Earnings Call: H1 2017

Aug 1, 2017

morning, everyone, and welcome to Centrica's twenty seventeen Interim Results Presentation. We're in a different venue today. And before we begin, just a word on safety in this building. There are no planned fire alarms today. So in the event of one, listen to the verbal instructions from UBS staff who will direct you towards the fire exits, which are located at each side of the stage here and at the rear of the auditorium. As usual, I'm joined here today by our Chairman, Rick Haissancewaite Jeff Bell. Up here with me are our Group Chief Financial Officer Mark Hodges and Mark Hanafin, who are the Chief Executives of Centrica Consumer and Centrica Business, respectively and a number of other members of the Centrica team. After some brief remarks from me, Geoff will take you through our detailed financial results. I'll then provide you with an update on aspects of our strategic progress, including our perspective on The U. K. Energy supply market and our pricing announcement this morning before Mark and Mark join us on the stage to take your questions. So moving on to the main headlines from today's first half results announcement. Firstly, we delivered solid financial performance despite the effects of warm weather, competitive pressures and the prevailing political and regulatory uncertainties. Adjusted operating profit was down 4% to GBP $816,000,000. Within this, customer facing operating profit was flat overall, while profit from the asset businesses was down primarily reflecting the shutdown at rough. Adjusted earnings were down by 11% to £449,000,000 and earnings per share were 8.2p. In terms of cash flow, EBITDA was up 2% and while adjusted operating cash flow was down 9% year on year at GBP 1,200,000,000.0, this reflected the one off working capital inflows in 2016 in UK business. We remain on track to meet our 2017 full year target of over £2,000,000,000 of adjusted operating cash flow. Underlying adjusted operating cash flow growth relative to the 2016 was 0.3%, reflecting the strong delivery in 2016 and the impact on gross margin this year from a number of factors, including the warmer weather. The cumulative annual growth rate relative to the 2015 is now 2.6% per annum. We delivered a further GBP 124,000,000 of efficiency program savings in the first half of the year against our full year target of GBP250 million. We also made further strong progress on reducing net debt, down by over GBP0.5 billion in the first half to GBP2.9 billion. This means we within our targeted £2,500,000,000 to £3,000,000,000 range, and we continue to expect to be within this range at the end of the year. As we said in February, we believe this net debt range to be our optimum sustainable level with the current portfolio in the current environment. Our second headline is that following completion of a number of transactions announced recently and implementation of the other aspects of our strategy, the company will have been fundamentally repositioned by the 2017. We've shifted the mix of our portfolio and have reallocated resources accordingly towards our customer facing businesses. We have reduced E and P capital expenditure significantly and announced over GBP 800,000,000 of divestments in 2017, taking the total to over GBP 900,000,000 in the last two years at the upper end of the GBP 500,000,000.0 to GBP 1,000,000,000 target range. We've reinvested over GBP 500,000,000 incrementally in our customer facing businesses since the start of 2016. Our efficiency program targeting GBP $750,000,000 of efficiencies by 2020 relative to 2015 is well ahead of schedule and our efficiency delivery has allowed us to absorb the effects of inflation and foreign exchange and still fund our growth while keeping operating costs below 2015 in nominal terms. Finally, as we demonstrated at our Capital Markets Day, we've materially enhanced our capabilities and technology, providing a strong platform for customer led growth. In the 2017, we launched new propositions focused on bundling and personalization in our core Energy Supply and Services businesses and on delivering growth in our Connected Home, Distributed Energy and Power and Energy Marketing and Trading business units. I'll touch upon all of these aspects in a little more detail after Geoff has taken you through the financials. In summary, we've carefully executed on our 2015 strategy over the past two years and in the last six months have been particularly busy. Centrica is on track. Thank you, Ian, and good morning, everyone. As usual, I'll start with the commodity environment, then cover the financial headlines and review divisional results before finishing on cash flow and net debt. So with respect to commodity prices, while oil, NBP gas and baseload power prices all fell in the first half of the year, they were significantly higher on average than the 2016 and remained in a band between the seventy-fifty-fifty environment that broadly existed when we set out our strategy in July 2015 and our low case scenario of thirty five-thirty five-thirty five. Let me now cover the financial headlines. Revenue was up 7%, primarily reflecting the Neos Energy acquisition and the impact of foreign exchange movements on our North American business. As you've heard from Ian, adjusted operating profit fell by 4% to GBP $816,000,000. And when including the impact of a GBP 27,000,000 reduction in the capitalized interest credit, adjusted earnings were down 11% to GBP $449,000,000. Adjusted basic EPS was 8.2p, and the interim dividend per share is 3.6p, 30% of last year's full year dividend and in line with our established practice. On cash flow, EBITDA increased 2% to just under £1,300,000,000 and adjusted operating cash flow fell 9% to £1,200,000,000 which reflects the impact of the one off working capital inflow in UK business in 2016. Adjusting for this impact and for foreign exchange and commodity price moves, underlying adjusted operating cash flow growth was 0.3%. Group net investment, including acquisitions and disposals, was down 70% to GBP 131,000,000, in part reflecting this net debt fell to GBP 2,900,000,000.0. Returning to adjusted operating profit. Here, you can see the split across our two customer facing businesses with increased profit from Centrica Business and lower profit from Centrica Consumer effectively offsetting each other and our asset businesses delivering lower profit, primarily reflecting the operational issues at Rough. In simple terms, the reduction in operating profit of GBP 37,000,000 has three components. First, external factors including commodity prices, foreign exchange movements and weather, with weather the largest component, reduced operating profit by around GBP 70,000,000. Second, choices we've made, including taking the Morcom field offline and ceasing storage activities, reduced operating profit by a further GBP 80,000,000. And third, the change in the underlying operations of the business, primarily driven by cost efficiencies and Energy Marketing and Trading significantly stronger margin contribution, which more than offset the impact of customer losses, increased operating profit by around GBP 110,000,000. Let me now turn to each of the business units to provide some additional operational and performance detail, starting with Centrica Consumer. Profit from our Centrica Consumer division fell 20%. UK home profit was down 23 to GBP $489,000,000, within which energy supply profit was down 26% to GBP $381,000,000, reflecting the impact of warmer weather on energy consumption, a reduction in the number of customer account holdings and the implementation in April of a tariff cap for prepayment customers, which we estimate will impact our full year 2017 revenue by about GBP 50,000,000. This was partially offset by further cost efficiency with cost per UK home account down 6% compared to the first half last year. Ireland again delivered a good performance with operating profit increasing to GBP 33,000,000, driven by lower costs and a strong performance from our trading and power generation business. And as a result, first half operating profit was up 386% on a local currency basis. North American home profit increased to GBP 60,000,000, up 82% in sterling, although only up 62% in dollar terms. This reflects a focus on more valuable customer segments, cost efficiency measures with cost per customer down 5% and reduced losses from the solar business. Despite actions taken to make the solar business more efficient and scalable, we have come to the conclusion that it could not become a materially profitable business. We have therefore taken the decision to close the business and expect to have exited The U. S. Residential solar market by the 2017. In Connected Home, revenue increased by onethree to GBP 16,000,000, reflecting growth in the volume of products sold. In line with our plans to invest incrementally for growth, the business reported an increased operating loss of £44,000,000 Centrica Consumer's adjusted operating cash flow reduced to GBP $484,000,000, broadly in line with the reduction in operating profit. Now let me turn to Centrica Business, where profit more than doubled to GBP $222,000,000. This was despite UK business only breaking even, reflecting the impact of reduced consumption from warmer weather and a 6% reduction in customer account holdings and the impact of high wholesale electricity costs in the first quarter. UK business' first quarter loss was GBP 13,000,000. However, we returned to profit in the second quarter and at the half year was breakeven, and we expect to be profitable in the second half of the year. North American business operating profit of GBP 112,000,000 was up 8157% in dollar terms. Despite consumption being lower than normal due to another extremely warm winter in The U. S, Optimization of our wholesale gas positions improved compared to 2016. And as a result, the operating profit margin improved to 2.7%. Distributed Energy and Power gross revenue was up 25% to GBP 84,000,000, primarily reflecting the impact of the Energy Cogent acquisition in May 2016. The operating loss increased to GBP 19,000,000 as a result of planned incremental investments in growth. Energy Marketing and Trading reported a GBP 105,000,000 operating profit in comparison to a GBP 14,000,000 loss in the 2016. This reflects a strong trading performance in The UK, the impact of the Nias Energy acquisition and the phasing of realized profit in the year of our flexible gas contracts, which were loss making in the 2016 but contributed GBP 40,000,000 of operating profit in the first half of this year. These contracts are expected to make a small loss in the 2017. And as a result, we expect Energy Marketing and Trading's 2017 profit to be heavily weighted to the first half. Moving on to Central Power Generation. Operating profit was flat at £24,000,000 with lower realized power prices in nuclear and the disposal of the Lynx Wind Farm being offset by higher achieved spark spreads in our CCGTs. Centrica Business adjusted operating cash flow increased by 3% to £445,000,000 less than the growth in profit largely reflecting the one off working capital inflow in UK business in 2016. Moving on to exploration and production, where our future focus will be on Europe, following the disposals of our Canada and Trinidad And Tobago assets. Overall production was down 7% to 35,200,000 barrels of oil equivalent. And in Europe, production was similarly down 7%, reflecting natural portfolio decline and our decision to undertake asset integrity works at Morecambe to help improve safety, operational efficiency and underpin the residual life of the asset. This was partly offset by production from Cygnus Gas Field in The UK North Sea, which came on stream last December. In The Americas, production was down 6%, primarily due to the disposal of the Trinidad And Tobago assets in May. European Gas and Liquids achieved prices were up, contributing to a 2% increase in overall realizations despite the lower volumes. European total cash lifting and other production costs also increased by 4%, primarily driven by the impact of weaker sterling on foreign currency denominated costs in Norway and The Netherlands, while additional costs due to Cygnus coming on stream were offset by additional cost efficiencies in the business. When taking into account the lower production volumes, unit cash lifting and other production costs increased 12%. Reflecting all of this, adjusted operating profit increased 13% to GBP 99,000,000. However, adjusted operating cash flow fell 18% to GBP $276,000,000, reflecting higher decommissioning spend in the first six months than last year and higher cash taxes paid. E and P was again free cash flow positive for the 2017, slightly more so than the 2016, reflecting lower capital expenditure due to the phasing of project spend and disposals. Finally, Centrica Storage reported an operating loss of GBP 43,000,000 for the period, with revenue down 85%, reflecting significantly reduced operations at Rough as we work through the well testing program. We announced in June that we would be making all relevant applications to permanently end rough status as a storage facility and to produce all recoverable cushion gas. Reflecting this change in operational use from a storage asset to a producing asset, a GBP $224,000,000 post tax charge was recognized in the half year accounts. Centrica storage has now applied to the oil and gas authority to produce up to 30 Bcf of cushion gas in order to reduce the operating pressure of the reservoir to safe levels. Subject to approval, we would expect to produce about half this volume by the end of the year with the remainder in the 2018. As a result, we expect Centrica Storage to make a smaller loss in the second half. Longer term, we expect the cash flows from the Cushing gas sales to broadly offset the cost of decommissioning the asset at the end of its life. Turning now to costs. Total reported operating costs were down 3% in the 2017 as efficiency program savings more than offset the impacts of inflation, foreign exchange movements and investment in growth. After adjusting for items such as depreciation and amortization, impairments, smart metering and portfolio changes to get to a like for like number, adjusted operating costs were down 5%. And after excluding growth investment, they were down 7%. Taking into account controllable cost of goods sold, you can see here we delivered a further GBP 124,000,000 of efficiencies in the first half. Foreign exchange movements impacted our 2016 baseline by £102,000,000 while inflation added a further £44,000,000 However, when also including other net savings, not part of our efficiency program, total like for like controllable costs were lower in the 2017 than in the 2016. The efficiency savings delivered in the first half are a combination of the annualization of 2016 savings and new 2017 initiatives, including the transformation of our customer operations, the utilization of digital and technology capabilities to enhance customer service and reduce call volumes and the creation of a more integrated field operations model to drive efficiency and further supply chain improvements. We also saw continued reduction in our global functional costs as shared service operating models became more embedded and the procurement function continued to leverage the group scale to reduce third party costs. Moving on to net investment. Capital expenditure was down 9% to GBP $385,000,000. Within this, E and P expenditure reduced by 24% to GBP $220,000,000, and we remain on track to spend around GBP 500,000,000 for the full year within our current targeted range. As planned, we also saw increased organic investment in the growth areas. Total group net investment fell by 70% to GBP 131,000,000, which reflects increased disposal proceeds predominantly relating to the sale of the Lynx Wind Farm and no material acquisitions. Overall, we delivered net cash inflow of over £500,000,000 in the 2017, with just under half coming from the disposals and the remaining from organic sources. As already referenced, EBITDA increased by 2%, although adjusted operating cash flow was down 9%, with the benefit of in year phasing of 2017 cash taxes more than offset by a return to more normal working capital flows in UK business. Cash interest payments also returned to more normal levels, following a one off interest payment received in 2016 relating to the Glid Wind Farm disposal. A higher scrip take up resulted in lower cash dividends paid, while other cash flows relating mainly to exceptional pension deficit payments were broadly unchanged in total. Let me now turn to the outlook for our sources and uses of cash. This is a similar chart to the one we showed at our Capital Markets Day in June, updated for the disposal of the CCGTs at Language and Humber, which is expected to complete in the second half of the year. With more than GBP 800,000,000 of disposal proceeds expected for the full year and our targeted adjusted operating cash flow of over GBP 2,000,000,000, we remain on track to achieve our targeted net debt range of GBP 2,500,000,000.0 to GBP 3,000,000,000 by the end of the year after taking into account working capital increases we typically see in the fourth quarter. Let me now summarize using our financial framework. For the 2017, underlying adjusted operating cash flow growth was 0.3%. The interim dividend of 3.6p is in line with our established practice of paying 30% of the previous year's full dividend. Controllable costs were down, reflecting our continued progress on our efficiency program. Capital expenditure was GBP $385,000,000 in the first half of the year, and we expect to be below the GBP 1,000,000,000 limit for the full year. Net debt was GBP 2,900,000,000.0, and we expect to remain within our targeted net debt range of GBP 2,500,000,000.0 to 3,000,000,000 at the end of the year, a level consistent with our financial framework parameters for our existing portfolio of businesses and also consistent with achieving the financial metrics for strong investment grade credit ratings. And the group's return on capital employed remains well above our 10% to 12% boundary condition. With that, let me hand it back to you. Thank you, Jeff. Let me now provide a strategic update. We covered a lot of ground at the recent Capital Markets Day, so I'll mainly focus on progress in the half year and more recent developments. Let me start by returning to the summary slide from our Capital Markets Day six weeks ago. The key conclusions were that we have a clear purpose and strategy, and we have been executing against all aspects of this strategy over the last two years. The portfolio will have been fundamentally repositioned by the 2017 with a relative shift away from E and P and Central Power Generation towards our customer facing businesses. Centrica is in a much stronger position, both competitively and financially, given the progress made on cost efficiency and in reducing net debt. And Centrica is capable of delivering customer led growth with clear strategic frameworks for both consumer and business divisions, stronger core businesses and new businesses demonstrating growth with attractive unit margins. Our capabilities, people, processes and technologies have been materially enhanced. Although our markets are changing rapidly and competition remains intense, we remain confident that we've established the initial platform from which to deliver the medium term underlying growth and returns, which underpin our shareholder proposition. With that as context, over the next twenty five minutes or so, I'd like to cover six topics. I'll remind you of the progress we made in refocusing the portfolio. I then want to cover how we're thinking about customer accounts in the Consumer division and provide a breakdown. I'll then provide a brief update on progress in our Consumer and Business divisions and our Asset businesses. Following a progress report on our multiyear efficiency program and an update on recent developments in The UK energy supply market, including our pricing announcement this morning, I'll conclude with a summary and outlook. Regarding the transformation of the portfolio, we've been reallocating resources from our asset portfolio to the customer facing businesses. We announced back in 2015 that by 2020, we would shift around GBP 1,500,000,000.0 of investment from the asset businesses towards our customer facing activities. We would target this additional resource on our focus areas for growth, energy supply, services, distributed energy and power, the connected home and energy marketing and trading. Over the past two years, we've therefore reduced capital allocation to the asset businesses by around GBP 600,000,000, reducing E and P capital expenditure down into the GBP400 million to GBP600 million range from about GBP800 million per annum. We've also announced divestments of over GBP900 million. In terms of reinvestment into the customer facing businesses, we've so far spent over GBP 500,000,000 in incremental investment with the majority of the cash flow released from the asset portfolio, therefore, being used to pay down debt and strengthen the group. Our investment focus into the customer businesses has been on building and accessing new capabilities, technologies and markets. This includes the customer facing acquisitions of Panoramic Power, Energy Cogent, NES Energy and Flowgem, additional organic capital expenditure and revenue investment in our Connected Home and Distributed Energy and Power businesses. We remain on track to invest additional GBP100 million of revenue investment in our growth areas in 2017. So far, we are paying for our incremental revenue investment for growth through our own efficiency program, which I'll return to in a moment. We've also committed material resources towards new capabilities and propositions in our core areas in energy supply and services. This includes investing in new marketing capabilities, new propositions such as local heroes and reward and loyalty schemes such as British Gas Rewards in The UK and Plenty in North America. And earlier this year, we announced the establishment of Centrica Innovations, under which we plan to invest on average about GBP 20,000,000 a year over the next five years. It will help identify, incubate, accelerate and partner with new technologies and innovations that will enable us to develop further offers, products and services for our customers. In the 2017, we made our first investment on Decentric Innovations, acquiring the assets of Rocket Astra, a company who have developed a proprietary data and a recent decision to close our residential solar business and in The UK, with the disposal of the legacy Energy Management Systems business. I'd now like to turn to the subject of consumer account holdings. In our Consumer division, we've seen significant movements in our customer account holdings with an overall reduction of nearly 700,000 since the 2016. However, 60% of the net reduction is a direct consequence of our own choices with the remaining 40% or 276,000 accounts reflecting the underlying movement in our core portfolio over the last year. This illustrates the problem with focusing on a single aggregated number, and we've decided to provide you with some additional granularity. So this chart shows the movements of customer accounts within consumers since the 2016. The three bars in yellow on the left reflect choices we've made. We lost 257,000 customer accounts as a result of the roll off of a number of collective switch deals in The UK and low margin aggregated customer books in North America. Just over half of these losses were in The UK. We are currently no longer actively prioritizing customer acquisition in these channels because they're very low value. We've also decided to scale back our door to door channel in The United States, which has had an impact of 66,000 accounts. This is a challenging channel to manage to a consistently high standard and there's considerable regulatory pressure in this area. In addition, in The U. S, we were running 90,000 Services Protection Plan trials, which have come to an end. These three choices we've made accounted for over 400,000 of the reduction in customer accounts as we focus on value, not volume, with two thirds of this reduction in North America. So turning then to the underlying effects in green here, competitive pressures have resulted in a net 572,000 energy and services accounts switching away from us on both sides of The Atlantic in the last year. Against this reduction, we've added nearly 300,000 Connected Home customer accounts over the same period, which carry attractive gross margins. This gives us an underlying net reduction in our core of 276,000 accounts. This is split 144,000 in North America and 132,000 in The UK. Even though The UK has higher losses in energy and services, Connected Home offsets two thirds of these, whereas we've only just launched Hive in North America. As Connected Home continues to grow and we look to also grow our services accounts, we will be looking to stabilize and then begin to grow our overall consumer account holdings. This reduction of 276,000 is the net impact on our core. And within that, we've also seen large numbers of customers joining us. We've been actively engaging more strongly with our standard variable tariff customer base and offering them more tailored propositions. We also have a number of other new offers being tested currently. We've seen significant numbers of customers choosing new offers such as our multiyear fixed price offer. As a result of these actions, we're also seeing improved complaints and NPS levels, customer take up of new propositions and tariffs and higher levels of customer engagement. This is all part of our approach to customer segmentation and value management, which Mark Hodgesa outlined at the Capital Markets Day. This chart is the slide Mark showed at the time, an illustration of how our energy customer base is distributed by value. Using The UK as an example, during the first half of the year, we retained 97% of our customers in the high and medium value segments and 91% of customers in the low and negative value segments. We're convinced that a stronger focus on customer segmentation and value management, new innovative propositions and improved service and cost efficiency will serve our better and deliver more enduring value for Centrica. Let me now complete the consumer picture with an update of progress against the five pillars of our strategic framework. In any case, on key marketing campaigns in the latter parts of the year, our plans continue to indicate that we will have sold 1,000,000 hubs and 1,500,000 products by the 2017 and we've just passed the 1,000,000 product milestone recently. Also in Connected Home, I'm pleased to say that as of last week, we are now live in another new market, Italy. We have been prioritizing Italy for launch and potential partnerships, and we'll update you on progress later in the year. In addition to one off sales of hubs and products, we've launched a range of subscription offers, including our Welcome Home and HomeCheck propositions in The UK and North America. These are easy to use solutions that enable customers to personalize, control and interact with their home through the Hyve product range, and initial take up has been good. Moving now to Centrica Business, where complaints were also down in The UK and North America energy supply. UK Business delivered a disappointing operating result, as you've heard from Geoff. However, performance improved in the second quarter and we have a clear recovery action plan in place. In Wholesale Energy, we delivered further strong performance in Europe with NIAS Energy continuing to perform ahead of its investment case and good optimization performance in North America. We also continue to make good progress on our newer focus areas of energy insight, energy optimization and energy solutions. Revenue and customer sites were up in our Distributed Energy and Power business unit. In Energy Insight, we deployed a further 6,000 panoramic power sensors in the first half, taking the cumulative number to 44,000 across 1,500 sites in 30 countries. In energy optimization, we now serve customers who own decentralized assets with installed capacity of over 10 gigawatts. And we've now commenced our pioneering Cornwall local energy market trial. In Energy Solutions, Energy Cogent continues to perform in line with our expectations, and we now have over 1,400 long term contracted sites across 13 countries and overall, we have 600 megawatts of capacity under contract. Let me conclude the business review with a brief update on our asset businesses. I mentioned earlier that our announced and completed divestments now total over £900,000,000 near the top of the 500,000,000.0 to £1,000,000,000 target range. In Central Power Generation, we completed our exit from wind generation ownership with the sale of the Lynx Wind farm following on from the disposal of our interest in the Glid wind farm in 2016 and in June agreed to sell our large gas fired power stations at Langage and Humber. In E and P, we completed the disposal of our Trinidad And Tobago gas assets and announced the disposal of our portfolio of assets in Canada. Once this transaction is complete in the 2017, our E and P activity will be focused solely on European assets. In gas storage, as you've already heard from Jeff, we announced in June that following the results of our extensive well testing program and the decision that we could not safely continue injection and storage operations, we would be making all relevant applications to permanently end rough status as a storage facility and to produce all recoverable cushion gas. Completing the picture for our asset business portfolio transformation, last month, we announced an E and P joint venture with Stadtwerke Munshen and their BayerngasNorga assets. The combination of both parties' assets will create a strong and sustainable independent E and P business with a compelling strategic rationale. The joint venture brings together two like minded shareholders and combines a complementary mix of producing and development assets in Northwest Europe. It will extend Centrica's reserves to production ratio from under seven to above eight years and reduce our net exposure to decommissioning. The entity will be self financing with an 80% reinvestment rate with the remaining post tax operating cash flow being distributed to the shareholders. Our share of production will be 30,000,000 to 40,000,000 barrels of oil equivalent per annum, lower than our previously announced 40,000,000 to 50,000,000 barrels of oil equivalent targeted annual range. However, we believe this lower level is adequate to allow E and P to fulfill its role in Centrica's portfolio of providing cash flow diversity and balance sheet strength for the group and the JV will have sufficient materiality overall to be sustainable. The transaction is expected to generate GBP 100,000,000 to GBP 150,000,000 of gross NPV through synergies. And importantly, we see the joint venture as having the opportunity to participate in further consolidation should value enhancing combinations arise. We also do not rule out the possibility of an IPO in the medium term. Centrica would be open to having a lower ownership percentage in a larger entity just as we've done in this step, provided we retain sufficient influence to shape the strategic direction of the business. The transaction is expected to close in the fourth quarter. Let me touch briefly on progress in our £750,000,000 efficiency program, which is important to enable us to remain competitive and to build much stronger and scalable foundations for the future. Geoff has already covered our continued strong performance in the 2017 with delivery of a further £124,000,000 of savings and an additional GBP 1,100,000,000 of like for like headcount reduction. We remain on track to achieve our 2017 full year targets of GBP $250,000,000 of efficiencies and a GBP 1,500 reduction in direct like for like headcount. If we deliver on that target in 2017, by the end of this year, we will have delivered around GBP $650,000,000 of savings since 2015 and be well ahead of our original plans. In line with those plans, these efficiencies have been delivered from a number of areas, including the implementation of new organizational structures and operating models in our energy supply and services businesses, efficiencies in E and P, the creation of global functions, as Geoff outlined, in our large support activities such as IT, procurement, finance and HR to drive simplification and standardization and the unlocking of material savings and third party costs. We've also reduced organizational layers and increased spans of control across Centrica. Before summarizing, let me turn to The UK energy supply market. The market remains highly competitive with the number of suppliers increasing over the past six months to nearly 60 and customer churn continuing at high levels. As you'll be aware, following a request from the Secretary of State, Ofgem has committed to consult on new measures to help make retail competition more effective and to protect vulnerable customers. This would be in addition to the tariff cap for customers on prepayment meters, which was implemented in April following the comprehensive two year Competition and Markets Authority review. We have made clear proposals for how the market should be reformed and have done so in writing to Baes, No. 10 and to Ofgem. Although there are a number of specific recommendations, our proposals can be summarized into two themes. The first is effectively phasing out the standard variable tariff as we know it by the market wide ending of evergreen contracts and changes to the default tariff mechanism. The second area of our proposal is to level the playing field with all suppliers paying a share of government imposed social and environmental policy costs. Along with differences in pace of smart meter rollout, this cost disparity leads to market distortions and having reached nearly 60 suppliers, the additional incentive for new entrants is no longer necessary. We will continue to engage constructively with both the government and Ofgem to help deliver the best outcome for our customers and other stakeholders. We announced this morning that following our price freeze, which has now been further extended effectively to the September, from that time, we would be increasing the price of our standard electricity tariff by 12.5. This is our first standard tariff increase for nearly four years and follows four consecutive price cuts. It affects 3,100,000 of our 8,400,000 customers. With our gas price remaining unchanged, this means the average annual dual fuel bill for a typical household will rise by GBP 76 or 7.3% to GBP $11.20. Since 2014, the costs of delivering electricity have been increasing. This has been largely driven by increases in transport costs and government policy costs, which generally affect electricity costs only. Centrica has obviously experienced the same cost pressures from these areas, but we've been able to hold off increasing prices until now, thanks to our own efficiency program. However, we've been selling electricity at negative margins for some time. And with additional increases in these areas, we have had to announce this price rise beginning in mid September. The electricity only increase announced today means the overall dual fuel increase is at the lower end of competitor price increases this year. And you can see on the chart on the right, it looks a bit like the CN Tower, but you can see on the chart that we will retain a very competitively priced standard variable tariff position even after our increase has been implemented. Of the 10 largest suppliers, British Gas would be the third cheapest, only GBP 11 above the lowest priced and GBP 67 below the most expensive. Our dual fuel standard tariff rate will still be cheaper than 84% of the contracts in the market. One area we've been discussing with the government is the protection of vulnerable customers and especially as we go into this winter before any further changes to the market have been recommended by Ofgem. As a result, we've also announced this morning that we will be unilaterally protecting an additional approximately 200,000 vulnerable customers from our announced price increase. These customers are those who automatically qualify for the warm home discount, but who are not protected by the prepayment tariff cap. They will therefore see their average dual fuel bill protected at an average tariff level of $10.44 pounds So let me now summarize. 2017 has been a very busy year so far. And although some of the political uncertainty hanging over us has dissipated, energy supply markets in particular remain highly competitive and we've seen impacts of very warm weather on our results. However, we've delivered a solid performance in the 2017. We remain on track to achieve the 2017 group targets we set out in February. We expect to deliver adjusted operating cash flow in excess of GBP 2,000,000,000 again this year. Per our financial framework, group capital expenditure remains limited to GBP 1,000,000,000 in 2017 with E and P CapEx expected to be around GBP 500,000,000. Having invested GBP 39,000,000 of incremental revenue investment in our growth businesses in the first half of the year, we intend to spend around GBP 100,000,000 for the full year. We remain on track to deliver a further GBP $250,000,000 of cost efficiencies in 2017 and to reduce direct like for like headcount by a further 1,500. And we expect net debt to end the year within the GBP 2,500,000,000.0 to GBP 3,000,000,000 range, the optimum sustainable level with the current portfolio in the current environment. We are meeting all boundary conditions of our financial framework and have announced a 3.6p per share interim dividend. As we laid out in 2015, any decision to reintroduce a progressive dividend will continue to be linked to our confidence in our ability to deliver underlying adjusted operating cash flow growth over the medium term, of course assuming that we also will have achieved net debt levels within our targeted range by the end of the year. In summary, the strategic progress we've made over the past two years means Centrica will have been fundamentally repositioned by the 2017. We have clear strategic frameworks for both the Consumer and Business divisions. And with enhanced skills, capabilities and technology, we can now address new customer needs and customer segments and apply ourselves to new markets in addition to strengthening our core. Although the world remains uncertain and our markets are highly competitive, we've established a strong platform from which to compete and to deliver long term shareholder value through both returns and growth. Thank you. And I'd now like to ask Mark and Mark to join us on stage to take your questions. As usual, just raise your hand to ask a question. When I get to you, identify yourself before asking your question. And there are microphones at each station. You can lift them out. It's a very fancy room, this. I'm just saying that for our UBS colleagues. And if you lift the microphones out, please press and hold down the silver button to speak. Thank you very much. Lakis, why don't you go first? You caught my eye. So we'll go to Lakis and we'll just keep going in the middle bank Am I on? Yes. Lakis Afanasio, Agency Partners. A few questions, one routine. On rough cushion gas, are you planning to do more than the 15 bcm you mentioned in Q1 through 2018? And what is happening with these services? You're backing out of solar. What about the rest of the business? Is that going to go to profit? Or was the losses, which we presume are going to be there because we don't really know since you kind of when since you reduced your quality of reporting on North American Home. So what's happening there? Also, mass markets. You've account reduction, but we don't know where, again, because you've stopped spitting out regional customer numbers. So what's happening? Is it Canada? Is it the Northeast? Is it Texas? What is going on? Okay. I'm going to ask Mark Hodges to talk about services in North America and talk about the current situation and the future. I mean I think it's a little bit unfair to say we've stopped providing information and splitting things out. We do split things out regionally by business unit, obviously, not subregionally, I accept. But just before we do, on rough, on the Cushing gas, there are two stages in this effectively. The first is a safety related permission that we are seeking to reduce the pressure in the reservoir to below 1,500 pounds per square inch. The reason for that is that we believe the well stock will be particularly secure at pressures below 1,500 pounds We saw some failures in our test regime at that sort of level. And if we take the pressure down to that level, the barriers will be even more secure. So that's step one. Step two is for us to get permission from the Oil and Gas Authority and the Competition and Markets Authority to cease storage obligations and operations, and therefore, rough would be returned to a producing asset. We currently have a production license for the area, but we are bound by the obligation to run it as a storage asset at the moment. So once we get those permissions, we would then be able to produce all remaining recoverable gas in the field. And as you know, the value of that gas broadly covers the future net present cost of decommissioning depending on the technology curves that we apply. So that's what we're going to be doing on rough. Now Mark, in terms of Services North America? Yes. So a couple of things. One, we do see Services in North America as an opportunity for growth. It's an important part of the business as we laid out at the Capital Markets Day. If you take The U. S. Year on year performance, around half of the improvement is down to performance improvements in solar that we've made anyway before the decision to exit. And then in terms of the rest of the business, the Energy and Services, it makes up the other half of the profitability improvement. Services is broadly flat from a profitability perspective, which is really ongoing competitive pressures because it's a competitive market, as you know, offset by our own operational efficiency. So we continue to drive costs out of that business. What we're looking at is the franchise model. We're looking, as we explained at Capital Markets Day, how do we improve the sophistication around some of the pricing of some of the products in North America as well as in The UK. And in services, as a core pillar of the strategy as we explained, I would like to grow it both here in The UK and in North America. If we need to think about some more disclosure to help you understand that, then I'm sure the man on my right will help me think about that. And just to finish, one more comment on that. I mean we're not just bound to The UK and North America in the matter of services either. The model that we launched and showed you at the Capital Markets Day, the local heroes model, could be applied in other markets as long as we can find the right mechanism to guarantee the quality of the work. So we are seeing services as a diversification, an important diversification beyond energy supply as well as all the other pillars to the right of energy supply in both divisions. One data point, just one data point, Mac, as to your question in terms of services. Ian showed that the there were 90,000 in terms of the protection payment trials. If you take that number out of The U. S. Services business, it actually grew by 18,000 accounts in the first half of the year. So whilst that hasn't translated into any significant uplift in profitability, it did grow marginally in the first half of the year in terms of the business we're really interested in being in. Let's go to and then we'll just do two or three more in the middle and we'll just go to the Mark Freshney from Credit Suisse. I have two questions. Firstly, on the balance sheet, you've got over GBP 6,000,000,000 of gross debt. Net debt looks as if it's going to be less than half of that at year end. So you've got a balance sheet which is entirely inappropriate for the current size of the business. Is there anything you can do to try and reduce the interest charge and actually make that more efficiently? And secondly, on Connected Homes, I know you've given us a lot of detail at the CMD last month or two months ago. But I mean, in my calculations, the annualized run rate of growth for revenue in Connected Homes needs to be 100% each year for the next five years to reach the kind of billion pounds indicative. Can you give us more color on what the revenue uplift from going to new markets might be? Because it appears a very, very aggressive target. I think that one is definitely one for Mark Hodges. Similar questions that I've been asking him. Now I'm teasing. That will be Mark's one for Mark. Geoff, on the gross and net debt and interest charge? Yes. I mean you very much take the point clearly in building the financial resilience of the group and getting net debt to the level that we think is appropriate for the businesses we have. That has meant that we are we have a lot of liquidity and a lot of cash because, obviously, the gross debt has turned out to a longer period. We are absolutely looking at all options and ideas in terms of how we would potentially improve that. You would imagine, though, that in the current low yield environment, typical types of liability management options are more expensive. But we continue to look at those. But to date, we haven't found anything that we felt is sort of economically attractive, but we'll continue to look at that going forward. And on that point, if I can just add one other dimension, Geoff. At the Capital Markets Day, we were very clear that we're not rushing out to do this, but we would re expand the balance sheet if we found the right things to enter into joint ventures or acquisitions. But it's not like we're going on a wild spending spree. We'd be very, very careful about what it is that we target for investment. But clearly, large acquisitions are outside of the current financial framework sources and uses of cash that we've been presenting. Mark, Connected Home growth? Yes. Well, the answer is very much along the lines we gave Capital Markets Day. If you think about the dimensions of growth and what we're trying to do and recognize that we do need some attractive growth rates. I think about it in terms of the product range, which you know we're expanding. Ian's already referenced the camera, the Hive Hub with the audio analytics capability, the leak detector adding to the capabilities we already have. And of course, over time, we would expect to integrate some third party devices into our ecosystem to give customers more choice. So that's one dimension that would promote growth. There is the subscription model that we are pushing hard on now that lowers some of the price point pain from one off purchases and of course builds an enduring revenue model that carries on year on year. So you're adding to it over time. And we're working hard having launched a couple of subscriptions here in North America to really make those work for our customers. There are then the channels that we go to market. We have more, I think, we can do in our existing businesses, whether that be British Gas, Direct Energy or Borgosh. Those are customer bases that we want to penetrate more with the product range. Then there are in the current markets we're in, there's more we can do. So we're only a few weeks into our North American launch. We're learning a lot about our digital sales journey and what we can do to activate customers to access our products. And then finally, as you referenced, the partnership conversations are really important in new markets. We are talking to a number of very large organizations. I mentioned at the Capital Markets Day, they're not rooted in the energy sector, so in telecoms, in banking and some energy players. And some of these conversations are with people who have huge customer bases in the way that we do in The UK. And I think that's a critical part of the growth agenda for Connected is tying up those deals. The good news is people are really interested in our capability. They look to what we've done in The UK and that's perceived to be very successful. And they're looking for us to help them replicate that kind of success in their home market. So those things all need to happen. I don't think it will happen in some straight line basis. Ian does often ask me how we're going to meet the challenge. But as we said and Ian said in his remarks, we're confident of getting to the million hubs this year, which would be a great start. Thanks, Mark. And Mark Freshley, thank you. Let's keep going along the row. Chris Labord from JPMorgan. Just a couple of questions. Firstly, on the dividend. You said that you've got confidence of growing operating cash flow and you're now within the band for net debt. Has your confidence increased significantly, would you say, or moderately? How confident are you would be the question, I suppose. And so therefore, how confident can we be of seeing some dividend growth in February? On the standard variable tariff customer margins, can you give us an idea of perhaps at a group level where you see margins at the end of the year? And if we could also just on standard variable tariff customers themselves, are those customers now paying a slightly higher margin? Or are you just recouping costs for those customers? And then one sneakily, energy markets and trading, out of the 105, Jeff, could you give us an idea of how much was U. K. Trading? You mentioned those three buckets. An indication would be very handy. Thank you. What I'd like to suggest in addition to Geoff commenting on Energy Marketing and Trading is to ask also Mark Hannifin at that time, just talk a little bit about what's going on in Energy Marketing and Trading. It's great been result in the first half. So firstly, on the dividend, I mean, it's very not a very sneaky question, a very overt question. But look, first of all, we've been very clear about the philosophy, which is that we need to be confident in our ability to grow operating cash flow in the medium term in line with our goal of 3% to 5% per annum. Now I'm encouraged that hitherto, it's now 2.6% if you take it off a mid-twenty first half twenty fifteen base. The analysis that we show you, where we have to correct for foreign exchange and commodity prices and one off working capital movements is obviously highly sensitive to small adjustments to cash flow in any particular period, but we're doing our best to form a judgment from that. And obviously, as we go forward and get the balance sheet into the right place, we'll be looking really closely at that not only our historical delivery, which so far has been broadly in line with that 3% to 5%, but obviously, most importantly, what do we think about it going forward. We said in 2015 that the cash flow growth in the 2015 to 2020 period would be dominated by our cost efficiency in the early part and would then have to do a handshake, if you like, with cash flow growth from gross margin. And in the second part and clearly, we will be updating you in February around both aspects, how we feel about growth and how we feel about our cost efficiency going forward. At the end of the day, the dividend decision is a matter for the Board and we will obviously take all of these factors into account as we walk towards February, but I can't say any more than that. The man in the front row would not appreciate it. Mark Hodges on SVT, various aspects of it, and then we'll move to EM and T, Geoff and Mark. Yes, thanks. So Chris, without trying to be unhelpful, we probably won't want to give a kind of prediction of where margins net margins would be at the end of the year. But typically, as you know, looking backwards, we've operated at somewhere between kind of 46% post tax, pounds 42 to about £65 per dual fuel customer profitability. We don't have a target range. We do genuinely believe that profitability is an outcome of competition. As Ian described earlier, we've positioned, we think, our standard variable tariff well in the market to be competitive. The other thing we don't do is have deeply discounted fixed deals. So the profitability of our fixed deals is pretty much on a par with where we are in standard tariffs. There's not a huge margin disparity. And the other thing we showed you was the value segmentation and customers will disperse around that segmentation across all product types. It's not as if one product is in one end and another product is at the other end because as we described at the Capital Markets Day, the drivers of some of those value are things like propensity to churn, propensity to buy a second product. So that can happen with a fixed product or a standard product. And I think yes, think that was that's probably at this stage what we'd say on margins looking forward. The other big factor, of course, which we're very thoughtful about is at the end of the day, this will partially be down to consumption and weather in the second half of the year as well, which is at this stage, is the biggest variable in terms of our performance looking forward. Thanks, Mark. Geoff and the other Mark on EMMT. Yes. I mean I'll just comment briefly and then turn it over to Mark. I think my observation would be that the energy marketing and trading business broadly in The UK, which includes the proprietary trading business, LNG origination, is a bigger business than NES. And so of the remainder that isn't the gas flexible gas contracts, it would be weighted towards the historical U. K. EM and T business as the majority of it. But the NES business makes a significant minority or a reasonable minority of the balance as well. Mark, in terms of the business itself? Yes. So I'd say probably about onethree of the net margin, that's pre OpEx, of the first half result is U. K. Proprietary trading. But it's been a strong performance across the board. LNG has performed very well. Origination has performed very well. NIAS is kind of running at maybe twice what we expected. And part of that first half performance is extreme volatility that we saw in electricity prices across North West Europe at the end of last year and the sort of beginning of this year. Of course, volatility on its own doesn't create profit. You have to be able to execute. I think across both NAAS and the traditional trading businesses, have been able to execute very well on that. In Geoff's presentation, he mentioned that there was about GBP 40,000,000 in the first half related to flexible. This is a legacy flexible gas contract, some of which are take or pay. And we're looking at sort of the phasing and smaller losses in the second half. So when you take all of that into account, I think the results are very heavily weighted towards the first half. Chris Wim. Thanks, Mark. When we get to the end of the year, we'll need to explain the structural part, which are these legacy contracts. They go back 20. Some of them two out of three of them are going to be rolling off over the next year, which is in some ways good in terms of demystifying the result. But they are some of the more valuable ones that will be rolling off. So we'll need to we're going to need to explain how this all is going to evolve when we get towards February. I'm going to take two more questions in the middle and then I'm going to move to the can I just see other questions in the wings? Yes, there are. Okay. So we'll take two more in the middle. There are three hands up. All right, three. And then so let's start there, there and then Ed. It's Martin Bruff from Deutsche. Just a quick question on UK nuclear. Obviously, you're a minority investor there, so not in full strategic control of what happens there. But in terms of the balance between prices gradually being squeezed over time and very good operating performance in terms of output, but then issues around timing of CapEx or investments into the fleet. How do you regard the sort outlook for dividends there? Is it a stable one? Do you expect a bit of a squeeze on dividends? Or is there any chance of having to put a bit of cash in at some point if you need to do some investments that will then result in some paybacks later on? As you know, we've said that we hold the nuclear business as a financial investment effectively because its strategic optionality is limited, especially after we exited Hinkley Point C, which I don't regret. But Mark, how should people think about the dynamics in the Nuclear business? Yes. I mean I think obviously, there's uncertainty around production levels, but the performance has been exceptional and the team in Barnwood have demonstrated over the period that we've owned the assets terrific engineering skills to manage the plants and improve the load factors. And this year is also shaping up to be a very good production year. It's, of course, exposed to the absolute electricity price. Perspective, I would say that the capacity market revenues that are going to start coming in, particularly twenty eighteen-twenty nineteen when we see the first of the T minus four auctions delivering, clearly add a lot of revenue into into our nuclear business. And we mustn't forget it's zero carbon, electricity production, and, that will benefit from whatever mechanism that government ultimately decides that needs to be in place to reward low carbon generation. And at the moment, that's the carbon price support mechanism. Thanks, Mark. And then two more, and then we're definitely going to the wings. It's Nick Ashworth at Morgan Stanley. A couple just on the growth businesses. Firstly, on the revenue investment. You talked about the £100,000,000 that you are going to be investing in these new businesses through the course of this year. You also talked about getting into a new market, Italy. And I guess the question is around further new markets in that business. Do you have more because I know some of them were talked about at the Capital Markets Day. Are there more of the agenda for this year into next year? And presumably, the revenue investment will continue into next year given that there could be new markets or continuing on the investment in the markets you're growing into this year. So if we get a little bit more color around how that could progress over the next year or two. And then secondly, just a bit wider from that. We've got a lot of detail around growth businesses at the Capital Markets Day and clearly, we've got the revenue targets for 2022. But in terms of a bit further down the P and L and thinking about the EBIT contribution, the profitability of these businesses, at what point do we get more color on that? How do you think that can evolve? And are there certain KPIs or targets that we should be thinking about as these businesses grow? Well, thanks, Nick. If it's okay, guys, I'll just quickly answer both parts, which is just that clearly in a success case, we would want to grow the rev in. Now that will mean that we will deepen the J curve potentially before we actually get back to breakeven and then but it would result in a higher growth rate. I mean clearly, these businesses are showing signs of natural growth with the trends of the market. So we will be updating obviously on what our investment plans are for these businesses in February, but we're right in the middle of beginning the planning process at the moment. But it's we're cautiously optimistic on that. I mean I think the in terms of the new markets, mean we mentioned a number of them, but Italy for Connected Home is first. But in DE and P, we've already entered into Denmark and Sweden and Hungary and Italy. And so there's some material shifts going on. In terms of the quality of EBIT margin, we're not disclosing that fully, but Mark Hodges did talk about 20% to 40% unit gross margin in his presentation at the Capital Markets Day, which I think gives you a pretty good clue as to the sort of quality of businesses we see. And therefore, provided they're attractive and I can assure you we're not going to invest in them if we don't think they have attractive unit margins, we will be showing you as the growth curves accelerate, and hopefully they will, we clearly recognize the need to provide you with some better operating KPIs. It's just a bit early. Ed? And then we're going to move over to Fraser McLaren. Edmund Reid from Lazarus. Three questions. The first one is on the cost of the smart meter rollout in H1 and also your expectation on the trajectory going forward in terms of rollout given that you're quite a long way ahead of your other big six competitors. Second question is on prepayment customers. Are those customers profitable post the price cap? And the third question is on EV charging. Clearly, that's in the news. It seems like a huge opportunity. Is that an area that you are looking at? Okay. Just briefly on EV charging. We had it in the media call as well. Look, we have been involved in that a little bit in terms of deploying charging points. We are looking as a technology vector into how the EV market is going to change ultimately the way in which the distributed system works. And we will be looking at the integration within the home of EVs. Whether we're going to get into the charging part of it, I don't know yet. There are lots of companies across Europe that are doing that with integration with WiFi and other things. It's early days. But Mark Hodges, on the other two, meters and prepayment profitability? Yes. So on smart meters, as you know, we continue to lead, as you say. We're up to about 4,500,000 meters installed. We still think it's a good thing to do for customers. The NPS of those customers is still higher than the average. It's about 15 points higher. So that's a good way of engaging our customers. We also know that calls to us on billing inquiries are a lot lower. And we know that customers are saving money on average with that many meters now. We know that annually they're saving around 3.5% of their annual bill. So we're fundamentally still in the position where we think a smart meter rollout is a good thing to do. There are challenges. We've been around them a number of times in this room. A number of SMETS1 meters becomes a slightly bigger concern because we need to figure out how to make those interoperable. We've had continued delays with the DCC and SMETS2, although we're hopeful that we're working through those now and we can begin SMETS2 at scale in the first half of next year. But there are challenges, so to your point about how will this continue and it will have an effect on cost. There are some challenges. There is a public perception issues. There's been a lot in the media recently around smart meters and safety. We put huge amount of emphasis on safety of the installations that we're involved in. And there are some customers who at this stage don't want a smart meter. And because it's an opt in scheme, not an opt out scheme, nobody quite knows what will happen as you go well beyond early adoption and nobody is going to in the end force customers to take these meters. There is, I think, a belief amongst certain people that as more players install more meters and it becomes the norm that take up will naturally increase, I think that's still to be proven. And in terms of cost, we don't disclose separately the cost of the program. But of course, it's one of the contributory factors to the underlying cost we talked about this morning going up. And it's a small part, but it's a part of why we've increased the electricity prices today. Thank you, Mark. Thanks, Ed. Fraser? Prepayment meeting customers. Yes. I mean in terms of the profitability, I mean they are making a contribution. Jeff outlined the financial impact in the year. What we're doing to maintain or improve the profitability is obviously reduce our cost to serve. And generally, cost efficiency program is to make sure that any gross margin impact that we see, we try to offset as much as possible with our own cost efficiency. Thanks, Mark. So Fraser McLaren and then John Musk. Morning. McLaren from Merrill's. Just three quick questions, please. First of all, on vulnerable customers, does the $200,000 reflect your view on the extent to which caps might be extended? Or is it just a starter for 10,000 Secondly, how should we think about the timing of accounting in earnings terms for rough given the mismatch between gas revenues and the closure costs? And then finally, on pension payments, you made an extra GBP 76,000,000 of additional contributions in the first half. Could you remind us please about how much we should expect in the future? So the last two are going to be for Geoff. And vulnerable customers, Mark Hodges. Yes. So there is a debate to be had around what's the right group of vulnerable customers. Ofgem, we're expecting to come out and consult with the industry in the next few weeks. We will obviously actively participate in that debate. There are various definitions. It's quite a difficult thing to tie down vulnerability. What we wanted to do today was at least make a start. So we're not really making a declaration of limiting it to this group. But equally, we these are the people we feel have been missed and they're not covered by the prepayment meter cap. And we think it's the right thing to do to shield them from this particular increase whilst the broader debate takes place. And I'm sure it take some time to resolve this issue. So we wanted to be front footed, do what we think is the right thing for this group of customers and then let the wider consultation take its natural course. Yes, from rough and pensions. Yes. In terms of rough, the decommissioning liability is effectively set up kind of has a two sided balance sheet entry, one setting up the liability and one for the asset itself. So effectively, the P and L impact, so to speak, will occur over the next four, five years, assuming that we're successful in turning it into a producing asset. And that will effectively kind of run through the DD and A effectively of that asset so that at the end of it, once we produce the gas, we'll have a it will just be a balance sheet cash flow item at that point as it's decommissioned. Sorry, on the pension, say again the pension question. Pension payments, I think. Yes. So you made an extra €76,000,000 of payments in the first half this year into the fund to reduce the deficit. How much are you planning to spend in the future? Yes. So the 70 is part of our sort of natural asset backed contribution profile that we have in place. We as part of the last triennial deficit negotiations that we concluded with the pension trustees at the end of last year sees that broadly continuing on for about a fifteen year period. In the short term, though, in this year sorry, into next year, It's a little higher as the old one isn't kind of completely rolled off while deficit the payments come in. So it's a little higher next year. It's about $100,000,000 and then it sort of falls back down into that $75,000,000 in the future years after that. Obviously, every three years, we end up back revisiting that. And the next one is sort of March 2018, which doesn't seem all that far away now. So as we get later next year, we'll be relooking at that, and we'll have to see where what kind of both asset values and discount rates have got to in that time. John Good morning, everyone. It's John Musk from RBC. Just one question left, which was on the rising complaints in home services in The UK? Just to get some color on that and whether that's potentially any indication that you're going too fast on some of your cost efficiencies. Mark? Thanks, John. Yes, look, we had a disappointing performance in Q1 actually in terms of services complaints. I mean our complaints are down in Home Energy in The UK significantly, again 18% or 100,000 complaints in absolute terms. In Home Services, they were up by 42%, which is actually 20,000 additional complaints. And really it was the hangover of a move we made at the back end of last year. We closed a site in Oldbury and we shifted some work that was distributed around our network to Stockport. And we just didn't quite execute it as well as I would have liked us to. There's a lot of learning in that as we move forward. But the good news is most of those complaints were for inconvenience. So we were getting some of the scheduling and dispatching of engineers wrong. We fixed that. That was fixed by the beginning of Q2. And we've seen a significant improvement during Q2, and I would expect that to continue during second half of the year. So it's certainly not a trend and something that we've extracted the full learning from in terms of making those kinds of organizational changes. This is the 1,000 customers that you've automatically given the GBP 76 credit. Is this the extent of all your customers who receive warm home discount? Or is this a subset of the customers? So Deepa, thank you. Because of our organizational changes, actually, Mark Hodges is not going to answer the one on U. Business. It's now been passed to Mark Hannifin. So he will cover that. I will cover the lifting cost item because that now reports directly to me, and then Mark Hodges will continue to talk about customers. Mark Hennifin on UKB. Okay. So yes, we had a disappointing first quarter. There were quite a number of factors that all went against the business in Business. We had warmer weather. We had extreme electricity costs. So those electricity cost volatilities that I described helping EMT hurt U. K. Business. Some of that will come back because you're signing contracts over one, two, three years and therefore those very high costs at the beginning are causing losses in those contracts. But obviously, they're being priced appropriately to deliver value over the period. The third area was lower customer numbers. And there was a couple of other aspects as well that hurt. One was continued highly competitive environment and margin pressure. And there was also some variances in the settlements process of estimating in imbalances, which of course is part of the nature of the business, which were outside of the usual range. And that's just a it's just a variable that happens in all of the supply businesses. So that was the reason. There are some very positives though in the business. I mean customer retention in the higher value SME area was down just 1% since the middle of last year. The losses were mainly planned. They were in the very low margin multi site I and C area where we had looked to reduce. Bad debt charges are continuing to fall significantly. We've had very strong debt collection performance. Complaints are down very significantly and NPS is up. So I think there are some positives there. In terms of the new organization, so since March, we've created Centrica Business, which UK Business is now part of. And immediately, we see that the interface with trading potentially gives us some opportunities to improve the value proposition for UK business. And similarly, some of the innovations in North America, some of you have seen the energy portfolio products in the Capital Markets Day, those kinds of innovations, we look at applying that to The U. K. As well. Thanks, Mark. And Deepa, on lifting and other production costs, I mean firstly, there are a number of factors going on. But as Geoff mentioned in his presentation, there is a bit of inflation starting to reenter the market as you've seen higher prices and also stable prices, which is encouraging more activity. But actually, there's quite a long way to go before the supply chain is anywhere near tight. So I don't expect that to be a rapid acceleration. The second is that our volumes are actually down in the first half, partly because Morecambe was shut down, and the shutdown of Morecambe is also adding costs as we are repositioning Morecambe for the new configuration. And then finally, prices are up in the first half versus last year. And that obviously indicates that it's starting you're starting to see better margins, and that's flowing through into adjusted operating profit. I think in summary, I would say that the lifting costs still of around GBP 12.5 are feasible. We need to keep a very close eye on that because the sustainability of our new joint venture with Biongas Nordga depends on the ability to replace reserves at a sensible rate. And lastly, we had the 200,000 warm home discount customers again. What was the question I forgot? Yes. It was the was it the narrow group or the broader group? It's the narrow group, so the people who automatically qualify for warm home discount as a matter of rights. They're the one and who are not already covered by the prepayment meter cap are the ones that we've looked after with the announcement that we made this morning. How many more customers do you, did you pay last year, the warm home discounts? I mean, it varies every year, but this this this group, of 200,000 last year, it was around 600, I think, from them, was the broader group in terms of it being means tested. Thanks, Stephen. And then It's Ian Turner from Exane. Just going back to the warm home discount. What's your thinking there between differentiating between the core group and the broader group in terms of your sort of policy going forward? Is it just a question of cost? Or do you think that because I think the plans that people have put forward were for the broader group to be covered by some sort of vulnerable cap. Yes. So in terms of today, think it was it's quite simple. This is a defined group. There's no argument about who they are because with the broader group, there's a degree of means testing, and it's actually to do with people have to apply, as you know, for the discount. So this is relatively straightforward, easy to define, easy for us to credit the money back to that group. And what we really wanted to do was make sure that what we would consider the most vulnerable we had shielded from today's increase so that we can then go and have a much broader ranging debate with the regulator around what the long or certainly the medium term solution to this particular issue should be. That was the thinking behind the action we took today. It's not a statement of intent. We're not drawing up any kind of boundary lines. We will engage in the conversations in good faith. It's obviously a very, very topical issue. It's been a very thorny issue for some time. And I'd like to think we'll play our role in now trying to think about how we can resolve it. Ian, I think I'm right in saying that the 200,000 customers are actually contained within the 3,100,000 who are affected. So from an economic point of view, if we manage to rebate them correctly, actually there's only about 2,900,000 who will be economically impacted by our price rise, although we've counted them within our £3,100,000 because technically speaking, it applies to them. Right. We've got a few more. Jenny, who else? Don't get two. Couple more questions only. Okay. Hope that's manageable, think. So Jenny first and then we'll Thanks. This is Jenny Ping from Citi. Just one for me. You talked about the volume effect because of the warm weather. Have you done any work or analysis on what part of that decline is actually due to the weather versus just general decline in consumption volumes? Yes. I mean we've seen over many years consumption volumes coming down. And there are actually predictions each year, as you know, mate. So we tend to see somewhere between about 11.5% in terms of homes becoming more efficient over time, people becoming more aware with smart meters of managing their energy efficiency, things like rolling out thermostats. So there are there is general trend. It then gets very difficult because actually, you're down to the behavior of the customers. And a warm period following a cold period means that people can actually leave their heating on or vice versa. So it becomes quite difficult to disentangle in detail. But there is an element of a trend over the last five years of consumption, I think, declining a little bit every year. It's Dominic Nash, Macquarie. Just two very quick ones actually, both on Hive. Firstly, you say you're selling 20,000 hives a week in run rate in The U. S. Is that on target? And secondly, who is your partner in Italy? Or what sort of industrial sort of segment are you looking at for your partnership? So firstly, it's 2,000 a week, not 20,000 a week so far in North America. But clearly, we've been selling somewhere in the region of five in a low week, about 5,000 hubs a week, 20,000 a month. That's all we were with Amazon last week and they were bragging about how many Alexas they're selling and they're measuring that in tens of thousands a month. And we are starting to measure Hive in tens of thousands a month too. So I mean we're at the low end of the tens obviously, but we're hopeful. Mark, then partnerships, do you want to say any more? I don't think we probably want to disclose, I but don't want to disclose. I mean and I wouldn't pick it to any territory, but the key point I was making earlier restricted to just energy. We're talking to telcos. We're talking to insurance companies. There are other sectors who are very interested in what our technology can do for their business and their customers. And I think that's actually very exciting. This is genuinely a lot of incoming. It's not us rushing around trying to market Hive to lots of people. We are getting a lot of incoming interest in partnering with it. And the judgment we have to make is who do we select and getting the commercial turns right. But as Mark outlined earlier, many of these companies that are ringing us up are actually they've got very large customer bases. We have been doing a bit of seeking people out too, but it's quite encouraging the number of incoming calls we're getting. Are there any last questions? Well, ladies and gentlemen, thank you very much. I mean in summary, a solid set of results. I think hopefully in line with what many of you expected. We have made a lot of progress in strategically in repositioning the portfolio this year. And by the end of this year, we will have finished Phase one of repositioning Centrica after the collapse in oil and gas prices. And we're very encouraged by the platform we've developed to deliver returns and growth going forward. And obviously, we will be talking more about our growth prospects when we meet you again in February. And obviously, we have a trading update to come later in the year. But in the meantime, thank you very much. And for those of you who get a break over the remainder of the summer, I hope you enjoy it. Thank you.