Centrica plc (LON:CNA)

Earnings Call: H1 2019

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Jul 30, 2019

Good morning ladies and gentlemen and welcome to Centrica's interim results presentation and summary of our strategic update which the Board has been conducting over the last six months. First, a word on safety. There are no planned fire alarms today and any building evacuation will be announced by security. Emergency exits are marked at the front and the rear of the auditorium and UBS staff will direct you to the muster point, which is located on Sun Street. Before I continue with the rest of the presentation, let me comment on the other announcement today that I will step down and retire from the Board next year. Since 2015, we've been repositioning Centrica towards the customer and from a company ill equipped to deal with the major changes in the energy landscape to one capable of being in tune with it and the transition to a lower carbon world. The announcements we're making today, including exiting oil and gas production and becoming an energy services and solutions company, once material under materially underway or completed, form the right point for me to hand over to a successor. I'm proud of the efforts of the Centrica team so far. We've made good progress materially reducing costs and debt while re equipping ourselves for the future. The Ford deal announced today is an example of that. The divestments we're announcing or are already underway mean that Centrica, the Centrica which I inherited will have changed utterly. It's not been an easy journey, but we're now in a position to begin to restore shareholder value. I remain fully committed to leading this great company and I'm looking forward to executing these next steps and with the Chairman, Charles Berry, who's here this morning to ensure an orderly transition to someone with the skills for the next phase in due course. I also hope, as I said on the radio this morning, that the political backdrop in The UK under this new conservative government may be more effective in formulating constructive and progressive pro market energy policy as we aim to tackle the combined challenges of UK competitiveness and climate change. So in the first part of the presentation today, I'll summarize both our current situation and the conclusions of our strategic update. This includes the key conclusion that we will become an energy services and solutions company in tune with the energy transition to a lower carbon future, exiting exploration and production as well as nuclear and so completing the journey back towards the customer, which we began in 2015. Chris will then provide a detailed review of our current performance and first half results and outlook. I'll then come back to provide some more detail on key aspects of our strategy going forward and updates on specific businesses. Let me start with a summary of what we're announcing today. Firstly, on performance. It's very clear that the circumstances in the 2019 have been extremely challenging. We've had the implementation of The UK default tariff cap, including a one off impact of an additional GBP70 million, which were challenging in the courts, extremely low UK natural gas prices, outages at two nuclear sites whose restart awaits regulatory inspections and approvals, and warmer than normal weather on both sides of The Atlantic. This is not a positive set of circumstances for Centrica's portfolio today. As a result, despite the hard work of colleagues across the group, our financial performance in the 2019 was weak. However, there are fundamental drivers of momentum into the 2019 and indeed from there into 2020. A key indicator of our performance is the number of consumer account relationships we have. I'm very aware the loss of customer accounts in the face of intensifying competition has been a major worry for our shareholders and indeed for our colleagues within Centrica. In response to competitive pressures, over the last few years, we've been driving cost efficiency hard to ensure it's less easy for others to take our customers on price alone, and especially when our strong brand is taken into account. We've also been developing new propositions, including the bundling of energy and services and solutions. I'm pleased to report that through our improved cost base and the efforts of the Centrica team, we have had net consumer account growth in the 2019 for the first time since I've been Chief Executive. We also continue to expect to meet the 2019 group targets we outlined in February. Turning to strategy, we have concluded that Centrica has built sufficient capability in the customer facing businesses for us now to complete the shift towards the customer, which we began in 2015, with the decision to exit both exploration and production and nuclear. Centrica will become an energy services and solutions company. We will focus on our distinctive strengths centered around energy and with a major emphasis on helping our customers transition to a lower carbon future. The challenge of climate change is affecting all of us and the energy system must adapt. Centrica is ideally positioned to respond to this challenge with a focus on the demand side of the equation. Centrica has moved from being ill equipped to deal with the rapid changes in the energy system to being well positioned for the transition to a lower carbon future. However, turning to the dividend and our balance sheet, our current circumstances and this shift towards a more pure play customer facing company will require a change to our capital structure and to our dividend. I deeply regret that we have decided to rebase the dividend for full year 2019 to a cash dividend level of 5p per share. As part of this rebasing, we will cancel the scrip alternative from the 2019 interim dividend, will be paid in November. This reduction in the near term annual cash dividend roughly equates to the impact of our changed circumstances and the reduction in cash flows as a result of the impact of The UK price cap plus the increased pension contributions we will need to make as part of our triennial review, which has just concluded. However, our near term cash flows were not the only consideration. We've also paid attention to two other factors, the strength of the balance sheet and likely requirement for strong investment grade credit ratings for the future customer facing company and the cash restructuring charges we will incur as we complete the transition to becoming a highly competitive future facing energy services and solutions company. I must repeat that I know how material such a rebasing of the dividend is for our shareholders. It represents roughly a halving of the cash dividend. And I regret that our current circumstances and the need to complete the competitive repositioning of the company require this intervention. However, I'm sure that this is in the long term interest of all our stakeholders as we respond to the current circumstances and position Centrica to be able to leverage its distinctive skills and capabilities for the benefit of our customers, colleagues within the company and our shareholders going forward. There are a number of additional headlines from our strategic update, which we have conducted over the last five months. Centrica will continue to focus on the areas of energy services and solutions in which we have distinctive capabilities, namely in energy supply and its optimization and in services and solutions centered around energy. Within this, there's a growing opportunity in home energy management and the interface with electric vehicles. As evidence of this, I'm very pleased we've announced today an exclusive deal with Ford for The UK and Ireland relating to electric vehicle charging, EV tariffs and aftermarket services. We will reposition three key business units, UK Home, Connected Home and North America Business. I'll come on to some detail behind these in a moment. The decision to exit E and P and completely focus on the customer facing businesses will unlock and accelerate a further GBP $250,000,000 per annum of efficiency delivery. We're targeting being the most competitive provider consistent with our brands and propositions, which will prevent loss of customers and therefore stabilization and subsequent growth in both customers and margins per customer. Financially, dividend policy will be progressive from the rebased level of 5p per share linked to both earnings and cash flow growth and with a targeted range of cover from earnings of 1.5 to two times. The rebased dividend will allow organic sources and uses of cash flows before restructuring to be more than balanced. Over 2019 to 2021, in particular, there will be material further opportunity to reduce costs, but with significant restructuring charges. Divestment proceeds from the sales of Nuclear and Spirit Energy will be first used to fund the restructuring and to reduce net debt levels of what will be a pure play, but less diversified customer facing company. Finally, beyond the period of significant restructuring to the 2021, we would expect material growth in net cash flow. Chris will provide further detail on this later. Now moving on to the current environment and its impact on the first half results. I've already referred to a number of the factors that heavily impacted the 2019. As a result, we reported weak adjusted operating profit down 49% to GBP $399,000,000 and adjusted EPS was down 63% to 2.4p. Cash flow remained relatively robust. EBITDA was down 19% to GBP 1,075,000,000.000 and adjusted operating cash flow was down 32% to GBP $744,000,000. However, as I've already mentioned, consumer accounts grew. I'll provide more detail on this shortly. And with the outlook more positive for the second half of the year, we continue to expect to meet our full year group targets with adjusted operating cash flow in the lower half of the 1,800,000,000.0 to £2,000,000,000 range and net debt within the 3,000,000,000 to £3,500,000,000 range. Moving on now to cover consumer accounts in a little more detail. I've already mentioned that they grew in the first half of the year by 314,000 in total. We saw growth in energy and services accounts in North America and Ireland. In The UK, total energy and services accounts were down by 38,000 that excludes Connected Home. Within this, energy accounts were down by 178,000, which includes the impact of a spike in customer churn in March and April around the time of the significant increase in the default tariff cap. This includes the reduction of 274,000 collective switch and white label accounts, while we gained accounts on our British Gas branded tariffs. Notably overall energy accounts have grown in May and in June. Services accounts grew by 140,000 and accounts in The UK were up by 124,000 overall when including Connected Home growth. Although this is only one half year, it's encouraging to be able to report account growth for the first time in a number of years. If we look now at UK Home Energy accounts over the last five years, clearly, we've moved from 14,700,000 accounts to the current position of 12,000,000. During this period, accounts were relatively static in 2014 and 2015 and through the CMA investigation into The UK energy market, which ended in June 2016. However, the increasing number of market participants, some pricing below zero gross margin and taking advantage of the policy led cost advantages for small suppliers and our own stance in 2016 to focus on margin quality of customers rather than quantity resulted in a step down of about 2,000,000 accounts over 2017 and into the 2018. Since that time, as we have become more cost competitive and improved both service and customer journeys, we are seeing the decline slow markedly. And this year, we have The UK default tariff cap in place. I promised in February to give an update on dynamics under the cap. This slide shows for both prepayment and dual fuel SVT customers the dispersion of market prices before the cap, immediately after the cap and most recently. What you can see in both cases is that dispersion was reduced significantly on introduction of the cap and prices bunched underneath it. An interesting dynamic has developed with the regulated price cap levels increasing in 2019 as a result of lagging formula input costs just as the spot price of wholesale energy has been falling. This has significant dispersion of prices once again in the 2019. There are three critical takeaways from this. Firstly, despite the expansion of price dispersion, Centrica's energy accounts have only fallen by 178,000 compared to 341,000 in the same period last year or roughly half the rate. Secondly, within that, our ability to discount energy and bundle with services propositions and connected home propositions has actually resulted in net account growth despite the increased price dispersion. Finally, it's likely that the next period of the price cap will be lower by about GBP 80 per dual fuel customer and forward curves suggest wholesale costs will rise. This will compress differentials and put pressure on low cost suppliers who do not hedge. If Centrica has slowed account losses in energy even with the expanded dispersion, the next period should be better and the bundling of energy and services should enable continued account stabilization and net growth. I'm encouraged by our ability to compete under the new price cap situation, although this dynamic between a lagging static cap and volatile spot wholesale prices will require careful risk management. Let me now turn to earnings momentum. Touching now upon the outlook for the second half of the year and also looking ahead to 2020. There are a number of factors that give us confidence that earnings for second half of the year will improve compared to the first half. The GBP 70,000,001 off impact of the price cap will not be repeated, mitigating the normally lower energy profit in the second half relative to the first half. The four reactors offline at the Hunterston B and Dungeness B nuclear power stations are currently due back online between August and October, meaning that nuclear volumes should improve. As you'll hear from Chris shortly, North America business margin under contract is second half weighted, which should result in a much improved profit in the second half. And cost efficiency delivery is expected to accelerate in the second half of the year, including structural changes to cost of goods sold in UK Home Services. These factors should also provide benefit into 2020. In addition, we are seeing gross margin momentum in a number of our customer facing businesses, including reduced cost of goods in UK Home Services. We also expect reduced capacity charges in North America business, reduced losses in Connected Home, in part reflecting us refocusing the business on The UK and improvements in Distributed Energy and Power as gross margin momentum continues. Now let me return to provide more detail on the key conclusions from the strategic update. As already mentioned, we will exit hydrocarbon production, creating a leading international energy services and solutions company. We'll continue to serve consumers and business customers with our geographic focus remaining on The UK, Ireland, North America and Continental Europe. We will focus our activities around will strategic pillars of energy supply, in home servicing and home solutions. In Centrica Business, we will focus on the strategic pillars of energy supply, energy optimization and business services and solutions. In terms of the timing of completing our portfolio shift, we expect to exit Spirit Energy and Nuclear by the 2020 with the exit from Spirit Energy expected to come via a trade sale. We have already made some specific decisions relating to a number of our business units. I'll cover all of these in more detail later in the presentation. However, in summary, we will fundamentally rebase UK Home, driving structural changes in customer journeys, internal processes and the cost base. Connected Home will be refocused on The UK and Ireland and around home energy management and will be renamed Centrica Home Solutions. We're making structural interventions in North America business to improve returns and lower the volatility of those returns. We will continue to invest for growth in distributed energy and power with the business renamed Centrica Business Solutions in line with how we go to market today. Our shift to becoming a wholly customer facing company will also enable material simplification and greater focus. This will enable us to unlock and accelerate significant further cost efficiency. The GBP 1,000,000,000 of savings we've made since 2015 mean that we're now on average placed competitively from a cost perspective. The next phase of our efficiency program is designed to position us as the lowest cost provider in all our markets, consistent with our brand positioning and propositions. This will enable delivery of a further GBP 1,000,000,000 of efficiencies per annum from 2019 to 2022, which is an increase of GBP $250,000,000 versus the previous target of GBP $750,000,000 we announced in February. I appreciate this will impact many of our colleagues and I regret that hugely, but it's necessary for us to become fully market leading and so prevent others taking our customers certainly on price alone. Delivering this level of efficiency and cost base will require material restructuring charges, most of which will fall over the period 2019 to 2021. Finally, before handing over to Chris, let me now return to our conclusions on dividend and capital structure. As I covered at the start of the presentation, we're seeing increased pressure on our cash flows and dividends in the near term. These include our changed circumstances, including the impact of The UK energy supply default tariff cap and higher pension contribution requirements following the conclusion of our triennial review. We're also facing a higher level of cash restructuring costs with very good returns as we drive efficiency and competitiveness. As a wholly customer facing company, we will also require lower levels of net debt to meet likely higher credit rating agency thresholds. It is these factors which have regrettably resulted in us having to rebase the dividend to 5p per share for full year 2019. We will also cancel the dilutive scrip alternative. We'll target a progressive level dividend, sorry, from this rebased level linked to growth in earnings and cash flow and dividend cover from earnings of 1.5 to two times as I said earlier. We'll continue to target strong investment grade credit ratings to support our commodity hedging risk management activity. Finally, we will maintain our focus on capital discipline with annual capital investment post the Spirit Energy and Nuclear disposals expected to be around GBP 500,000,000. Chris will cover some of these areas in more detail in his section. I'll be back in about twenty five minutes to cover the key aspects of the strategy going forward and the details of our conclusions regarding specific businesses. Chris? Thanks, Ian. Good morning, everyone. As usual, I'll start with the first half results. Revenue was down 2% to £13,800,000,000 reflecting lower revenue in North America business due to fewer optimization opportunities and the impact of the introduction of UK default tariff price cap, partially offset by growth in North America Home, where we saw strong performance in our Air Tron Services business and higher energy revenue. Adjusted operating profit fell by GBP $383,000,000 with almost half of this reduction due to the impact of The UK price cap. Adjusted earnings fell by 63% to GBP 134,000,000, reflecting lower profits and the impact of an increase in the group's effective tax rate in the first half to 47% due to a higher proportion of the profits coming from the more highly taxed E and P segment, partially offset by lower interest charges following the 2018 liability management program. As a result, adjusted basic earnings per share reduced from 6.4p to 2.4p. The Board has declared an interim dividend per share of 1.5p, 30% of the expected full year dividend. EBITDA fell by 19%, while adjusted operating cash flow reduced 32% to £744,000,000 However, with operating cash flow expected to be more second half weighted this year, we remain on track to deliver adjusted operating cash flow of between GBP 1,800,000,000.0 and GBP 2,000,000,000 for the full year. Group net investment was 70% lower at GBP 139,000,000, reflecting the proceeds from our non core asset disposal program and a continued focus on capital discipline. Net debt of £3,400,000,000 was relatively flat year on year after adjusting for the noncash impact of IFRS 16. With cash flow is expected to be more second half weighted, we expect to remain within our GBP 3,000,000,000 to 3,500,000,000.0 targeted net debt range for the full year. Finally, we recognize the statutory basic loss per share of 9.6p for the first half after taking into account exceptional items and certain accounting remeasurements. I'd like to take some time to cover this before moving on to our divisional performance. As you know, we separately identify exceptional items and certain remeasurements in the face of the income statement as we feel this makes our results easier to understand. These items fall into three main categories as follows: firstly, we set up identifying costs associated with major restructuring programs. In the period of these programs, including the cost of changing UK pension arrangements amounted to GBP $321,000,000 pretax or GBP $257,000,000 post tax. And you can see that with the $2.00 5,000,000 and $252,000,000 the first two lines in this slide. Secondly, we separate out both material profits and losses and disposals of assets together with material asset impairments. During the period, we recognized a net pretax expense of GBP 25,000,000 comprised of asset impairment charges, largely offset by the gain on disposal of our Clockwerp business in The U. S. Post tax, the net charge was GBP 3,000,000, and you can see that from the three line items, 29 and 30,000,000 offset by the positive GBP 56,000,000. Thirdly, as you know, we have substantial risk management activities, hedging a large proportion of both the purchases of gas and electricity to meet the future needs of our customers and the sale of our E and P and power production volumes. But accounting standards require those hedges to be mark to market, we separately identify those mark to market movements. During the period, this generated a pretax mark to market expense of GBP $499,000,000. Post tax, the expense was GBP $424,000,000. When the oil, gas and electricity is delivered to our customers, the hedges mature and the recognized in business performance at the same time as the underlying hedge transaction. The combination of restructuring costs, asset impairments and non cash mark to market movements was a loss of 12p per share, which more than offset the underlying earnings per share of 2.4p. Turning now to Centrica Consumer, the adjusted operating profit was down 44% to £240,000,000 As you can see from the chart, this is largely due to the introduction of The UK price cap, including the nonrecurring one off GBP 70,000,000 hedging impact, which were currently challenging in court. The positive effects of our efficiency program contributed GBP 71,000,000, broadly offsetting the combined negative impacts of inflation, warmer weather and a decline in underlying margins, reflecting the impact of a lower average number of energy accounts in The UK, which more than offset strong performance at Board Gosh in Ireland. Turning now to Centrica business, with adjusted operating profit fell by 89% to GBP 11,000,000. Looking first at external factors. The positive impacts of higher baseload power prices in nuclear and the weaker pound were almost entirely offset by inflation and warmer than normal weather. Unfortunately, the extensions to the regulatory outages the Dungeness B and Hunterston B nuclear power stations, neither station has generated any power this year, resulting in lower operating profits. When we take the increased power prices in the first half, we would have expected our profits to be GBP 45,000,000 higher had these reactors operated. As you can see, we benefited from lower losses from the one remaining legacy gas contract in our Energy Marketing and Trading business. In the 2018, were able to capture substantial value from abnormally cold weather conditions in The U. S. Northeast. This year, we've seen far more benign weather conditions, which has resulted in lower price volatility and therefore, optimization opportunities. Underlying performance from the rest of Centrica business was down in 2018, but this was more than offset by cost efficiencies with our efficiency program improving operating profit by GBP 13,000,000 in the first half. I'll now take a minute to look at exploration and production, which includes Spirit Energy and Centrica Storages at Roughfield. Adjusted operating profit dropped by 42% to GBP 148,000,000. A little under half of the reduction was due to external factors, most significantly the decline in UK gas prices with 2019 prices having fallen by around 10p per term since the preliminary results in February. Spirit Energy production was slightly down in last year, although volumes were moderately ahead of our expectations, and we still expect full year production volumes to be broadly in line with 2018. Centrica storage volumes reduced as expected, reflecting the natural decline of the rough field. We also saw increased exploration expense in Spirit Energy, principally due to writing off the first of our three wells in the Greater Warwick area. You can see that in line with our other divisions, we continue to improve our cost performance, and it's pleasing to note a further GBP 13,000,000 of efficiencies were delivered in the first half. Moving now on to cash flow. As indicated in February, tax outflows returned to a more normalized level this year with a net cash payment of GBP 79,000,000 in the first half, whilst the working capital outflow we saw was flat when compared to last year. There was actually an underlying increase in working capital in line with normal seasonality in our customer facing businesses. And in addition, Spirit Energy had a stronger end to the 2019 than it did to the 2018, which resulted in a higher working capital outflow. However, we delivered the first GBP 100,000,000 of our structural working capital improvement program in the first half, which offset the underlying increase in the outflow. I'll cover working capital in some more detail shortly. Overall, these factors, combined with GBP $249,000,000 reduction in EBITDA and the fact that we received no nuclear dividend due to plant outages, resulted in adjusted operating cash flow falling by GBP $357,000,000 or 32%. Having a look at net cash flow now, you can see clearly here that despite the GBP $357,000,000 fall in adjusted operating cash flow, our continued capital discipline resulted in the reduction in free cash flow being restricted to GBP 78,000,000. We took steps to reduce our organic capital investment, saving GBP 83,000,000 in the first half of the year, and we made no acquisitions in the period, resulting in a further reduction of GBP 55,000,000 year on year. And we realized GBP $216,000,000 from the disposal of our Potbler business in The U. S. Taken together, net investment fell by GBP $324,000,000. Restructuring costs increased by 50% as we stepped up the delivery of the second phase of our efficiency program. Net interest outflow reduced by almost half to GBP 79,000,000, principally due to the reduction in gross debt, coupled with more stable foreign exchange movements. In addition, 2018 saw GBP 139,000,000 outflow relating to the debt repurchase program. Dividends paid to Centrica shareholders of GBP $383,000,000 were lower than last year, reflecting a higher scrip take up related to the 2018 final dividend, which was paid in June. We paid our first dividend to Spirit Energy's minority holders of GBP 124,000,000 relating to 2017 and 2018. Pension deficit payments also increased compared to last year, and this includes an additional one off GBP 75,000,000 deficit payment made in January as we agreed with pension trustees as part of the 2015 triennial valuation. We've now concluded the 2018 triennial review, and I'll take you through this in more detail shortly. Reflecting on all of these factors, net cash outflow of GBP $3.00 5,000,000 was broadly in line with what we saw in the first half of last year. Moving on now to our efficiency program, which delivered a further GBP 97,000,000 of savings in the 2019, which again more than offset the impact of inflation and foreign exchange movements. We made significant further progress in transforming our customer and field operations in The UK and The U. S, enabled by further digitalization of customer journeys, including continued focus on self serve and automation. In April, we announced the closure of two of our U. K. Customer operation sites. In June, we announced a further reduction of 700 management and back office roles in The U. K, and we continue to make progress with reducing the size of our corporate functions. As Ian mentioned earlier, despite the weak first half performance, the outlook for the second half is more positive, and we expect adjusted earnings and operating profit to be sequentially higher due to a number of factors, a crucial part of which is the recovery of North America business, and I'd like to take a minute to talk about this. This business made an adjusted operating loss of 14,000,000 in the first half, which is much of a disappointment to us as I'm sure it is to you. The chart on the left shows the gross margin contribution from each part of this business in the first half over the past three years. In 2018, the big change was a reduction in the power supply business, which reflects both the competitive environment and higher capacity charges, partially offset by the material profits made from gas optimization in January 2018 due to abnormal weather events. In 2019, as we've seen some improvement in the power supply business, more benign weather conditions resulted in a lack of gas optimization opportunities. When you look ahead to the 2019, the value of our contracted forward book as at the first of July is higher than it's been in any of the previous two years. The increase is largely in the power businesses, more specifically in the power supply business as we see the benefit of reduced capacity charges coming through. Assuming a normalized level of margin is added in the second half, this combined with the higher forward book would indicate an additional $100,000,000 of operating profit in the 2019 compared to the same period last year. When you compare it to the first half of this year, the improvement is more significant. Of course, this is subject to the euro caveat of normal weather patterns. The outlook in future for North America business was one of the topics that Ian touched on earlier, and he'll cover that shortly in more detail as he looks in the businesses. I'd like to take a couple of minutes to cover the 2019 targets we set out in February before looking at the longer term outlook for the balance sheet and cash flow. Despite the weak performance in the first half, we remain on track to meet all of our targets. We continue to expect adjusted operating cash flow in the range of GBP 1,800,000,000.0 to 2,000,000,000, albeit in the bottom half of this range. This includes around £200,000,000 of structural working capital reductions, half of which was delivered in the first half. We continue to expect to deliver £250,000,000 of cost efficiencies in the year, which will result in between 1,502,000 colleagues leaving the group. We've taken steps to reduce our capital expenditure, and this will not exceed £900,000,000 for the full year below the £1,000,000,000 we announced in February. We continue to expect to deliver a GBP 500,000,000 non core asset divestment program with the Clockwork disposal completed in April. And finally, we continue to expect net debt to remain within our targeted range of GBP 3,000,000,000 to 3,500,000,000.0 as the actions we've taken to reduce capital expenditure and release working capital compensate for the weaker performance we see in 2019. In addition, it's worth remembering that normal seasonality in our business results inflow of working capital in the second half of the year. As you know, running a substantial energy supply business, particularly one which includes fixed or capped prices, required a material commodity purchase program and careful risk management. At the 2018, we had GBP 27,000,000,000 of forward commodity commitments relating to 2019, 2020 and 2021 to hedge our downstream supply commitments not only to 15,700,000 energy customer accounts, consumer accounts, but also to the energy supply customers in our business division in The UK and North America. This requires us to be an attractive counterparty with which to trade, hence the requirement for strong investment grade credit ratings. Following our intended exit from E and P and Nuclear, the group will have a lower asset intensity, and this is likely to result in higher credit thresholds being applied in order to retain the same credit ratings. As a result, proceeds from the Spirit Energy and Nuclear divestments will be retained on our balance sheet to reduce debt. We will also maintain our focus on capital discipline, including structural working capital reductions. Taking a minute to touch on debt, we have a long dated bond portfolio with maturities out to 2,045 and an average interest rate of 4.9%. Furthermore, in February, we renewed 21 bank GBP 4,200,000,000.0 committed revolving credit facilities. These RCFs have an initial maturity of 2024 with two one year options, and the vast majority of these facilities are currently undrawn. I mentioned in February that there was more that we could do to structurally reduce the amount of working capital we carry in the business, and this has been a focus area over the past few months. The group's trade working capital has normally been in the range of 4% to 4.5% of sales, which we believe is too high, and we think we could reduce this to 3% over time. This step change would result in the release of approximately GBP 400,000,000 of working capital, both reducing group net debt and increasing the group's return on capital. We've already delivered close to £100,000,000 of this in the first half, and we look to deliver the same amount again in the second half of this year, with the majority of the remaining 200,000,000 expected to be delivered in 2020. On pensions, the latest actuarial valuation has now been finalized with our pension trustees with a technical provisions deficit of £1,400,000,000 as of the 03/31/2018, up from £1,200,000,000 at the 03/31/2015. As a result of this agreement, we've committed to make additional annual cash contributions to fund the deficit with total payments of GBP $223,000,000 this year and GBP 175,000,000 per annum thereafter until the deficit is extinguished. During the first half, we also agreed with those UK based employees still in a defined benefit pension schemes that we've reduced benefit accrual rates and therefore make lower company contributions going forward. We've also started in conjunction with the pension trustees to derisk the pension fund asset portfolios by increasing the inflation and interest rate hedges from onethree to twothree. This will lead to reduced volatility in the deficit going forward. In terms of the IAS 19 accounting deficit, the combined net deficit for all of our DB schemes have risen from GBP 79,000,000 at the 2018 to GBP 114,000,000 at the June 2019. Moving on now to future CapEx expectations. Following the disposal of Spirit Energy and Nuclear with a continued focus on capital discipline, we'll be targeting annual CapEx of around 500,000,000 per annum. It is quite important to note that once we've exited E and P, our CapEx program will largely comprise of relatively small scale, shortly time projects and this provides us with the flexibility to respond quickly to changing market conditions and flex investment as required. All investments we make will be expected to deliver a minimum IRR of 10% in line with our group return on capital employed target of at least 10% to 12%. Our M and A team is rather busy just now, and this is going to continue in the coming months as we execute both our GBP 500,000,000 non core asset divestment program, commence the process to dispose of Spirit Energy and complete the sale of our nuclear stake. To date, we've delivered just under half of our non core divestments, and we have a number of processes in train at the moment to deliver the remainder over the next six months. Disposal of our nuclear state continues to make good progress. As we've indicated previously, this is a lengthy process, and frankly, it's not been helped by Brexit nor the operational issues at both Hunterston B and Dungeness B. However, these are good quality assets and we continue to pursue our exit from this business by the 2020. We'll kick off the disposal process of Spirit Energy shortly, and we're confident that we have a good number of interested parties. It's not often the opportunity to purchase a 50,000,000 barrel business represents itself and especially not one that can stand alone. It's pleasing to be able to confirm that we are fully aligned with the partner SWM. We will retain our focus on maximizing value from the assets held by Central and Storage Limited at both the Roughfield in the Southern North Sea and the Easington terminal in The UK. Moving now on to the cash flow outlook for the next few years. Throughout the period of restructuring, the majority of which we expect to complete by the 2021, the group's expected to generate positive free cash flow every year, including the impact of divestments. Adjusted operating cash flows are expected to fund the rebased dividend, CapEx, interest expense and pension deficit contributions. The operating cash flows will also partially fund the restructuring costs associated with the delivery of the additional GBP 1,000,000,000 of efficiencies from 2019 to 2022. Like our capital expenditure, the restructuring program is comprised of a substantial number of discrete projects, and we can therefore flex the program up and down as circumstances dictate. We expect restructuring costs to average GBP 300,000,000 to GBP 400,000,000 per annum between 2019 and 2021, with the balance of the expected GBP 1,250,000,000.00 cost following June in 2022. Any restructuring costs not funded out of operating cash flows will be met from the proceeds of the Nuclear and Spirit disposals. And the balance of the disposal proceeds will be held in the balance sheet to materially reduce net debt. We indicated in February that our adjusted operating cash flow was under some pressure. And as you can see from the chart, as we expect 2019 and 2020 to be lower than in previous years, we continue to expect our businesses to deliver substantial operating cash flow. There are a couple of points worth noting here. Firstly, these numbers will obviously change once we've disposed of both the Nuclear business and Spirit Energy. And secondly, the cash flow in 2019 and 2020 is underpinned by the structural reductions we're making to working capital. We've had a consistent financial framework for the past four years, and it's appropriate now to update this for the next few years. However, before doing so, I wanted to let you know that from the 2019, we will report results at divisional level for three divisions: Centrica Consumer, Centrica Business and Exploration, Production and Generation. We will provide you with the results at a business unit level for the second half of twenty nineteen to allow a transparent transition to our new reporting segments. Back to the framework. We will continue to target growth in adjusted operating cash flow over the medium term. Dividend is expected to grow from the rebased 2019 level over the medium term in line with underlying growth in earnings and cash flow, and dividend cover from earnings is expected to be in the range of 1.5 to two times over the medium term. We'll continue to target increases in operating costs below inflation each year, and we intend to deliver a further £1,000,000,000 in cost efficiencies by the 2022. Following the disposals of Spirit and Nuclear, CapEx will be around GBP 500,000,000 per annum, and we'll continue to target strong investment grade credit ratings. Finally, our group return capital employed target remains at least 10% to 12%. I'll now hand you back to Ian to look at our in more depth our strategic update. Thank you, Chris. I'd now like to cover the key aspects of the strategy going forward and specific outcomes of the strategic update in more detail. I'll outline the Group's purpose and strategy, the changing energy landscape and Centrica's role in it. I'll then cover our performance agenda, cost efficiency and transformation programs. Part of this is about rebasing UK Home. So I will go through this and our plans to become the lowest cost energy supplier in some detail. I'll then move on to the decision we've made to refocus Connected Home, renamed Centrica Home Solutions before covering the actions we're taking to improve returns in North America business. Next, I'll cover our progress in Centrica Business Solutions, describe some of the new capabilities we're building for 2020 and beyond, specifically in the areas of home energy management and electric vehicles before summarizing. Let me start with purpose and strategy. So what is Centrica here to do? Our purpose is set out in 2015, has been refreshed, but its essence remains unchanged. We're focused on satisfying the changing needs of our customers but are now increasing the emphasis on enabling the transition to a lower carbon future, helping our customers run their world in ever more sustainable ways. In that sense, we are becoming a twenty first century energy services and solutions company. And the portfolio changes we're announcing today will complete our shift to this destination and to the customer. For our other stakeholders, our strategy remains to deliver long term shareholder value through returns and cash flow growth, while being a trusted corporate citizen and an employer of choice. The energy landscape is changing rapidly and I want to describe Centrica's role in it. There are three big points. First, the trends that we identified in 2015 continue to play out. Specifically the energy system is becoming more decentralized as advancements in distributed technologies support decarbonization. Choice, power and influence are moving to the customer and digitalization is accelerating proposition development, increasing choice and driving efficiency across our sector. Second, we are now equipped and committed to help our customers transition to a lower carbon future with capabilities to help them reduce their emissions while we also exit the hydrocarbon production business. We supply natural gas and believe in its near term role in replacing coal, but we also embrace the ultimate need to decarbonize heating. We have targets to reduce the emissions for our customers, the energy system and our own operations and have made a commitment to have a plan by 2030 to be at net zero by 02/1950. Third, we built specific major technology capabilities to offer our customers. In business solutions, we can now deliver combined heat and power, solar, battery, fuel cell solutions and electric vehicle integration. We can also offer business insights and optimization solutions, including distributed sensing, demand response and route to market services. In home energy management, we are working on energy control and optimization, electric vehicle charging and mobility solutions. Our investments in platforms, including our integrated solutions platform in Centrica Business Solutions, the Honeycomb Connected Home platform, GreenCom Networks and drives will help us serve our customers' future needs and enable growth. We showed this slide in February. Our strategy is now formulated to contribute to and benefit from the long term structural changes required to address climate change. In short, we are completing the shift from a company unsuited to where the world of energy is going to one in tune with it. We've made commitments with clear targets in line with the Paris Accord built around three pillars to help our customers reduce their emissions to enable a decarbonized energy system and to reduce our own emissions. We will report our progress against this framework on an annual basis. We're one of the few companies prepared to commit to improving their Scope three emissions, I. E, those associated with their customers. Let me now turn to what we will offer them. Our overarching purpose is to satisfy our customers' changing needs, helping them transition to a lower carbon future. We will offer them more than just energy supply. Energy supply is only one of the services we provide. We'll provide services and solutions, which customers value and are willing to pay for, either separately or as part of bundled propositions. We'll focus on those areas in which we have distinctive strengths, specifically energy supply and its optimization and services and solutions centered around energy. Our field force is a unique asset and we will expand its tremendous in home fulfillment capabilities and we will integrate new energy technologies, design customer platforms and leverage data and data analytics to serve our customers better. Last but not least, we will target being the lowest cost provider consistent with our brand positioning and propositions. This will enable us to price at the most competitive level, slow and then stop customer losses and overtime allow us to grow customers and gross margin. To deliver for our customers, the Centrica team must also continue to evolve. We must relentlessly be focused on these five group priorities. First, customer obsession. Our service to customers has significantly improved, but now we must put the customer at the forefront of absolutely everything we do. Second, we need to continue to drive operational excellence to streamline everything and get things right first time. Third, the key financial outcome we will continue to focus on is cash flow growth, with which we can fund our needs and underpin our dividend and pension obligations. Fourth, we have to be relentless in our pursuit of becoming the most competitive provider. Finally, in many ways, most importantly, some things that we've been doing have been holding our colleagues back and we need to empower them more to allow them to drive the business forward. So let me turn to the strategic pillars and capabilities of the divisions. We're tightening their focus, built around capabilities where we are advantaged. In Centrica Consumer, we will have three strategic pillars, energy supply, in home servicing and home solutions. These are all activities in which we have distinctive positions, strengths and capabilities. In energy supply, we remain the largest supplier in The UK with twice as many customers as the next biggest. We also have top three positions in Ireland and North America. We have significantly improved customer service levels in all geographies since 2015, while our digital and segmentation capabilities are greatly enhanced. We'll drive our cost base to become the most competitive and there's much more potential, which I will come on to shortly. And we'll offer energy bundled with our own services and solutions. And if we discount anything in the bundle, it will be the energy. This is hard for competitors to imitate. In in home servicing, we are by some distance the largest supplier of contract cover and boiler installations in The UK. We have over 9,000 British Gas Service Engineers, a position that is almost impossible for competitors to replicate. In The U. S, we have a top 10 and growing position in the provision of protection plans. Our in home servicing business delivers world class levels of customer service. Our UK engineer NPS is plus 65. And increasingly, we're upskilling our employees, training them in areas such as smart metering, electric vehicle charging and home energy management solutions. Our third pillar is home solutions, which will now be refocused and centered around home energy management. We are The UK's leading smart thermostat provider and have scalable reliable technology platforms. Our in home servicing channel drives sales and end to end customer service. Our focus moving forward will be on energy management, including integration of new technologies such as fuel cells, remote diagnostics and additional growth in electric vehicle related new the are business business business. Distinctive strengths and capabilities in energy supply, energy optimization and business services and solutions. In energy supply, we are the largest supplier to small and medium enterprises in The UK and the second largest competitive retailer in North America. Our customer service levels have improved materially while our cost base has progressed to competitive levels with potential for further reductions. In energy optimization, we now have 24,000 megawatts of contracted route to market capacity globally, while we also have 2.5 gigawatts of demand response capacity under management. In both areas, we have leading software capabilities. In North America, we have gas pipeline and storage capacity that provides valuable optionality, while we also have strong energy trading capabilities in both North America and across Europe and the growing global LNG position. In Business Services and Solutions, we now serve over 5,500 sites and have over 600 megawatts of energy solutions capacity management. We're able to offer customers end to end design, installation, maintenance and service solutions for a wide and expanding range of energy technologies. And as in consumer, there's further growth potential from the development of energy management platforms and integration of electric vehicle propositions. Let me now turn to our near term performance agenda and progress against it. This is the 18 to 20 performance agenda we've shown before. Our first priority is to demonstrate we can grow overall gross margin. We are not yet achieving this, which I know is an area of concern, particularly when we lose customer relationships. But we are seeing some signs of progress. As I said earlier, we saw net growth in consumer accounts in the first half of the year and there are also further encouraging signs of underlying growth in Centrica Business, in particular in Centrica Business Solutions. Delivering cost efficiency until we can stabilize gross margin remains crucial to earnings and cash flow. I'll cover this and our targets to become the most competitive supplier shortly. Improving organizational effectiveness remains a major focus and is reflected in our current transformation program. And we need to continue to secure the capabilities we need for 2020 and beyond as the energy system continues to change. I'll cover some important developments in home energy management and electric vehicle propositions later in the presentation. Finally, as you've heard from both Chris and me already, maintaining capital discipline and balance sheet strength remains crucial. I'll now cover our updated cost efficiency ambitions and wider transformation program. As you already heard, we have delivered over GBP 1,000,000,000 of like for like efficiencies since 2015. But there is still significant further opportunity and we're targeting a further GBP 1,000,000,000 of efficiencies over 2019 to 2022, which is GBP $250,000,000 more than we indicated in February. This additional efficiency is enabled by the conclusions of the strategic update we announced today. This chart has therefore been updated to reflect this increase and now shows the phasing of the projected savings by year. We would expect efficiency delivery to be front end weighted with 85% of the savings planned to be delivered by 2021. Even after inflation, we would expect our like for like controllable cost base to be GBP 500,000,000 lower in 2022 when compared to 2018. The restructuring costs to deliver the scale of efficiency will be significantly higher than the cost to deliver the first £1,000,000,000 given the fundamental nature and restructuring associated with some of the initiatives at around GBP 1.25 for each GBP 1 of annual savings. However, with an estimated fifteen month payback, this is still an extremely good investment with the end result being that by 2022, we would expect to be the lowest cost provider in all of our markets, consistent with our chosen brand positioning and propositions. Let me outline to you the activities underpinning our transformation to reach this level of competitiveness. This slide shows the major projects driving efficiency within our transformation program. There are a number of ongoing projects that started in 2018, mainly the transformation of our customer and field operations in The UK, alongside the transformation of UK business. These will total GBP $450,000,000 of annualized savings by 2022. Additional projects have been activated and accelerated during the first half of this year as we responded to the current environment, including The UK price cap. These are focused on activities within the group functions, third party spend, the efficiency of core processes and change programs, transformation of North America Home and overheads reduction in UK Home. These will contribute about GBP 300,000,000 by 2022. Finally, there are major projects which are consequent on the strategic update conclusions and the move to a simplified and focused customer facing company. They include the fundamental rebasing of UK Home in a price cap environment, the rightsizing of management structures across the group and review of all remaining business unit overheads. We will also be reviewing and consolidating our property footprint. These enable accelerations and delivery of the additional GBP £250,000,000 of efficiencies into the period to 2022. This is a huge effort and significant degree of change and I'd like to thank Centrica colleagues for delivering it as we also go about serving our customers. Let me now cover the rebasing of UK Home in more detail. This chart shows the historic and future targeted cost per dual fuel energy account in UK Home. In real terms. It excludes costs associated with metering, including smart as these should normalize over time for all suppliers. The savings we've delivered since 2015 have kept us moving forward competitively despite battling the loss in energy accounts over the period. So that we're now in the bottom half of the range of comparable large and medium suppliers. We're seeing further progress on unit costs in 2019. Our brand strength and affinity and bundling with other propositions is allowing us to compete effectively this year as demonstrated by the overall increase in energy and services accounts in the first half of this year. However, there's much more we can do. Plans already in action should deliver around GBP 20 per customer of savings in real terms by 2022, taking us to around the level of the projected first quartile performer, the GBP85 you see on the right. However, we're developing plans now to fundamentally rebase the business and take us below this level towards the cost base of the projected lowest cost supplier in the market. Given our scale as the largest supplier in The UK market, we believe this is an appropriate target by 2022. Let me give you a little more detail on the activities underpinning this journey. Here, you can see the actions we've already delivered, the plans we already have in place and our future plans. Since 2015, we've significantly improved our competitiveness with cost savings delivered through the removal of process duplication and management layers and increased digital functionality, driving greater self serve and fewer calls to our contact centers. We've also seen retention benefits from our British Gas Rewards program with 2,300,000 of our customers now members and from bundling of propositions. The plans we're currently enacting involve further improvements to our digital platform, driving digital transactions from 50% today to 70%. We're also upskilling our contact center teams, reducing costs, the complexity of certain journeys and improving the customer experience through the elimination of call transfers. We'll also continue to reduce costs in our operations, driving increased automation, while we will also reduce the number of non customer facing roles in the organization. These plans will get our costs to first quartile, helping underpin customer stabilization when combined with our brand. However, our future plans will deliver cost leadership and enable us to grow customers and margin. These will entail more fundamental transformation, including process reorganization around customer end to end journeys, not traditional industry processes. They will also mean us transforming our IT stack to be more flexible and with lower costs. And we'll increasingly embed machine learning into our core operations, reducing the number or the amount rather of human contact required. Moving now on to in home servicing, where our focus is on driving further improvements to competitiveness and service. The chart on the left shows how we have continued to improve the experience for our services customers as measured by the percentage of visits we fulfill on the scheduled day. It's already high and NPS is strong, but we're focused on improving this further still and getting it to as close to 100% as we can. There are also further efficiency opportunities to reduce our cost per customer visit, which will allow us to maximize the growth potential of the business. Although our customer value proposition justifies a price premium and we can see this in our retention statistics, we are focused on becoming more efficient relative to our lowest cost competitor and are targeting a reduction in our cost per customer visit by around 10% over the next three years in addition to further operating cost reductions. In terms of activities, we've already made good progress on improving our service levels and competitiveness since 2015. We have upgraded our field technology and diagnostics, which has improved our first time fixed rates, while the introduction of online appointment booking has reduced coal volumes. Our engineered tracking tool has improved the customer experience and helped reduce the number of missed appointments, while our teams are now organized around the customer, which has reduced the number of internal handoffs. We've also renegotiated pension terms with our engineers and their unions to make us lower cost in the medium term, while still offering a competitive pension offer. And importantly, we have seen a return to customer growth over the past two years helped by the launch of new propositions, including energy and services bundles. We have current plans to further improve competitiveness and enable future growth. We're developing a new engineer fulfillment platform, which will enable consolidation and reduction of back office costs. We're also upgrading our field and supply chain technology, improving same day parts availability. We're targeting an improvement in our first time fixed rates to 90% from around 80% today. We'll also continue to focus on improving the effectiveness of our service engineers, leveraging their skills to capitalize on new market opportunities, such as electric vehicle charge point installation and servicing, while also increasing our flexibility to meet our customers' requirements. Moving now on to the repositioning of Connected Home. We've learned a lot through Connected Home and developed important skills and capabilities for the future. Geographically, you can see from the chart, we've been successful in growing Connected Home materially in The UK, in part due to the scale of total UK customer base, sales channel synergies with energy and services and the use of our in home servicing capabilities to fulfill installation of products and as a sales channel. As a result, we've developed a strong position in The UK with leading brand awareness, high levels of customer satisfaction, a reliable and scalable platform and a wide range of products that are synergistic with our energy and services offers and which drive retention. We're seeing a positive impact on our energy and services businesses with the energy NPS for Hive customers 13 points higher than for an energy only customer and the addition of new Tecentriqa customers providing an additional Energy and Services sales channel. However, we've not achieved expectations for growth in other geographies, despite our direct energy customer base and partnership with ENI in Italy due to the absence of a number of these factors. Therefore, having reviewed the key success factors for growth, we have concluded that we cannot justify expansion into other geographies and Connected Home will now be focused on The UK and Ireland with the business unit more appropriately renamed Centrica Home Solutions. It's about much more than connecting the home and it should also be very closely tied to our core skills in energy management and in home servicing. We will continue to leverage our distinctive field force for new propositions, which will be focused around home energy management and home remote diagnostics and monitoring. Given these changes and reduced resource allocation as a result, we are now targeting revenue of GBP 150,000,000 to GBP 200,000,000 by 2022 compared to GBP 67,000,000 in 2018. And with lower costs and reduced investment requirements, we are targeting EBITDA breakeven for Centrica Home Solutions by 2021. We will also continue to evaluate joint ventures and partnerships in Home Solutions if they unlock further value from the platform and capabilities we have created to date and I'll outline an example in a moment. Moving now on to Centrica Business and first North America Business. North America Business is a unit of significant scale, but as you know, we have had issues recently with margins and returns. We make money through supplying gas and power to around 250,000 customers and through the optimization of pipeline and storage capacity that our retail activity enables and through providing route to market services for power generators. North America business also provides risk management support for North America homes procurement activities. North America Business has a number of sources of competitive advantage. Its scale as the second largest competitive retailer, the range of its product offering to customers, its risk management and optimization capabilities and high levels of customer service. Its large customer base is also a source of competitive advantage for Centrica Business Solutions. However, recent performance has not been acceptable due to a combination of both structural and internal factors. Customer usage is declining with energy efficiency measures taking effect and we're seeing increased levels of competitive intensity. Of a more temporary nature, the shape of the commodity curve and the phasing of capacity charges has created an additional headwind since 2017. There factors that have impacted performance, including poor visibility and forecasting of gross margin components and we've taken actions to address these. We've already intervened to improve performance and initiated some further actions. We are making improvements in the quality of underlying gross margin through focusing on higher value customer segments and changing our core retail offer to reduce risk and volatility. We will continue to optimize our customer mix and increasingly leverage our business solutions technologies and propositions to help improve retention rates further. We have also delivered AUD25 million of cost efficiency since 2015 and further actions in place to deliver an additional $25,000,000 over the next two years. We've successfully reduced the capital employed in the business by $1,200,000,000 since 2015 without degrading the underlying margin quality of the customer book. Further working capital and margin cash initiatives mean we are targeting a further $100,000,000 reduction in capital employed over the next two years. So what does all this mean for returns going forward? Our focus will remain on business energy supply and optimization, where we have distinctive positions and capabilities and on enabling growth of Centrica Business Solutions. The actions we've already taken combined with the reversal of the commodity curve shaping effect and capacity charges are expected to lead to economic returns in excess of cost of capital in 2019. And the further actions we're taking are expected to lead to average post tax economic returns on capital employed of at least 10 to 12% and no worse than 8% at the bottom of the cycle. If we can deliver such returns through the cycle, limiting the downside while enabling Centrica Business Solutions growth, then North America business will deliver lasting value to our shareholders and will be core to Centrica's portfolio. We are determined to deliver these outcomes on a sustainable basis. If we cannot deliver improved returns relative to cost of capital and therefore through cycle shareholder value, then clearly it would bring into question the role North America business plays in our portfolio. We will only invest for growth in North America business once materially improved returns have been demonstrated. So moving now to cover Centrica Business Solutions. Centrica Business Solutions is highly aligned to the energy trends I referenced earlier and the associated changes in customer demand for new propositions. We are focused on delivering energy optimization and solutions propositions for customers and now have a wide range of technologies to underpin our solutions offering as well as advanced software to underpin our optimization propositions. We have developed distinctive capabilities and an integrated approach to customer solutions through our integrated solutions platform. We've been successful in developing an international business model with operations in 11 countries and 64% of the order book is now outside The UK. And as you can see from the chart on the left, growth rates for order intake and order book have been accelerating. Centrica Business Solutions is becoming material and we hope to achieve revenues of over GBP 300,000,000 this year. We will continue to invest internationally in business solutions with our focus on The UK, Ireland, North America and Continental Europe. Importantly, our growing installed base provides a platform for recurring revenues from operations and maintenance, optimization activity and finance solutions. On the left, you can see that more than half of our order book is recurring in nature and made up of a variety solutions and optimization services. We're going to look to deliver further growth through leveraging our existing customer relationships as well as expanding our range of technologies to meet customer needs. With continued resource allocation to this growing and attractive business, we continue to target GBP 1,000,000,000 of revenue by 2022. With unit gross margins expected to be around 20%, we're targeting Centrica Business Solutions to breakeven as an EBITDA level by 2021. This combination of skills and capabilities we've built within Centrica Business Solutions makes Centrica an international market leader in this area. Finally, let me briefly cover a couple of specific areas where we've been developing additional capabilities to meet some emerging future needs of our customers. Consumers and businesses are approaching us to help them with energy management and mobility solutions around electric vehicles and we're developing propositions and technologies for inclusion of electric vehicles for both consumers and business customers integrated into their energy management systems. In electric vehicle solutions, the focus has been on energy system requirements for EV integration, EV energy tariffs, electric vehicle optimization software and aftermarket services. I'm delighted we've announced this morning an exclusive partnership with Ford as they prepare to launch their latest electric car to the European market. Under the five year partnership, Ford customers will be offered a dedicated home charging installation and EV tariff from British Gas, while we will also install charging points at up to 1,200 Ford dealerships across The UK and Ireland. We'll also explore demand side response services, including the potential technologies of vehicle to home to grid and home energy management solutions with Ford. Integration of EVs into the home and control of all energy management requirements of the home will be an important growth node. We're working on a potential platform to enable this for customers. We already have ownership interests in individual technology platforms that will enable us to achieve this. We own the platform for home heating control, automation and diagnostics. It's called Honeycomb, which supports Hive today. We also have an 18.7% interest in Greencom Networks, an energy management information and brokerage platform for the home. And the 17.2 interest in Drives, who have developed an EV charging network control platform, which supports some of the leading EV networks in The United States and in The Netherlands. And at the bottom of the chart, the acquisition of ReStore in 2017 also provided us with leading demand response capabilities, which we can increasingly leverage for consumers as well as businesses. We intend to work on the integration of these platforms and the development of a customer interface, which will allow consumers to control and optimize the energy of their homes, electric vehicles and the relationship to the grid. This is an important future market and the technology positions we have developed when combined with our other skills and in home servicing capabilities leave us well positioned to benefit as evidenced by the Ford deal announced today, and we're also talking to a number of other OEMs about similar relationships. I hope these more detailed summaries of some of the key conclusions from our strategic update have helped to position Centrica today, our determination to drive efficiency and competitiveness and the leading capabilities we've been building and their relevance for the future. Let me now summarize with what you can expect from Centrica moving forward. Our direction of travel towards the customer has been reconfirmed in the strategic update. We will complete this shift with the exit from E and P and Nuclear with Centrica becoming a leading international energy services and solutions provider. As I hope I've demonstrated, Centrica is increasingly well positioned for the future energy transition as the world of energy decentralizes, rent moves towards the customer and we harness the power of digitalization. We'll focus on our strengths of energy supply nearly got to the end. Energy supply and its optimization and on services and solutions centered around energy, with an emphasis on helping our customers transition to a lower carbon future. While we build these propositions, we must also drive to being more competitive. We'll deliver further material cost efficiency out to 2022 as we target becoming the lowest cost provider in all our markets, consistent with our chosen brand positioning and propositions. This will be a key enabler for us to deliver stabilization and growth in customer accounts and when combined with new propositions, the expansion of net margin per customer. We will continue our strong focus on capital discipline and on maintaining a strong balance sheet and we will aim to pay a progressive dividend linked to earnings and cash flow growth from the rebased level of 5p per share we've announced today. Thank you for listening. I'd now like to invite Sarjeet and Richard onto the stage for Q and A. Thank you. And when we do Q and A, can I just ask you to when you identify yourself before asking your question and your affiliation? Can you also in your chairs, in the arm of your chairs, there is a microphone, which might help us all hear you. I believe they can just be extracted and used. So Jenny in the front, and then we'll go to John Musk. It's Jenny Ping from Citi. Two questions, please. Firstly, Chris, I'd like to understand a bit more about the conversations you've had with rating agencies in terms of what is the scale of the uplift on the ratios that they're looking for, for the new Centrica And what sort of conversations you've had with them? And then secondly, just going back to the cost savings element. You talked about wanting to become the lowest cost supplier. I presume that's amongst the big six. How do you then sort of square the circle in terms of the 20 plus percent independents that's still biting at your heels for market share? Thank you, Jenny. Let me answer the second and then pass over to Chris on the rating agencies. Firstly, we're not talking about relative to the big six. We're talking about relative to anyone. And I did say consistent with our brands and propositions. So in energy supply in The UK, we are targeting being the lowest cost provider, full stop. That will require some radical changes to our IT architecture, our end to end customer journeys and our internal processes. And that's what the next phase is about. It's not been possible up to now to get to that place, but we have got to being very competitive with the large suppliers, just not with the leaders of in terms of cost alone. In servicing, we do not necessarily have to be the cheapest. In fact, our customers would say, we don't want you to be the cheapest. We're willing to pay for what British Gas offers and the assurance that the service that we offer provides. So one has to be very careful about unit KPIs dependent on what you offer because clearly, if customers are willing to pay a premium for a premium product, then you can charge more. But in the case of energy, the evidence suggests that we have to compete head on with the cheapest. And that is the goal and it's not just about The UK, it's in all of the markets in which we operate internationally in all of the business units. Chris, credit rating agency conversations. We've had some quite some detailed discussions, Jenny, as you would expect. Unfortunately, I'm not allowed to disclose what they've told us, but the discussion that we normally if you go through a process like this, you would present an actual transaction with the agency, you'd go through the process and they tell you what your ratings would be. We don't have an actual transaction to present just now. So we've had some theoretical conversations. And they've given us some indications, which I think lead us to believe that we can do what we want to do and still maintain strong investment grade credit ratings. I think that they are the conversations are reasonable. I would obviously suggest that they are maybe a bit conservative on the ratings, but they do expect an increase as the asset intensity goes down. But they would charge me a huge amount of money if I was allowing me to disclose what the numbers are, but to remain private at the moment. But it's entirely in line with what we're planning to do. John John Musk from RBC. Apologies for the first question here. But in terms of your decision to retire and the timing of that, what led you to decide that May year is the right time? And is there a risk that your successor comes in, has another look at the strategy, and we're all sat here in twelve months' time with yet another refresh of what Central is planning to do? And then secondly, on the new dividend baseline and rebasing that to 5p. We talk a little bit about the dilution impact from these disposals? My own numbers would suggest somewhere around about 2p, maybe 2.5p of dilution. And given the new 1.5x to 2x earnings coverage, are we able to see a progressive dividend into 2020 or is that going to be quite tough? Okay. So first of all, on the decision to step down and retire from the board next year. Firstly, this is completely in line with my original timeline when discussed with the board back in 2014, first point. Secondly, it's not just my decision, I've been in discussion about this with the chairman who's sitting in the front here for months actually. And we were deliberating whether this was the right time or the wrong time and the view that we reached together was that at this moment, when we're making the final decisions on the final portfolio repositioning of the company, it was right time for me to indicate that once those are largely done, it would be time with a smaller, more focused customer facing company for me to pass on to somebody else who would take it forward. And I've nearly done five years already, and I believe it is the right time to start working on the succession. But I've also absolutely undertook that I will work with Charles and the Board to make sure the succession is orderly. Hence, it's next year, and we anticipate I will still be here, I'm sorry to say, at the time of the AGM, at least at the time of the AGM next year. Now to your important question about strategy. So we have a new board, at least a new ish board. We have three new executive directors, a new Chairman and two new relatively new nonexec Directors. So rightly so, Charles said, can we just have a look at the strategy and let's kick it about, especially given where we are? And you've heard the results of it. What it isn't is a change in direction. And one of the conclusions that we reached is there isn't a particularly different direction that this company should go in. And in fact, the skills and capabilities we've got says there's only one direction. Now when a successor comes in, I'm sure that they will make adjustments or could make adjustments. But I would encourage you to recognize that once we've sold exploration and production and nuclear, we are a customer facing company in entirety in Energy Services and Solutions. And I don't really easily see how the direction would be dramatically different to what it is today. That's the only thing I can say to you, John. On the dividend, I'm going to pass to Chris, but I just want to say that we are absolutely committed to and convinced we can deliver a progressive dividend from here. And we did indicate why we believe the second half of this year and into 2020 has reasons for momentum. And Chris can talk about, and if he doesn't, I'll come back and answer it, Our future cash flows and how they relate to the dividend, why it's sustainable and why you might see increasing net cash flow to the future, Chris? On your first part, John, depends on period in which you look as to what the contribution to the group's earnings are from Nuclear and from Spirit. You can see that of the GBP 140,000,000 of earnings in the first half, 9,000,000 is minority interest. So you can back solvency roughly what relates to Spirit. Bear in mind that we have a different hedging approach to our partner in some of these volumes. Nuclear delivered no profit at all. I think the 2 to 2.5p is high. It's probably, I would say, 1 to 1.5p over an average. And E and P is very highly taxed, particularly in Norway, where it's 78%. So the bottom line contribution is not as high as you would otherwise think. In terms of can you expect the progressive dividend into 2020? I think it's too early for us We do see momentum in earnings and in cash flow going into 2020. Won't see Ian touched on a number of these things. We won't see the recurrence of The UK price, the one off price cap, the GBP 70,000,000. We expect to deliver further substantial cost efficiencies. So this is GBP 1,000,000,000 over 2019 to 2022, GBP $250,000,000 this year. We expect the majority to be delivered by the 2021. So we should actually see a step up from GBP $250,000,000 moderately into 2020 as you see that coming through. We expect improved profitability in North America business, as Ian touched on. And we also expect the nuclear power stations until we dispose of them to come back on stream. All of those things together should give us higher earnings. But it is worth noting, we want to grow the dividend in line with growth in earnings and in cash flow. We want to have a cover of between 1.5 times and two times over the medium term. So it would be unusual on the day that we cut the dividend and announce that it's going to rise next year, but it's certainly not our aim to keep the dividend at 5p as we go forward. We'd like to grow the business, we'd like to grow the dividend, but we have to be disciplined and we have to look not only the current year performance, but also the future prospects of the group and investment requirements. And if I can just add on cash flow. Chris covered earnings. If you think about and Chris showed a pretty important chart. I know some people have been writing about us saying what's happened to the GBP 2,100,000,000.0 to 2,300,000,000.0 on average that came under pressure because of the fall in commodity prices and the price cap. If you look at what we're indicating for this year, we're now saying towards the bottom half, in the bottom half of the GBP 1,800,000,000.0 to 2,000,000,000 range. So without giving you a precise prediction, let's just call it 1,850,000,000. If you add that to what we delivered last year, which was GBP 2,250,000,000.00, you end up with just over GBP 2,000,000,000 on average for these two years. Chris indicated in line with what he just said, with our like for like portfolio, we would expect higher, all other things being equal, adjusted operating cash flow in 2020, albeit with some continued reduction in structural working capital, which can't go on at these rates forever, but we have always been doing some of that. When you add all that together, you can easily get to the math, which is around, give or take, around GBP 2,000,000,000 on average over the three years. Now that's clearly below GBP 2,100,000,000.0 to 2,300,000,000.0, but it's not dramatically below. And if I then just turn, because I suspect there'll be a question too, and how does it all work for the new company going forward? If you take 1,900,000,000.0 round numbers and you then say two thirds of that is currently coming from the customer facing businesses, about a third from nuclear and E and P. That's about just over £1,250,000,000 Where are we going to spend that money? We've indicated around 500 on capital. You can do the math on the dividend, but it's a little bit below 300,000,000. Pensions have gone up, and there will be we can disclose that or we're yep. A 175,000,000. I can remember what was on your slide. And then interest of, you know, GBP $220,000,000 or something. What does that get you to? GBP 1,200,000,000.0. So it means the operating flows of the company in this environment, albeit with a small amount of help from structural working capital, will cover the organic needs and contribute to restructuring costs. What we will need to do though is use the divestment proceeds in order to drive and fund the rest of the restructuring and reduce net debt so that the company has the right sustainable position by 2022. Two more in the front here. Sorry. And then we'll go behind you. It's Marcin Bruff from Macquarie. Just following up on the dividend. You've GBP 2,100,000,000.0 of shareholders' equity at the end of the first half in the balance sheet. Obviously, there's a lot of further exceptionals to come through. I think you're still carrying about GBP 1,800,000,000.0 of book value for the Nuclear stake, if I'm right. So I'd imagine that the possibility of some sort of write down there. And there's quite a lot of out of the made debts. I mean you've got over £4,000,000,000 of book value debt, and obviously, it's, as you say, 4.9% coupon. So if you start sort of buying that back over time, that will be more than the current book value. So are you confident that you're to get through all this restructuring with a positive net book value? I know that's only an accounting issue, but you're confident the Board is actually going be willing to sign off on cash dividends if you end up negative net book value? This must be one for you. It is wonderful. There's a number of questions in there. So we have no plans to buy back debt at the moment. So we have some minor refinancing coming up in 2020. The next major thing is in 2021, but one of the hybrid bonds has the first call option of the hybrid bond comes up. There's no plans just now to buy back debt. In terms of the ability to pay dividends, what you look at there is the overall group number, are lots of consolidation adjustments. We have over GBP 2,000,000,000 of retained earnings in Senesco plc. So there's no question at all of us have an issue on paying dividends. In terms of the Board, we'll sign off on it. My job along with the Sergeant Richard is to recommend things to the Board and have conversation. The Board have shown in my time here a willingness to sign off on things that make perfect sense. So we do have a lot of restructuring expenditure to undertake. And so bear in mind, it's small projects. We can flex it up and down depending on the cash requirements that we have in the business, the business environment that we see and the proceeds that we get for the assets. As Ian said, it's a fifteen month payback. I'd love if we had an investment opportunity that I mean, it's the best investment that we have in the group. And I would challenge you to see any other investment in other companies as a fifteen month payback. So we do have to balance the phase. I'm naturally patient, I'd like to do it all yesterday, but we have to sequence it properly in order to have a strong balance sheet and to get the highest impact restructuring done first. So I don't have any worries about our ability to fund the restructuring, to fund the ongoing CapEx of the group, to fund the dividend, to fund the pension payments. I think that's all part of the balance financial framework that we've got. Thank you. Let's go behind you, and then we're going to come to Ian Turner and Chris Labour, and then I'm going to go this side, and then I'll come back. It's Martin Young from Investec. I have two questions, if I can, please. The first gets back to the strategic review that you undertook. To what extent was your continued involvement in The U. S. Market put as a question in that strategic review? And if it was, could you share some of the reasons why you decided that staying in The U. S. Is the best course of action? And then secondly, on The UK supply market. You said a lot about seeking to reduce your cost base. Maybe you could share with us some of your thinking about how the landscape of market participants might evolve, whether you see consolidation, further exit of some distressed small suppliers, increased role for intermediaries, price comparison sites, Well, the second one is clear at the moment, is clearly for Sajid. Let me just address The U. S. Question. Firstly, we've got two business two principal energy businesses in The U. S, North America Home and North America Business. North America Home has been growing at operating profit of over 10% per annum for the last three or four years. And it's under new leadership and we're seeing quite a lot of momentum and it's just been growing customer accounts in both services propositions I. E. Protection plans as well as energy. And I think that's quite encouraging. It's got good market shares in Texas and in the Northeast states where it operates and in Alberta. So I just want to make sure when we talk about The U. S, we're not just labeling the whole thing as one homogeneous thing. And it's also not The U. S, it's also Canada. But then I suspect the big question is about North America business. And I tried to go through that in some detail as did Chris. Our ownership question in North America business clearly was part of the strategic update. And one of the big questions was if we didn't own a leading market position in North America, would we want one? And the answer is yes, for the largest energy market in the world and the largest market for distributed energy technologies in the world. But it can't be unconditional. And the thing that has been plaguing us has been in the last two years for sure, the return on capital employed in North America business. Hence, you see what I described earlier, which is the interventions we need to make in order to improve North America businesses returns. If we can get to 10% to 12% return through the cycle and limit the downside to cost of capital, and we can continue to upsell distributed energy propositions, then it's obviously in the shareholders' interest to keep it. But if not, we'll have to ask the question again. I might ask Richard briefly just to add, is there anything else you want to add Richard about that and then pass to Sarjeet on The UK market structure? No, I mean as Ian said, we did have the conversation. We have a plan in place to address the issues that we've seen over the last couple of years. The team and I are absolutely determined to see those through. It's a combination of actions to reduce the denominator, the capital employed. We've got actions underway to address the numerator as well, more costs can be taken out of the business. We are addressing gross margin and some of the issues we've had there in terms of the shortfall. And if you put all of those things together, we're confident that we'll get to those low double digit returns through the cycle. One other element you have to remember on the gross margin is that average contracts are around two to three years. So it takes a little while for some of those issues to work their way through the system. We're starting to see that in the forward book for the second half of 'nineteen. That's why I have confidence the second half will be better than the first half by some considerable margin and that 2020 will be better than 2019 and 2021 will be better than 2020. So in terms of the question of how do we see the supply market shake out over the next few years, I think our view is that there is going to be consolidation, but you're going to have potentially the share of the big six reduce, particularly those that don't address their lack of cost competitiveness and their customer service. On the smaller suppliers, we've already seen in twenty nineteen three exits, and the three exits have either been because they've hit a liquidity crunch or their services pool. But you I think in terms of there are some small suppliers out there that will be successful and will grow. Their limitation will be what do they do beyond energy. And that's where our kind of strengths play into winning when we address our cost competitiveness, when we improve service levels even further, that we can expand into not just energy, but do more of what we're doing today, which is to bundle energy with other services. We've already shown in the first half that we have reduced over the last two months losses in energy and grown services because of the bundles, which are attractive mainly to new to brand customers. So the new to brand share is about 70%. So as the market unfolds, we get more cost competitive. And it's not just about taking out costs using current industry processes. One important bullet point on Ian's chart on the actions was saying, we've got to move to end to end journeys for customer and not create our business around industry processes. That's where some of the smaller suppliers, not many, but some of them are being really successful. Not only does that create a great customer experience, but they can do it at a much lower cost. So how is it going to shake out? I don't think all of the new entrants will survive. I think there will be consolidation, but there are a few that will be successful. Thanks, Sanjay. We're going Ian Turner, Chris Labatt and then Fraser McLaren. Just even for everybody, if you press the button as well as holding out, it's fine. Think people could hear you. Snapproche mentioned, first of naturally, I alerted them to our likely decision. They are aligned with us in entering a process. Do have rights to stay in and we can't drag them into it, but they can tag along with us. And so it's very early days. I mean, they are as a company, they're owned by the city of Munich. They're going to need to go through a process, but we've got very constructive relationship and excellent conversations on it. And I think they understand the value trade off potentially if they stay in and the uncertainty around having a different shareholder partner. But at the same time, they want to see how the process evolves. So we're going to be going ahead on the process with them. Was there a second part in? Sorry, no. Thank you. Chris? Chris Lover, JPMorgan. Two questions for me. First of all, your investment requirements for NewCentrica, you're talking about a figure of 500,000,000. Could you provide a rough breakdown of that? What do you intend to spend that on going forward? And then in terms of the deficit repair, could you give us an idea, feel, sense for how long that will continue? Some clarity there. And if I throw in a third one, a very brief one. In terms of politics, any views on the new Tory government? And I guess I'll leave it at that. I'm glad you didn't finish beyond the end. So very briefly on the first and last, I'll leave the deficit repair to Chris. Pounds 500,000,000 very roughly, it's about £100,000,000 of ongoing capital requirements just to continue with replenishing the existing capital base, about GBP200 million of IT. This business is increasingly becoming a digital technology heavy and less physical capital heavy, obviously. And the other 200,000,000 is for proposition development and for deployment into distributed technologies with customers and potentially small capacity building acquisitions. But obviously, we'll only do that if we are able to afford to do so. And on the politics, look, I said this morning on the radio, I am hopeful. I think the last Tory government got itself a bit tangled up in interventions in three competitive markets. And unfortunately, our market was the one they chose to target first. I think it had shock waves across many markets and a lot of people wondered about investing in The UK on the back of it. I get the impression that despite some flowery language about business in the past that the new Prime Minister actually is quite keen on competitive markets and understands what's at stake if we exit the European Union one way or another. So I am hopeful, but politicians are a whole other breed of people and I'll wait and see, suppose, is the best answer. Chris, so the pension deficit recovery period is under eight years. Obviously, we do a valuation every three years, though. And one of the reasons that we are derisking the portfolio in conjunction with the trustees is to reduce the value at risk and therefore reduce the chance that you'll see huge spikes in the volatility. So less than eight years, $223,000,000 this year followed by 175,000,000 per annum to extinguish a £1,402,000,000 liability. Thank you. Fraser? And then two in the front here. It's Fraser McLean from the Bank of America Merrill Lynch. Three very brief questions, please. First of all, what happens if you can't sell nuclear in 2020 because, for example, Hunterston remains an issue or if E and P fetches a lower than expected price? Would either of those be enough to actually derail the plan? Could you also clarify, please, where we are with the Hurricane JV exploration? How many wells are left and when are the results due? And then finally, just a part of clarification on energy accounts. I think, Ian, you mentioned the churn rates have halved in the period. Is that right? And could you also speak, please, about the margins that are available in the new accounts that you're gaining? I'm going leave the last one for Serge in terms of margins. But what I did say was that the 178,000 energy losses in the first half this year is approximately half the 341,000 in the first half of last year. So that's roughly half. What happens if we can't sell? Well, firstly, we're pretty confident we can sell. I mean, both E and P and Nuclear, there's a very free market for exploration and production assets. There's a lot of consolidation going on. We see absolutely no reason why we can't sell in a trade sale. On the nuclear, I mean, there obviously are complications with Hunterston and Dungeness. But right now, I mean, the last delay was two weeks as opposed to three months. And as long as these come back up in the second half, just given the constructive nature of the conversations we're having with two groups, I believe, I've got confidence we can execute certainly the first tranche of this, if not all of it by the 2020. I personally don't believe this will derail. I mean, clearly, if we couldn't, I've just explained that the organic cash flows would be enough for the future organic activity and the operating cash flows of Nuclear and E and P can fund their capital requirements. So what it would prevent us doing in an extreme case is driving the restructuring as fast as we'd like. But capital expenditures, I just indicated, and restructuring expenditure are both variable. But we see no reason why we can't make this portfolio change. And obviously, the main decision with the Board was, is this the right thing to do? And the answer is Centrica strategically not sufficiently coherent in its current form. Therefore, we have to make these sales. Hurricane, very briefly, the second well is being drilled at the moment. The first well did encounter hydrocarbons, just disappointing rates to the surface. And we will know more in the next couple of months about that second well, I suspect. And then we have a third well to drill in the back half of the year. So we'll know an awful lot more in the rest of the year. Sarjeet, you can Yes. So two parts of question. On churn, Ian's clarified the kind of statement of halving. But I think it's important to also note that if you compare H1 'eighteen with H1 'nineteen, the market overall has seen switching increase by about 17%. And we've actually if you put aside acquisitions, we've seen the churn in our book actually reduced by almost one percentage point. So there's two things. One is we are able to kind of sell into a market and acquire new to brand customers, and And we're demonstrating that all the activities that we've been undertaking to retain customers, such as rewards, is working. In terms of what we're selling to new to brand customers and also existing customers who may switch a tariff. It's a mix. You've got some fixed term contracts, which are British Gas branded, which are priced pretty close to SVT. You have some online only offers that are lower in price than SVT but have a similar margin because of the online nature of the product. And then in terms of the lowest margin, the bundles for the energy leg in terms of margin are very low. But in terms of overall customer lifetime value, they are positive, and they're also kind of positive from day one from the services point of view because they have a very low marginal cost. Thank you, Sarwath. There are three questions there's four questions. We're actually quite snappy here in this block here and then one on the left. So I'm going to start with the two in the second row because they will put their hands up first. And then we'll go to the back and then to the front. Amit Farman, Jefferies. So I just want to start with your comments about sort of the disposal program. Just want to understand a little bit better how that ties in with the growth aspect of the dividend policy because you talked about that being a critical part of bringing down the debt and funding the restructuring costs. So I just want to understand that a little bit better. Chris, you earlier mentioned the EPS dilution, give us some indication on the EPS dilution from the disposals. Could you give a bit of a sense of the free cash flow disposal dilution from nuclear and the E and P? And just finally, where could you give us an update on where you are in the nuclear disposal process? Thank you. So look, on the growth of the dividend, I think we indicated that from 2022, we should see significant expansion of net cash flow. And that's the thing that I believe you all need to hold on to. And we have potential of the organic business to deliver more operating cash flow that is needed for all of its needs and make a contribution to the restructuring in the meantime. But we will want to use the divestment proceeds for the rest of the restructuring requirements and of course to pay down net debt. But by 2022 and potentially earlier, there should be expanding net cash flow. But that's, as Chris said, that's a question for the Board later on. What was your third point? Nuclear. On nuclear. Look, we obviously can't talk about divestment conversations in detail, we are, as I said earlier, we're advanced conversations with a couple of groups about taking the nuclear stake. And it's going very encouragingly, but I don't want say anymore because these things can be can trip us up. Chris, EPS dilution. Yes. So I mean on the free cash flow dilution, mean essentially where we get our money in nuclear is from the dividend, so you can see that quite clearly. You can also see in the back half of the release today, can see our adjusted operating cash flow from E and P is GBP $433,000,000. It's GBP 157,000,000 of tangible CapEx, there's GBP 74,000,000 of intangibles. So there's about GBP 200,000,000 of free cash flow in there from the E and P business. Now that goes up and down depending on the capital investment. And probably that's $230,000,000 of capital investment, which is probably a bit on the low side So you're probably looking at a few £100,000,000, but it really does depend. Mean if you think about, for example, in a Huttigon success scenario, Spirit is going to be substantially free cash flow negative probably because it's a big success and that will be very expensive to develop it. So it really depends on what the prospects for the business are. Okay. I'll let Sajid do the second one. I did try and outline those the differences geographically. On E and P, actually, in many ways, nothing's changed. We indicated in 2015 that we were going to deemphasize E and P. And we indicated that we would retain a limited scale E and P business for reasons of cash flow diversification and balance sheet strength. The judgment we had to make now is do we have sufficient capability, albeit with a rebased dividend in this current environment to actually separate from E and P and get to where we need to get to as a customer facing business. I don't think we could have easily done that in 2015. So that nothing's changed, but we've now crystallized the decision. And to your point about current prices, most people value E and P assets through on through cycle commodity prices. And so people will look through the front end, when you look at the market. Few going So So we'll in on UK and Ireland and withdraw we'll from outside of UK and Ireland, if we look at The UK, the reasons we've been successful is largely because of our routes to market, and there's two aspects to that. We have millions of customers that we can market the product to, and we have an advantaged channel that does two things. One is our engineers are great ambassadors for connected home products. Two, they install them, right? And that's something that all of that, we can't easily replicate in other geographies. The review said, look, we have tried in North America, but when we look at what's truly made it work in The UK, we can't find a way of easily doing all of that in another geography. So I think the strategy is let's refocus back on home turf, focus on a narrow product set, home energy management, remote diagnostics deficit. Could you just tell us a quick difference between the IAS 19 and the GBP 1,400,000,000.0? What are the main differences there? And is there any risk that the trustees will ask for some of the proceeds of your asset divestments to repair the pension deficit? And secondly, on capacity payments, could you just summarize how you've treated that in these half year numbers, both on the accrual for the generation but also the cash that you've taken on your retail side as well, please? Chris, both for you. So the capacity market charges, we have been consistent with what we did in the 2018, which is we have assumed that the capacity market is reinstated. So we collected the money from our customers. We kept that money. We haven't paid it over to anyone yet. But we haven't recognized that profit in the downstream business or in the supply business. We've assumed that, that will be paid off. And we've also assumed that the generation businesses will receive that income. So we've made essentially, we've recovered more cash than we otherwise should have, about GBP 40,000,000. We carry a provision on the balance sheet for that. We expect to pay that to someone. We just don't have anyone to pay it to at the moment. So it's really consistent with the second half of last year. And the pension, the big difference between the accounting deficit and the technical provisions deficit is the discount rate, which you discount the future liabilities. So for the technical provisions deficit, take government bond ratio, you'll make some adjustments there. For the accounting deficit, you take good you're supposed to take good quality corporate credit, which is the proxy for that is AA rated bonds, so AA rated issuers in The UK. That's the main difference, £1,200,000,000 there. The risk of the pension trust is, so hopefully, only we signed the agreement last night. So I'm hopeful that and they know what we're going to announce, I'm hopeful that they're not going to go on the phone at the moment. But I mean, the discussion we've had is if they look at the strength of the company. And if we have assets of X billion today and tomorrow, we liquidate some of those assets, we keep the cash in the balance sheet, then the strength of the company is exactly the same tomorrow as it is today. The question is what you then do with that money. So the act of selling an asset shouldn't trigger and actually doesn't trigger a contribution into the pension scheme. But if we were ultimately to sell and simply set lots of cash and see a business that doesn't grow in any way, then the trustees would clearly come and talk. Because we have constant dialogue with them. We have the triennial valuation every three years. We don't just we shook hands in it last night, that's nineteen months since the last one. So we'll start again in a couple of months and then run up to the next valuation. So it is an ongoing conversation. They're an important stakeholder. But as long as we use that money wisely, don't expect to need to put any of that into the pension scheme. And that's the basis of the discussions I've had with the trustees. Thanks, Chris. It's Mark Freshney from Credit Suisse. Question for two questions for Sajid. On price caps, I mean, you've got an important change coming through in the CMA looking to roll over the prepayment cap into the default tariff cap. We should expect some adjustments for the metering costs. Given how sensitive your margins are to small changes in policy as we saw with the £70,000,000 how confident are you that the price caps when we see them next week will be fair? And further to that, I mean, the writings on the wall, the caps likely to be extended past 2020, certainly for prepayment meters, probably for default tariffs as well. What's your view on the long term? I accept it's early stages, the current government, but do you think it's plausible? I mean, would a base case be that, that cap should be on forever? And then I guess finally, long run profitability in British Gas Residential. I mean, we've seen the cost cutting that you've got on the cost to serve, but where do you think margins could be in 2022? There's a lot in there. Sorry, Jim. So on I mean, the first one is factual. We'll find out on the August 7 from Ofgem as to whether they make the adjustments that they've consulted on or that the CMA has consulted on for the prepayment cap. Our expectation that they will, and therefore, will see that the new prepayment price cap reflects that. And I think there's nothing more to say on that apart from waiting until the seventh. On the price cap removal, I mean you said it yourselves, it's very uncertain given the current environment. It's not necessarily top of the political agenda. But what I can say is that Ofgem are asking the question, what would be the conditions for the removal of a price cap? And that is a kind of a very complex question because it plays into demonstrating that the market is competitive, demonstrating that there is engagement in the market. And I think there's a third big one that is pretty high up on the agenda, making sure that customers in the market who are vulnerable or can't participate in the market aren't treated unfairly. So I think that will be an important factor into any discussion around conditions for removal of the price cap. On the third question of where do we expect margins to go. What we've said today on Energy Supply and saying we want to be the most competitive is really important because as Ian described, it's not just about becoming as the best of the big six or the eight largest suppliers. It is truly about becoming as cost competitive as anyone in the market. And that requires us to do two things. The changing the way that we do business, moving away from the industry processes and designing your business around following a meter read to actually designing your business around the customer, making your IT stack that you run your energy business on more flexible and lower cost. If we do that and we get to the cost levels that Ian described with our scale, that's hard to replicate. So in terms of your question, the strategy is actually we want to make sure that we can be the most competitive and beat average industry margins, which we already know that in terms of the current price cap, that, if you like, sets the average of what is currently, if you look at the EBIT and headroom factored into the price cap, just under 3%. So that if we become as cost competitive as we can be, that's the target to be. And Mark, just on your off chain point, I mean, my discussions with them, there is a recognition that the price cap needs to be temporary. So I have the opposite impression. But the difficulty, as Sarjeet said, is the conditions precedent for lifting it and how do you operationalize that. Deepa? Thank you. Two questions from my side. So this is Deepa from Bernstein. Sachit, you have mentioned a lot about the fundamental reset to UK energy costs. Just wanted to understand this restructuring cost because I don't see those costs captured in the ongoing CapEx of 500. So should we understand that this restructuring of, I don't know, 1,300,000,000.0 that captures everything you need, whether that's the IT stack, changing the way you're working, is that all inclusive? Or is there anything more to come? And then I guess another question to Ian is really when you're looking at the E and P sale, you do need to retain the cash in the balance sheet. So that's not ideal. So did you look at anything more dramatic as, you know, sale of the entire company where shareholders could realize more value? Because here, although you would sell E and P for shareholders, that's that's gonna be a lying in cash, not earning too much. So would was there another way where you could have sold everything, you know, preserve more value or indeed generate more value? Firstly, on your first question, I actually think it's a group level question, which is the 1,300,000,000.0 isn't all down to it's not just in UK Home and although a lot of it is. And so, I mean, just the group question, I mean, we're not expecting to fund all the restructuring from within our organic flows. Although that little mass thing I did earlier demonstrates that the new company should be able to contribute to the restructuring. What we don't know is how much it can contribute. And I indicated it will be able to contribute some. And as I tried to indicate as well, there are choices about the phasing of restructuring. Just, Sarjeet, do have anything you want to add to that in terms of from a consumer perspective? Yes. I think in terms of some of the investment required, for example, in technology, Part of that, not all of it, we expect to be self funding as well as we prioritize not investing, say, in the current stack to take funds away from that to invest in new technology. That's another lever that we can pull as well. To be clear, your question is, is there more cost over and above the GBP 1,300,000,000.0 and the 500,000,000 CapEx to do the rebase? The answer is no. So within the CapEx envelope and the 1,300,000,000.0, that covers everything that we want to do with the group. There is no additional cost to fundamentally rebase UK Home. And on your bigger question, look clearly the board, we have considered everything in the interests of our shareholders. We believe the right answer, just like the question on North America is as we've laid out. We think it will ultimately maximize shareholder value and that we can grow the company from this place, but the rebased place. But it's a very, very difficult set of circumstances we're in. And as I said at the beginning, the energy transition and the dramatic changes in a regulatory and commodity prices clearly are not what this portfolio as it currently stands ideally suited to. And we know that we're chasing a moving target around competitiveness. Actually, we've made a lot of progress on it and we've been able to underpin all the degradation in underlying margin, but we can't deal with things like this price cap at this level overnight. So my answer to you is yes, we've course, it's a strategic update. We've considered all the options that the company has at its disposal. We believe as a Board, this is the right course of action. And I think I can speak for the board, Charles, that it's as simple as that. Ladies and gentlemen, I don't see any other hands and I just I want there's one more, it's actually really short. Hi, Sam Mary from UBS. There's two more. We're going to have to wrap. Sam, quickly, yes. No, no, go ahead. Sam, you've got the microphone on. Yes. Thought I'd just jump in because I have a follow-up question that's connected to Deepa's actually, I think. And you're saying that you have looked at all the options earlier in the presentation. You said you felt that there was only one strategy for a future management team to follow. But I suppose in the mix between what you're proposing doing and what Deepa's asking you about selling the whole company, there is another option, which would be to start divesting what's always been considered the core business of Centrica, which is British Gas. And if I think about the sort of twenty year strategy history of British Gas of Centrica, as I've always understood it, you were building these other businesses around British Gas to provide the financial strength and support the credit metrics and the hedging requirements of that business. What you're explaining today is that becomes increasingly difficult to do is you have to divest the sort of flanker businesses. So is there an option did you look at where you would actually move on from British Gas that British Gas beyond by a larger company perhaps without the same credit rating challenges and strip central advance or something much smaller, more geared to the climate change trends that you're talking about and with much higher potential growth rate. What we've done clearly is look at what we think is right for value creation for our shareholders and that's what this strategic update represents. No one can ever rule out industry consolidation. It's not something that we're currently pursuing. No one can ever rule that out. And no one can rule out the portfolio questions such as the one raised in North America might not come back if we don't get the returns up. But we've been really clear after six months of very intense work. Clearly, I've not been trying to push that there's only one answer. The Board's concluded this is the right answer, but it's not an easy path. It clearly isn't. There's more restructuring to do because the world of energy and services is changing really dramatically. And we have to move there. The good news is that if you look at the cost efficiency we delivered already and the restructuring we've delivered, by the end of this year, it will be GBP 1,200,000,000.0 out of the 2,000,000,000. The people I care about the most are Centrica's employees and colleagues, who are having to go through hell and back to deliver all of this. But you have my commitment as long as I'm here and I'm not planning on walking out the door tomorrow that we are going to deliver on this. And actually, irrespective of the other options that you and Deepa are saying, why haven't you considered these? Everything we're talking about today is good for all seasons. And so we need to get after it. Last question, and I'm going to summarize. Siddharth from J. O. Hamburg. I'm just trying to understand the role of your energy trading business going forward and particularly the contracts that you signed in terms of Mozambique and Cheniere. I noticed that the spreads since the date they were signed have narrowed. So how do you view this in terms of the value that it brings to your organization? Richard, brief answer on that one. Yes, let me address the LNG portfolio. I mean, clearly, you're right in that gas prices have become depressed over the last period and hence spreads are compressed. But as I said back at the time of preliminaries in February, we have pretty much tied down 2019 and 2020. We've got about nine cargoes this year, we've got about 29 next year. Almost all of them are contracted away. Some have got options, my option as to what we do with them. And almost all of the numbers, again, I said back in February, almost all of the numbers I've written in black rather than in red. So that's looking good. As for general markets, they wax and wane. The gas price is low at the moment, it won't be low forever. The fundamentals behind LNG demand in Asia, for example, supply nodes out of The U. S. And particularly Mozambique, which geographically is extraordinarily well positioned, will come into their own. There will be profitable arbitrage opportunities. When they occur, we'll lock them in. Your broader question about the role of trading is of course both to support the downstream businesses with their hedging, their risk management activities, but also to add value through optimization on the back of those positions that are created and providing additional services to customer like the 24 gigawatts of route to market services that Ian mentioned during the presentation. Thank you, Richard. Ladies and gentlemen, it's been a long two hours and fifteen minutes. I appreciate you participating and listening. Just a couple of points in closing. I mean, this is an exceptionally challenging set of circumstances for this company, and I regret that hugely. I and many others tried very hard to stave off this price cap in The UK, which has clearly done in one step a very significant amount of damage to our gross margin, which we then need to take some further steps to try and underpin through cost efficiency. And I also regret the fact that the commodity prices are behaving in a very strange way where we've now got natural gas prices below our lowest case we imagined in 2015 and crude oil back at $63 a barrel. And then you've got all the other issues we talked about earlier. It is an extremely difficult set of circumstances. Second thing is I regret deeply the dividend cut. We know how material it is, but I've defended the dividend for as long as I could. But in this set of circumstances, with the pressure on our cash flows, we just cannot. And it's absolutely the right thing by the Board to rebase the dividend to a place which we think is sustainable in the long term, even in very challenging circumstances. And we've gone through why we think it's sustainable and also why we think we can expand cash flows and earnings to make it progressive. Thirdly, I believe the steps that we are taking are the right ones and they are the final stages in turning Centrica into a coherent energy services and solutions company. And that was what we envisaged back in 2015 and you have my commitment obviously to finish the job. And then lastly, the Board does believe this is the right direction. It plays to Centrica's skills and it's in tune with where the world of energy and the energy transition to a lower carbon future is going. Thank you very much indeed for spending the time and look forward to interacting with a number of you over the next week or so. Thank

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