (15) (12) ------------------------------------------------------------------------------------ ------------------ --------------- Group operating profit 3 1,442 (1,262) 180 ----------------- ------------------ --------------- Interest income (i) 5 103 37 140 Interest expense (i) 5 (286) - (286) ----------------- ------------------ --------------- Net interest (expense) / income (183) 37 (146) ------------------------------------------------------------------------------------ ------------------ --------------- Profit from continuing operations before taxation 1,259 (1,225) 34 Taxation on profit from continuing operations 6 (543) 363 (180) ------------------------------------------------------------------------------------ ------------------ --------------- Profit / (loss) from continuing operations after taxation 716 (862) (146) ----------------- ------------------ --------------- Loss on disposal of discontinued operations (8) - (8) ----------------- ------------------ --------------- Discontinued operations (8) - (8) ------------------------------------------------------------------------------------ ------------------ --------------- Profit / (loss) for the year 708 (862) (154) ------------------------------------------------------------------------------------ ------------------ --------------- Attributable to: Equity holders of the parent 707 (862) (155) Minority interests 1 - 1 ------------------------------------------------------------------------------------ ------------------ --------------- 708 (862) (154) ------------------------------------------------------------------------------------ ------------------ --------------- Pence Pence ------------------------------------------------------------------------------------ ------------------ --------------- Earnings / (loss) per ordinary share From continuing and discontinued operations: Basic 8 (4.3) Adjusted basic 8 19.4 Diluted 8 (4.3) From continuing operations: Basic 8 (4.1) Adjusted basic 8 19.6 Diluted 8 (4.1) ------------------------------------------------------------------------------------ ------------------ --------------- Final dividend proposed per share 7 8.00 ------------------------------------------------------------------------------------ ------------------ ---------------\* T (i) Certain re-measurements (notes 2 and 4) included within operating profitcomprise re-measurement arising on our energy procurement activities andre-measurement of proprietary trades in relation to cross-border transportationor capacity contracts. Certain re-measurements included within interest comprisere-measurement of the publicly traded units of The Consumers' Waterheater IncomeFund. All other re-measurement is included within results before exceptionalitems and certain re-measurements. (ii) Restated to present costs incurred under the Energy Efficiency Commitmentprogramme in cost of sales. Note 2 details the change of accountingpresentation. \* T Group Balance Sheet 30 June 30 June 31 December 2007 2006 2006 Notes £m £m £m ----------------------------------------------------------------------------------------------------------------------- Non-current assets Goodwill 1,086 1,136 1,055 Other intangible assets 447 617 422 Property, plant and equipment 3,699 3,745 3,679 Interests in joint ventures and associates 228 236 220 Deferred tax assets 59 376 226 Trade and other receivables 19 19 16 Derivative financial instruments 9 14 55 17 Other financial assets 38 39 37 Retirement benefit assets 15 130 - - ----------------------------------------------------------------------------------------------------------------------- 5,720 6,223 5,672 ----------------------------------------------------------------------------------------------------------------------- Current assets Inventories 229 218 270 Current tax assets 19 3 98 Trade and other receivables 2,855 2,921 3,590 Derivative financial instruments 9 658 1,251 760 Other financial assets 90 46 49 Cash and cash equivalents 10 1,130 586 640 ----------------------------------------------------------------------------------------------------------------------- 4,981 5,025 5,407 ----------------------------------------------------------------------------------------------------------------------- Total assets 10,701 11,248 11,079 ----------------------------------------------------------------------------------------------------------------------- Current liabilities Trade and other payables (2,317) (2,281) (3,291) Current tax liabilities (411) (484) (180) Bank overdrafts and loans 11 (91) (808) (181) Derivative financial instruments 9 (1,264) (1,559) (1,737) Provisions for other liabilities and charges (89) (105) (130) ----------------------------------------------------------------------------------------------------------------------- (4,172) (5,237) (5,519) ----------------------------------------------------------------------------------------------------------------------- Net current assets / (liabilities) 809 (212) (112) ----------------------------------------------------------------------------------------------------------------------- Non-current liabilities Trade and other payables (34) (56) (55) Bank loans and other borrowings 11 (2,695) (2,313) (2,555) Derivative financial instruments 9 (56) (56) (220) Deferred tax liabilities (384) (485) (241) Retirement benefit obligations 15 (57) (537) (296) Provisions for other liabilities and charges (577) (555) (551) ----------------------------------------------------------------------------------------------------------------------- (3,803) (4,002) (3,918) ----------------------------------------------------------------------------------------------------------------------- Net assets 2,726 2,009 1,642 ----------------------------------------------------------------------------------------------------------------------- Equity Called up share capital 12 227 226 226 Share premium account 678 657 657 Merger reserve 467 467 467 Capital redemption reserve 16 16 16 Other reserves 1,280 586 219 ----------------------------------------------------------------------------------------------------------------------- Shareholders' equity 2,668 1,952 1,585 Minority interests in equity 58 57 57 ----------------------------------------------------------------------------------------------------------------------- Total minority interests and shareholders' equity 2,726 2,009 1,642 -----------------------------------------------------------------------------------------------------------------------\* T \* T Group Statement of Recognised Income and Expense Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Notes £m £m £m ----------------------------------------------------------------------------------------------------------------------- Profit / (loss) for the period 1,007 (59) (154) ---------- ---------- ----------- Losses on cash flow hedges (90) (268) (645) Exchange differences on translation of foreign operations net of hedging 6 (9) (23) Actuarial gains on defined benefit pension schemes 15 340 231 475 Gains on revaluation of available for sale assets 1 - - Tax on items taken directly to equity (68) 27 73 ---------- ---------- ----------- Net income / (expense) recognised directly in equity 189 (19) (120) ---------- ---------- ----------- Transferred to income and expense on cash flow hedges 237 (174) (294) Tax on items transferred from equity (83) 57 96 ---------- ---------- ----------- Transfers 154 (117) (198) ----------------------------------------------------------------------------------------------------------------------- Total recognised income and expense for the period 1,350 (195) (472) ----------------------------------------------------------------------------------------------------------------------- Attributable to: Equity holders of the parent 1,349 (196) (473) Minority interests 1 1 1 ----------------------------------------------------------------------------------------------------------------------- 1,350 (195) (472) -----------------------------------------------------------------------------------------------------------------------\* T \* TGroup Cash Flow Statement Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Notes £m £m £m------------------------------------------------------------------------------------------------------------------------Operating cash flows before movements in working capital 13 1,552 947 1,965Decrease / (increase) in inventories 43 (23) (83)Decrease / (increase) in receivables 723 431 (260)Decrease in payables (964) (1,227) (149)------------------------------------------------------------------------------------------------------------------------Cash generated from continuing operations 13 1,354 128 1,473Interest received 9 7 13Interest paid (1) (6) (9)Tax paid (33) (164) (627)Payments relating to exceptional charges (68) (61) (113)------------------------------------------------------------------------------------------------------------------------Net cash flow from operating activities 13 1,261 (96) 737------------------------------------------------------------------------------------------------------------------------Purchase of interests in subsidiary undertakings and businesses net of cash and cash equivalents acquired (32) (92) (97)Disposal of interests in subsidiary undertakings and businesses net of cash and cash equivalents disposed 1 20 (6)Purchase of intangible assets (58) (50) (144)Disposal of intangible assets 2 - 13Purchase of property, plant and equipment 13 (302) (285) (537)Disposal of property, plant and equipment 79 18 18Investments in joint ventures and associates (2) (14) (16)Disposal of interests in associates and other investments - - 4Interest received 12 17 40Net (purchase) / sale of other financial assets (42) 5 5------------------------------------------------------------------------------------------------------------------------Net cash flow from investing activities (342) (381) (720)------------------------------------------------------------------------------------------------------------------------Re-purchase of ordinary share capital - (23) (23)Issue of ordinary share capital 15 42 56 ---------- ---------- ----------- Interest paid in respect of finance leases (28) (19) (43) Other interest paid (57) (104) (151) Distribution to unit holders of The Consumers' Waterheater Income Fund (14) (13) (27) ---------- ---------- -----------Interest paid (99) (136) (221) ---------- ---------- ----------- Cash inflow from additional debt 67 408 897 Cash outflow from payment of capital element of finance leases (9) (13) (21) Cash outflow from repayment of other debt (104) (154) (880) ---------- ---------- -----------Net cash flow from (decrease) / increase in debt (46) 241 (4)Realised net foreign exchange loss on cash settlement of derivative contracts - (42) (21)Equity dividends paid 7 (294) (269) (384)------------------------------------------------------------------------------------------------------------------------Net cash flow from financing activities (424) (187) (597)------------------------------------------------------------------------------------------------------------------------Net increase / (decrease) in cash and cash equivalents 495 (664) (580)Cash and cash equivalents at 1 January (i) 592 1,177 1,177Effect of foreign exchange rate changes 1 (2) (5)------------------------------------------------------------------------------------------------------------------------Cash and cash equivalents at end of period (i) 1,088 511 592------------------------------------------------------------------------------------------------------------------------\* T (i) Cash and cash equivalents are stated net of overdrafts of £42 million (30June 2006: £75 million, 31 December 2006: £48 million). \* T1. General information\* T Centrica plc is a Company domiciled and incorporated in the United Kingdom underthe Companies Act 1985. The interim consolidated Financial Statements of the Group for the six monthsended 30 June 2007 were authorised for issue in accordance with a resolution ofthe Board of Directors on 2 August 2007. \* T2. Basis of preparation and accounting policies\* T Basis of preparation The financial information contained in this report is unaudited. The IncomeStatement, Statement of Recognised Income and Expense and Cash Flow Statementfor the interim period to 30 June 2007, the Balance Sheet as at 30 June 2007 andrelated notes have been reviewed by the auditors and their report to the Companyis set out above. The information shown for the year ended 31 December 2006 doesnot constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985 and has been extracted from the statutory accounts for theyear ended on that date, which have been filed with the Registrar of Companies.The report of the auditors on the statutory accounts for the year ended 31December 2006 was unqualified and did not contain a statement under Section 237of the Companies Act 1985. The interim consolidated Financial Statements do not include all the informationand disclosures required in the annual Financial Statements, and should be readin conjunction with the Group's annual Financial Statements for the year ended31 December 2006. Significant accounting policies The interim consolidated Financial Statements have been prepared on the basis ofaccounting policies set out in the Group's annual Financial Statements for theyear ended 31 December 2006, except for the change in presentation of costsrelating to the Energy Efficiency Commitment as noted under Change of accountingpresentation below and the change to reportable segments as noted under Changeto reported segments below, and in accordance with the Listing Rules of theFinancial Services Authority. The Group's Income Statement and Segmental analysis separately identify theeffects of re-measurement of certain financial instruments, and items which areexceptional, in order to provide readers with a clear and consistentpresentation of the Group's underlying performance. As part of its energy procurement activities the Group enters into a range ofcommodity contracts designed to achieve security of energy supply. Thesecontracts comprise both purchases and sales and cover a wide range of volumes,prices and timescales. The majority of the underlying supply comes from highvolume long-term contracts which are complemented by shorter-term arrangements.These short-term contracts are entered into for the purpose of balancing energysupplies and customer demand and to optimise the price paid by the Group.Short-term demand can vary significantly as a result of factors such as weather,power generation profiles and short-term movements in market prices. Many of the energy procurement contracts are held for the purpose of receipt ordelivery of commodities in accordance with the Group's purchase, sale or usagerequirements and are therefore out of the scope of IAS 39, FinancialInstruments: Recognition and Measurement. However, a number of contracts areconsidered to be derivative financial instruments and are required to be fairvalued under IAS 39, primarily because their terms include the ability to tradeelements of the contracted volumes on a net-settled basis. The Group has shown the fair value adjustments arising on these contractsseparately in the certain re-measurements column of the Group's IncomeStatement. This is because the intention of management is, subject to short-termdemand balancing, to use these energy supplies to meet customer demand.Accordingly management believe the ultimate net charge to cost of sales will beconsistent with the price of energy agreed in these contracts and that the fairvalue adjustments will reverse as the energy is supplied over the life of thecontract. This makes the fair value re-measurements very different in naturefrom costs arising from the physical delivery of energy in the period. At the balance sheet date the fair value represents the difference between theprices agreed in the respective contracts and the actual or anticipated marketprice of acquiring the same amount of energy on the open market. The movement inthe fair value taken to certain re-measurements in the Income Statementrepresents the unwind of the contracted volume delivered or consumed during theperiod, combined with the change in fair value of future contracted energy as aresult of movements in forward energy prices during the period. These adjustments represent the significant majority of the items included incertain re-measurements. In addition to these, however, the Group has identifieda number of comparable contractual arrangements where the difference between theprice which the Group expects to pay or receive under a contract and the marketprice is required to be fair valued by IAS 39. These additional items relate tocross-border transportation or transmission capacity, storage capacity andcontracts relating to the sale of energy by-products, on which economic valuehas been created which is not wholly recognised under the requirements of IAS39. For these arrangements the related fair value adjustments are also includedunder certain re-measurements. These arrangements are managed separately from proprietary energy tradingactivities where trades are entered into speculatively for the purpose of makingprofits in their own right. These proprietary trades are included in the resultsbefore certain re-measurements. Certain re-measurements included within interest comprise re-measurement of thepublicly traded units of The Consumers' Waterheater Income Fund. As permitted by IAS 1, Presentation of Financial Statements, certain items arepresented separately as exceptional, where they are material to the result forthe period and are of a non-recurring nature. Items which may be consideredmaterial and non-recurring in nature include disposals of businesses, businessrestructuring, the renegotiation of significant contracts and asset write-downs.We intend to follow such a presentation on a consistent basis in future periods.Items are considered material if their omission or misstatement could, in theopinion of the Directors, individually or collectively, affect the true and fairpresentation of the Financial Statements. IFRS 7, Financial Instruments: Disclosures, IAS 1, Amendments to CapitalDisclosures and IFRS 4, Insurance Contracts revised implementation guidance aremandatory for the first time for the financial year ending 31 December 2007.This interim report contains only interim consolidated Financial Statements andselected notes. The full IFRS 7 disclosures including the sensitivity to marketrisk and capital disclosures required by the amendment of IAS 1 will be given inthe annual Financial Statements for the year ending 31 December 2007. Change of accounting presentation Costs incurred by British Gas Residential under the Energy Efficiency Commitmentprogramme are presented as part of cost of sales. Previously such costs werepresented as operating costs. The change in presentation better reflects thenature of the costs as a direct cost incurred in supplying energy to domesticcustomers. The impact of the change in presentation is to report £43 million ofcosts for the six months ended 30 June 2007 within cost of sales. The impact onthe comparatives for the six month period ended 30 June 2006 is to reclassify£45 million from operating costs to cost of sales, and for the year ended 31December 2006 is to reclassify £90 million from operating costs to cost ofsales. Change to reported segments In 2007, the Group changed its reportable segments creating a Power generationreportable segment and an Industrial and commercial reportable segment. Prior to2007, these two segments were reported together as Industrial sales andwholesaling. The new Power generation segment comprises the Group's UK generation assetsincluding the Spalding power station, associated emissions activity, as well asflexible volume power procurement contracts. Beginning in 2007, sales ofgenerated power from Centrica Energy to other Group segments is transferred andreported at fair value. Prior to 2007, the sale of generated power from CentricaEnergy to other Group segments was transferred and reported at cost. As a resultof the change, Power generation and Industrial and commercial are now reportedseparately. Consequently, the basis on which operating costs are allocated toother Group segments has also changed. Prior period comparatives have not been restated as it is impracticable toprovide this information on an equivalent basis. For the purpose of comparison,had the Group continued with its previous basis of segmental reporting withinter-segment transfers of power reported on a cost basis, and operating costsallocated to segments with reference to the cost methodology, the Powergeneration and Industrial and commercial segments together would have reportedgross segmental revenues of £493 million, inter-segment revenue of £96 millionand externally reported segment revenue of £397 million and an operating profit,before exceptional items and certain re-measurements, of £128 million (£234million after exceptional items and certain re-measurements) for the six monthsended 30 June 2007. In addition, for the six months ended 30 June 2007, BritishGas Residential would have reported an increase to operating profit of £53million, British Gas Business would have reported an increase in operatingprofit of £4 million, Gas production and development would have reported anincrease in operating profit of £9 million and Accord energy trading would havereported an increase in operating profit of £1 million, all before exceptionalitems and certain re-measurements. \* T 3. Segmental analysis Six months ended 30 June 2007 Six months ended 30 June 2006 ------------------------------ ----------------------------- Less Less Gross inter- Gross inter- segment segment Group segment segment Group revenue revenue revenue revenue revenue revenue a) Revenue £m £m £m £m £m £m -------------------------------------------------------- -------------- ------- ------- ------------ -------- ------- Continuing operations: British Gas Residential 3,497 - 3,497 4,038 - 4,038 British Gas Business 1,267 - 1,267 1,169 - 1,169 British Gas Services 616 - 616 521 - 521 -------------- ------- ------- ------------ -------- ------- Gas production and development 366 (229) 137 931 (779) 152 Power generation (i) 525 (305) 220 - - - Industrial and commercial (i) 395 - 395 - - - Industrial sales and wholesaling (i), (ii) - - - 569 (85) 484 Accord energy trading (iii) 26 - 26 9 - 9 -------------- ------- ------- ------------ -------- ------- Centrica Energy 1,312 (534) 778 1,509 (864) 645 Centrica Storage 196 (34) 162 151 (25) 126 North American Energy and Related Services 2,095 - 2,095 2,088 - 2,088 European Energy 177 - 177 141 - 141 Other operations - - - - - - -------------------------------------------------------- -------------- ------- ------- ------------ -------- ------- 9,160 (568) 8,592 9,617 (889) 8,728 -------------------------------------------------------- -------------- ------- ------- ------------ -------- ------- Year ended 31 December 2006 ----------------------------- Less Gross inter- segment segment Group revenue revenue revenue £m £m £m -------------------------------------------------------- -------------- ------- ------- - ------------ -------- ------- Continuing operations: British Gas Residential 7,112 - 7,112 British Gas Business 2,303 - 2,303 British Gas Services 1,104 - 1,104 ------------ -------- ------- Gas production and development 1,291 (968) 323 Power generation (i) - - - Industrial and commercial (i) - - - Industrial sales and wholesaling (i) 1,035 (152) 883 Accord energy trading (iii) 39 - 39 ------------ -------- ------- Centrica Energy 2,365 (1,120) 1,245 Centrica Storage 358 (64) 294 North American Energy and Related Services 4,097 - 4,097 European Energy 295 - 295 Other operations - - - -------------------------------------------------------- -------------- ------- ------- ------------ -------- ------- 17,634 (1,184) 16,450 -------------------------------------------------------- -------------- ------- ------- ------------ -------- -------\* T (i) In 2007, the Group changed its reportable segments creating a Powergeneration reportable segment and an Industrial and commercial reportablesegment. Prior to 2007, these two segments were reported together as Industrialsales and wholesaling. The change to reported segments is detailed in note 2. (ii) Industrial sales and wholesaling gross segment and inter-segment revenuefor the 6 months ended 30 June 2006 has been presented in the current period ona consistent basis with the presentation of inter-segment revenue for the yearended 31 December 2006. The presentation of inter-segment revenue for the yearended 31 December 2006 is detailed in note 4 of the Group's annual FinancialStatements for the year ended 31 December 2006. (iii) The revenue presented for Accord energy trading comprises net gains andlosses (both realised and unrealised / fair value changes) from trading inphysical and financial energy contracts. Included within its net gains andlosses is £7 million arising on fees charged to other Group segments (30 June2006: £8 million, 31 December 2006: £18 million). \* T Operating profit / (loss) Operating profit / (loss) before exceptional items and after exceptional items and certain re-measurements certain re-measurements --------------------------------- --------------------------------------- Six months Six months Year Six months Six months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006b) Operating profit / (loss) £m £m £m £m £m £m---------------------------------------------- -------------------------------------------------------------------------Continuing operations: British Gas Residential 533 (143) 95 636 (452) (843) British Gas Business 48 11 87 181 (115) (321) British Gas Services 63 44 102 63 44 36 ---------- ---------- ----------- ---------------- ---------- ----------- Gas production and development 123 704 864 123 718 896 Power generation (i) 47 - - 46 - - Industrial and commercial (i) 148 - - 254 - - Industrial sales and wholesaling (i) - (132) (210) - 30 230 Accord energy trading 19 7 32 16 4 38 ---------- ---------- ----------- ---------------- ---------- ----------- Centrica Energy 337 579 686 439 752 1,164 Centrica Storage 128 93 228 127 69 206 North American Energy and Related Services 132 121 223 175 (110) (41) European Energy 11 (4) 7 6 (4) (8) Other operations (4) (9) 14 (5) (27) (13)---------------------------------------------- ------------------------------------------------------------------------- 1,248 692 1,442 1,622 157 180---------------------------------------------- -------------------------------------------------------------------------Discontinued operations: Onetel - - (11) - - (11)---------------------------------------------- ------------------------------------------------------------------------- - - (11) - - (11)---------------------------------------------- ------------------------------------------------------------------------- Exceptional items (notes 2 and 4) Certain re-measurements (notes 2 and 4) --------------------------------- --------------------------------------- Six months Six months Year Six months Six months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 £m £m £m £m £m £m---------------------------------------------- -------------------------------------------------------------------------Continuing operations: British Gas Residential - - (214) 103 (309) (724) British Gas Business - - - 133 (126) (408) British Gas Services - - (66) - - - ---------- ---------- ----------- ---------------- ---------- ----------- Gas production and development - - - - 14 32 Power generation (i) - - - (1) - - Industrial and commercial (i) - - - 106 - - Industrial sales and wholesaling (i) - - - - 162 440 Accord energy trading - - - (3) (3) 6 ---------- ---------- ----------- ---------------- ---------- ----------- Centrica Energy - - - 102 173 478 Centrica Storage - (24) (24) (1) - 2 North American Energy and Related Services - - - 43 (231) (264) European Energy - - - (5) - (15) Other operations - (18) (27) (1) - ----------------------------------------------- ------------------------------------------------------------------------- - (42) (331) 374 (493) (931)---------------------------------------------- -------------------------------------------------------------------------\* T (i) In 2007, the Group changed its reportable segments creating a Powergeneration reportable segment and an Industrial and commercial reportablesegment. Prior to 2007, these two segments were reported together as Industrialsales and wholesaling. The change to reported segments is detailed in note 2. \* T4. Exceptional items and certain re-measurements Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------------- ---------------------------------a) Exceptional items Rough storage incident (i) - (42) (48) Systems write-down (ii) - - (196) Business restructuring costs (iii) - - (87)-------------------------------------------------------------------------------------- ---------------------------------Total exceptional items before taxation - (42) (331)-------------------------------------------------------------------------------------- --------------------------------- b) Certain re-measurementsCertain re-measurements recognised in relation to energy contracts Net gains / (losses) arising on delivery of contracts 309 (173) (287) Net gains / (losses) arising on market price movements and new contracts 80 (290) (623) Net losses arising on proprietary trades in relation to cross-border transportation or capacity contracts (10) (30) (6)-------------------------------------------------------------------------------------- ---------------------------------Net re-measurement of energy contracts included within gross profit 379 (493) (916)-------------------------------------------------------------------------------------- --------------------------------- Net losses arising on re-measurement of joint ventures' energy contracts (iv) (5) - (15)-------------------------------------------------------------------------------------- ---------------------------------Net re-measurement included within Group operating profit 374 (493) (931)-------------------------------------------------------------------------------------- --------------------------------- (Losses) / gains arising on re-measurement of the publicly traded units of The Consumers' Waterheater Income Fund (iv) (67) 34 37-------------------------------------------------------------------------------------- ---------------------------------Total certain re-measurements before taxation 307 (459) (894)-------------------------------------------------------------------------------------- ---------------------------------\* T (i) Centrica Storage operations at Rough suffered a major interruption caused bya fire in February 2006. Our investment in new emergency shutdown systems andprompt management action mitigated the damage to ensure no loss of life.Following a full assessment of the work needed to restore operations, the costsof the incident resulted in an exceptional charge before taxation of £48 millionin 2006 (30 June 2006: £42 million) of which £24 million was recognised withinOther operations (30 June 2006: £18 million). A tax credit of £14 million (30June 2006: £12 million) was recognised in respect of the charge. (ii) Systems write-down costs in 2006 comprised the write-down of certain majorsystems developments following a review of their existing and required futurefunctionality. The cost comprises write-downs in British Gas Residential (£178million) and British Gas Services (£18 million). A tax credit of £59 million wasrecognised in respect of these costs. (iii) Business restructuring costs in 2006 comprised £67 million resulting fromstaff reductions at the corporate centre (£3 million), British Gas Residential(£16 million) and British Gas Services (£48 million) and £20 million related tothe closure of the head office of British Gas Residential. A tax credit of £20million was recognised in respect of these costs. (iv) Certain re-measurements included within Group operating profit also includethe Group's share of certain re-measurements relating to the energy procurementactivities of joint ventures. Certain re-measurements included within interestcomprise re-measurement of the publicly traded units of The Consumers'Waterheater Income Fund. All other re-measurement is included within resultsbefore exceptional items and certain re-measurements. \* T5. Net interest Six months ended 30 June 2007 Six months ended 30 June 2006 ----------------------------- ------------------------------ Interest Interest Interest Interest expense income Total expense income Total £m £m £m £m £m £m----------------------------------------------------------- ------------------------------------------------------------Cost of servicing net debt(excluding non-recourse debt) ------------- -------- ------ -------------- -------- ------Interest income - 34 34 - 22 22Interest expense on bank overdrafts and loans (i) (44) - (44) (114) - (114)Interest expense on finance leases (including tolling agreements) (24) - (24) (24) - (24)Fair value (losses) / gains on hedges (12) 9 (3) (13) 14 1Fair value (losses) / gains on other derivatives (21) 9 (12) (24) 24 - ------------- -------- ------ -------------- -------- ------ (101) 52 (49) (175) 60 (115)Interest arising on non-recourse debt ------------- -------- ------ -------------- -------- ------Interest expense on non-recourse debt (6) - (6) (5) - (5)Distributions to unit holders of The Consumers' Waterheater Income Fund (14) - (14) (13) - (13)Fair value (losses) / gains arising on units of The Consumers' Waterheater Income Fund (67) - (67) - 34 34 ------------- -------- ------ -------------- -------- ------ (87) - (87) (18) 34 16Other interest ------------- -------- ------ -------------- -------- ------Notional interest arising on discounted items (10) 26 16 (7) 12 5Interest on supplier early payment arrangements - 5 5 - 5 5 ------------- -------- ------ -------------- -------- ------ (10) 31 21 (7) 17 10----------------------------------------------------------- ------------------------------------------------------------Net interest (expense) / income (198) 83 (115) (200) 111 (89)----------------------------------------------------------- ------------------------------------------------------------ Year ended 31 December 2006 ------------------------------ Interest Interest expense income Total £m £m £m----------------------------------------------------------- ------------------------------------------------------------Cost of servicing net debt(excluding non-recourse debt) -------------- -------- ------Interest income - 38 38Interest expense on bank overdrafts and loans (i) (175) - (175)Interest expense on finance leases (including tolling agreements) (47) - (47)Fair value (losses) / gains on hedges (1) 3 2Fair value (losses) / gains on other derivatives (8) 25 17 -------------- -------- ------ (231) 66 (165)Interest arising on non-recourse debt -------------- -------- ------Interest expense on non-recourse debt (13) - (13)Distributions to unit holders of The Consumers' Waterheater Income Fund (27) - (27)Fair value gains arising on units of The Consumers' Waterheater Income Fund - 37 37 -------------- -------- ------ (40) 37 (3)Other interest -------------- -------- ------Notional interest arising on discounted items (15) 26 11Interest on supplier early payment arrangements - 11 11 -------------- -------- ------ (15) 37 22----------------------------------------------------------- ------------------------------------------------------------Net interest (expense) / income (286) 140 (146)----------------------------------------------------------- ------------------------------------------------------------\* T (i) Includes £nil (30 June 2006: £69 million, 31 December 2006: £66 million)interest payable on borrowings related to a bank's interest in Centrica GasProduction LP, a limited partnership, which was formed during 2005. The bankceased to be a limited partner during 2006 and the arrangement with the bank wasbrought to an end on 11 August 2006. \* T 6. Taxation Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Analysis of taxation on profit for the period £m £m £m ----------------------------------------------------------------------------------------------------------------------- UK corporation tax (including adjustments in respect of prior years) 324 66 290 UK petroleum revenue tax 55 202 227 Foreign tax (including adjustments in respect of prior years) 32 23 26 ----------------------------------------------------------------------------------------------------------------------- Taxation on profit before exceptional items and certain re-measurements 411 291 543 Tax on exceptional items - (12) (93) Tax on certain re-measurements 89 (152) (270) ----------------------------------------------------------------------------------------------------------------------- Total taxation on profit from continuing operations 500 127 180 -----------------------------------------------------------------------------------------------------------------------\* T \* T 7. Dividends Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m ----------------------------------------------------------------------------------------------------------------------- Prior year final dividend of 8.00 pence (2006: 7.40 pence) per ordinary share 294 269 269 Prior year interim dividend of 3.15 pence per ordinary share - - 115 ----------------------------------------------------------------------------------------------------------------------- 294 269 384 -----------------------------------------------------------------------------------------------------------------------\* T The prior year final dividend was paid on 13 June 2007. An interim dividend of 3.35 pence per ordinary share will be paid on 14 November2007. The anticipated distribution amounts to £123 million. \* T 8. Earnings per ordinary share Six months ended 30 Six months ended 30 Year ended 31 a) Continuing and discontinued operations June 2007 June 2006 December 2006 -------------------- ------------------- --------------- Pence per Pence per Pence per ordinary ordinary ordinary £m share £m share £m share -------------------------------------------------------------- ---------- --------- --------- --------- ----- --------- Earnings / (loss) - basic 1,006 27.4 (60) (1.7) (155) (4.3) Net exceptional items after tax (notes 2 and 4) - - 30 0.8 238 6.6 Certain re-measurement (gains) / losses after tax (notes 2 and 4) (218) (5.9) 307 8.5 624 17.1 -------------------------------------------------------------- ---------- --------- --------- --------- ----- --------- Earnings - adjusted basic 788 21.5 277 7.6 707 19.4 -------------------------------------------------------------- ---------- --------- --------- --------- ----- --------- -------------------------------------------------------------- ---------- --------- --------- --------- ----- --------- Earnings / (loss) - diluted 1,006 27.0 (60) (1.7) (155) (4.3) -------------------------------------------------------------- ---------- --------- --------- --------- ----- ---------\* T \* T Six months ended 30 Six months ended 30 Year ended 31 b) Continuing operations June 2007 June 2006 December 2006 -------------------- -------------------- --------------- Pence per Pence per Pence per ordinary ordinary ordinary £m share £m share £m share ------------------------------------------------------------- ---------- --------- ---------- --------- ----- --------- Earnings / (loss) - basic 1,006 27.4 (60) (1.7) (147) (4.1) Net exceptional items after tax (notes 2 and 4) - - 30 0.8 238 6.6 Certain re-measurement (gains) / losses after tax (notes 2 and 4) (218) (5.9) 307 8.5 624 17.1 ------------------------------------------------------------- ---------- --------- ---------- --------- ----- --------- Earnings - adjusted basic 788 21.5 277 7.6 715 19.6 ------------------------------------------------------------- ---------- --------- ---------- --------- ----- --------- ------------------------------------------------------------- ---------- --------- ---------- --------- ----- --------- Earnings / (loss) - diluted 1,006 27.0 (60) (1.7) (147) (4.1) ------------------------------------------------------------- ---------- --------- ---------- --------- ----- ---------\* T \* T Six months ended Six months ended Year ended 31 c) Discontinued operations 30 June 2007 30 June 2006 December 2006 ------------------ ----------------- ---------------- Pence per Pence per Pence per ordinary ordinary ordinary £m share £m share £m share ------------------------------------------------------- ------- ---------- ----- ----------- ------ --------- Earnings / (loss) - basic - - - - (8) (0.2) ------------------------------------------------------- ------- ---------- ----- ----------- ------ --------- ------------------------------------------------------- ------- ---------- ----- ----------- ------ --------- Earnings / (loss) - diluted - - - - (8) (0.2) ------------------------------------------------------- ------- ---------- ----- ----------- ------ ---------\* T Certain re-measurements (notes 2 and 4) included within operating profitcomprise re-measurement arising on our energy procurement activities andre-measurement of other comparable contracts that relate to cross-bordertransportation or capacity contracts. Certain re-measurements included withininterest comprise re-measurement of the publicly traded units of The Consumers'Waterheater Income Fund. All other re-measurement is included within resultsbefore exceptional items and certain re-measurements. The weighted average number of shares used in the calculation of earnings perordinary share was as follows: \* T 30 June 30 June 31 December 2007 2006 2006 million million million shares shares shares------------------------------------------------------------------------------------------------------------------------Weighted average number of shares used in the calculation of basic earnings per ordinary share 3,667 3,627 3,643------------------------------------------------------------------------------------------------------------------------Weighted average number of shares used in the calculation of diluted earnings per ordinary share 3,723 3,627 3,643------------------------------------------------------------------------------------------------------------------------\* T At 30 June 2006 and 31 December 2006, no outstanding awards or options wereconsidered to be potentially dilutive because they would have decreased the lossper share. \* T 9. Derivative financial instruments\* T Exposure to commodity price risk, counterparty credit risk, interest rate risk,currency risk and liquidity risk arises in the normal course of the Group'sbusiness. Derivative financial instruments are entered into to reduce exposureto fluctuations in commodity prices, interest rates and foreign exchange rates.Derivative financial instruments are also entered into for trading purposes.Detailed disclosures explaining the nature of the risks that the Group isexposed to, and the financial instruments entered into by the Group, areprovided in the Annual Report and Accounts for the year ended 31 December 2006.There have been no significant changes to the nature of the Group's derivativecontracts which have been accounted for in accordance with IAS 39 in the sixmonths ended 30 June 2007. The fair values recorded in the Financial Statementsonly concern those contracts entered into which are within the scope of IAS 39and should not be construed as a measure of the Group's exposure to cash flowrisk resulting from changes in commodity prices. \* T 10. Cash and cash equivalents 30 June 30 June 31 December 2007 2006 2006 £m £m £m ----------------------------------------------------------------------------------------------------------------------- Cash at bank, in transit and in hand 61 46 29 Short-term deposits 1,069 540 611 ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 1,130 586 640 -----------------------------------------------------------------------------------------------------------------------\* T Cash and cash equivalents includes £39 million (30 June 2006: £39 million, 31December 2006: £38 million) held by the Group's insurance subsidiaryundertakings, and £15 million (30 June 2006: £17 million, 31 December 2006: £17million) held by The Consumers' Waterheater Income Fund. These amounts are notreadily available to be used for other purposes within the Group. \* T 11. Bank overdrafts, loans and other borrowings 30 June 2007 30 June 2006 31 December 2006 --------------- ---------------- ---------------- Non- Non- Non- Current current Current current Current current Amounts falling due: £m £m £m £m £m £m a) Recourse borrowings Bank overdrafts and loans 52 102 310 300 56 108 Other borrowings: Bonds - 1,235 - 678 - 1,181 Commercial paper - - 475 - 100 - Obligations under finance leases (including power station tolling arrangements) 25 771 23 794 25 783 --------------------------------------------------------------------- ------- ------- -------- ------- -------- ------- 77 2,108 808 1,772 181 2,072 b) Non-recourse borrowings Non-recourse bank overdrafts and loans (i) 14 - - - - - Canadian dollar bonds (i) - 233 - 242 - 218 Units of The Consumers' Waterheater Income Fund (ii) - 354 - 299 - 265 --------------------------------------------------------------------- ------- ------- -------- ------- -------- ------- 91 2,695 808 2,313 181 2,555 --------------------------------------------------------------------- ------- ------- -------- ------- -------- -------\* T (i) Non-recourse bank overdrafts and loans are held by, and Canadian dollarbonds are issued by, The Consumers' Waterheater Income Fund (the Fund), which isconsolidated by the Group. The debt is secured solely on the assets of the Fundand its subsidiaries, without recourse to the Group. (ii) Units of the Fund are traded on the Toronto Stock Exchange and are treatedas debt in the Group's interim consolidated Financial Statements. \* T 12. Called up share capital Six months ended 30 June 2007 Six months ended 30 June 2006 Year ended 31 December 2006 ----------------------------- ----------------------------- --------------------------- £m Number £m Number £m Number 1 January 226 3,662,721,068 224 3,623,982,266 224 3,623,982,266 Repurchased - - (1) (8,950,000) (1) (8,950,000) Issued under employee share schemes 1 13,541,236 3 39,535,981 3 47,688,802 ------------------------------- --------------- ------------- --------------- ------------- ------------- ------------- End of period 227 3,676,262,304 226 3,654,568,247 226 3,662,721,068 ------------------------------- --------------- ------------- --------------- ------------- ------------- -------------\* T The closing price of a Centrica ordinary share on 30 June 2007 was 388.50 pence(30 June 2006: 285.25 pence, 31 December 2006: 354.50 pence). The nominal valueof a Centrica ordinary share for both the current and prior periods is 6 14/81pence. The share repurchase programme is currently suspended. \* T 13. Notes to the Group Cash Flow Statement Six months Six months Year ended ended ended 30 June 30 June 31 December a) Reconciliation of Group operating profit to net cash flow from operating 2007 2006 2006 activities £m £m £m ------------------------------------------------------------------------------------- ---------- ---------- ----------- Continuing operations Group operating profit including share of result of joint ventures and associates 1,622 157 180 Less share of (profits) / losses of joint ventures and associates (5) - 12 ------------------------------------------------------------------------------------- ---------- ---------- ----------- Group operating profit before share of joint ventures and associates 1,617 157 192 Add back: Amortisation of intangible assets 41 26 73 Depreciation of property, plant and equipment 247 246 506 Systems write-down - - 196 Employee share scheme costs 13 11 23 (Profit) / loss on sale of businesses (2) 1 (3) Loss / (profit) on sale of property, plant and equipment, and other intangible assets 5 (10) (17) Movement in provisions 12 26 84 Re-measurement of energy contracts (i) (381) 490 911 ------------------------------------------------------------------------------------- ---------- ---------- ----------- Operating cash flows before movements in working capital 1,552 947 1,965 Decrease / (increase) in inventories 43 (23) (83) Decrease / (increase) in receivables 723 431 (260) Decrease in payables (964) (1,227) (149) ------------------------------------------------------------------------------------- ---------- ---------- ----------- Cash generated from continuing operations 1,354 128 1,473 Income taxes paid (66) (119) (311) Net petroleum revenue tax refunded / (paid) 33 (45) (316) Net interest received 8 1 4 Payments relating to exceptional charges (68) (61) (113) ------------------------------------------------------------------------------------- ---------- ---------- ----------- Net cash flow from continuing operating activities 1,261 (96) 737 ------------------------------------------------------------------------------------- ---------- ---------- -----------\* T (i) Includes net £2 million (30 June 2006: £3 million, 31 December 2006: £5million) of unrealised losses arising from re-measurement of contracts,including those relating to proprietary trading and North American storageactivities. b) Purchase of property, plant and equipment Cash outflows of £302 million (30 June 2006: £285 million, 31 December 2006:£537 million) on the purchase of property, plant and equipment relate toadditions of £48 million (30 June 2006: £58 million, 31 December 2006: £91million) within plant, equipment and vehicles, £140 million (30 June 2006: £23million, 31 December 2006: £140 million) within power generation and £114million (30 June 2006: £204 million, 31 December 2006: £306 million) withinstorage, exploration and production. \* T 14. Acquisitions\* T On 8 February 2007, the Group's subsidiary The Consumers' Waterheater IncomeFund acquired the water heater rental business of Toronto Hydro Energy ServicesInc. for cash consideration of C$41 million (£18 million). The fair value of netassets acquired comprised £10 million for water heater fixed assets and £8million for intangible assets representing acquired contractual customerrelationships. On 22 January 2007, the Group acquired the home appliance service assets of MabeCanada Inc. for consideration of C$7 million (£3 million) in cash. During the period the Group paid £11 million of contingent and deferredconsideration, £10 million representing the final contingent payment relating tothe acquisition of CPL/WTU in 2002 and £1 million representing a deferredpayment relating to the acquisition of Wainstones Power Limited in 2004. \* T 15. Pensions\* T Substantially all of the Group's UK employees at 30 June 2007 were members ofone of the three main schemes: the Centrica Pension Scheme, the CentricaEngineers' Pension Scheme and the Centrica Management Pension Scheme (togetherthe approved pension schemes). These schemes are defined benefit schemes and aretax-approved funded arrangements subject to independent valuations at leastevery three years, on the basis of which the independent qualified actuarycertifies the rate of employers' contributions which, together with thespecified contributions payable by the employees and proceeds from the schemes'assets, are expected to be sufficient to fund the benefits payable under theschemes. The Centrica Unapproved Pension Scheme is an unfunded arrangement which providesbenefits to certain employees whose benefits under the main schemes wouldotherwise be limited by the earnings cap. The Group also has a commitment toprovide pension and post retirement benefits to certain employees of DirectEnergy Marketing Limited (Canada). The latest full actuarial valuation for theapproved pension schemes was carried out at 31 March 2006, is substantiallycomplete and is expected to be approved in the second half of 2007. The latest full actuarial valuations were carried out at 6 April 2005 for theUnapproved Pension Scheme and at 14 June 2005 for the Direct Energy MarketingLimited pension plan. These have been updated to 30 June 2007 for the purposesof meeting the requirements of IAS 19. Investments have been valued, for thispurpose, at market value. \* T 30 June 30 June 31 December 2007 2006 2006 Major assumptions used for the actuarial valuation % % % ------------------------------------------------------------------------------------------- ------- ------- ----------- Rate of increase in employee earnings 4.30 4.45 4.00 Rate of increase in pensions in payment and deferred pensions 3.30 2.95 3.00 Discount rate 5.65 5.20 5.00 Inflation assumption 3.30 2.95 3.00 ------------------------------------------------------------------------------------------- ------- ------- -----------\* T Demographic assumptions remain unchanged from 31 December 2006. The fair value of the assets and the present value of the liabilities in theschemes at the balance sheet date were: \* T 30 June 30 June 31 December 2007 2006 2006 £m £m £m ----------------------------------------------------------------------------------------------------------------------- UK equities 1,586 1,346 1,486 Non-UK equities 943 763 857 Fixed-interest bonds 301 287 312 Interest-linked bonds 253 204 213 Property 67 75 68 Cash and other assets 80 55 52 ----------------------------------------------------------------------------------------------------------------------- Total fair value of plan assets 3,230 2,730 2,988 Present value of defined benefit obligation (3,157) (3,277) (3,284) ----------------------------------------------------------------------------------------------------------------------- Net asset / (liability) recognised in the Balance Sheet (i) 73 (547) (296) Associated deferred tax (liability) / asset recognised in the Balance Sheet (22) 164 89 ----------------------------------------------------------------------------------------------------------------------- Net pension asset / (liability) 51 (383) (207) ----------------------------------------------------------------------------------------------------------------------- Net asset / (liability) recognised in the Balance Sheet comprises: Surpluses 130 - - Deficits (i) (57) (547) (296) ----------------------------------------------------------------------------------------------------------------------- 73 (547) (296) -----------------------------------------------------------------------------------------------------------------------\* T (i) At 30 June 2006, £10 million relates to loss on curtailment included withinexceptional restructuring costs arising in 2005 that was included inrestructuring provisions within the Balance Sheet. Included within schemes' liabilities above are £30 million (30 June 2006: £32million, 31 December 2006: £27 million) relating to unfunded pensionarrangements. Included within non-current other financial assets are £30 million(30 June 2006: £31 million, 31 December 2006: £29 million) of investments, heldby the Law Debenture Trust on behalf of the Company, as security in respect ofthe Centrica Unapproved Pension Scheme. The amounts recognised in the Income Statement and in the Statement ofRecognised Income and Expense are set out below: \* T Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Analysis of the amount charged / (credited) to operating profit £m £m £m ------------------------------------------------------------------------------------- ---------- ---------- ----------- Current service cost 70 72 143 Plan amendment (i) - - (20) Loss on curtailment - 10 18 ------------------------------------------------------------------------------------- ---------- ---------- ----------- Net charge to operating profit 70 82 141 ------------------------------------------------------------------------------------- ---------- ---------- -----------\* T (i) The schemes' rules were amended from 1 April 2006 to allow employees tocommute a larger amount of their pension to a cash lump sum on retirement, inline with changes to the Finance Act. Accordingly, the assumptions made incalculating the Group's defined benefit pension obligation were revised in 2006,and a gain of £20 million was recognised in Group operating profit beforeexceptional items and certain re-measurements. \* T Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Analysis of the amount (credited) / charged to notional interest £m £m £m ------------------------------------------------------------------------------------ ---------- ---------- ----------- Expected return on pension scheme assets (108) (94) (194) Interest on pension scheme liabilities 82 82 168 ------------------------------------------------------------------------------------ ---------- ---------- ----------- Net credit to notional interest (26) (12) (26) ------------------------------------------------------------------------------------ ---------- ---------- -----------\* T \* T Six months Six months Year ended ended ended 30 June 30 June 31 December Analysis of the actuarial gain / (loss) recognised in the Statement 2007 2006 2006 of Recognised Income and Expense £m £m £m ------------------------------------------------------------------------------------- ---------- ---------- ----------- Actual return less expected return on pension scheme assets 70 (30) 95 Experience (losses) / gains arising on the scheme liabilities (17) (5) 145 Changes in assumptions underlying the present value of the scheme liabilities 287 266 235 ------------------------------------------------------------------------------------- ---------- ---------- ----------- Actuarial gain to be recognised in the Statement of Recognised Income and Expense before adjustment for tax 340 231 475 ------------------------------------------------------------------------------------- ---------- ---------- -----------\* T The expected return on pension scheme assets is based on market expectations, atthe beginning of each year. The expected return on pension scheme assets remainsunchanged at 30 June of each year presented. Expected rates of return at 31December 2006 and 31 December 2005 are provided in the Annual Report andAccounts for the year ended 31 December 2006. The overall expected rate ofreturn on assets is a weighted average based on the actual plan assets held andthe respective expected returns on separate asset classes. The returns onseparate asset classes were derived as follows: the expected rate of return onequities is based on the expected median return over a 10-year period, ascalculated by the independent company actuary. The median return over a periodlonger than 10 years was not expected to be materially dissimilar. The expectedrate of return on bonds was measured directly from actual market yields for UKgilts and corporate bond stocks. The rate takes into account the actual mixtureof UK gilts, UK corporate bonds and overseas bonds held at the balance sheetdate. The expected rate of return on property takes into account capital growthand makes allowance for expenses, rental growth and depreciation. The expectedrate of return on cash is comparable to current bank interest rates. \* T 16. Commitments and contingencies 30 June 30 June 31 December 2007 2006 2006 a) Commitments in relation to the acquisition of property, plant and equipment: £m £m £m Construction of a power station at Langage 205 273 219 Construction of Lynn and Inner Dowsing wind farms 162 - 99 Redevelopment of Statfjord field 59 89 72 Exploration activity in Nigeria 14 14 14 Various field developments 5 45 43 Acquisition of Braes of Doune wind farm (i) 42 - 42 Acquisition of other property, plant and equipment 61 87 15 ----------------------------------------------------------------------------------------- -------- -------- ----------- 548 508 504 ----------------------------------------------------------------------------------------- -------- -------- -----------\* T (i) Other financial assets include £42 million (30 June 2006: £nil, 31 December2006: £nil) restricted from general use pending successful testing and handoverof the Group's stake in the Braes of Doune wind farm. Note 18 providesadditional detail in respect of this payment. b) Other commitments During the period the Group entered into an information technology data centreoutsourcing arrangement resulting in a financial commitment under the 10-yearservices contract of £154 million. Detailed disclosures of the Group's financial commitments in relation to theacquisition of intangible assets, commodity purchase contracts and other similarcommitments are provided in the Annual Report and Accounts for the year ended 31December 2006. There have been no significant changes to the nature of thesecommitments in the six months ended 30 June 2007. c) Contingent assets and liabilities There have been no material changes to contingent assets and liabilities sincethe last reporting date. \* T 17. Related party transactions\* T During the period the Group entered into the following transactions with BarrowOffshore Wind Limited (Barrow) (a related party that is not a member of theGroup): purchase of goods and services for £5 million (30 June 2006: £4 million,31 December 2006: £8 million) and other transactions for £1 million (30 June2006: £1 million, 31 December 2006: £1 million). At 30 June 2007, the Group hadthe following balances outstanding with Barrow: amounts owed from Barrow of £25million (30 June 2006: £2 million, 31 December 2006: £23 million) and amountsowed to Barrow of £2 million (30 June 2006: £2 million, 31 December 2006: £3million). \* T 18. Events after the balance sheet date\* T On 12 July 2007 the Group acquired a 50% stake in the equity of Braes of DouneWind Farm (Scotland) Limited for £42 million in cash. The Group's interest inthe Braes of Doune wind farm will be accounted for as a joint venture. Disclaimers This announcement does not constitute an invitation to underwrite, subscribefor, or otherwise acquire or dispose of any Centrica plc shares or othersecurities. This announcement contains certain forward-looking statements with respect tothe financial condition, results, operations and businesses of Centrica plc.These statements and forecasts involve risk and uncertainty because they relateto events and depend on circumstances that will occur in the future. There are anumber of factors that could cause actual results or developments to differmaterially from those expressed or implied by these forward looking statementsand forecasts. Past performance is no guide to future performance and persons needing adviceshould consult an independent financial adviser. For further information Centrica will hold a presentation on its 2007 Interim Results for analysts andinstitutional investors at 9.30am (BST) on Thursday 2 August 2007. Thepresentation and slides will be webcast live from 9.30am atwww.centrica.com/investors. A live broadcast of the presentation will be available by dialling in using thefollowing numbers: From the UK 0845 245 3471 From overseas +44 1452 561 394 The call title is "Centrica 2007 Interim Results Announcement" and the pass-codeis 4808925. An archived webcast and full transcript of the presentation and the question andanswer session will be available on the website on Monday 6 August 2007. Enquiries \* TInvestors and Analysts: Kieran McKinney, Director of Investor Relations Telephone: 01753 494 900 email: [email protected] Media: Mish Tullar, Director of Media Relations Telephone: 01753 494 085 email: [email protected]\* T Financial Calendar \* T Ex-dividend date for 2007 interim dividend 26 September 2007 Record date for 2007 interim dividend 28 September 2007 2007 interim dividend payment date 14 November 2007 Pre-close Trading Update 14 December 2007\* T Registered Office \* TMillstreamMaidenhead RoadWindsorBerkshireSL4 5GD\* T Copyright Business Wire 2007

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