Utility Week

UTILITY WEEK | 2ND - 8TH MARCH 2018 | 21 Policy & Regulation exposed to the price cap than many of its competitors, both big six rivals and chal- lenger suppliers. "Relatively, our [SVT] is already £41 below the average of the other large suppliers, and actually its £100 below some of the highest prices in the market," he said. "That means others are going to hurt first and more than us as long as we maintain that competitive position." Future prospects Utilities analyst Nigel Hawkins says the com- pany's performance over 2018 will be heavily influenced by three key factors: the weather; the level of the price cap; and customer numbers. If the weather is warm, the price cap is tight and British Gas continues to bleed customers, then the £819 million operating profit for the UK portion of the consumer division will be "considerably less". However, even if the company can hold its ground following the introduction of the price cap, Centrica will need to do more to prove the success of the new strategy. The results from the supposed growth areas are hardly worth shouting from the rooops. Home services accounts grew by 77,000 over the second half of 2017, the first half year increase since 2011, but were flat over the whole year at 7.47 million. Adjusted oper- ating profit fell 4 per cent to £247 million. Revenues from distributed energy and power increased by just 6 per cent at £171 million and the business posted an adjusted operating loss of £53 million, com- pared with a £26 million loss the previous year. The connected home unit saw faster growth. Hub sales grew by 59 per cent to 373,000, bringing the cumulative total to 900,000, and subscriptions nearly tripled to 94,000. Revenues rose 27 per cent to £42 million. But, just as with the distributed energy and power business, it remains a drain on Centrica's resources, reporting an adjusted operating loss of £95 million due to increased investment. This compares to a £50 million loss in 2016. Centrica has previously said it expects the businesses to break even by 2019, with com- bined revenues rising to £2 billion by 2022. It has plenty of work le to do to reach those targets. Clearly, things could have been worse. At the time of publication, the group's share price had risen 9 per cent to 144p since the announcement of the results, reflecting its decision to maintain the dividend at 12p. But this was partly paid for by its numer- ous divestments over the year. Centrica has also confirmed plans to divest its 20 per cent stake in Britain's exist- ing nuclear fleet as it seeks to maintain the dividend at 12p out to 2020. However, it can obviously only sell these assets once. "The results were poor as expected," says Hawkins. "Clearly, there are concerns about the UK core business… which faces many challenges. "The non-core businesses don't appear to be cutting the mustard in terms of profitabil- ity and are unlikely to do so for some time. I think they'll be hard pressed to sustain their dividend." The share price is still barely half of what it was when Conn joined the company in 2015, and with the price cap fast approach- ing, the wolves are at the door. If Conn is to stem the decline in the company's fortunes, he will need to show a marked improvement in its growth areas in next year's results. SUMMARY Year ended 31 December 2016 2017 Change Revenue (£m) 27,102 28,023 3% Adjusted operating profit (£m) 1,515 1,252 (17%) Adjusted effective tax rate (%) 25% 22% (3ppt) Adjusted earnings (£m) 895 698 (22%) Adjusted basic earnings per share (p) 16.8 12.6 (25%) Full year dividend per share (p) 12.0 12.0 0% EBITDA (£m) 2,365 2,142 (9%) Adjusted operating cash flow (£m) 2,686 2,069 (23%) Underlying adjusted operating cash flow growth 13.3% (13.0%) nm Group net investment (£m) 1,039 46 (96%) Net debt (£m) 3,473 2,596 (25%) Return on average capital employed 16% 14% (2ppt) Net exceptional items after taxation (£m) 27 (476) nm Adjusted operating profit breakdown Year ended 31 December (£m) 2016 2017 Change Centrica Consumer 899 890 (1%) Centrica Business 481 161 (67%) Customer-facing businesses 1,380 1,051 (24%) Asset businesses 135 201 49% Total Centrica 1,515 1,252 (17%) The above figures are stated before exceptional items and certain re-measurements and include share of joint ventures and associates before interest and taxation. SHARE PRICE BREAKDOWN OF AVERAGE BRITISH GAS DUAL FUEL BILL EFFICIENCY PROGRAMME DELIVERY PRELIMINARY FINANCIAL RESULTS 2017 400 300 200 100 1,400 1,200 1,000 800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 250 200 150 100 Five years One year 2013 2014 2015 2016 2017 2018 May 17 Jul 17 Sep 17 Nov 17 Jan 18 £/customer Profit after tax Other costs Corporation tax and VAT £103m £384m 2016 Costs of goods sold Operating costs 2017 £308m £54m £746m Total from existing projects 2018 run rate from 2017 projects Environmental and social policies Delivery to the home Wholesale energy costs 2015

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