Ladies and gentlemen, welcome to Centrica's 2021 preliminary results Q&A call. My name is and I will be the operator for your call this morning. If you would like to ask a question during the question and answer session on today's call, you can do so by pressing star followed by one on your telephone keypad. I will now hand you over to Chris O'Shea, Group CEO. Please go ahead.
Thanks. Thanks very much. Good morning, everyone. Thank you very much for joining us for our 2021 annual results presentation and Q&A session. I'm joined by Kate Ringrose, our Group CFO, and we're lucky enough to have our Chairman, Scott Wheway with us. Scott will be delighted to take the most difficult questions that you may have. Just in summary, hopefully also in the presentation, 2021 was a hugely eventful year, both in terms of the external environment, but also in terms of the progress that we made in Centrica. I am delighted by the resilience of the results and the strength of the balance sheet.
Eliminating the group's net debt and ending the year with around GBP 700 million in net cash is something that I'm very pleased with. As we set about the turnaround of Centrica, and we mentioned that there were a number of phases. The key thing was to make sure that we got the portfolio in the right place, that we de-risk the portfolio, that we strengthen the balance sheet, which would allow us to grow our very good underlying businesses. The completion of the disposal of Direct Energy, the agreement of the sale of Spirit Energy Norway, in addition to lots of other smaller non-core asset disposals, leaves us with a portfolio that I think we can say we're all very comfortable with.
Obviously, we've seen turmoil in our main energy market, and that shows you, however, the strength of our business model. I can't say that it didn't cause us some worry. I can't say that it didn't hurt us, but it's something that we managed to get through with the support of customers and actually take on 700,000 customers from other failed energy suppliers. Now with that, I'll probably stop the intro rather than do another presentation, and hopefully we can go to your Q&A. It's always good to hear what's on your mind. When you ask a question, it'd be good if you could lay it out. Sometimes you have multi-faceted questions.
It's always useful if you could lay out each of the parts of it, so we can consider who best to answer that. I'll pause now and ask the operator to give us the first question. Operator, are you there?
The first question comes from the line of Dominic Nash with Barclays. Please go ahead.
Good morning, everyone. It's Dominic Nash from Barclays here. A couple of questions from me, please. Clearly, the first one is that probably after you recorded your presentation, Russia obviously has invaded Ukraine. I suspect it's gonna lead to a number of uncertainties and potential dislocation in the energy markets going forward. The first question here really is what are your views on the short-term impacts and sort of the measures that Centrica's got in place to weather it and potentially even benefit from it? Secondly, do you think that this will lead to a longer-term change in energy policy and less reliance on Russian hydrocarbons going forward? I kinda link to this.
The second question is, looking at your LNG numbers, you say in your results that you're hedging now beyond two years out on LNG. On a mark-to-market basis, I'm getting like really, you know, GBP 500 million plus EBIT on your LNG contracts on the forward market curves. Could you just give us some color as to what your merchant exposure is on your LNG contracts going out and what sort of the mark-to-market profitability of this if you were to secure this, say, three years out, please? Thank you.
Yeah. Dominic, thank you very much. Good morning. I'll take the first couple of questions. I'll touch on LNG and then ask Kate to come in with any answers at the end. You're right. The events in Ukraine were after us recording a video. Look, I think that in some ways I mean, I found it profoundly depressing when I woke up this morning, and in some ways it was very much expected, in some ways very much unexpected. This is unprecedented, I think, definitely in my lifetime. I'm not sure that it's helpful to speculate. What I would say is that, you know, as you saw last year when the prices moved materially in the last quarter, we weren't immune to market changes, but we were well prepared.
We were well hedged. That's not because we saw it coming. That's because that's how we run our business. I would say that we are appropriately hedged at the moment in terms of our buy, but also in terms of our sales from our upstream businesses. We watch what's going on there and look and see what is the impact on our customers. I think it's really quite early to speculate. Clearly Russia is a large oil and gas supplier. You know, if a large oil and gas supplier, any country, any supplier, goes down for any length of time, then you'd obviously expect there to be some impact on the market.
We've seen some volatility this morning. I think with anything like a share price, like a commodity price, you've got to let the news settle and then the markets will find their own level, and we'll manage through. In terms of the energy policy change, again, I think it's very early. You've got to make sure that you make energy policy for the long term. You can't make it on the hoof. This is, I think, another bit of information that I'm sure the policymakers will take into account. On LNG, I would say that one of the things you've got to bear in mind, I mean, this is the, you know, the main contract is the Cheniere contract that goes out to September 2039.
That's at an index price of 115% at Henry Hub plus a $3 liquefaction fee. The estimate of the replacement cost for that just now if you were to go and buy the same in the Gulf of Mexico is somewhere between $2-$2.50 liquefaction fee. Inherently, maybe it's not necessarily in the money. However, it's not easy. You can't just go and build a big LNG plant overnight. So there's obviously a premium to that liquefaction fee at the moment in the market. The question is how long that premium lasts, I think. So you know, supply and demand in the commodity markets, as you well know, it changes over time. You can't just flip things. You can't just spin things up.
If the price stays where it is at the moment, then you've got to expect there's gonna be more gas exports from the United States. You've got to then expect that Henry Hub would go up. You've got to expect that maybe the premium could come down. On a contract that's still got 17 years to go, I'd love it if it was in the money for the rest of the time, but it's really early. Especially when you've got liquidity in the curve of two-three years out, tops. You've got some parties that will take more of a midterm, maybe up to five-year deal. Beyond that, the reality is nobody really knows. I feel more comfortable with LNG today than I did last year.
Next year, who knows where it's gonna be? That I would say it's kinda early days with the positive moves. Kate, I don't know if there's anything else you want to add to that.
Yeah, I mean, there's probably a couple of things. I mean, one of the things just to remember from a short-term perspective on commodity prices is that we're long on a short-term perspective. So in terms of how we manage our cash and collateral positions and defended by our credit rating position, you know, that puts us in a better situation, but clearly one that we monitor and manage actively. From an energy perspective, you know, I think we've said before that we do tend to hedge this contract a couple of years out, just based on the size of it and the liquidity that presents itself. So we don't expect to benefit materially in 2022. The benefit in 2023 will also be reduced by hedges that we put in place some time ago.
However, we're actively looking at our hedge positions, you know, for the residual balance in 2023 and beyond to ensure that we are benefiting where we can from the improved profitability dynamics that we see in the market. The only other thing, Dominic, that I'll just add on energy is that it's a very bespoke and bilateral market, which is constrained by availability of shipping and the like. You know, it's not a fully liquid market where you can capture the opportunities immediately.
Thank you. Just to sort of try to get some clarity there, could you just let us know what is your open positions as a percent on LNG three years out?
Dominic, that is commercially sensitive, so we would absolutely not want to give you that.
Okay. Thank you.
No worries.
The next question is from the line of Jenny Ping with Citi. Please go ahead.
Hi. Morning. Thanks. A couple of questions from me. Just firstly to start, you've made it very clear that there is the intention to resume dividends, but you haven't given us any sense of the financial framework in which you will come to the conclusion of what the dividend number to be. Kate obviously talked in the presentation about the maintenance CapEx element of it, and you alluded to earnings and cash flow. But can you just elaborate a little bit more in terms of how you would look to think about dividends come first half results? Secondly, just on Home Solutions, as some of these COVID issues unwind, presumably although it's 2022, you're unlikely to see the profits go up.
Presumably there's nothing structural in there, and it should unwind if we look beyond 2022. Lastly, just on bad debt provisions, can you give us an update on where you are there? As we look forward to the bill increases coming through, what your expectations are? I'd presume Ofgem in the price cap, they will allow a higher allowance if bad debts start to go through the roof. Thanks.
Thanks. Jenny, thanks very much for the questions. I'll take services and then let me touch on dividend and then maybe ask Kate to come in at the end of that and then talk about bad debt. In services, you're right. These are temporary issues that we expect to see into 2022. There are also some self-inflicted wounds in there. I mean, you know, we, I'm a bit upset at the fact that our planning and our dispatch was probably not where I wanted it to be. We're taking steps to fix that. But you're right. I mean, in terms of the boiler shortage will fix itself at some point. I just don't know when.
The illness absence rates I would expect to go down. I think I got a question from somebody earlier on, which is with the change in U.K. government policy, does that mean you expect your absence rate to go down quite quickly? I mean, I would say that we've always taken the view that given our engineers are in and out of homes, even pre-COVID, if they've got the cold, if they've got the flu, we don't want them going in and infecting our customers. Our customers don't really want them in. While it's good that we're learning how to live with COVID, removing the need to self-isolate, I wouldn't expect to have a material impact on our absence rates, because we've got to make sure that people are actually not feeling sick.
If they're feeling sick, they shouldn't come to work. It will unwind, but let's see how it goes. I would also say the only reason I sound slightly reticent is that probably 9-10 months ago, it looked like we'd come out of COVID, and then it came back to hit us like a wrecking ball in September as a society. You know, we've just got to wait and see how much under control this is. I hope that after two years we know where we are. The scientists certainly seem to be a bit more comfortable. That would be on services. On the dividend, I think it's.
We did talk about, you know, should we lay out a financial framework? The big key missing part at the moment is what is the settlement of the pension scheme. We've got to make sure that we've got that. What we'd like to do, you know, one of the first things I did when I became Chief Executive was cancel the dividend we'd actually already declared, and that was something I didn't enjoy doing at all. I'm very mindful of the fact that when I did that, I said that, you know, we wanted to give back paying a dividend. We wanted to make sure we're in a strong position. The last two years we have, I think materially repositioned the company so that the balance sheet is incredibly robust.
We've done a lot of the things that we wanted to do. There's just one or two things that we want to get right before we restart. Rest assured we are very disciplined, and we're very focused on shareholders returns. This is the shareholders' company. This is their money. We manage it on their behalf. If you could just give us a little bit more time, then we'd hope to be able to lay this all out. Hopefully we'll conclude the pension review around the middle of the year, and we can maybe lay it out then. I know that I'm testing people's patience, but if I could just ask you to just extend a little bit more for another few months, and then hopefully we'll be in a position to reveal it all.
Maybe with that I could ask Kate to talk a little bit about bad debts and what we're seeing.
Thanks, Chris. I mean, I think on the dividend question, Chris has sort of covered all of the uncertainties into 2021. As I just said today, you know, we were at about 8% in 2020, and we're on sort of 1-ish % for 2021. And that's appropriate, we think, for the end of year. Now bear in mind, though, as I look forward into the year, you know, as energy bills are expected to go up materially, the pressure of the cost of living crisis, it's not known what impact that's going to have on customers. That is something that we're alert to through 2022.
You know, if we work on an expectation that our revenues in energy are going to go up materially from where they are now to, you know, and you could assume circa sort of GBP 10 billion odd in 2022, then a 0.5% increase in our bad debts on that number is a decent sized figure.
Thank you. Sorry, just to follow on, Chris. Does that mean we should be expecting a capital markets day, or some sort of update to the overall strategy of the business in a couple of months as per your words?
Hopefully, Jenny, you'll see that in what we put out today, there was a bit more in terms of how we're thinking about the company going forward. I far prefer to do that when we do the annual results or when we do the interim. There were no plans to hold a separate capital market day. I would hope to be able to give people more information. Hopefully you saw that today, that there was a bit more color about how we're thinking about the shape of the business, how we're thinking about the things we need to do, how we see things like assets fitting in our overall portfolio. No, we take up enough of your time with two sessions a year.
We've, you know, to put a Capital Markets Day in is probably more than is required at the moment.
Thank you very much.
Thanks, Jenny.
The next question is from the line of Mark Freshney with CS. Please go ahead.
Hi. Good morning. Thank you very much for taking my questions. Just to follow up, Chris, on the cost on services. I mean, the cost base went up, the cost per customer went up pretty substantially, and the actual number of customers went down and there wasn't a revenue increase. Much of what you describe, you know, boiler part shortages, these are short-term issues unlikely to occur. But in terms of higher costs of subcontractors, you know, that's a lead indicator for your own wage base rent. So you'll need to put through a pay raise, and presumably revenues need to go up as well. So how much of this margin squeeze is more medium term, and how much is short term? And I have a second question for Kate.
You alluded on the presentation to GBP 113 million of cost that you've incurred under SoLR. There's a lot of adjustments sitting on top of one another, right? There's the SoLR costs, there's the GBP 59, mainly for unintended standard variable demand. There's big, as I see it, receivables building up within British Gas Residential. Can you talk about those regulatory receivables and the profile of them? Because presumably you're gonna have a pretty substantial recovery of them in 2023. Finally, just on the higher performance in energy, in upstream, right? The upstream business has done very well. How much of that is cash that's locked up within the Norwegian assets that effectively belongs to the new owners? Thank you.
Excellent. Mark, thank you very much. Good morning. It's great that there's two quite tricky questions which I think only Kate is able to take. Let me take the services one and then ask Kate to talk about recoverables and then Norway. I know there's a slide in the backup to the presentation. I'm sure you've looked at which details the Norway, the cash that's come in and what was to the new owner. Essentially everything that we earn from the Norwegian assets from the first of January 2021 is for the account of the new owners. Look in the services, bear in mind that you're right.
I mean, if we see inflation in wages, we have to pay the going rate, so there's no point in pretending that that's not the case. Bear in mind that when you see a substantial increase in absence rates like we've seen, we pay our people. We have a good sick pay policy. We treat our people well, so they get paid. Therefore, we have to have excess contract capacity to actually go and see the customers. In addition, if we can't go and see the customer or if we cause them too much hassle, we'll also either repay the cost of an annual service visit, GBP 65 within the policy. Anybody who we can't do the annual services, we repay that. That's a cost.
Probably there was about half a million of those last year. That's not an insubstantial cost because we're paying the labor, and they're not at work, and we're paying the customers, we're refunding the cost of the annual service visit, but we're not taking that off revenue. That's a cost that we put in the through the system. We also will pay some customer compensation. I think that the question on wages is one that we've still got to answer because we've got to go through our union negotiations, and I wouldn't like to prejudge that. We are a little bit. Same way that we're not immune from COVID, we're not immune from the upward pressure, and our colleagues are not immune from the increase in cost of living.
People have got to earn a fair wage. In terms of the absence, that's very much a shorter-term thing. You know, as a responsible employer who takes seriously their responsibilities to both their customers and to their colleagues, we're always gonna see that causing a squeeze on margins. It's not permanent. It will come back down. We're actually seeing, I think, a little bit lower than it was, but it's still at heightened rates. Hopefully that helps. On that, maybe I don't know if we want to talk, Kate, about Norway and about the recoverables in terms of the SoLR impacts, which are not immaterial.
Yeah. Thank you very much, Chris. In terms of the SoLR impact, given the cost that we've talked about in terms of the claim, or basically the cost of, you know, predominantly purchasing the gas and power that we need for those customers as well as credit balances. There was a calculation that we could make to prove the costs that we were incurring, that we submitted and got approved, and then there's some top-ups as well for a further claim that we'll make later on in the year. We broadly expect to recover sort of around two-thirds of that in 2022 and a third of that in 2023.
I think what I've called out in that GBP 113 million was a working capital drag that we had in 2021. You know, that'll be sort of, you know, broadly flatish in 2022 and then recover all of it in 2023 is the broad expectation. Just looking forward to the recovery in terms of the cap adjustment, you know, we think the cap adjustments that have been made by Ofgem is fair in relation to the cost that we've seen that we've incurred, and so we expect to incur in Q1.
You know, as a reminder of the sort of churn dynamic that I spoke about in Q4 of 2021 is likely to get bigger in Q1 as those customers are more of them and they stay for longer through the year. We think that's a broadly fair dynamic. You know, what that will mean in terms of overall 2022 results, you know, we're not giving guidance on that because as Chris has said, the dynamics outcomes are still very wide with weather, commodity price, the current situation that we're in at the moment, but also the bad debt that I talked to Jenny about a question or so ago.
Sorry, just to follow up. Also, presumably, Together Energy will be a pretty high costing Q1, Q2, and the SoLR costs will not come through until April next year. That presumably is a further, Together Energy is a further near-term drag on cash flows and profitability, but potentially something that you know is reversed in 2023.
Yes. On cash flows, I would say, not profitability to the same degree. You know, because we, you know, part of, you know, this is with the SoLR dynamic, you know, it's a cash flow implication in terms of us purchasing, you know, the commodity, making good the credit balances and then waiting for that to come back, through the SoLR process.
Yeah. Remember, Martin, for me, we take customers that we take on through SoLR, we see a no gain, no loss, no profit basis. There is a small cost in terms of the operational impact of taking them on, but the excess cost of the commodity we claim back through the regulatory settlements with Ofgem.
To be clear, you're creating accruals and prepay. Is it accruals or prepayments? You're crediting P&L for expected SoLR recovery in future once you take the customers on. Is that correct?
Yes. We create basically effective.
Okay.
It's full government sort of grants accounting is how we do it. 'Cause effectively it's, you know, it's covered by that standard that allows us to accrue for that receivable.
Understood. Can we see those in the results statement, the actual receivables pertaining to SoLR costs that you've claimed?
Yeah. There's additional disclosure. Yeah, there's additional disclosure on that.
Got you. Thank you. Super. Thank you, Mark. I think on your last question, Chris, did you want me to take the cash on Norway question? I appreciate that the sale of the Spirit Energy business in Norway, you know, it was complicated when we announced, and it continues to be complicated in that we accrue, you know, the profit, and the cash in, you know, in the business up until the point at which we sell it. You know, which we're expecting to happen, as we indicated in Q2 of this year. There is an appendix slide on slide 40, which just gives you sort of a real indication of those cash flows in 2021 and 2022, which I would point you to.
You'll see from that effectively we've, from a cash perspective, received the benefits that we're going to get from the disposal in our 2021 results already.
Very well. Thanks, Katie. Yeah, you see that. I mean, the great thing is we have been prepaid for the disposal, yeah. That's what happened, you get focus on cash, so we've already got the money in the bank before we sold the thing.
Got you. Thank you very much.
The next question is from the line of Martin Young with Investec. Please go ahead.
Yep, good morning to everybody. Trust everybody's safe and well. A couple of questions, please, which I guess are more longer-term/bigger picture. The first is around the energy supply markets in the U.K. Now, I would say, you know, given the demise of the suppliers with what clearly were unsustainable business models, the competitive landscape for yourself and the other remainers has clearly improved. Ofgem's brought forward a raft of measures. I would say that those are broadly positive for the supply industry. You know, quite clearly we've got a big challenge to get to net zero. I think it would be wrong for any large supplier to take a view that, you know, things have got easier with reduced levels of switching and seeking to benefit from customer stickiness.
The industry, you know, really does need to drive change and innovation. Against that backdrop, I guess I've got a couple of questions for Centrica. You know, one, you know, where is Centrica innovating to help deliver net zero? What engagement have you got with Ofgem and the government to get regulatory change coming through? In particular, you know, issues on, you know, whether the wholesale market should be reformed and whether we should see reform of network charging. Then the second question is around what Chris was alluding to in the presentation earlier today, on the Centrica Business Solutions, flexibility, et cetera. You've got 229 MW of de-rated capacity in the T-4 auction for 2025, 2026.
Obviously a tad over GBP 30 per kW per year on that. Over and above that capacity market payment, can you sort of, you know, shed some light on how you're going to monetize these assets and what type of returns you will get from these? 'Cause I'm cognizant of the fact that CBS is still in negative territory at this juncture. Thanks.
Martin, thanks very much. It feels there's about 20 questions within that. Let me try. In the supply market, you're right, there is a whole raft of changes that are required. We have to step back and see what's the first thing we need to do? Fundamentally, suppliers need to stop financing their operations with customers' cash. All of the stuff about how you change regulation, how you drive innovation, how you get to net zero, I think that's putting the cart before the horse. We voluntarily ring-fence our customers' cash. Now you can see, I think there's GBP 294 million we announced. At peak it's about 300-ish million, with 7.5 million customers. Bulb went under with GBP 254 million of customer deposits, with 1.5 million customers.
If we had the same approach to customer deposits as they did, we'd have GBP 1.25 billion. They had their deposit per customer is 4x ours. One of the things I've seen from customer conversations with companies that have gone under is customers saying, "I've got a big credit balance. They kept increasing my direct debit before they went out of business." The thing we've got, and I'm hopeful that you as analysts, and you can talk to investors, is we need to be responsible. We need to have a robust energy supply market. All of the companies that are here today need to stop funding themselves with customer deposits. We need to do. We don't have to wait for regulation. We're frustrated by the slow pace of change, so we've done it ourselves. We would question why others don't.
You say, "How do you drive the innovation?" You've got to have an appropriate return. You know this as well or better than most, that we have an industry which has been collectively loss-making for the past three years. That industry cannot drive innovation unless it's spending somebody else's money, and then it's not sustainable. What you've got to see is an appropriate level of return. I think all too often we're focused on what is an appropriate return on sales. As we saw last year, and as we're seeing just now, the capital that you have to deploy in order to manage the risk associated with this business is not insubstantial. You've probably also got to look at what is the right level of a return on capital.
Some of the representations we've made to government and Ofgem, without saying this is the return that you need to put in place, what I'd encourage them to do is to look at all the markets that haven't collapsed in the face of rising prices and just understand what's happened. There are some of them maybe not ones that you'd like to emulate like, you know, what happened to EDF in France, but some of them have been quite robust. None of those have target margins of 1.9% return on sales. I think that we've got to have a reasonable level of return in order to drive the required innovation. What are we doing for this? We're the largest installer of smart meters in the U.K.
You've got to be able to install smart meters before you can get into the code changes that are required, particularly for the DNOs, to drive more flexibility within the distributed networks. You've got to have smart meters. At the moment, I think penetration is 50%. So we've got to make sure that this is a transition. The net zero transition is one that doesn't leave anyone behind. Until we get 100% penetration of smart meters, we're gonna leave people behind. We also launched our electric vehicle charger proposition last year, and we've got a Hive charger out there. Now, obviously, with most things, there are bumps in the road, if you'll excuse the pun, in terms of the customer experience, but I'm delighted that that's out there. That's working off the Hive platform.
I see as we go forward that we're gonna have an integrated home energy management system, which will require network code changes. It will require more investment in innovation. It will require companies to provide more than just plain vanilla energy on a single or a dual rate. You're gonna have electricity settling every half hour. This is why we are investing in the new platform in our energy supply business, because we need to change our systems not only to give the customers a better experience, but also to ensure that we can give this more flexible billing possibilities to our customers and ultimately help them to sell their demand response or operate a virtual power plant. I think the opportunities are quite substantial for us. We have to see a stable market.
We have to see stable participants. We have to see proper credible regulation. Then we have to see a return profile that encourages responsible businesses to invest, and it discourages or it bans companies that are investing not insubstantial amounts of money, but it's not their money. They're putting other people's capital at risk. That's how I would have a look at that. Now, for CBS, I think it's different. Distributed energy, I think has got a large part to play in our portfolio to go forward. We've been quite open that we'd like to grow that more. Now, in terms of how do you monetize that, I'd rather not give all of our secrets away. But obviously, you can get capacity, we get some frequency response services.
You can also decide to have some rapid response generation on a purely merchant basis. The trick is to make sure that you've got a balanced portfolio, to make sure that you've got the right science, to make sure that you've got the right technology, to make sure that you can respond, whether it's a battery that's got to be up in 30 seconds or a peak that has got to be up in 15 minutes. Having that right balance is, I think, very important. It's not just in terms of helping to build out renewables by having something that can deal with the increased intermittency that we're gonna see in the system. It's also something that helps us manage the peaks and troughs that we're gonna see in the pricing for our customers as we go forward.
You know, with more intermittency, we saw this last year, you've got far higher balancing charges. The things that maybe you could hedge in the past through purely financial contracts, I think it's gonna be harder to hedge that going forward. You're gonna see a bit more of a balance to portfolios. They've got to have the right returns. We said last year we would look to build out solar and battery, and we're learning a bit about the returns that are available. If the returns are not available, what we won't do is maybe what we've done in the past, which is we'll lay out a large strategic vision and come what may, we'll look to implement that. We are laser-focused on returns.
Where the returns are there, you'll find that we've got the expertise required to be in the market. You'll definitely find us there. I don't want to say we want a return of X or Y%. I would say that we are focused on the fact that we manage our shareholders' money, and therefore, in order to create value, we've got to get a return above our cost of capital across our balanced portfolio. You'll hopefully see that as we go forward. If I disclose our returns, then the other side in anything that we're bidding on, they know what's acceptable to us, and I'd really rather not give out our negotiating position in advance.
Okay. Thank you.
Thanks, Martin.
The next question is from Robert Pulleyn on the line with Morgan Stanley. Please go ahead.
Good morning, everyone. In terms of, I guess, where to start? In the retail market, if we could just maybe follow up on some of the previous questions. By the end of this quarter, where do you think your mix of customers will be? i.e., how many SVT customers do you think you'll have, and how many fixed customers you'll have at that point, just to give us an idea of where the portfolio will be positioned going into next quarter? And secondly, just on the balance sheet, clearly there's a lot of strength there. There's also a big unknown with the triennial review.
Given the risk profile of the group, though, what level of net debt do you think would be the efficient level once you get through all of the sort of moving parts over the next couple of quarters? Thank you.
Excellent. Let me take the customer question first, and then Kate will, if I could predict her answer, she'll probably tell you, I'm not telling you right now because I need to, I can't tell you what the right level of net debt is. Look, in terms, I think Ofgem recently, I think in front of the select committee in Parliament, noted that over 75% of customers are on standard variable tariffs. 22 million out of 28 million households are now on standard variable tariffs. I think that we have gone somewhere and I'm looking across at Kate. I think that we look at this not in terms of customer numbers, but in terms of our customer accounts, 'cause obviously we've got single fuel and dual fuel customers.
I think that we are on something not dissimilar to that 75% on SVT. It has certainly gone up for us over the past. I think how you would look at it is, in the past, we have probably had more SVT customers than other companies and than the average in the market. I think now that we are more in line with the market. The market has kinda moved. Our SVT book has gone up as well, but the market's kinda moved the other way. You've got to remember, we've also got 700,000 customers that came on through the supplier of last resort process, and they've all effectively gone on to the SVT.
Probably we're a bit north of the 75% that Ofgem disclosed, but we're in line with the rest of the market. I'm avoiding telling you where I think it's gonna be at the end of Q1, 'cause I just don't know. Some not everyone rolling onto the SVT. Some people take a different view. They want to fix their contract, and that's okay. Some people roll off a fixed term contract onto the SVT. We'll certainly wait and see. You would have to expect that with the prices, the higher prices are in the market, the more likely people are to roll onto SVTs because the fixed term contracts that you offer to someone, you basically price on a monthly basis. If people are rolling off in February, you price it on a February basis.
Obviously if the market moves upwards, then that makes that less attractive. If anything, the higher prices you'd expect to see an uptick in people rolling onto SVT contracts. I'll leave Kate to tell you, but she's not gonna tell you what an appropriate level of net debt would be. Thank you.
Chris has told you what the answer is, but just to give you a little bit more context. It's worth remembering that when you look at that GBP 700 million cash, there's a lot of margin cash in there. That's really a function of the kinds of markets that we've been operating in, a real conscious move to manage our credit versus cash risk, you know, in these very volatile market environments. Which means that because we're long, you know, we have half a billion GBP of margin cash that really belongs to our counterparties. You know, that all else being equal, although clearly to date, the dividend question would've flown out the business.
I would normally on balance expect to be on a margin out perspective because of the exchange trading that we do and the initial margins that go with that. The other thing as well to recall is just with regards to the movements in cash on Spirit, you know, we talked about the tax that we need to pay and also the dividend that will need to be paid out of Spirit cash, you know, when we get to a settlement of the Norwegian sale. The fundamental way that I look at the appropriate amount of net debt in relationship to our sustainable cash flows is around the credit rating. You know, where we are in terms of investment grade, you know, it's quite complex in terms of how S&P and Moody's look at it.
You know, they both have quite specific and bespoke ways of analyzing our balance sheet relative to the cash flows and the business risks that we carry. Ultimately ensuring that I've got enough headroom to manage the working capital dynamics, manage the commitments that we've made with regards to Ofgem credit balances. Also any stress testing that we would do on a normal course of business basis for our regulatory position. Gives us the headroom we need to hold that credit rating well intact and safely.
Okay. That's actually, that was more than I was expecting. Thanks, Kate. Thanks, Chris.
Thanks.
The next question is from the line of John Musk with Royal Bank of Canada. Please go ahead.
Yes, morning, everybody. Three hopefully quick questions from me. Firstly, on the new technology platform, I think you said 300,000 customers so far. Can you just outline the speed of migration from here and how long it'll take to get all customers on there, if indeed you are planning on moving all customers across? Secondly, you mentioned some growth opportunities around heat pumps and hydrogen pumps or hydrogen boilers, sorry. I think you said you're targeting 20,000 in your first pilot project. Now, that's a pretty small number in the overall market context. I just wonder how quickly that can scale up and how you think around affordability for customers who are trying to make those changes.
It's obviously a big investment for the average household to put in a heat pump. Are you thinking around how to help customers with that or the, you know, the pricing mechanisms you may put in place to put those heat pumps in? Finally, I may not get an answer to this, but in terms of distributed energy opportunities, you mentioned the peakers in Ireland, but Drax is looking to sell its peakers. Are acquisitions an option for you there, or are you looking to only develop assets from scratch?
Thanks, John. Let me take the middle one first on the growth, heat pumps and hydrogen. What we said is I think by 2025, we want to install 20,000 heat pumps per annum. We might say a small part of the market, but that would actually represent quite a big part of the market. I think we estimate that there might be 100,000 a year going in, as that's the 20% of the market. You're right, with 28 million homes, there are 28 million heating systems that need to be replaced. What we're trying to do is as we talk to regulators, we talk to governments, et cetera, is to make sure that we do the right thing for the customer.
All too often you've got companies that are trying to do the right thing for them and trying to do it to the customer. We think we should do it with the customer. You're right, heat pumps are very expensive. We've not commented on that because others have said they were gonna bring the cost of heat pumps down by 50, 60, 70%. I would be delighted if they can manage to do that. You got to remember, heat pump is not new technology. Heat pumps have been around for 30, 40, 50 years. France installs 600,000 heat pumps a year. Why the U.K. suddenly decided to install heat pumps which cause a reduction in the price is beyond me. Some people have said it's because it's new technology, it's just not.
I don't know where the cost of heat pumps will go. If they come down substantially, I'll be delighted, and I'll be a very happy buyer of heat pumps from some of our competitors. However, I'm not so sure that they're gonna be able to get the prices down. What is the right thing for consumers? I personally believe the right thing for consumers and the right thing for the country and the right thing for the planet is a mix of hydrogen in the system and heat pumps. We're well placed to do both. We're installing hydrogen-ready boilers just now. The boilers that we install at the moment can take 20% hydrogen. There are boilers that are being developed that can take 100% hydrogen.
The way that I look at it is we are an installer and a servicer of heating systems, and we'll try and influence what those heating systems are so that our customers and all the UK Energy customers are in the right place. The reality is, whether it's heat pumps or hydrogen boilers, whatever, we are well-placed to install those things. You heard me saying in the presentation, if you can install a boiler, you can install a heat pump. Our boiler engineers don't necessarily like me saying that because sometimes they like to say there's some secret science behind installing a boiler. The installation actually of a heat pump is heavier. It's a bit more difficult to get into place. You can't just have one person lift it for you. If you doubt that, give it a go.
Try and lift a heat pump, but then make an appointment with your doctor because it will end up putting your back out. It's a bit more awkward. The physical requirements for the heat pump are the same as well, actually a bit easier than a boiler. You're right, it's very expensive. We've got to get the right thing for consumers. We offer finance to customers just now when they install boilers, and we'd like to extend that for heat pumps. What we can do is pretend that a heat pump that costs GBP 10,000 can be installed for the same price as a boiler that costs GBP 2,000. That's why you've got to have a mix of technologies.
Otherwise, this will be an energy transition that the rich can take part in, and the majority of people in the U.K. are not rich. I think there's got to be a mix. Rest assured that, you know, we installed 90,000 boilers last year. 20,000 heat pumps is not gonna replace 90,000 boilers. We expect to be installing a lot of boilers as well. We'd like to grow more in that position, grow our market share, which is why we're recruiting heavily into the business. On the tech platform, we've got over 350,000 customers on it just now.
The challenge with this is, you know, the temptation to say, "Let's just get everybody on it really, really quickly." That would be great if it was seamless, but that would be terrible if it caused customer issues and it meant our colleagues couldn't service our customers. We've got to balance the speed of migration with the desire to get it right and make sure that we design a new, better customer experience. I wouldn't want to speculate as to the anticipated rate. What I prefer to do is to tell you and what we've done.
The reason for that is too often I've seen in the past where companies and I've probably done it individually, we say, "We're gonna have done this by then." You become a bit of a hostage to fortune because you want to. You know, I always want to do what I say I'm gonna do, but I want to make sure that I give the team the time to do this properly. It won't be done at the end of this year. It won't be done at the end of next year, because we've got 7.5 million customers. Our intention is to migrate all of our customers onto this new platform. We know that it works. We know that it however requires development as well.
We'll get it right. We'll give you an update each time that we report. On the question on distributed energy, you're right. I wouldn't comment on things that we're up for sale. I prefer to tell you what we've done rather than tell you what we're gonna do. We've got to recognize where we are as Centrica. You know, we have not covered ourselves in glory in the past in investments that we've made. You'll see some of the things, you know, the stuff in Ireland, we had those sites, we had those grid connections. We've held on to them, and we've bid them into the capacity market.
If we can get the returns to the right place, we'd be delighted to build those things. We have other assets that we're looking at in terms of how they can play their part in the energy transition. I think you've got to learn to walk before you run. Maybe someday we'll be interested in that. But right now, I'm not spending any time focused on acquisitions. We've got enough on our plate. And I think that if we continue to deliver what we've got today, you'll all be very happy. We'll be very happy. Our shareholders will be very happy.
Great. Thank you very much.
Thanks, John.
The next question is from the line of Deepa Venkateswaran. Please go ahead.
Hi. Thank you for taking my question. I had two questions. One was on the portfolio restructuring. You've said that now there's no active process for nuclear that's gonna be part. Is it right to also then conclude that the U.K. business will basically be run for cash and meeting decommissioning liabilities, but there's no active process going on for either the remaining U.K. upstream assets or LNG? That's on restructuring. You know, what might be the other small cleanup that you've sort of indicated?
Maybe some vague idea of what kind of assets. Secondly, just looking at the issue of absenteeism in the services division and the high costs and so on, I mean, is this mostly down to COVID quarantining, whether that's the employee themselves or their family? Or is there anything deeper in terms of employee morale or lack of training or anything else? I mean, should this automatically sort of resolve once, for example, the U.K. government's already now relaxing the quarantining requirement. Maybe just to get an idea of how much it is driven by the pandemic versus anything endemic. Thank you.
Thank you. On the portfolio, we won't explore any more in Spirit Energy UK and the Netherlands. We're gonna run the assets. I don't like the term run it for cash. We're gonna run them safely, and we're gonna decommission them responsibly. Running for cash sometimes means that you scrimp on certain things. You know, this is a very safety-critical industry. We will run them appropriately. The great thing about our new shareholder agreement is we can ring-fence the cash for the decommissioning. Spirit will effectively fund the decommissioning from its own cash flows.
What we'll also do, however, is the same way as we're doing for Rough, is we'll have a look and see if there are opportunities for any of these assets to become carbon negative assets and to help the U.K. on the path to net zero. If that's possible and the return is acceptable, then we'll certainly at least consider that, whether we do it ourselves, we do it with partners, or we prepare it and let somebody else do it. But I'm very comfortable with the portfolio as it is at the moment. In terms of the services business, there's a number of things. You can see we recruited 1,500 people into that business. Now, we also lost about 1,500 people, so the headcount stayed roughly the same.
The productivity issue when you know if you lose 600 qualified experienced engineers and you bring in 600 apprentices, you're gonna have a productivity issue, not only can the apprentices not do what the qualified engineers were doing, but they also have to be buddied. They have to be mentored, they have to be taught. It can impact on the productivity of the workforce that you've got. However, a business like ours that isn't recruiting is dying, I think, or it's transforming itself into something that's gonna be purely done with contractors. You can see, you saw in the charts actually, you know, I think we recruited double digits into that business in each of the years 2016, 2017, 2018, 2019, 2020.
The 1,500 last year that we recruited, remember the first quarter of last year was a substantial industrial dispute. We weren't really recruiting at that point. We were managing through that dispute. We went from almost zero to 1,500 in the space of 9 months. It was an amazing achievement. I have the confidence that that we can continue to do this, we can replenish this workforce. People take time to learn, and even some of the qualified engineers are newly qualified, so they're straight out of college. They've done their qualifications. What they then need is on-the-job training. Again, they're not as productive as an engineer who's been doing it for 10, 20 years.
What it does help do is it helps to reengage your workforce, because if all you do is reduce and you replace people with contractors, it becomes, it maybe becomes less dynamic. Bringing these new people in, bringing these new apprentices in, some straight from school, some late career changers, I think our most senior apprentice is somebody in their mid-fifties. People bring in experience from different walks of life, but people come in with the enthusiasm the school leavers come with. We've also increased our recruitment of ex-service personnel who come in with a very different mindset. We're seeing a reinvigoration there. The engagement in the company has now gone back to levels we haven't seen, I think, since 2017.
We've got to recognize that we went through a tough time with our engineers, and so the engagement there is not where I would like it to be. It is higher than it was last year, and I'm hoping that this year we'll make it higher even further. We'll keep pushing on that. The morale is not where I would like it to be, but it is on an upward trajectory, and we'll continue to build, and we'll continue to recruit. It's just, I find it very energizing to be around the new apprentices when they come in, and they tell you how you look from the outside or how you look to a new joiner, rather than somebody that's been here for a few years. They give you a different perspective.
These are the engineers that are gonna deliver the future for the UK. I'm delighted to do this, and we'll do one new apprenticeship for every day of this decade at a minimum, and I'm hopeful that we'll exceed that.
Okay. Thank you.
Sure.
The next question is from the line of Ajay Patel with Goldman Sachs. Please go ahead.
Good morning. Thank you very much for the presentation. I've got a couple of questions, please. I just wanted to understand the British Gas Services & Solutions comments in the outlook. As in, if I try to piece it together, you delivered like GBP 191 million of profit in 2020, and then GBP 121 million in 2021. Yes, you've lost some customers, but you had a GBP 50 million negative impact from the industrial action, GBP 25 million from the inflation of costs. Then obviously there'd be some extra costs to carry from the loss of the customers. I'm sort of thinking that into 2022. I'm thinking, well, you wouldn't have the full annualized effect of the cost cutting that you put through over 2021. The GBP 50 million on the industrial action should rebound.
Also, Home Solutions was loss-making last year, and that should begin to ease because I remember historically you talked about bringing that back to breakeven. I'm just wondering, what am I missing in terms of the driver? Is it just that the GBP 25 million on the COVID-related absence costs are gonna sizably increase or-
I feel like that picture's a little unclear to me, so any kind of color there would be really helpful. Then the second question is on Sole Pit contract. Clearly, there's a nice improvement from previous guidance. I just wondered, to what degree can you lock that in? Or is it still gonna be fluctuating between now and its expiry? Just trying to understand how much volatility is left.
Hey, dude. Brilliant. Thank you. Let me take the services thing and then take great pleasure in asking Kate to explain the Sole Pit contracts, quite complex. As you know, it's priced off oil and jet fuel and also a little bit of coal, and then we sell it in a gas index. You've got to sort of, if the spreads change, the value changes, but it's a good question which I'm sure Kate will be delighted to take. On the services, you know, bear in mind, when you talk about cost-cutting, remember the majority of the restructuring that we did, we did in 2020. That was actually in the 2021 numbers. The terms and conditions in services was never about cost. It was about productivity.
I was always very clear that I actually expected our wage bill to go up. We did not cut wages. You've got to see through. Remember, when you see comments on what happened, you've got to think about who's making the comments. Because the pay to engineers actually went up. What we said was we wanted to have a full working day. We increased the working week from 37 to 40 hours, but we paid for that. There was no expected massive cost reduction from the industrial action. There's an expected improvement in productivity. Cost per job was expected to improve. There's not a kind of full year benefit coming through there in 2022.
On the GBP 50 million in the first half, remember that if we had no industrial action, but we'd seen the absence rate from COVID during the strike period is the same as we saw in the fourth quarter, the impact wouldn't have been materially different. The question is, can you get your workforce into your customers' houses to do their work? Whether somebody's on strike or whether somebody's sick, if the answer is no, then we take our commitment to customer seriously. We do whatever we can to get somebody into the customer's house. That's where you've got maybe this slight confusion, which is if you don't have the industrial action, why don't you see this bounce back? The question is when does the absence rate come back more to normal?
I think it's just very difficult to predict what's gonna happen with that. Now, I hope that we're gonna see this come down. I hope we see it coming down in the summer. We saw that last year. The question I think we've got to be very mindful of is what happens when we get this coming winter? What happens when we get to September, October time? Because as I said earlier on, last summer, I think we all thought COVID was behind us, and then it came back and hit us, not us as a company, but us as a society, I suppose, quite hard. That's why there's maybe this confusion. You know, we continue to recruit, we continue to train. We're managing our absence.
We're hopeful that we don't see some other new variant of COVID that causes us to have to go back to restrictions later in the year. If we see all of that, then we should see some improved productivity. But it just takes time. You can go from having we probably had another 30 apprentices or something in that business less than 12 months ago. Now we've got over 600. That does have an impact on productivity. But you've got to do this for the long term. You know, we had to confront the issues that we had in that business. You know, the workforce is down several thousand engineers over the past few years, and we want to rebuild that. We want to have our own colleagues out seeing the customer.
We're gonna continue to do this, and it's gonna take time to work through. There's no hidden message. There's nothing that we're not giving you. There's just a few kind of compensating moving parts. With that, talking of compensating moving parts, Kate, how do you explain the Sole Pit?
With regards to Sole Pit, I mean, you'll know and remember that this is a contract that was signed in the late 1980s. We have, it expires in 2025. It is a function that we are getting to sort of the last and final year of the Sole Pit contract, which regards to how locked in those are. I mean, we actively hedged this contract, you know, within the liquid period. There is, you know, a fair amount of it that's hedged. Having said that, the indices against which the oil price pricing takes place are indices and coal indices as well, that Chris talked about that, you know, in some cases are only calculated for the benefit of this contract. We don't have visibility of them until they're published.
There's always risk in that number that we proxy hedge with oil outright and with gas. There's an element of variability around it that, you know, I think when we are talking about Sole Pit and how we do it, I would say that the message we're trying to give to the market is that it is a more positive outlook now than it was when we were talking about 6 months, 12 months ago. You know, based on our commodity prices have moved and how we've captured that, and we have the Easington site.
Okay. Thank you very much.
The next question is from the line of Bartek Kubicki with Société Générale. Please go ahead.
Thank you, and good morning. Two things I would like to discuss. Firstly, on the energy supply market, if you can actually share with us your view on sort of midterm development, especially in terms of margins. Because I would one could argue that given the fact that there is much less suppliers right now, everyone is cutting on costs, and the regulator may be much harsher on actually introducing new suppliers to the market. Basically you will have a bigger chunk of the cake and potentially higher margins. I wonder if this could actually materialize in the future or not. If you also look at the sort of short-term measures, Ofgem is intending to introduce until autumn, do you think this could somehow help to stabilize the market? That would be the first thing.
Actually, sorry, following on this one, I just wonder what do you think could happen if energy prices start declining? Because in the past, we actually saw the small suppliers being more aggressive, getting more customers, you're losing more customers, margins actually not expanding. Maybe this time it could be different. Secondly, on your pension deficit, just to know your preference, what do you prefer? Do you prefer to actually sort of repay a bigger chunk of the pension deficit at once and then sort of de-risk that part of the business? Or you would prefer to do something like, sort of, I don't know, repay the deficit in couple of years.
spread the cost over time, but still bear the risk of the pension deficit changes, on your own, in your business. Thank you.
Super. Thanks very much for the question. Let me take the question on margins and the energy market then. Kate will be able to talk far better than me on the pension. Look, I think that I wouldn't say if you've got less competition, you're gonna have higher margins in this business. Remember, the margins are regulated, and they've been regulated for the past couple of years. Even very well-run companies haven't been able to make a profit. I think that we've got to get to the situation where we as an industry, with the input from the regulator and from government, agrees what we want the industry to look like.
I've been quite clear that there has to be prudential regulation which requires companies to have proper financial substance and stop playing with the customers' money. There has to then be a recognition from Ofgem that you have to be able to make an acceptable return on capital on that. We've got to require people to hold proper capital, and then we've got to make sure that people get an adequate return on that capital for the work they undertake. I think it's very difficult to see where margins should go. If we want to have a properly functioning energy market in the U.K., and we want to invest in net zero margins, we'll have to go up. That's quite clear.
I think it's not conceivable that you can leave margins where you are and you can expect the market to function properly and invest in net zero. It's just not happening. At the moment, companies are doing that by spending their customers' deposits. That means if there's a bump in the road, then what we've seen in the past could actually be smaller than what we see in the future. That's why we keep coming back to prudential regulation. What happens if energy prices decline? This is why the prudential regulation is very important because if you're a responsible energy supplier and you've hedged all your book, you hedge your customers, and then you see quite a substantial decline in prices, that is a risk. Quite a big risk actually. If you allow less responsible parties into the market and they don't.
If they're not fully hedged, then they could go back to what they did in the past, which is they could undercut with unsustainable pricing. It will happen for a short period and then those responsible companies will be left with large out of the money hedges. Now, the question is how customer behavior will be like in that case? I don't think you see everybody switching, but it is a real risk. It's a risk that other companies have raised with Ofgem. The risk that Ofgem have actually recognized. I'm hopeful that if you require shareholders to put capital at risk, then you drive responsible money. Why do we manage our business responsibly other than the fact that we are hopefully very responsible individuals from the board right down to the customer service agents?
The other thing is that we manage shareholder money. We take that very seriously. Our call for potential regulations to make sure that everyone else use it the same way, that you have to have shareholders' money at risk and you require serious people to run serious businesses. That's why we continue to focus on that. If you get that fixes most of the issues. Responsible business people tend to behave in a responsible way. Until we get that, there's still very much heightened risk in this market. That's why we've taken the lead in doing some of the things that we've asked the regulator to do, but for whatever reason, they're not able to do it at the moment.
Hard to say where it's gonna go, but you know, this market's not without its risks until we get the right regulation in place. Kate, I'll hand over to you for the pension question.
Thank you. Thanks for the question, Barclays. I mean, I probably kind of refer to, you know, what I said earlier. It's a complex negotiation set with the pension trustees. You know, they are incentivized by the regulator to be conservative. You know, they have a high degree of prudence, which is, you know, part of the reason why you see quite a big difference between what I called out as the technical deficit and the IAS 19, you know, zero balance that we have on our balance sheet at the moment. And part of the payment profile is all part of that negotiation set. So, I'm not gonna offer a view as to what my preference is, as yet. I think we just need to allow that negotiation to take its course.
Okay, sure. Thank you.
The next question is from the line of Verity Mitchell with HSBC. Please go ahead.
Morning, everyone. Thanks very much for the questions and also the explanations, which have been very helpful. I've just got a very broad question. Your priority is about re-engaging your colleagues, and we've talked a lot about services in the Q&A. Is there a wider issue of needing to reengage colleagues in other parts of the group upstream, energy retail, not just services? How are you going about doing that? You've explained quite a lot about the services already.
Morning, Verity. Thanks very much for the question. We've got to engage everyone in the organization. We have made massive steps in the past year. As I say, we measure it. I mean there's different ways of measuring this, but we measure the percentage score of colleague engagement. Last year, 2020, sorry, I think it was low 40s. It's been low 40s since I joined the company. Hopefully not because I joined the company, but since I joined the company. We measured it at the end of Q1 last year because we wanted to set a baseline. We decided we would do these things more regularly. We monitor colleague engagement on a quarterly basis now. We take action every quarter when we get the results of our surveys.
We tell people what the results are. We tell them what we've heard, we tell them what we're doing. At the end of the first quarter, it was 39%. It actually went down. That's not surprising if you think of all the issues that we had in the first quarter of 2021. We ended the year at 55%, which is an incredible increase and is testimony to what all of my colleagues have done in terms of how you re-engage with our workforce. It's one of the biggest increases I think I've ever seen and others that have been longer in colleague engagement work has seen. There's still further to go. The high-performing organizations starts at a seven, not a five. We've still go further to go.
We have parts of our organization which are already beyond the benchmark for high-performing organization. The reason I focus on services is that that's the place where the engagement is lowest, and we need to do more to build it. You never stop an engagement. As soon as you sit and say, "That's it, we're done," then it drops. It's something that you do on a daily basis. It's something that is one of the reasons. It's how I look when I select the team that I have working directly for me and how others like their team is: How can people engage with colleagues? Do they care? If you don't care about people, you can't really work for companies with 20,000 people and 10 million customers, which is not the place for you. You have to care about people.
I feel very, very passionate about this. It is absolutely across the board. I'm encouraged by what I see from my colleagues and how they engage. One of the things we're gonna do in the not too distant future is we've got two town halls with our colleagues. Everybody with no customer-facing people, they'll be taking off the tools or off the phones so that we can talk to them today, explain the results, and engage with them. This is something that we spend an awful lot of time on. Our Chief People Officer leads our internal comms team, and they've done an absolutely amazing job. They have transformed this in the past year. We're never finished. I'm never satisfied.
I'm always looking to do more, and I always want to do it yesterday. We did well last year on this, and we'll do hopefully well in 2022 and beyond.
Thank you.
Thanks, Verity. I'm conscious of time because I think you guys have all got another call. I'm sure this is your favorite call of the day, but I think you've got another call in about five minutes, so we've probably got a couple more minutes to take a couple more questions. You probably want to get off to the Drax results shortly.
The next question is from the line of Sam Arie with UBS. Please go ahead.
Hi. Good morning, everybody. Thanks for the presentation this morning. Very, very helpful. Hey, listen, I hear your comment, Chris, about running short on time, and I'm at the end of the line here, I guess in question. It's quite an important sort of devil's advocate question that I wanted to put to you guys. I hope you'll let me do that. In the spirit of kind of giving you an opportunity to kind of tell me why this is the wrong way to think about things. I suppose before I do it, I also just wanna say, I think it's worth acknowledging the, you know, absolutely fantastic work you guys have done already on cost simplification disposals in terms of condition stuff.
I mean, I think our view is out there, published in January, that what you've achieved, Chris, and the team is very, very good and the you know, strong performance of the shares is absolutely justified. But if I turn to my devil's advocate question, I think it's kind of more about the future than the past. I'll start with maybe your comments on the dividend. You've got this interesting comment today that, you know, there's a clear path to restarting the dividend. But if I'm honest, I kind of combed through the document and I look for, you know, when the dividend might restart, at what level, with what kind of payout policy, dependent on what milestones or criteria. Is there any special element? I don't see any of that information.
If I'm a little bit picky, I'd say actually it's not a clear path to restarting the divvy. It's the kind of textbook definition of an unclear path to restarting the divvy. I've got my devil's advocate hat on, but that's my first part. The second part is, if I think about earnings, you give actually quite a lot of information, as you mentioned about the outlook. You said it's broadly positive. There are several pages of comment, but I can't find any kind of guidance on the group level metrics that everybody wants to follow over the next years, two years, you know. Earnings, cash flow, balance sheet and so on. Of course, there's lots of hints and pointers, and some of them are very positive and interesting.
I've gotta say the experience of recent years is there's always, you know, quite a few hints and pointers. I remember lots of times when Jeff told us about the U.S. margin under contract, which was going to expand in the coming years, but kind of never really arrived. I noticed one of the comments today is a little bit similar on expanding margin in the U.K. It reminded me of that sort of previous experience. I think what I found is there's often a lot of things to get excited about, but then they come, but something else comes that we didn't know about before that offsets it. I think my devil's advocate question, if I try and sort of summarize it, you know, you've had a very good and honest focus on not over promising and under delivering.
I think that was a very good and welcome message. I just feel like isn't it time to find a way to put some guidance signpost down now about where the business is going next? If it's not possible to put any guidance signpost down, is it ever going to be possible? In that case, is it really viable to see Centrica still as a stand-alone business, you know, based on energy supply and services at the core and with its own credit rating or is that whole sort of concept in question? There you go. It's not a short question, Chris, but I'd just love you to tell me why that whole line of thinking is wrong-headed. I hand back to you.
No worries. No, you wouldn't expect me to say, "Sam, I think you're absolutely spot on." There's a couple of things in there. Firstly, I think we're quite clear, big stakeholder to the pension fund. We've got to understand the pension settlement before we restart the dividend. You forgive me for saying just because you may not have the map, doesn't mean there's a clear path. There isn't a clear path. You know, obviously, I mean, I think I've been really open in the three and a half years I've been here. For those of you that have, like, covered previous companies, I would have always been this case, which is I like to let you know what we're doing. I like to let you know what I think the key drivers are.
I wouldn't presume to tell you what the number's gonna be. That's your job. Your job is to take all of these points and to figure that out. I have real confidence that we're covered by some amazing analysts. There's a deep-rooted reason for that. This is a very personal thing. Everybody finds their own style. I've worked in companies before that have, with the best of intentions, given out targets. The targets are always proxies, because what you don't want to do is say there are 54 things in this business, and here are the 54 things that are gonna move. You give a target, which is a good proxy, and you give it with the best intentions. Something happens, and what you become focused on is not driving the business.
What you become focused on is delivering on that proxy. I think we got into that position with adjusted operating cash flow. To be fair, when you say we used to give signposts, we didn't. We used to give you the number. Then other things would happen. This is, like many other businesses, a very complex business. It would be very straightforward to say there are one or two things, and I'm gonna, you know, I'll give you them. You don't need me running the business. We don't need Kate. We don't need all the people we've got running the business. This is a complicated business. There's always things that are gonna happen. What we're trying to tell you the big things and try and tell you how these could impact, but they are all interrelated.
There are, you know, Kate talking about the Solvay contract. Gas price going up, and that should be good for that contract. If it goes up less quickly than the oil price, not so good. Where is the coal price gonna go? What is, you know? There are all of these things, and that's just on one contract. I think that what you'll never get back to the days, I think, where we were saying, "We're gonna make." I think when I joined, we were in the middle of that, "We're gonna make GBP 6.3 billion AOCF over a three-year period." I promise you that drives the focus on AOCF. I think the focus is on running a good business. Cash flow is the output from that.
I don't think one of the first things we said was we will do something with Direct Energy. Scott personally negotiated the break fee with the buyer and then said, "You go negotiate the deal." Really clear delineation of responsibility. Really great support. We did that with a bigger team than just the two of us, but after that, we focused on it, we delivered it, and I think we got an amazing price for that business. We closed that deal just before the Texas market went absolutely haywire, which would have cost us $hundreds of millions. That demonstrated that it was the right thing for us to do. Not only did we strengthen the balance sheet, but we also reduced the volatility in our business. We're focusing on what are very good businesses.
We're managing in a way, we have a clear picture of what we want to do, but you have to be agile. This time last year, we might have said we want to sell the whole of Spirit. I'm really happy that we're keeping the UK part of Spirit. We got bids to buy the whole of Spirit last year. We decided jointly, as an executive and as a board, that those bids were not at a level that we thought was attractive. But even if we just wanted to exit, they weren't from counterparts that we thought would stand behind the commitments. That's already proven to be true. One of the counterparts that wanted to buy the whole thing has already defaulted on a North Sea purchase that they made last year.
The one thing I would say is that we are absolutely focused on getting the maximum value from everything that we've got for our shareholders. I can't distill that into two or three things. You will have a financial framework. You just have to give us a little bit more time. Let us get to the pension negotiation. Let us restart the dividend. Hopefully, that's a slightly shorter way of saying I completely disagree with your devil's advocate position. You are completely wrong. I'm really grateful for the question.
Well, Chris, I'm really grateful for the answer, and the answer is much better than the question. I'm glad I asked it and glad we got your explanation. Thanks for fitting that in, even though I know, as you say, we're tight for time now. Thanks and congrats again.
No, that's fine. Thanks very much, Sam. Thank you.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Chris O'Shea for any closing remarks. Thank you.
Lovely. Thank you very much. Look, I won't take up any of your time. I suspect most of you are already on the Drax call. Thanks very much for dialing in. It's been a good session. Always good to hear what's on your mind. If we don't see any of you over the next few weeks when we're on the road, we'll speak to you, hopefully see you actually face to face alive when we do the interim results. Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.