Centrica plc (LON:CNA)

Earnings Call: H2 2018

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Feb 21, 2019

Well, good morning, ladies and gentlemen, and thank you very much for coming to Centrica's '20 eighteen preliminary results presentation. As usual, we'll be reporting on our financial results and outlook and providing an update on strategic progress. But first, as always, word on safety in this building. There are no planned fire alarms today, and any building evacuation will be announced by Tannoy. Emergency exits are marked at the front and the rear of the auditorium, and Goldman Sachs staff will direct you to the muster point, which is towards the rear of the building on the junction of Stonecutter And St Bride Street. We have our new Chairman, Charles Berry, here with us this morning. Charles took over today from RICHESONSWAIT and brings with him a breadth of UK and international energy and engineering knowledge and a long track record of successful leadership of businesses across a number of sectors over the last twenty years. On behalf of the executive management, I'd like to welcome Charles DeSendrica as Chairman of the Board. Before passing to Charles, to say a few introductory words, I'd like to thank Rick for his leadership of the Board over the last five years and his guidance and partnership with me over the last four. Centrica has been faced with a huge number of challenges, both external and internal, and Rick has astutely assessed them and understood what it would take to deal with them, including the need to drive huge change at pace while also ensuring we create a viable future for Centrica. Charles? Iain, thanks very much, and good morning, ladies and gentlemen. I wanted to take a moment just to introduce myself on day one. Now whilst I'm new to Centrica, Centrica is not new to me because I've known the company since the very beginning in 1997. I knew the company first as a competitor when I was with Scottish Power from 1991 and then as Chairman of Drax from 02/2005, and I'm delighted to have this opportunity to contribute. I joined the Board on the October 31, and I've visited a lot of the company since that time in The UK and The U. S. I saw the extent of change that Ian mentioned just a moment ago, and I also saw capabilities richer and deeper than I expected, and my expectations weren't modest. So I'm looking forward to working with the team and to meeting you all in due course. So thanks for listening, and back to Ian. Thank you, Charles. We've also been undergoing oh gosh, I can't put this anywhere sorry We've also been undergoing a number of changes to the executive team, and I'll just take a couple of minutes to run you through that. Chris O'Shea has joined as our Group Chief Financial Officer, and you'll hear from him shortly as we go through our 2018 financial performance. Richard Hookway has joined Centrica as Chief Executive, Centrica Business, and brings with him a wealth of experience in the energy sector from his thirty five years at BP. We also announced in December that Mark Hodges would be leaving the company to return to financial services and take on a new role as Chief Executive of ReAssure. I'd like to thank Mark for his significant contribution to the company over the past four years. I'm delighted that Sarget Samby, who has been running our UK Home business for the last three years, will be replacing Mark at the end of this month. I'm confident he'll be able to lead the Consumer division through the next phase of its transformation. Sarget is here with us today. Finally, we also announced in December that Grant Dawson would be retiring from the company at the March after twenty two years of service. I'd like to thank Grant for his long service, commitment and contribution to Centrica. Grant will be replaced by Justine Campbell, another internal appointment. Justine has deep legal and regulatory experience in customer facing businesses, and I look forward to working closely with her. Jill Shedden, Group HR Director Mike Young, Group CIO and Charles Cameron, who's the Group Head of Technology, Engineering and Innovations, are the other members of the Executive Committee. Now let me move on to the key financial messages from our results announcement today, and the rest of the presentation will probably take about an hour and a quarter. The environment in 2018 continued to be challenging, and our results were mixed. We delivered resilient financial performance despite disappointing volumes in Spirit Energy and Nuclear and slower than expected recovery in North America business. At the headline level, adjusted operating profit was up 12%, adjusted gross margin and EBITDA were also up year on year, and adjusted operating cash flow and net debt were within our target ranges. Despite this performance, which was also in line with our three year cash flow and net debt targets, and although we're not even two months into a new year, our projections suggest 2019 will present us with a particular combination of headwinds. Our adjusted operating cash flow will be impacted by The UK default tariff cap, which was introduced from the January 1, which will have a total pretax impact of £300,000,000 including an unexpected one off impact of £70,000,000 in the first period of the cap. We are seeking a judicial review of the retrospective alterations to the wholesale energy cost formula, which led to this one off impact. Spirit Energy volumes, likely in the lower half of their target range, as indicated in November, continuing uncertainty over nuclear restart dates and higher cash tax payments will be partly offset by continuing and material underlying efficiency delivery. However, all of this means that at current forward commodity prices, which have fallen significantly over the past five months, and assuming normal weather patterns, we are targeting adjusted operating cash flow in 2019 in the range of £1,800,000,000 to £2,000,000,000 Therefore, although full year 2018 results were in line with our three year target ranges, what this outlook for 2019 means is that our target of 2,100,000,000.0 to £2,300,000,000 of adjusted operating cash flow on average over 2018 to 2020 is under some pressure. Depending on the environment and our actions, it's still possible to deliver the three year targeted outcome. But on the current forecast, 2019 would be below the bottom end of the range. Something we did signal a year ago might be possible, especially in the first year of the price cap in The UK and depending on commodity price movements. In response to these current projections and recognizing we remain exposed to the usual uncertainties of commodity prices and weather, we're taking a number of further actions to strengthen the company in 2019 and improve underlying performance in 2020. These actions will ensure that even if the current environment persists in 2019, we can strengthen delivery towards our 2018 to 2020 cash flow target and underpin the three year target of maintaining net debt in a range of £2,700,000,000 to £3,700,000,000 which has been restated for the effects of IFRS 16. Firstly, we've announced today we'll be making additional divestments of noncore positions totaling £500,000,000 in 2019, and I'm pleased to say we have signed an SPA for the first £230,000,000 for the sale of our Clockwork franchise services business in North America to APAC, which we announced today. We expect CapEx in 2019 to be £1,000,000,000 as we continue to drive quality and choice. We're targeting further efficiency delivery of £250,000,000 in 2019, which means we'll achieve our target for 2018 to 2021 year early. We're also announcing a further £500,000,000 of annual efficiencies beyond the 2019, as we target becoming the most efficient price setter in all of our markets. Delivering on this by 2021 would take our total like for like efficiency delivery relative to a 2015 baseline to £1,750,000,000 per annum and help improve performance in 2020 and beyond. These actions will underpin our performance, resilience and competitiveness against what is a challenging and uncertain backdrop as we begin 2019 and project forward to 2020. In addition to the results of these actions, we expect 2020 to have some fundamental sources of improvement relative to 2019. We will not have the one off price impact from the cap. We would expect the nuclear fleet to be performing better by then, the capacity market to have been reinstated in some form, and the normalization of the higher UK gas imbalance charges we are currently experiencing. Finally, we would expect cash taxes to be a little lower in 2020 than in 2019. There will, of course, be offsets such as lower production from Centrica Storage. We're only fourteen months into a three year performance period and not even two months into this year, but clearly 2019 appears likely at this stage to have an unusual combination of challenges. We will know a lot more at the time of the interim results in July, including having a much clearer view of the likely outturn of commodity prices for 2019, market dynamics under The UK price cap, and the performance of both the nuclear fleet and Spirit Energy assets, including early indications of drilling West Of Shetland. We'll also know more at that time about progress with the sale of our nuclear position and with our triennial pension review, both of which Chris will touch on in a moment. In the meantime, we are focused on what we can control, driving performance and cost efficiency hard and continuing to strengthen the balance sheet. This has served us well over the last five years. This is the chart we showed you at the interim results updated for 2018 performance. Centrica's adjusted gross margin, operating cash flow and operating profit have been relatively stable over the period despite significant external pressures and volatile commodity prices. We've had to work strenuously to underpin gross margin through a focus on quality, not quantity, and on reducing our cost of goods. We've managed to deliver relatively stable adjusted operating profit through the portfolio mix of our businesses and through driving operating cost efficiency. This has resulted in a 2,100,000,000 to £2,300,000,000 range of adjusted operating cash flow throughout the period, and it's clear that our current portfolio has been capable of this under a range of circumstances. Unfortunately, in 2019, the particular combination of The UK price cap, lower volumes in E and P and unplanned nuclear outages, higher cash taxes and weaker commodity prices relative to 2018 are likely to impact this track record. Although at present, the outlook for operating cash flow in 2019 has challenges and some of these impacts would also flow through to earnings, through the actions we are taking, we'll be working hard to improve 2019 and bolster our performance in 2020 and beyond. We'll provide a clearer update on this in July. As we tackle this uncertain environment, I'd like to remind you of our performance agenda for 2018 to 2020. In addition to maintaining capital discipline and balance sheet strength, we have four performance areas focus areas to 2020. They are demonstrating customer led gross margin growth, driving cost efficiency hard towards being the most efficient price setter, consistent with our desired brand positioning and propositions, improving the effectiveness of Centrica's organization and securing the capabilities we need for 2020 and beyond as the world of Energy and Services continues to change. We continue to make progress on all of these areas, particularly in cost efficiency and the building of new capabilities, but the most challenging of them is to demonstrate net gross margin growth through the customer. This has obviously not been helped by The UK default tariff price cap. Nevertheless, there are some encouraging indicators of gross margin stabilization and growth potential, and we'll cover them in more detail as we move through the presentation. Before summarizing what we intend to cover in the rest of the presentation, let me preface it with a brief summary of where we are on the development of our strategy. Our strategic direction remains aligned to the external trends we identified as part of our strategic review in 2015, namely decentralization of energy as a consequence of the response to climate change, increased customer power and digitalization. We still hold these conclusions to be fundamentally correct. The regulatory landscape remains very challenging in energy supply, particularly in The UK. In addition, as we've previously indicated, pure energy supply is commoditizing and energy use per unit GDP is falling. We've been developing new propositions, which our customers need and want beyond commodity energy. Centrica is now exposed to an expanding opportunity set in terms of customers, channels, margin and geography. We've built material new capabilities in both Centrica Consumer and Centrica Business over the past few years and are seeing encouraging signs of stabilization and growth potential. We also continue to simplify and improve our portfolio of businesses. Our nuclear disposal process is progressing, while our 2019 divestment program of noncore assets will be delivered through the sale of our Clockwork U. S. Franchise services business announced today and the possible recycling of capital in both Exploration and Production and Distributed Energy and Power. Finally, in Exploration and Production, we are working to improve Spirits Energy's performance and sustainability, while limiting the group's exposure to this sector. As we stated at the time we announced the transaction, we wish to create future ownership options for Spirit Energy, including through a possible IPO. So finally, what will Chris and I cover today? Chris will cover our 2018 financial performance in more detail and our 2019 outlook, including group targets for the year. I'll touch briefly on the external context and its relationship to our strategy. Within UK Home, we'll address the performance of the energy business and the impact of The UK default tariff cap, and we'll also review our 2018 performance in UK Home Services and how we expect to deliver material improvement in 2019. North America Home delivered profit growth for the third year running, but we saw slower than expected recovery in North America business. Addressing this is a particular priority area for Richard, and we will provide a further update, in particular, on North America business. We'll cover the sources of growth we're seeing in Connected Home, Distributed Energy and Power, and in Energy Marketing and Trading. We'll update on Spirit Energy and its performance, including the role of the Greater Warwick area West Of Shetland in the business's future. On our wider portfolio development, we'll provide an update on the nuclear disposal and on our £500,000,000 divestment program. Finally, we'll also update on our cost efficiency program in both 2018 and 2019 and our future plans to deliver additional saving towards the goal of becoming the most efficient price setter. I'll be back in just over twenty minutes. Let me now hand over to Chris to take you through our 2018 financial results. Thanks, Ian, and good morning, everyone. With this being the first results announcement since I joined the group, I thought I'd take an opportunity to share a few of my initial observations. Firstly, it was suggested to me before joining that the external environment was rather tough with extremely high levels of competition and regulatory scrutiny in our core energy markets. I'm pleased to say that the last six months have certainly confirmed that's the case. However, it is our job to ensure we're well placed as a company to respond to and succeed in the external environment. And whilst we've got a lot to do, I've been very impressed with the way and the focus we have on our customers, it's the key to our success. Secondly, those of you who know me know that I'm obsessively focused on cash flow generation. And I've been pleased to see there's already a lot of focus on cash across Centrica, which you don't see in every company. I think there's more we can do to structurally reduce the amount of working capital we carry in the business, but we start from an already strong base. Probably the most surprising thing to me since joining is that I see a lot of opportunities to further improve the cost base. I didn't really expect to see that from a company which has already done so much, almost £1,000,000,000 in savings so far. And not only that, the payback period has been world class. In the past, if someone brought to me a restructuring program with a two year payback period, that was considered acceptable, possibly even good. But at Sendrica, we've delivered these cost reductions with investment of around GBP $05,000,000,000, which is a six month payback period. The additional cost efficiency program we've announced today is unlikely to have the same payback period, but I am hopeful that we can do better than two years. To summarize, I'd probably say the external environment is a bit tougher than I anticipated, but the opportunities to drive improvements, the things we ourselves can control, leave me confident we're capable of delivering much more. So moving on to the results. These commodity price curves give some of the context behind the 2018 results and also the outlook into 2019, with the solid lines being the observed market prices and the dotted line showing the current forward market curves. The flat lines indicate the average annual prices we see. Average market Brent oil, NBP gas and UK baseload power prices were all materially higher in 2018 than in 2017, which even after the effect of our the impact of our hedging program, provided some benefit to our E and P and Nuclear businesses. However, as you can see on the chart, there have been substantial decreases since the 2018, and we currently expect average market prices in 2019 to be below last year's levels. I'm sure most of you already know this, but it's important to note that we have a long established policy of economically hedging our oil, gas and electricity production ratably, generally over a twenty four month period. As a result of this hedging program and based on current market curves, while commodity prices are quite a bit lower today than they were a year ago, we expect the impact of commodity prices to be more or less neutral in 2019 versus 2018. Moving on now to our financial headlines. Revenue of £29,700,000,000 was up 6%, reflecting increased commodity prices and activity in energy marketing and trading and increased gas sales volumes in North America business. Gross margin and adjusted operating profit were up 512% respectively, with increased exploration and production profits more than offsetting reduced profits in Centrica Consumer and Centrica Business. I'll cover each of our three divisions in more detail shortly. Whilst gross margins of 14.3% for the group were broadly flat, operating margins increased by 25 basis points, reflecting profit mix and the positive impact of our cost efficiency program. Adjusted earnings fell by 9%, including the impact of an increase in the group's effective tax rate to 41%, with a number of one off credits in 2017 not being repeated in 2018. Adjusted basic earnings per share reduced from 12.5p to 11.2p and EBITDA was up 15% to £2,450,000,000 while adjusted operating cash flow of GBP 2,250,000,000.00 was within our GBP 2,100,000,000.0 to GBP 2,300,000,000.0 targeted range. Group net investment of GBP $968,000,000 increased compared to 2017 due largely to lower disposal proceeds than last year, while net debt increased slightly to £2,700,000,000 but remained well within our 2018 targeted range of 2,500,000,000.0 to £3,000,000,000 excluding the impact of IFRS 16. As a result, the Board has proposed a final dividend of 8.4p per share, which, if approved at our AGM in May, will result in a twenty eighteen full year dividend of 12p per share, in line with 2017. Turning now to Centrica Consumer. Total gross margin for the division was down by 6% to GBP 2,600,000,000.0, while adjusted operating profit declined 15% to GBP $750,000,000. Both gross margin and operating margin reduced by one percentage point to 226.3%, respectively. This reflects a mixed picture with strong performance in North America Home and reduced losses in Connected Home more than offset by lower profits in UK Home, where adjusted operating profit was down 18% to £668,000,000 Within UK Home, energy supply profit declined 19% to £466,000,000 as lower customer account holdings, the full year impact of the prepayment cap and higher gas imbalance costs more than offset the benefit of cost efficiencies. UK Home Services operating profit reduced by 18%, including additional costs of around £20,000,000 resulting from a record number of callouts and other impacts associated with the exceptionally cold weather we saw in the first quarter of last year, the beast from the East. We've also invested in growth initiatives in this business, which together with further cost efficiencies this year, expected to be in excess of £50,000,000 after inflation, should see improved profits and profitability in 2019. Operating profit at Bordeaux in Ireland declined by 6% to £44,000,000 largely due to the impact of a scheduled maintenance outage at the Whitegate Power Plant in the first half. North America home operating profit increased by 8% to GBP 123,000,000, largely due to lower losses in the services business, reflecting underlying growth, together with the closure of the loss making solar business in 2017. And Connected Home revenue rose by 60% to £67,000,000 as the business continued to expand its range of products, propositions and partnerships across core geographies, and gross margin also increased by 63% to £13,000,000 When also including the impact of reduced operating costs in Connected Home, the business reported a lower operating loss of £85,000,000 £10,000,000 better than we saw in 2017. Adjusted operating cash flow was flat compared to 2017 for the division, with reductions in UK Home operating profit offset by lower U. S. Tax payments due to U. S. Tax reform and improved working capital performance. This slide summarizes the primary drivers of operating profit for the Consumer division as a whole. External and portfolio impacts provided a significant headwind during 2018, including the negative impacts in UK Home of the prepayment and safeguard tariff caps and the increased gas imbalance charge. In addition, Consumer was impacted by inflationary pressures and a change in how we allocated our centralized functional costs across divisions following the setup of the Spirit Energy joint venture. Our efficiency program resulted in underlying improvements in profits of nearly £200,000,000 in 2018, around 80% of the group's total efficiency delivery during the year. However, the impact of lower customer account holdings in UK Home Energy, resulting from the high levels of competitive intensity, contributed to a reduction in operating profit of £110,000,000 Turning now to Centrica Business, where adjusted operating profit fell by 25% to GBP 121,000,000. UK business operating profit recovered to GBP 40,000,000, reflecting cost efficiency delivery and improved customer margins. North America business headline operating profit grew by 14% to £81,000,000 However, on an underlying basis, adjusted for the impact of the 2017 accounting adjustment, profit fell by 39%, reflecting unfavorable weather conditions and a squeeze on retail power margins from increased competition in the market. I'll touch on North America business in a bit more detail shortly. We reported increased losses in Distributed Energy and Power as we continue to invest in establishing and growing this business. However, do expect 2018 to be the peak year of losses for this business, and our leading indicators of order intake and secured order book both increased significantly when compared to 2017. Energy Marketing and Trading operating profit fell by 48% to £54,000,000 driven largely by the losses from our legacy gas contracts as the last profitable long term contract with the Bruce field concluded in September 2018. However, a strong trading and optimization performance, particularly during the cold weather in the first quarter, resulted in a 57% increase in profitability from our core EM and T activities. Central Power Generation operating profit declined by 23% to £27,000,000 largely due to the impact of lower nuclear volumes with the extended outages at Hunterston and Dungeness. Centrica Business operating cash flow reduced by 48% to £263,000,000 reflecting the timing of cash flows in EM and T, partially offset by improved working capital management in North America business. You can see here a summary of the primary drivers of Centrica Business division operating profit. External factors did not have much of an impact, with higher commodity prices benefiting nuclear being more or less offset by the suspension of The UK capacity market. You can see the impact of our further investment in distributed energy and power as we continue to drive our growth agenda. We also saw a positive year on year variance due to the 2017 accounting adjustment in North America business, but a negative impact in Energy Marketing and Trading from legacy gas contracts. Efficiency delivered a £39,000,000 benefit, while underlying improvements in UK business and energy marketing and trading more than offset the £39,000,000 of drag from lower nuclear volumes. However, the principal underlying issue was the performance of North America business, which I'll now cover in some more detail. We've shown you these charts before, which break out our North America business gross margin by its component parts. Underlying Power gross margin reduced year on year, reflecting the previously flagged squeeze on Retail Power net margins in multiyear fixed price contracts signed in earlier periods due to higher capacity market charges in The U. S. Northeast. In addition, power trading and optimization performance fell below our expectations. Gas gross margin was broadly stable with strong trading and optimization performance during periods of extreme cold weather in the first quarter, but limited trading and optimization opportunities in the balance of the year due to warmer weather and some pipeline outages. However, the outlook for 2019 is more positive, with our forward margin under contract currently higher than it was at this stage last year, and we expect North America business operating profit to improve further in 2019. North America business has had two disappointing years with an average return on capital employed well below our targeted group range. Our focus remains on continuing the improvement in margins and returns. We've continued to enhance our range of products and propositions to meet customer needs and drive improvements in gross margin. Our new pipeline positions are expected to provide incremental gas trading and optimization opportunities. In addition, process improvements will help drive efficiencies. Our geographic footprint expanded through three small bolt on acquisitions during 2018, and this diversification is expected to allow us to both improve returns and reduce risk in the portfolio. In addition, the impact of lower capacity charges in 2019 will be favorable when compared to 2018, resulting in a forward margin under contract for 2019 being somewhat higher than at the same time last year. North America business' customer base also presents a significant opportunity for our distributed energy and power business as we look to leverage our customer relationships to drive growth from non commodity based propositions. However, it's clear from the current performance that the returns from this business are not acceptable and building on the actions already in place to get back to significantly improved profitability is, as Ian mentioned, one of Richard's top priorities. Moving on now to exploration and production, which includes Spirit Energy and Centrica Storage. Adjusted operating profit was up 159%, reflecting the net effect of consolidating Bio and Gas' assets into the Spirit Energy portfolio and disposing of our Trinidad and Canada operations, significant production from the rough field following its conversion from a storage to producing asset, and higher achieved prices. Adjusted operating cash flow increased 89%, reflecting the higher operating profit, the favorable timing of tax payments and the utilization of BioN Gas' tax loss position, plus cash flow, plus free cash flow, was up by 22%. We expect to see a significant step up in cash tax payments in 2019, reflecting the fact that Norwegian tax liabilities are typically split across two years. Unit costs were satisfactory, although there is quite a way to go before Spirit costs are in the right place. I expect to see better cost performance in 2019 and beyond as the benefits of the recent reorganization of Spirit's management team bears fruit. Looking at the drivers of E and P operating profit in more detail, the portfolio change impact of consolidating BioNgases assets more than offset the impact of the disposal of the Canada and Trinidad assets, but there's also a benefit to E and P from the change in functional cost allocations I mentioned earlier. Higher commodity prices were a big positive year on year, while Centrica Storage delivered strong production in its first full year since transitioning from a storage to producing asset. As Ian has already referenced, underlying Spirit performance was disappointing with production volumes well below our initial expectations. This reflects lower than planned volumes at the Spirit operated Morcombe field as it took longer than expected to complete the reconfiguration of our onshore processing kit and ensure the necessary safety improvements were delivered and also unexpected operational issues at the non operated Stafford and Kevitibeyond fields in Norway. We also saw a return to more normal levels of exploration activity, which resulted in increased seismic acquisition costs and dry hole costs. We expect to see twenty nineteen Spirit volumes around the same level as seen in 2018, whilst the rough volumes are expected to fall by around one third as the reservoir is naturally depleted. Moving on to our efficiency program now, which delivered a further GBP $248,000,000 of savings in 2018. This more than offset inflationary impacts and other cost increases, including investment in growth and customer service improvements. The 2018 efficiencies have been delivered predominantly in Centrica Consumer and the group functions. In UK Home and North America Home, we've focused on further digitization of our customer operations and increasing the effectiveness and efficiency of our field force. We've now delivered nine forty million pounds of efficiencies compared to our 2015 baseline, and it's cost the group only 50p for every pound of annualized savings. In 2015, we announced a GBP $750,000,000 five year efficiency program and delivered that three years early. In 2018, we announced the second phase of our efficiency program, targeting GBP 500,000,000 of cost reductions over three years. We expect to complete that by the 2019, a year early, resulting in total annual cost savings by the 2019 of £1,250,000,000 And today, we've announced the third phase of our efficiency program, which is expected to deliver a further £500,000,000 spread across 2020 and 2021. When completed, our efficiency program will have delivered total annual cost savings of GBP 1,750,000,000.00. We expect to deliver around one third of the additional GBP 500,000,000 savings announced today through achieving top quartile cost performance in our overhead functions, with the remainder coming from improvements in the direct costs we incur serving our customers as we pursue being the most efficient supplier in our markets. We would expect the cost to achieve these savings to be higher than the cost seen so far, however, we still expect the payback period to be compelling, and we forecast that the new program will position the group very well competitively for the long run. When we set our original cost efficiency program, our aim was to keep our twenty twenty nominal costs lower than twenty fifteen levels after offsetting inflation and ForEx movements and funding growth activities. Our nominal costs today are lower than they were in 2015, we intend to keep it that way over the next few years. Moving on to cash flow now. As you know, EBITDA improved to £2,450,000,000 which after tax and net working capital outflows resulted in an increase in adjusted operating cash flow to £2,250,000,000 In addition to the rise in net investment mentioned earlier, we incurred nonrecurring interest cost of £139,000,000 associated with the debt repurchase program completed early in 2018. We also paid a higher cash dividend than in 2017 due to a lower scrip take up and experienced increased exceptional payments, largely relating to the efficiency program mentioned earlier. Reflecting all of this, we saw a small cash outflow during the year with net debt increasing slightly as a result. Moving on now to divestments, including the £500,000,000 non core asset disposal program we announced this morning. First, on nuclear. Having announced our intention to divest the 20% share we have in The UK nuclear fleet by the 2020, subject to alignment with our partner and the UK government, we commenced the first round of the sale process in the second half of last year. We've had encouraging levels of interest, and we've taken a number of parties through to the next stage, and we'll update you in due course. I'm delighted that today, we've announced the successful delivery of nearly half of our new divestment program with the disposal of our Clockwork business in The U. S. This business comprises a number of brands providing in home services predominantly through a franchise model. Although in home services are a key strategic area for us, it's as part of a strategy of getting close to and delivering more to our customers. This is more difficult through a franchise model, and as such, we decided to dispose of this business to APAX, which is a strategy of growing a franchise services model in North America. The consideration of $300,000,000 represents a very healthy EBITDA valuation multiple, and the disposal is expected to have a negligible impact on North America home profitability in 2019. We have plans to dispose of further noncore assets during the year, including possible capital recycling in E and P and Distributed Energy and Power, and we expect to realize combined sales proceeds of around £05,000,000,000 As already mentioned, net debt increased slightly to £2,700,000,000 well within our targeted 2018 range of GBP 2,500,000,000.0 to 3,000,000,000. It's worth noting that with the adoption of the IFRS 16 accounting standard, the 2019 starting position will be approximately GBP 3,100,000,000.0 as we bring slightly over GBP 400,000,000 of lease obligations onto the balance sheet. Although this accounting standard is economically neutral to the group and has no impact on overall cash flow, it will result in a number of presentational changes to our financial statements, You can see the estimated impact of this on Slide 68 in the appendix. We improved the efficiency of the balance sheet during 2018 with our debt repurchase program, plus an IAS 19 pension deficit reduced to GBP 79,000,000 from close to £1,000,000,000 at the 2017. Our triennial pension review, which uses a different set of assumptions to the accounting calculation, is ongoing, and we expect to conclude it in the coming months. We remain committed as a company to retaining a strong investment grade credit rating. And whilst we expect adjusted operating cash flow to be lower in 2019, our asset disposal program should see a fairly well balanced cash picture during this year. Moving on now to sources and uses of cash. Adjusted operating cash flow in 2018 was within our historic targeted range of GBP 2,100,000,000.0 to GBP 2,300,000,000.0. This was enough to meet our interest, investment, pension, cash dividend and other commitments, while keeping net debt broadly flat. As we've already referenced, we expect adjusted operating cash flow to drop in 2019. However, assuming successful completion of our divestment program, our sources and uses of cash this year should be broadly balanced, including the impact of an increase expected increase in our pension contributions at the conclusion of the ongoing triennial valuation. Note that we don't include any potential proceeds from a disposal of our nuclear business here. Here's a reminder of our financial framework, which remains valid over the medium term. Unfortunately, we have yet to demonstrate our ability to grow adjusted operating cash flow and therefore the dividend. And as Ian discussed earlier, our three year AOCF target range is under some pressure. However, we are taking actions to strengthen the balance sheet and we'll continue to work to identify opportunities to further improve financial discipline, release cash from working capital and increase returns. Finally now in our 2019 group financial targets. We're targeting AOCF in the range of 1,800,000,000.0 to GBP 2,000,000,000, with a midpoint around GBP $350,000,000 lower than the 2018 result. As you would expect, there are a number of moving parts here, but the more material elements can be broadly summarized as follows: Number one, a reduction of a little over £300,000,000 due to the implementation of the price cap combined with the natural decline of the rough field, partially offset by number two, a net increase of around 200,000,000 from the net effect of our efficiency program after allowing for inflation and expected underlying margin improvements, including in UK Home Services and North America business. And number three, a reduction in cash flow of around GBP $250,000,000 due to a combination of the phasing of cash taxes, partially offset by structural improvements in our working capital and the presentational effect of the implementation of IFRS 16. The net effect of the first two items mentioned above should fall through to earnings, resulting in a reduction in earnings of slightly over £100,000,000 when compared to 2018. In our asset businesses, we expect Spirit Energy volumes to be broadly flat in 2019, with a reduction of around one third in rough production volumes as the field naturally declines. Nuclear volumes are currently expected to be around twenty eighteen levels, reflecting our current view of the extended maintenance outages we see. As we've done previously, we've published rules of thumb to show the impact on earnings and adjusted operating cash flow of movements in commodity prices, and you can find this in your appendix. To date, we've economically hedged around two thirds of Spirit's 2019 production, one third of Rough's and around 90% of the expected output from the nuclear fleet. As already mentioned, we expect to deliver two fifty million pounds of efficiencies during 2019, including the impact of a direct headcount reduction of between 1,500 pounds and 2,000 And we expect our effective tax rate to be broadly similar in 2019 to that seen in 2018 and to remain in the range of 40% to 45% for the foreseeable future, assuming fairly stable commodity prices and subject, of course, to any changes we make to the portfolio. This AOCF and operating profit guidance remains subject to the usual factors outside our control, such as weather, commodity price movements and further regulatory change. Cash capital reinvestment, including any small bolt on acquisitions, is expected to be around £1,000,000,000 well within our target of less than 70% of AOCF. As mentioned, we're also targeting £500,000,000 of noncore asset divestments. And finally, reflecting all of the above, net debt is expected to be in the range of GBP 3,000,000,000 to GBP 3,500,000,000.0, which after taking account of the impact of adopting IFRS 16, is consistent with the midpoint of the targeted twenty eighteen to twenty twenty range. With that, I'll hand you back to Iain. Thank you. Thank you, Chris. I should say I'm already enjoying working with Chris. And with the new Chairman and General Counsel to come, there are a reassuring number of kelts around in the senior management of the company. In the rest of the presentation, I'll briefly cover the external context of our strategy before moving on to some of the indicators of stabilization and growth potential in our customer divisions. I'll then spend most of the presentation covering progress and capability development in both consumer and business divisions as well as addressing The UK energy supply market and the default tariff cap. I'll review our E and P portfolio and performance before reiterating our group financial targets and providing an overall summary. First, the external context and the opportunities and challenges it creates for Centrica. In 2015, as part of our strategic review, we identified three fundamental trends in energy and services: decentralization of the energy system as a result of the response to climate change, increased choice and power shifting to the customer, and advancements in digitalization and technology. These trends have, if anything, become clearer over the last four years. Centrica's strategy is aligned to them and the changes required in the energy system as society seeks to address climate change. Energy use per unit GDP in our core markets is falling, and we must provide more than just commodity energy supply. This is both a challenge and an opportunity. There are also specific regulatory issues in both North America and in The UK, including price controls with the default tariff cap now in place and uncertainty over the future of the capacity market. Being only an energy supplier is unlikely to be an attractive business model moving forward. Adding new services propositions will be important and a differentiator, and we are seeing our customers respond positively to this. And then there is Brexit. We've devoted significant effort understanding the risks and issues for Centrica. Our activities are likely to be less affected than for other sectors, and we have taken appropriate precautions in case of a no deal outcome, including increasing stocks of EU sourced equipment and ensuring we can continue with our European trading activities. This is a complex backdrop for Centrica, but one in which we feel ready and capable to chart a path forward. While our current priority is firmly on driving short term operating and financial performance, it's important to remember our strategy is formulated to benefit from and contribute to the long term structural changes required to address climate change. Centrica has a strong track record in this area. Our strategy is built around the trends in response to it, and we've already taken action to alter our portfolio, reducing our exposure to exploration and production and to gas fired central generation. Our new lower carbon solutions and new propositions help customers reduce their carbon footprint and the optimization of a more distributed energy system. We've been reporting our Scope's re emissions, those of our customers, since 02/2007. Importantly, we have reduced our own emissions by 80% over the last decade. We've retained our A minus rating with CDP for 2018. And over the last year, we've been engaging with the Climate Action 100 plus investor initiative. For the next phase, we've developed a new ambition, enabling our all our customers to use energy more sustainably and targets to 02/1930, which are aligned to the objectives of the Paris Accord. It's built around three pillars: to help our customers reduce their emissions, to enable a decarbonized energy system, and to reduce our own emissions. Each pillar has specific targets, including, for example, a further 35% reduction of our own internal carbon footprint by 2025 relative to 2015. We'll report in more detail on this in the annual report and on our progress against this framework on an annual basis. Having briefly covered the external strategic context, let me now move on to the development of the capabilities which will underpin our future performance. Let me come back to our performance delivery agenda for the period 2018 to 2020. For the next section, I'm going to focus mainly on the priorities of demonstrating customer led gross margin growth and securing the capabilities we need for 2020 and beyond. Chris has updated you on cost efficiency, capital discipline and on our balance sheet. We've developed material new capabilities in Centrica Consumer and Centrica Business. We introduced new products and propositions over the year in response to customer needs, while our enhanced customer segmentation is allowing an increased focus on personalization and customer lifetime value. As we look to expand gross margin through our customers, there are four general themes shaping our actions. Firstly, cross sellup sell across our strategic pillars secondly, a shift to digital customer journeys thirdly, increased personalization of propositions and finally, accessing entirely new gross margin pools through offering new propositions and more choice, attracting new customers, selling through new channels and in new geographies. Through this, we're beginning to see some early indications of stabilization and growth potential. The rate of account reduction in the Consumer division overall reduced materially in 2018, falling by 249,000 for the full year and only 23,000 in the second half of the year. Within this, we delivered growth in UK services accounts following stabilization in 2017 and are targeting material profit growth in 2019 through a focus on improved field efficiency and cost reduction. Our protection plans and home warranties continued to grow in North America services. Connected Home added 444,000 customers, an increase of nearly 50, expanding the product ratio and doubling the number of subscriptions. Business accounts were broadly flat in 2018 and we saw material growth in margin in the SME segment in UK business, flowing through into good profit recovery. It's not all going in the right direction. Recovery in margin has been slower than anticipated in North America business, as Chris has already covered. In Distributed Energy and Power, we delivered significant growth in order intake and the secured order book, with growth in all three pillars of energy insight, optimization and solutions. Also in Centrica Business, our core energy marketing and trading activities of trading and optimization, route to market services and LNG, all continue to grow. Taken together, while there's still a lot to do and we need to continue to drive cost efficiency hard, there is real evidence of stabilization and customer led gross margin growth potential. What does this translate into? This is a slide we showed last year updated for 2018, showing revenue, gross margin, and gross margin as a percentage of revenue for both the Consumer and Business divisions. In Consumer, gross margin per account fell by 5%, but has remained within £104 to £110 range, with unit gross margins of over 20% in each of the last four years. This reflects our focus on customer segmentation and on value, not volume. Clearly, The UK default price cap will cause a step down in the result in 2019, and we'll have to work hard to re expand margin through a strong focus on further growth from higher margin non energy propositions and on cost of goods. In Business, average gross margin per account increased by 9% in 2018, albeit from a low base given the issues we faced in energy supply in 2017. Business energy supply remains a high turnover activity with lower unit gross margins and can be volatile as a result of the impacts of weather and other factors. Our focus is on improving unit margins and the consistency of returns in this area, while ensuring we are positively exposed to market volatility and dislocations. As in Consumer, we are seeing encouraging signs of growth from our services propositions. Let me now turn to each of the divisions. Starting with Consumer, this chart shows the five pillars of our strategic framework and the cross sell linkages between them. Cross sell is important. Our data tells us that customers who have more products typically have higher satisfaction and lower churn. Starting with energy supply, on the left, a significant number of customers are also taking our in home servicing products, resulting in typically reduced customer churn rates. During 2018, we increased sales of our breakdown only services product to energy customers in The UK, while in North America, customers who take energy and services have churn rates that are 14% lower than for energy only. From in home servicing, we can expand into selling peace of mind propositions, offering boiler warranties at the point of installation. And in the home servicing channel has been sorry, the in home servicing channel has been a major sales channel for products in the three right hand pillars. We're also increasingly selling peace of mind propositions, including leak detection, security through Hive cameras and sensors, and our Connected Care product, Hive Link, to customers who already own our Hive smart thermostat. In addition, energy supply is becoming increasingly linked with home energy management, aided by smart meter technology, intelligent boilers and energy controls, and we launched an electric vehicle tariff in The UK in the 2018. Our home energy management technologies, such as Boiler IQ, also enable in home servicing sales. This demonstrates that we're successfully cross selling across our five pillars, and there is evidence our customers are responding well to the suite of propositions we offer. In Consumer, across these pillars, we're also driving the three other themes I mentioned earlier: digitization or digitalization, I should say personalization and expanded choice, which are enabling us to improve our propositions and the customer experience. Let me start with digitalization. 60% of our customers now interact with us through digital channels compared to 55% a year ago, while 50% of The UK customer transactions are now online compared to 45% this time last year. We continue to drive enhanced functionality of all our digital platforms with examples from our app in North America shown on the left of the slide. We're now seeing NPS results five points higher for digital customers of UK Home than for offline customers, while the enhancements which allow our customers in North America to renew contracts with one click has resulted in a 30% improvement in renewal rates. Moving on to personalization. At our interims announcement last July, we focused on how we had improved our customer segmentation capabilities, enabling us to drive growth, retention and cross sellupsell through personalized offerings. Our rewards programs in The UK and Ireland use data to understand customer preferences and allow customers to select personalized offers. Across the two markets, we now have over 2,000,000 members and 150 reward offers. Churn rates for reward customers are significantly lower as a result and have halved in The UK. In UK Home Services, we're driving risk reflective differentiation, including claim propensity, depending on a customer's domestic installation, and location based pricing, which captures cost differentials such as water hardness, ensuring our premiums are reflective of risk. An improved online claims tool for home warranty customers in North America has reduced touch points, while renewal rates are up 7% as a result. Personalized offers to Connected Home customers have resulted in significant increases in the uptake of multi product propositions. Turning to increasing customer choice. We broadened choice more quickly through increased speed of product development and testing. We launched more new propositions in both UK Home and North America Home than in 2017 and also introduced seven new Connected Home products and broadened product features. We're increasing the bundling options available to our customers, while our wider product range means we can target more customer segments and access new gross margin pools. These include new peace of mind propositions, such as HiveLink, outdoor security cameras or on demand services, including through our Local Heroes platform. So how is this helping to stabilize the number of account relationships we have? Consumer accounts in total fell by 249,000 in 2018. This is a material improvement compared to 2017, in which we saw a reduction of 1,400,000 in total. The 2018 also saw significant improvement with a net reduction of only 23,000. We are still losing energy accounts. We saw a net reduction of 759,000 energy supply accounts, of which 127,000 were collective tariff or white label accounts, mostly in The UK. We lost 97,000 prepayment customers, and the balance of 535,000 accounts were mainly standard variable tariff customers in The UK. The level of losses largely reflects market switching trends, our own efforts to move customers off the standard variable tariff, and additional churn caused by two standard variable tariff increases during the year. North America Energy accounts within all this fell by 25,000, but increased in the second half of the year, and we saw a small increase in Ireland. In Services, we delivered account growth of 66,000 overall, with growth in The UK for the first time since 2010, including the impact of additional sales of bundles with energy, while North America home services accounts also increased, driven by growth in protection plans. We also added a further 444,000 Connected Home customers in the year through the expansion of our product range and subscription offers. As I've said previously, our goal is to first stabilize the number of consumer account relationships we have and then look to grow it while also expanding margin through increased choice and reduced churn. It's very early in 2019, and we do not know what the churn dynamic will be under The UK price cap. But so far, we've seen net consumer account growth as of mid February. In The UK energy market, its design sorry, The UK energy market, its design and competitive dynamic is a key driver of our consumer accounts. And let me turn to it now, and specifically, the impact of the default tariff cap. First, on tariff differentials. The chart on the left shows the range of prepayment prices that were available to customers before and after the implementation of the prepayment tariff cap in April 2017. The maximum differential fell from more than £200 to less than £75 and remains at a similar level today. The chart on the right shows similarly the range of standard variable tariff prices following the implementation of the default tariff cap on the January 1. The maximum differential has fallen from around £400 to around £160 These reduced differentials provide customers with less incentive to switch, and evidence from the prepayment tariff cap backs this up. Prepayment churn is 5% points lower now than it was before the cap came into effect. It's too early to know whether churn levels will reduce significantly under the default tariff cap. It's also too early to know what impact Ofgem, announcing a large increase in the level of the default tariff cap from April, will have on short term switching rates. However, in their draft impact assessment, Ofgem has already indicated the market could see a similar reduction in churn to that observed in the prepayment market. Specifically, they estimate that at the level the cap has been set, customer switching will reduce by 30%. The number of suppliers in the market is also now reducing. We saw evidence of a number of suppliers coming under pressure in 2018, in particular as commodity prices rose, 10 domestic suppliers exited the market in 2018 and a further two have exited so far in 2019, perhaps reflecting reduced pricing flexibility under the cap. We've consistently said that temporary price controls would not resolve the structural issues of the market and instead suggested ways to address the route issues more sustainably under our 14 plan of November 2017. This slide shows our 14 recommended actions with our own actions on the left and those we'd like government and Ofgem to implement on the right. Our own actions included withdrawing the standard variable tariff for new customers, providing new offers responding to customers' changing needs, proactively offering customers a choice of fixed price tariffs introducing a new fixed term default tariff and engaging customers on the standard variable tariff to encourage them to switch. We also said we'd introduce simpler bills while continuing to drive improvements in customer service and cost efficiency. We've delivered on all of these. We now have less than 3,000,000 customers on the standard variable tariff, down from £5,000,000 two years ago. Customer service levels improved again in 2018, and we remain on track to achieve £20 per customer of efficiency savings by 2020. On the right, there's also been some progress in terms of market reform, in particular with regard to leveling the playing field on environmental and social policy costs and for vulnerable customers. We will continue to engage constructively with the government and Ofgem. We've been less successful in the market wide phase out of evergreen tariffs or persuading the chancellor to move funding of policy costs from people's bills into taxation. To conclude the Consumer Review, I'll provide two short updates on UK Home Services and Connected Home. Although our UK Home Services business delivered a disappointing financial result in 2018, partly due to the effects of the Beast from the East, we have built significant momentum. Our investments in customer service and offer development have been delivering growth in both accounts and gross margin. Excluding the impact of additional costs from the Beast from the East, underlying gross margin was up. UK Home Services is also becoming increasingly important as a sales channel for Connected Home, while efficiency delivery in 2018 was able to offset inflation. Moving to 2019, we're targeting further account growth through bundled propositions and partnerships. Remains On a significant opportunity, including utilizing our Local Heroes platform, while our more sophisticated pricing models provide additional potential for gross margin growth. Finally, a significant proportion of the group's cost efficiency program is expected to come from UK Home Services, and we expect savings to accelerate in 2019 from further improvements to planning and dispatch and improvements in infield effectiveness. In 2019, after inflation, we expect to deliver savings of at least £50,000,000 Connected Home delivered strong revenue and customer growth again in 2018, with a 37% increase in products sold, a 49% increase in cumulative customers, a 19% increase in year on year customer additions, and a 60% growth in revenue, with growth rates accelerating materially during the second half of the year. We're moving the model towards subscription based offerings, and you can see with that orange line at the bottom, we saw cumulative subscription relationships more than double in the year. We launched a number of new propositions, including our Peace of Mind Connected Care offer, Hive Link, and our leak detection offer, Hive Leak. We continue to increase the number of sales channels we sell through, with new partners and retailers activated, while utilizing existing channels, including through our British Gas engineers in The UK. The wider range of products and offers has seen an increase in the number of products sold per new customer from 2.3 to 2.7. As a result, we saw increased gross margin and an improved financial result for Connected Home in 2018. We showed this slide a year ago, and it updates our competitive position in Connected Home. The Internet of Things market has thousands of participants, but we are well placed. In terms of smart thermostat sales, we still rank fourth globally and remain the market leader in The UK and Western Europe. We ranked fifth globally in terms of integrated multi function ecosystem deployment, with our growth in 2018 moving us up two places from seventh. We remain the leader in The UK and number two in Western Europe. So we're competitively well positioned in Connected Home, and it materially strengthens our other core propositions. Let me now turn to the Business division. In a similar way, this chart shows the five pillars of our business strategic framework and the linkages between them. Customers taking energy supply in both The UK and North America are increasingly interested in propositions to address resilience, sustainability, and overall energy management needs. Our route to market solutions for power producers can lead to gas supply contracts and installation of generation capacity. Energy insights give our customers greater understanding of their businesses, enabling them to pursue solutions and optimization opportunities. Customers who install solutions may require our optimization services, while customers who've installed technologies, such as combined heat and power require fuel supply. As in Consumer, our propositions enabled by the integrated solutions platform we've built and the Centrica Business Solutions marketing platform are driving cross sell across the pillars to existing customers and attracting new to brand customers. We've continued to enhance the integrated solutions platform and to deepen the full suite of services it offers. Customers can now access services to help them with their energy usage, operational efficiency, demand management and optimization, demand response and operations and maintenance services, all through a single user interface. We believe the platform provides a unique and differentiated customer offering for distributed energy products and services, with the key differentiators being ease of interaction and Centrica having the full suite of capabilities to offer. The platform incorporates the capabilities gained from our targeted acquisitions of Panoramic Power, ReStore, NES Energy and Energy Cogent. It provides us with a real competitive advantage in the fast growing distributed energy sector. We're beginning to see real sales momentum. In Distributed Energy and Power, our order intake was up 158% compared to 2017, and the secured order book ended the year up 51% compared to a year ago. These figures reflect investment in our Centrica Business Solutions brand and sales channels across The U. S. And Western Europe, with the non UK order book now accounting for 68% of secured revenue compared to 50 at the 2017. Revenue was up by a comparatively low 14% as sales were skewed towards the second half, and encouragingly, we saw an increase in the proportion of recurring revenue sales. You can see from the chart on the right that at the 2018, pounds 183,000,000 of 2019 revenue was already secure and I'm pleased to say that by the January, had already exceeded 2018 levels. We've also secured material revenue for 2020 and beyond. So what scale of portfolio have we been building in Centrica Business outside of energy supply and energy wholesale? This chart shows the growth and geographic spread of our energy insight, optimization and solutions propositions. We have seen consistent growth in the number of customer sites with panoramic power energy insight sensors and app. And while the revenue we generate from these sales is typically small, they provide a powerful upsell channel for Energy Solutions. Our energy optimization capacity of flexible generation and demand response has grown materially, and I believe Centrica is the largest demand response capacity holder in Europe. We have increased our energy solutions capacity under management to over 700 megawatts and encouragingly, much of the growth is outside The UK. Finally, our route to market capacity under management has increased materially in all our core regions and now stands at over 23 gigawatts. Let me give you two examples in route to market services and in demand response. The map on the left shows our route to market footprint across Europe. As you can see, we have a significant presence in a number of markets serving 13.7 gigawatts of installed, mainly renewable, capacity. What are we doing and how does this work in practice? The two main drivers for the customer to seek route to market services are to secure financing to develop a project or the need for someone with appropriate expertise to sell their power into the wholesale market. Centrica has built up the infrastructure, trading capability, data and analytical capability to deliver this service for customers. The schematic on the right of the slide shows how this works in practice for the nine fifty megawatt Murray East wind farm for which we signed a fifteen year contract to trade and balance the majority of electricity, which will be generated when the project is operational. Another area where we believe we have a competitive advantage is in demand response. Our acquisition of ReStore in 2017 has given us all the software, hardware and expertise to help customers manage their energy demand to either generate revenue or save costs. This example shows how we can save customers money in North America by forecasting peak load using our advanced ReStore software and algorithms and then helping customers identify flexible load, which can be turned down during these peak times. If the customers wants us to, if the customer wants us to, we can also directly control the customer's load within pre agreed parameters. We would typically take a share of these savings or revenue. Let me now touch on another growth opportunity for Centrica LNG. From our position as a major procurer of gas in The UK, we've made good progress in developing a global LNG business over the past few years. We have a number of structured offtake contracts to buy LNG, including from Cheniere and Qatar Gas, market LNG from North America for Tokyo Gas, and two weeks ago, we announced that we'd agreed to jointly procure, in strategic partnership with Tokyo Gas, two point four two point six million tonnes per annum of LNG for up to twenty years from the Mozambique LNG project. We now have the positions and capability to lock in value from location gas price spreads and from optionality to send divertable cargoes to other markets. In total, we've transacted 200 cargoes across more than 20 countries in the last four years. The LNG business represents a material future growth opportunity for Centrica. I've now covered highlights from the customer divisions. Let me touch on E and P. Exploration and production continues to play a role in providing cash flow diversity and balance sheet strength for the group. Spirit Energy has now been successfully established, creating a self financing European E and P business. Spirit Energy production was disappointing in 2018 And as we said in our November trading update, we currently expect 2019 production to be broadly in line with 2018 levels. Our focus remains on improving performance and strengthening the portfolio. Spirit Energy continues to make progress on its development projects and exploration, with ODA proceeding to plan, a positive final investment decision being taken on the Nova field, and exploration success at the Hades, Iris and Lily Princeton prospects. As we've said previously, Spirit Energy will continue to look at the potential for further opportunities to strengthen the business, which could include further consolidation with another party and we will look to create options for different future shareholders, including the potential for an IPO. The E and P division also includes Centrica Storage, which in January received consent to produce all recoverable gas reserves from the rough field. Rough production of 11,000,000 barrels of oil equivalent was at the upper end of the expectations we had, although given the finite reserves in the field, we expect production to fall to the range of 6,000,000 to 8,000,000 barrels of oil equivalent in 2019. In August, the CSL operated Easington processing plant was awarded a contract to process gas from the Tolmount field, which secures its future until at least 02/1930. In September, we announced that Spirit Energy would invest in exploration and appraisal in the West Of Shetland for the first time after farming into 50% of Hurricane Energy's Greater Warwick area. Although commercialization of this type of hydrocarbon prospect carries risk, it could be of material importance to Spirit. Spirit Energy will fund a $180,000,000 campaign to drill three wells 100 kilometers West Of Shetland due to begin in the 2019 to further prove up the potential of an area which holds an estimated 2,000,000,000 barrels of oil equivalent in prospective and contingent resources. We plan to tie into Hurricane Energy's floating production storage and offloading vessel in the Greater Lancaster area for the first successful well. This is an exciting opportunity for Spirit to participate in the early phases of resource maturation in one of the last known world class oil development opportunities in The UK. Hurricane will conduct an extended test on Lancaster in the coming months, and we should have some well results and know more about the commercial prospects of our own acreage by the middle of the year. I've now covered progress in the three divisions. Before I summarize, let me turn to the here and now and our current outlook as I see it today, what we're doing about it, and our group targets for the year. Our 2018 performance was mixed. At the headline level, adjusted operating profit was up and we did deliver the group financial targets, including being within our targeted ranges for adjusted operating cash flow and net debt. We also made a lot of progress in building key capabilities for the future, which are beginning to drive improvements in gross margin, and we successfully delivered significant further efficiencies. However, some parts of the business were weak. As we enter 2019, we are facing an unusual combination of factors, including a total £300,000,000 pretax impact from the price cap, continued lower volumes in E and P and Nuclear and the recent commodity price correction, which added to the pressure on our 2019 outlook relative to a few months ago. As a result, our three year target for adjusted operating cash flow is under some pressure and some of the underlying impacts will flow through to earnings in 2019. Although we are less than two months into the year, I am therefore preoccupied with urgently strengthening 2019 and 2020 by focusing on what we can control and taking appropriate additional actions now. The executive team is very clear about what we have to do. As we've outlined, this includes making the additional noncore divestments we've announced, accelerating our cost efficiency program so that we deliver our 2020 target a year early, and pursuing £500,000,000 additional efficiencies towards our goal of becoming the most efficient price setter. We will also keep tight control on capital investment. We have a much clearer view we will have a much clearer view on how 2019 is actually turning out, including the key uncertainties of commodity prices and The UK market dynamic under the price cap, when we get to the interims in July. Let me now turn to our group targets for the year. We're targeting, as Chris said, to deliver adjusted operating cash flow in the range of £1,800,000,000 to £2,000,000,000 including the impact of The UK default tariff price cap, continuing lower nuclear volumes and Spirit Energy volumes in the lower half of the target range and higher cash taxes. This assumes current forward commodity prices and normal weather. We expect to deliver a further £250,000,000 of efficiency savings and a reduction in direct headcount of 1,500 to 2,000. We expect cash capital reinvestment of £1,000,000,000 and we're targeting £500,000,000 of divestments, of which nearly half has already been signed and announced today. 2019 net debt is expected to be in the 3,000,000,000 to £3,500,000,000 range, as Chris outlined, which is consistent with the midpoint of our previous net debt range after including the impact of adopting IFRS 16. Now let me summarize. As I've just described, 2018 financial performance was mixed. We're targeting adjusted operating cash flow in 2019 in the range 1,800,000,000.0 to £2,000,000,000 at current forward commodity prices. As a result, our three year average adjusted operating cash flow target range across 2018 to 2020 is under some pressure. However, our three year net debt range is underpinned. We're taking actions in 2019 to improve underlying performance and the balance sheet and to strengthen 2020, including driving further cost efficiencies, keeping tight control on CapEx and making targeted noncore divestments. This continued focus on performance delivery and financial discipline will enable us to offset some of the near term challenges while maintaining a strong balance sheet. We're continuing to refocus and simplify the portfolio, both through the nuclear sale process and the 2019 noncore divestments. And our Exploration and Production business is being strengthened while limiting Centrica's exposure and creating options for the future. The strategic direction we've chosen is aligned to external trends exposing Centrica to an expanding opportunity set. We've developed material new capabilities in Centrica Consumer and Centrica Business, with indicators of stabilization and growth potential. We are dealing with a challenging situation in 2019, but we have a clear agenda in response and despite the near term headwinds, I'm confident we now have the tools, capabilities and team to compete successfully in the medium term and create enduring value for our shareholders. And I look forward to updating you on our progress in due course. I'd now like to invite Mark Hodges and Richard Huckway to join Chris and me on the stage, and we look forward to taking your questions. Thank you. And thank you all for listening. Such a lengthy presentation. In the circumstances, you can understand why we wanted to go through all that. And as usual, if you can identify yourself and your affiliation before your question, that would very helpful. We'll go to Mark Freshney first, and then Ajay since you're next door. Mark? Hi. It's Mark Freshney from Credit Suisse. Can you three questions. Firstly, on the adjusted operating cash flow guidance, can you give us some color as to exactly what's in that, in particular capacity payments and whether they come back to you? And also whether, I think there's my second question is on the pension deficit and the actuarial review. I note from your accounts that you took the unusual step even before the review is being concluded of putting £75,000,000 extra into the pension scheme. Does that signal that it's going to be a very high deficit? And if you can give us some color around that. And just thirdly, Iain, on your communications surrounding Spirit, previously you indicated we need that for balance sheet strength until the handshake with growth has been done. Today, you're talking about an IPO and potential changes to the capital structure. Is that just my interpretation or has something changed in your thinking? So let me take the third of those, Mark, and then I suggest Chris addresses what's in the AOCF guidance. I'll come back later, no doubt, and talk about the dividend if that's of interest. But the pension deficit also, Chris, if you could cover that. So firstly, on Spirit. We haven't changed what we're saying. When we created Spirit, we said that, yes, as you said, its role is in terms of cash flow diversity and balance sheet strength. But we also said we wanted to create Spirit as a self financing European E and P company. We've successfully done that. We divested of our Trinidad and Canadian E and P business, and we've created an E and P business in Northwest Europe, which is about, for Centrica's interest, about two thirds of what we used to have in E and P. At the time of setting up Spirit, we also said that Spirit would look to and we would look at the possibility of further consolidation in the industry, and we were open to other shareholders in Spirit. If Spirit became larger, we would reduce our own shareholding in Spirit so that we would not net become increasingly exposed to E and P. And we also said that we were open to other shareholding options, including preparing Spirit for the potential of a different ownership structure such as through an IPO and the way Spirit's set up. With Stadtbwerke and Munshen, we have the option from as early as 2020 to do that, and they have the option nearer five years out, so 2023. So that's how Spirit's set up. It's not new. But clearly, we are interested in strengthening Spirit, including through other potential industry consolidation, without increasing Centrica's exposure to it and the potential of creating a different shareholder mix in the ownership of Spirit at some point. Chris? Dealing with the pension first, at the last triennial review, we made a commitment that if we hadn't reached agreement by the 12/31/2018, we'd make a payment of £75,000,000 So that was a commitment that was made almost three years ago. I wouldn't read anything into that in terms of the level of commitment. We're having discussions with the pension trustees. As you would expect, they're pushing for more money. The negotiations are ongoing. I expect the payments will increase, but I wouldn't want to have speculated to what level than that means I have less negotiating leverage with the trustees, so that was a commitment. On the capacity payments, our assumption is that the capacity market will be reinstated in some form. So that's included in the range of 1.8 to £2,000,000,000 Thank you, Mark. AJ? AJ Bhattar, Goldman Sachs. Can I have three questions please? Firstly, on the legacy contracts, is there any guidance you can give whether those losses stay at those levels 2019 onwards? On the SBT customers, the 3,000,000 customers that you have at the moment, is there any scope to further reduce that customer base? And then finally on hurricane, I'm not completely sure exactly what we'll get at the midyear stage post drilling. Will we have a better feel for what reserves are available? Or maybe more is it more of a time line or process to get in that idea? So I think between Chris and Richard on the legacy gas contracts, who'd like to pick that up? Well, will I kick off, Iain? So on the legacy gas contracts, a little bit of context. First of all, we had a number of those contracts that have progressively rolled off. One of the ones that rolled off in 2018 was one of our more profitable legacy gas contracts, which leaves us with just one remaining that still has a good handful of years left to run. Obviously, the future mark to market of that depends on your particular view on price on any given day. It goes up, it goes down. We look to actively manage that. I would anticipate that 2019 is not quite as bad as 2018, but that's involving a crystal ball that, of course, isn't perfect. But broadly, in line is a reasonable assumption, I would say. Chris, anything you would add? No. Think that's that's a good comment. Yeah. And, Mark, on the SVT, 3,000,000 customers and any scope for further reducing it, think, was the question. Yeah. Definitely is the answer. So, know, our commitment when we made the meeting went through the 14 commitments and now seven was to engage our SVT customer base. We do that on a regular basis with alternative offers, including the rewards program, but alternative fixed offers. And we'll keep doing that. SVT isn't open to new business as such. So we'll keep trying to get customers to engage with their energy choice around a fixed tariff deal. And I would hope that will be impact and reduce that number over time. And you will have noted, I hope from the ENGIE accounts that the fixed book year on year was broadly stable, which goes to why we want to move people into those fixed products where we can have a more ongoing relationship with them. And on Hurricane, look, don't want get into too much technical stuff here, but this is a it's a pretty unusual opportunity we've farmed into. This is a thing called a fractured basement play, which is basically a huge amount of oil that's sitting in fissures in basement rock, is that there are very significant volumes there. What the commercial prospect of it depends on is being able to extract the oil without extracting a load of water with it. From what we understand, there's a very large oil column, which increases the chances of being able to extract oil without the water. Hurricane have got their own field called Lancaster. And this next six months, they're going to be doing an extended test on one of the wells linked up to a floating production vessel that's already either going there or on station. That test will tell us whether or not the commercial solution for that huge resource is actually feasible. Very important bit of information. Secondly, we've got interest in two fields, Lincoln and Warwick, and we will be drilling the first or maybe even two out of the three wells that we are or Spirit is intending to drill initially. That will tell us how much oil is available of a similar play to Lancaster. So with those two bits of information, we will have a much better idea of the commercial commercialization potential and the likely resource base there. It's not without risk, as I said, but it's very important. And to link it to the divestment program, as Spirit managed to farm into this and the competition for this was actually some of the very large oil companies, and we managed to win it through a bilateral process, clearly, we've given the shareholders have given Spirit more money to invest in this. Equally, we want Spirit, therefore, to start looking at some of its tail assets and saying, okay, can we divest some of that? And that's what we're doing. So part of the divestment program will involve packages of assets from Spirit, but not exclusively limited to them. Chris Labert, and then we'll go over this side to Fraser McLaren and Nick Ashworth, and then we'll drift back over this side again. Morning. Chris Labbe, JPMorgan. The first question is directly, I guess, on the dividend. Could you provide us with your elevator pitch to investors today on medium term dividend expectations. You've given a lot of commentary today on operating cash flow. How does that tie to the dividend? And what exactly are we going to hear from you through the year on the dividend because that is a key consideration? And I guess secondly, a little easier. Slide 48, you've got some numbers on U. K. Services. Are we expecting a £70,000,000 improvement adding those two numbers together? And lastly, Chris, would you mind if we come back to the capacity market? In terms of the numbers, you've missed out on some revenue in 2018. We know what you're broadly expecting in 2019 and 2020 given your contracts. Your comments before, what is in that range? Is it sort of from zero up to the number? My numbers are around 80 to 90,000,000 Is that a fair number? And can you give us some more clarity there, if you can? That would be great. So I mean I'm happy to start on capacity market. So we expect around 100,000,000 around £50,000,000 in 2019 of income in the capacity market. We also expect to collect just under £100,000,000 as suppliers. So we collect £100,000,000 we pay it over to the administrator and we get £50,000,000 back. That's the basis of our that's our planning assumption for 2019. In 2018, we saw a suspension. It was only for the fourth quarter. We have that was actually a net benefit to us. So we had collected more money from customers than we had expected to get as a generator. We provided for that net benefit. We didn't include that in our results. We thought that wasn't right. So the 2018 numbers assume are prepared as if the capacity market was in place for the full year and our 2019 expectations. And that's what we've been told by government. But it would actually be, as we continue to collect in the supply side, is actually a benefit for us in the very short term. Clearly, longer term, we'd like it to be back there. Thanks, Chris. And Mark, on UK Home Services, and this is your last chance to leave Sargent on the hook for some big numbers. So over to Well, look, think the guidance was clear. We are expecting efficiencies to beat inflation by £50,000,000 so that should be a net add. And we're expecting normalized weather, which was the £20,000,000 and the beast for the East. So all other things being equal, I think it's a reasonable assumption. The other place I would get you to look is at the half two performance of UK Home Services, where I think the profit was £130,000,000 Now half one was affected by the weather, half '2 deficiency started to outstrip the inflation. Half two twenty eighteen is a good guide potentially for what we'll do in two halves next year and that £70,000,000 all other things being equal is a good guide for the uptick in performance we expect. Chris, on the rather important question of the dividend, I'm going take a bit of time just to unpack this for everybody. I mean, first of all, we gave clear conditional guidance on the dividend in 2018 out to 2020. And obviously, it was conditional because it was three year guidance. And those conditions under which we would expect to continue to pay the dividend at 12p related to staying on average in a range of operating cash flow of 2,100,000,000.0 to £2,300,000,000 and net debt being in a range of 2,250,000,000.00 to £3,250,000,000 That now has changed with IFRS 16, but it's the same fundamental range. Why those two conditionalities? You've often heard me talk about there are two tripwires that I keep an eye on that would cause us to wonder about the dividend. One of them is clearly not generating enough cash flow to pay for our strategy and pay for our other obligations like pension funds and pay the dividend. So that's clearly why one of the conditions relates to operating cash flow. And the second tripwire is clearly if we were starting to borrow materially in order to pay all of our obligations, including the dividend. What we obviously are signaling today, and I'll come back to it, is that one of those is under some pressure because of the conditions we find ourselves in, in 2019. The other one is underpinned through our actions. We did signal a year ago that 2019 would be a low point in our adjusted operating cash flow. And if you remember, we said under some circumstances, it could even be below the range. What we're signaling today obviously is 2019, our current view is 1,800,000,000.0 to £2,000,000,000 And if you think that our last year's guidance inferred we would be at or below the bottom end of the range, so let's call it 2,100,000,000.0 We're now signaling 1.9 What's made up that £200,000,000 difference? What's changed since last year? It's really three things: the size of the price cap impact, which is £100,000,000 pretax, more than we thought, call that £70,000,000 The lower exploration and production volumes, call that in this current environment another 70,000,000 pounds and Nuclear, which is an impact of about 50,000,000 pounds and that's the 200,000,000 that takes us from guidance last year of around the bottom of the range to this new range with 1.9 in the middle. So operating cash flow guidance is under some pressure. We've indicated that we could still deliver on the target over the three years. I said that very clearly. But it depends on circumstances, not least commodity prices and our own actions. So what we're doing, our main focus right now is to underpin operating cash flow and free cash flow through our actions, as we've outlined. Chris also indicated that relative to 2018, a little more than £100,000,000 was likely to flow through to earnings. So we are clearly indicating an impact on earnings this year. But we're only two months into 2019 and you ask, so what will we know, when will we know it? Look, at the time of the interims, we will know how commodity prices have evolved. They've come down a very dramatic distance since September. We need to see where they're at. Secondly, we don't know the dynamic of The UK energy market under the price cap, and that is a very important determination of our cash generative capability. We will know more about the nuclear sales process and how that's progressing. And we'll know much more about the nuclear assets that are offline and whether they're going to be allowed to be back online. And lastly, as Chris outlined, we will have a sense of our triennial review and its implications on our cash flows. So what we're going to do in the meantime is focus on what we can control to defend adjusted operating cash flow and free cash flow and through doing that, defend the balance sheet and our the strength of our covenant to underpin all of our obligations for cash flow, including the dividend. Now as promised, we'd go to Fraser first and then Nick Ashworth, and then we'll come back over to the left. Morning. It's Fraser McLaren from Merrill Lynch. Four very quick questions. First of all, you spoke about LNG, but I recall that you mentioned previously that you had largely hedged the overall position in the early years of the contract. So given recent moves in commodities and spreads, do you expect the various contracts to be actually profitable in 2020 and 'twenty one? The second question is if there is any indirect effect from the extreme weather in The U. S. In recent weeks. Number three, how do you feel about your credit metrics in light of the cash discussion? Will these extra disposals be enough for the rating agencies? And lastly, could you update us on your views about breakeven at Connected Home and DE and P divisions, please? Very good. So I suggest, Richard, if you can touch on the first two, Chris on credit metrics, and I'll come back and talk about, in general terms, Connected Home and DE and P. Great. Fraser, thank you for the question. Let me start with LNG. We traded around about 100 cargoes last year, just as the context for that. Obviously, a number of them spot. What happens this year is that our Cheniere Sabine Pass contract comes into play. That starts in September. We've got about seven cargoes this year. There'll be about 30 next. Almost all of those are covered either through hedges or direct sales or other forms of optionality. In fact, we've still got a little bit of flexibility. And what I can say is for those 37 cargoes with one or two minor assumptions that they are I'm going to be writing in black ink, not red ink, put it that way, for that period. Further out, obviously, we have more exposure. But equally further out, some of the softness we're seeing in the spreads today start to abate and you get back into positive territory again. So we actually like the look of the portfolio. We've said before that, of course, at any given moment in time, the market will be what it will be, and it swings around quite wildly. The team have been successful in managing to pick those moments to lock in the spread at the right time. So that's basically M and G. Weather in The United States, clearly, there was a I'll call it a mini polar vortex. It wasn't quite as significant as the last one. It tended to center around Chicago, minus 30%, Dakota, minus 37%. Most of our action tends to be in that Northeast Corridor. And in New York, it went from minus 10 to plus 10 in the space of a few days around that period. So very limited impact. You can barely see it in the numbers. Anything you'd add on the No. Consumer side for On the credit rating metrics, bear in mind a lot of the reduction in cash flow in 2019 is going be cash tax and the rating agencies tend to use book tax in the numbers. The we achieved the metrics that have been set for 2018. And as Ian said, it's and I mentioned as well, it's very important for us to retain our strong investment grade credit ratings. We think that having a fairly well balanced cash position in 2019 should be satisfactory. If we need to do more, we'll do more. But I'm never too confident about these things because there's also the business risk question. But we absolutely strive to hit these targets, and we've done so consistently. It's the very strong base that I referred to that I found in the company. And on your last part, Fraser, on Connected Home and DE and P objectives, we set a pretty big goal of getting to £2,000,000,000 of revenue in 2022, 1,000,000,000 each from these two businesses. Now obviously, those are pretty big round numbers. And when you've got businesses starting out like this with very high growth rates, but uncertain pathways, clearly, were not being we're not throwing a dart at a dartboard. We were actually being reasonably judgmental about what we thought these businesses are capable of. I still believe these businesses are capable of £2,000,000,000 of revenue in 2022. What I don't know is whether the mix between the two is going to be exactly the same. I think it'd be highly unlikely that it would be. If I had to be a betting person at the moment, the potential of Distributed Energy and Power to deliver more than £1,000,000,000 is growing, And I think Connected Home is probably looking less likely to deliver £1,000,000,000 But I think the total is still likely to be of that order, and that's what I think these businesses are still capable of. On the breakeven question, we were quite careful to say as early as 2019. It looks highly unlikely that we will breakeven in 2019 in these businesses as I look at it today. However, we are still saying, and I have just said, we see a pathway potentially to £2,000,000,000 of revenue in 2022. I think the breakeven point is probably the potential breakeven point has probably moved out at least a year. So the curve is going to have to be steeper from 2020 to 2022, but we're still holding to that objective. It's quite hard to plan because we are seeing some very high growth rates with some very high take up in geographies we haven't operated in before. I'm very encouraged by that actually and we will keep updating you every six months on our progress. Nick? Hi. Thank you. Good morning, everybody. So I guess three questions from me as well given everybody else has. Firstly, can we just go back to the customer numbers on the standard variable tariff? I think it was A. J. Who asked around how it moves from here. And I think you went from £4,200,000 to just under £3,000,000 in 2017 sorry 2018. Is there a number commitment or assumption or target for the end of this year? And then just going back to 2018, of the $1.21300000.0 pounds that you switched off, how many have you actually kept and how many have you lost? Because looking through the statement, I'm a bit unclear about customers versus customer accounts. So just a bit more color around that would be very helpful. Secondly, just going back to Fraser's question on Connected Home and DE and P. So you talked about the breakeven point being pushed out at least a year. What does that actually mean for EBIT in 2019? Are we through the peak of losses? Should that start to improve? Or would you expect it to maybe stay at that level and then shoot up sharper post? And then finally I guess another question on something that's already been asked, the dividend. Just to be clear you talked this morning around weaker free cash flow or operating cash flow in 2019 and then we'll see what we get thereafter. It feels to me like you are a little less certain around the average cash flow over the next year or two. So then when we talk about the dividend, are we still saying that 12p is possible? Or is the conversation around where that dividend will go to when it comes to interims? Thank you. Let me take that last one and then I'll just finish what I was saying about Connected Home and DE and P and ask Mark to cover the analysis of SVT. So firstly, I mean, clearly we're saying that the operating cash flow in 2019 is 1,800,000,000.0 to £2,000,000,000 and therefore, the 2,100,000,000.0 to 2,300,000,000.0 is under some pressure. Clearly, that is therefore indicating that one of the conditionalities for the dividend is under some pressure. But I also said earlier, we can still deliver on that target range. We are only fourteen months into a thirty six month performance period. But it's our duty to be clear when we think this year is going to be under pressure for the reasons we've just outlined. That's what we've done. I think it will be, for the reasons I outlined earlier, much clearer about how 2019 is going to out turn if when we get to the middle of the year. If you take the upper end of our 1.8 to £2,000,000,000 range, it becomes pretty clear we could still be, I. We would still be in the range the average range, just right at the bottom. If we end up at £1,800,000,000 we would clearly have averaged for two years about 2,000,000,000 as opposed to 2,100,000,000.0 to £2,300,000,000 So it is just too early to be sure. We're not giving any firm guidance beyond what we've already done. I mean the guidance is clear and it's a matter for the Board, and we will need to chart our progress as we walk through 2019 to see how much the dividend guidance is under pressure. What we are able to do is underpin the net debt conditionality. And we haven't given up on the operating cash flow conditionality. But clearly, the situation that we've entered this year with, and in particular, the fall in commodity prices since September, which has changed our outlook somewhat relative to that time, is giving us cause for concern and we're having to redouble our efforts to underpin it. On the Connected Home and DE and P EBIT point, we did give a commitment that 2017 would be the low point for Connected Home, and we've just demonstrated that in 2018. We indicated that 2018 was likely to be the low point for DE and P. We haven't demonstrated it yet because it deepened into 2018, and we'll have to see how we do this year. But yes, our forecasts are for us to have turned the corner as we go through '19 on both those businesses having actually turned the corner on Connected Home last year. Mark, SVT customers? Yes. So just in terms of targets, no, we're not setting a target for SVT for the year. It will be an outcome of our engagement activities and an outcome of really what goes on in the market. Ian referenced the very unpredictable nature of the market with the tariff cap coming in. So it will be what it will be, but we will continue to engage with those customers to try and drive that number down to get them onto more fixed term deals, so that we can have a deeper relationship with them. In terms of the customer accounts reconciliation, I mean we are down on SVT by 2,100,000 accounts in the year. Pounds 500,000.0 went to the Safeguard tariff when that was introduced. I'll do round numbers rather than absolutely precise. Pounds 1,000,000 have gone to our fixed temporary tariff that we introduced as one of our engagement methodologies. We lost net that it was on the chart that Ian produced around £05,000,000 And the balance, which is a couple of 100,000 went to the fixed book. That's how it breaks down. Okay. Perfect. Thank you very much. Thanks, Nick. I think Gus had his hand up at the back, and then we're going to come back to Ian over here. Gus? My name is Gus Hochschild from Bays. I mean it's largely a follow on question really from one of Fraser's questions and a bit thematic. But with regards to the rotation of assets, so the case is obviously fairly clear for Spirit. But seeing especially you've made such a compelling case for DE and P, as a nascent business, and it seems to, for one of the less vulgar adjective, a bit cannibalistic, if you can start thinking of selling off bits of that, no? So just to be clear, when I use the phrase capital recycling, this is about optimization of the capital base in DE and P, and it's certainly not impeding its future growth. We are absolutely committed to DE and P, But the hard assets in it, we have a range of assets from Peking plant, one small CCGT that's due to come back on later this year. We've got a large battery that we've just built. We've got two fifty megawatt rapid response gas engine that have just come online. We've got the uncertainty about the capacity market. We're putting more assets on the ground all the time in D and P. And as you'd expect, like in all the businesses, we just want to make sure that we've got the optimal returns going forward. Richard, do want to add anything to that? The only thing I would add is the nature of the business is often you can make your money in the construction phase. You can make your money through a PPA off take type agreement. You can make your money through an O and M type contract or you can make your money through actually owning the asset. It is not absolutely necessary to always own all the assets for their entire life to be able to unlock the majority of the value. And so therefore, I see capital recycling as not just a one off feature that might occur this year, but as we progressively build the business, so will net invest, yes, but that doesn't always mean that we won't be actually looking to free up capital to further invest just because of the way that the returns occur in this business. So you don't have to own all the assets into perpetuity, basically. Thank you. And Gus, the clue is in the term non core. We're not going to be selling the crown jewels. Ian Turner. Ian Turner from Exane. Can I just ask a couple of questions? Firstly, can you give us bit of update on how the Connected Home is going outside The U. K? I think you've talked about that a bit in the past. And then just on this judicial review into the hedging in the SVT. Can you just talk about, a, the timing of that and b, how you assess the political risk from taking on Ofgem in that way? And I think Rachel Reeves called you cloth eared, which might be the nicest thing she's ever said about you, but it clearly does highlight some of the issues around that. Let me deal with that last one and then ask Mark to update on Connected Home outside of The UK. So look, I don't know whether it's cloth eared or not. I don't think so. We were given some pretty clear guidance by Ofgem in the first consultation period of how they were going to calculate the wholesale pricing mechanism just for that first period. Crucially, they didn't give any indication of any other basis, just one. We acted on it. We therefore changed our hedging practice in line with that indicative framing that Ofgem had given us. Six months later, they then changed that basis retroactively so that we couldn't do anything about it. I mean they basically moved the pricing period back to February. You can't go and suddenly buy February energy when you're in September. So we have an issue with that and we think that and we've clearly got clear demonstrable damage and a number of the other participants in the market have supported us in this as well. I don't know whether we're going to win it, but it is absolutely something that we believe is a matter of principle needs to be contested. And one of the only reasons why we're having to do it through a JR is because the traditional route of appeal through the Competition and Markets Authority was unusually removed for this bill as it went through Parliament, which is another slightly unusual set of circumstances. Just back on your cloth eared bit, I mean, we've been very clear with Ofgem and the government that we're doing this constructively. We're not trying to challenge the whole cap. And I agreed with Dermot Nolan four years ago that one of the we we have four principles that guide our relationship, and one of them is we can disagree occasionally and up to and including taking legal action or challenge, but that will not be disrespectful or played out in the newspapers. And that's basically what we're doing. On the timing, I actually don't know. I think it's too early. I think we've only just submitted the papers. We've only just got a date for an initial hearing. I just don't know how long it's going to take. Mark, Connected Home outside of The UK? Yes. So the two focus areas are Italy with the ENI deal and The U. S. In Italy, included in the April, there's a couple of thousand sales. If I'm honest, it's taking a bit longer to get that or get momentum. I think we've achieved momentum in Q4. We've been doing joint marketing campaigns with them. We're accessing all of their channels. It just took some time to get to know each other to figure out how to best work with their broader team. So we're expecting more from that channel this year. It's very similar in its potential to British Gas in The UK in terms of the customer base. In North America, we sold 43,000 last year. Again, that's an area where we think there can be significant growth. Obviously, it's a much more crowded market and it's more competitive. But we got our ENERGY STAR rating, which means that we qualify for some discounts from some of the utilities, which should help sales. We're working with obviously internally with Direct Energy on bundling, cross selling and that's picking up. And we're working very hard on landing third party distribution deals and we're on a number of the core websites and digital channels you'd expect us to be. So I think 2019 is a big test year for us in The U. S. In terms of being able to prove that we can grow the Connected Home proposition. And the other thing is we're not just going in with the Me Too products, things like the external camera, things like HiveLink in the care space, trying to give us some kind of differentiation in what is a very, very busy market. Thank you. I know we've been going a long time. There's still three people, I think, looking to ask a question. Alex, and then in front of you, and then Verity. I just want to check are there other pressing questions that we haven't answered in the room? Okay, those three. So you can be thank you very much for your patience. Yes. Thank you. It's Alex Leng from UBS. Two quick questions from me. First, a follow-up on the 2019 cash flow forecast. Your report mentions with IFRS 16 there's a £100,000,000 operating cash flow improvement. Can I confirm if that is adjusted out the £1.8 to £2,000,000,000 target? And secondly on Spirit, I understand there's 2P reserve levels or a fair amount revised down. Can we expect a write down against this or a change to depreciation going forward? I think these are both for Chris. So the guidance, 1.8 to two, includes everything. It includes the IFRS 16 impact as well. So that's included within there. On the reserves, we saw a reduction in Morecambe, and that's related to the availability assumptions in there. We moved the Hedger field to 2C, so we're just not developing that as quickly as we'd like. And we did some disappointment at the Maria field, so we saw some poor reservoir performance and we moved that down. We did actually net write up the fields in Spirits with a £90,000,000 reversal of prior impairments. That reflects prices, it reflects forward production assumptions, it also reflects these reserve movements. So that's all within the £90,000,000 write back. We will see an increase in depreciation in 2019 principally in Spirit. That's all noncash, but part of that's driven by the write back. You should expect to see an increase in depreciation of between GBP 50,000,000 and GBP 100,000,000. When you work that all the way down through the tax and the minority interest, it's actually quite a small number at an earnings level. Got it. Thank you. Can I quickly follow-up on the IFRS 16 effect? Was that previously expected in the 2,100,000,000.0 to £2,300,000,000 target? Or is that sort of incrementally No, no, no. That was there. Mean the 2,100,000,000.0 to 2,300,000,000.0 as you would expect coming in as a new CFO, I've been through lots of prior documents. Ian and the team have been very patient as I've asked lots of questions. This was well to be able to accounting standard setters don't move particularly quickly. So they gave us lots of notice. So that was one of the many, many factors that was in the 02/2001 to 02/2003. Perfect. Thank you. Amit Vermaat, Jefferies. I have three questions. Firstly, when you talk about the moving parts of the operating cash flow, there's a big moving part relating to the phasing of cash taxes. Could you maybe just elaborate on that? What's driven that? And how should we think about that into 2020? And then I think on the commodity price, obviously, you highlighted the weakness of the drop in the commodity prices that we have seen so far. But did I understand this correctly that for 2019, you actually don't see much of that because of the hedging effect? So what is the impact, let's say, on a mark to market basis? And how much is related to 2019 and then how much is 2020? And just finally on the nuclear disposal, could you maybe talk about the next steps or that how is the step like how is the process likely to go forward from here and whether that is already assumed in your net debt guidance for 2020? Can I just comment on the nuclear? I mean, basically, we're in a process, on a time line that we agreed with our partner EDF. We obviously have to talk to the government about it first, and we're in a process where a number of counterparties have actually come forward and with expressions of interest, and we're currently evaluating those expressions of interest. It's just too early to say anything more on that. But just to be clear, we have not assumed in our sources and uses of cash flow any proceeds from a nuclear sale. And just on one comment on the commodity prices, what I said was the outlook for 2019 has clearly worsened to a few months ago, but and that's obviously added pressure. But Chris, on the actual net effect with hedging. Yes. So you're right. Essentially, the prices at which we've hedged, the market prices we see just now, we see that being flat, what we achieved in 2018 versus what we achieved in 2019, albeit lower than what we expected a year ago. So we don't expect to see a year on year substantial movement. We paid you can see in the cash flow statement, we paid £61,000,000 in tax last year. So about £140,000,000 of that relates to activities in 2018. We've 80,000,000 credits from prior periods. Now part of that is successful conclusion of prior tax cases and part of that is also PRT refunds essentially. So when the Morecambe field is down, it has paid about £2,000,000,000 in PRT, petroleum revenue tax, over its life. When it's down, you're still incurring costs as we were in terms of asset integrity. You carry that back and you can get some PRT back. It's quite complicated actually, the way that it works, but we saw some benefit in there. In 2019, we're looking at about three hundred to four hundred million pounds increase. Now some of that is we've got obviously, we're estimating we're going to pay some tax on some of the disposal proceeds, but we will obviously work to mitigate that. But we will look at having about 160,000,000 to £170,000,000 of tax paid for 2018 results and probably roughly the same in terms of 2019 results. And then another, we've got some open tax cases, which I prefer to conclude before talking about and then tax on the disposals. All in all, you would expect to see tax in 2019 being in the range maybe £400,000,000 cash tax. You should see that coming down a bit in 2020. But a normal level for us with the current portfolio and current commodity prices is probably somewhere in the range of 300,000,000 to £350,000,000 Thanks, Chris. And then before I just give a couple of concluding remarks, Verity? Yes. Verity Mitchell, HSBC. Actually, a more strategic question because I've been looking at your capital allocation the last couple of years. And it seems to me that in terms of the most difficult business that you're working on with the lease momentum is the business side, both The U. S. And in The U. K. So I just wanted some high level comment on is it worth it given all the capital that you're investing in business, given the returns you're making? Well, look, I think it's a very good question. Capital allocation is very important, fundamental that we make the right choices. The business division actually many of the businesses actually don't consume a lot of capital. They consume collateral. They consume working capital, but not asset based investment. Clearly, the LNG business to some degree does, although we tend to lease vessels. And the capital, the main capital element would be in Distributed Energy and Power. We've got very strict minimum return levels we look to achieve. The returns are attractive. And therefore, what I'd encourage you to do is not paint the whole business division with one brush. And clearly, some of it's hard capital and some of it's working capital. Clearly, we've indicated earlier, Chris did, I did that we're not very satisfied with the returns we're getting out of North America business. We need to improve it, but we're also clear that its customer base is an extremely important route to market for distributed energy and power in The United States, which is the way we see it, is the largest market for distributed energy and power that we have access to right now. So we'll update you in the middle of the year, Verity, if that's okay, about how we're getting on the business division. Richard, did you want to add anything to that? No. I think the only thing I would say is, as you said, you can't just paint a broad stripe across the whole business division. You talked about The UK business. That's improved substantially. The momentum is with that business, we expect continued improvement. DE and P is actually on track in terms of how the order book is growing. And the way the margin structures are also developing, that's positive as well. We're not going backwards on margin. If anything, we're edging forward. So we like the trajectory that, that business is on. That is the business that is consuming some capital. A lot of the working capital and collateral goes into the trading business. Yes, it is a bit like swimming with an anchor around you with the legacy gas contract. But actually, the underlying performance, absent that, has been impressive. The 100 cargoes of LNG we've built, the point of that is actually we're building a web of assets, web of longs and shorts. That brings with it optimization extrinsic value, plus the longer term contracts that will be coming on to the books. I quite like the look of that as well. We do have an issue in The United States quite clearly. We've been very clear about that. I'm determined that we get after that particular issue. I know the team is in The United States as well. There are some issues relating to market curves that I won't go into now that will start to unwind in the 2019. That will give us momentum. We're in action on efficiency. We're in action on new products that will help us manage gross margin better. We're diversifying the risk geographically. We're adding new optimization options in the East. And so whilst it won't be an overnight fix, we do believe that, that business, its scale, the importance of the North American market, the link to DE and P, is going to be somewhere where we want to stay. We're determined to win for customers. We're determined to win for shareholders. Thank you, Richard. Well, I want to thank you all very much for coming and for putting up with a slightly longer presentation. Just three things to say at the very end. I I do want to welcome Charles Berry once again as our Chairman as of this morning. I'm glad you dodged the questions on the dividend, Charles, but I think I hope I was able to address those clearly. I'd also like to take the opportunity again just to thank Mark Hodges for what he's done for the company. I don't think we would be in anything like a stronger position if it weren't for what Mark's done over the last four years. And then finally, just on the outlook, clearly, the last thing I want to do is stand up in February saying the outlook's looking difficult. But it is, as I said to Nick, it is absolutely our obligation to be clear. We are only fourteen months into a three year performance period, but the cash flow is looking under some pressure and it's clearly putting some pressure on our one of our targets. But there is a lot still to work through in the next six months. And clearly, by July, there'll be a lot we can say about where we are and how we now see the prospects. Thank you very much indeed for your patience and look forward to updating you then. Thank you.

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