Centrica plc (LON:CNA)

Earnings Call: H2 2016

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Feb 23, 2017

Good morning, everyone. Sorry about that. I was chasing the microphone guy and he was chasing me around the building, so apologies. Welcome to Centrica's twenty sixteen Preliminary Results Presentation. Before we begin, just a word on safety in this building. There are no planned fire alarms today and any building evacuation will be announced on a 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. As usual, I'm joined here today by our Chairman, Rick Haithonsweigt Jeff Bell, with me up here, our Group Chief Financial Officer Mark Hodges, recently appointed Chief Executive of Centrica Consumer and Mark Hanafin, reasonably appointed recently and reasonably appointed Chief Executive of Centrica Business. These new appointments represent a final major step in reorganizing the group around the customer with two new global divisions focused on the residential consumer and the business customer, respectively. Badar Khan, Chief Executive of North America Energy Supply and Services, will be leaving the group in early March to take up a new position. And I'd like to thank Badar for all he's contributed to Centrica over the last fourteen years. After some introductory remarks from me, Geoff is going to take you through our financial results. I'll then provide you with an update on the progress we've made in implementing our strategy and what you can expect in 2017 before Mark and Mark join us on stage to take your questions. And we expect the presentation to last just over an hour, an hour and five minutes. 2016 was a year of robust performance and progress in implementing our customer focused strategy. We delivered our key objectives, including improved safety performance, higher levels of customer service and more innovative offerings and solutions. While repositioning the portfolio, building capability and driving significant cost synergies as we build a platform for the future. It was a busy year for the Centrica team and I'd like to thank them for their considerable efforts. Firstly, a word on safety. Safe and compliant operations remains our top priority. We've made material progress in 2016, but we manage a range of safety hazards every day in process safety, in customers' homes, working at heights and in driving. We have a strong improvement program in place. This gets a lot of management attention and receives first call on our resources. Let me now turn to the headlines. There are three headlines in today's announcement. First, our customer led strategic repositioning is on track. We are successfully shifting investment and focus towards our customer facing activities. During 2016, in Energy Supply and Services, we delivered new customer offers and we're very focused on improving our customer service levels. For residential consumers, we've developed energy offers with more customer control and bundled offers between energy and services and Connected Home products. In Connected Home, we now have over 5,000,000 hubs installed supported by our proprietary Connected Home platform under the Hive brand. While for business customers, the acquisitions of Panoramic Power, NIAS Energy and Energi Cogen have added leading capabilities in energy insights, optimization and energy solutions and are performing ahead of our expectations. I'll return to provide much more detail on our strategy for both Centrica Consumer and Centrica Business later in the presentation. We also made progress in reducing the scale of our asset businesses and in simplifying the portfolio. We've now completed our exit from wind power generation, while in E and P, we announced the divestment of our Trinidad And Tobago assets. We are targeting the sale of our Canadian E and P assets this year. The second headline is that the Group's financial performance in 2016 was robust. Adjusted operating profit and adjusted earnings were up 4% with adjusted earnings per share of 16.8p, down 2%, the dilution mainly as a result of the equity placing last May. Adjusted operating cash flow was up 19% to GBP 2,700,000,000.0 and after adjusting for foreign exchange, one off strong working capital inflows in UK business and for changes in commodity prices between years, underlying adjusted operating cash flow growth was 14%. This is significantly in excess of the 3% to 5% per annum target on average from 2015 to 2020 and provides a strong underpinning to that objective. An important driver of cash flow improvement was the strong performance in our cost efficiency program delivering £384,000,000 in the year with a like for like direct headcount reduction of over 3,400. This was a very complex task involving a complete reorganization of the company. 8,000 people went through a consultation process. Geoff and I will cover this in more detail in a moment. The momentum we've built will continue into this year with a further GBP $250,000,000 of savings expected in 2017. As part of this, cost performance in E and P was very strong and when combined with reduced capital expenditure, this resulted in our E and P business being more free cash flow positive in 2016 than in 2015 despite lower commodity prices. We've therefore delivered on the performance improvement and cash flow objectives for E and P we set out in 2015. As a result of our strong cash flows, we made significant progress in reducing net debt in 2016, down by £1,300,000,000 to below £3,500,000,000 as we continue to strengthen the group. However, we continue to face an uncertain economic outlook including, at least to date, continuing low interest rates, uncertain economic growth prospects and yet some early signs of inflationary pressures. In common with a lot of other companies, low interest rates over twenty sixteen meant we saw an increase in our accounting pension deficit. We've maintained the 2016 full year dividend at 12p per share. And given the strength of the group and our projected cash flows, in the prevailing environment, we would currently expect to restore a progressive dividend linked to the growth in underlying adjusted operating cash flow once net debt is in the range of GBP 2,500,000,000.0 to GBP 3,000,000,000. We believe this net debt level to be our optimum sustainable level with the current portfolio in the current environment and we are aiming to achieve this by the 2017. Finally, let me turn to the third headline, the medium term outlook, our goal to deliver both returns and growth and our objectives for 2017. Given the encouraging underlying momentum we've built in 2016, Centrica enters this year a stronger company. 2016 performance has enabled continued confidence in our ability to deliver at least 3% to 5% per annum underlying adjusted operating cash flow growth on average between 2015 and 2020. This is the key growth objective established in 2015 as part of our strategic review. For 2017, we again expect adjusted operating cash flow to exceed GBP 2,000,000,000, sufficient to cover all of our planned uses of cash. When we take into account the divestment proceeds from the Lynx wind farm disposal, which closed last week and the targeted sale of our Canadian E and P assets, we would therefore expect healthy free cash flow in 2017 while continuing to invest for the future. Our organic capital investment, including small acquisitions, is again targeted to be no more than GBP 1,000,000,000 in 2017 And having now built the base capabilities necessary to compete, in 2017, we'll be making an incremental GBP 100,000,000 of revenue investment in our growth businesses, including the full launch of Hive in North America. We have a lot of exciting new offers and opportunities for growth and I'm pleased that we'll be able to showcase these for both Centrica Consumer and Centrica Business at our Capital Markets Day, which will be on the June 21. Let me now hand over to Jeff. Thank you. Thank you, Ian, and good morning, everyone. As we often do, I'd like to start with commodity prices. As you can see from the charts at the top, gas, oil and baseload power prices have risen significantly since their lows at the start of 2016. And they are now well above our $35 per barrel Brent oil, 35p per therm U. K. Gas and 35lb per megawatt hour U. K. Baseload power, low case scenario we demonstrated the group's robustness against last February. However, oil and gas prices were on average lower in 2016 than in 2015, as you can see from the charts at the bottom. And baseload power prices were also lower for most of 2016 before rising sharply in the fourth quarter, resulting in average prices up marginally on a full year basis. And as a reference, prices remain below the seventy-fifty-fifty environment that broadly existed when we set out our strategy in July 2015. Let me now summarize the financial results. Revenue was down 3%, reflecting the impact of lower commodity prices on our asset businesses and on tariffs in our energy supply businesses as well as a small reduction in customer accounts. As you've heard from Ian, adjusted operating profit increased four percent to over £1,500,000,000 Profitability from our customer facing businesses was up 9%, driven by a return to profitability of UK business and strong energy marketing and trading performance. This more than offset the impact of the lower commodity prices on our asset businesses. Adjusted earnings were up 4% to £895,000,000 while EPS was 16.8p per share and the full year dividend per share is 12p. Turning to cash flow. EBITDA was broadly stable at £2,400,000,000 Adjusted operating cash flow increased 19% to around 2,700,000,000 and underlying adjusted operating cash flow growth was 14%. Total group net investment, including acquisitions and disposals, was slightly over £1,000,000,000 while net debt fell to just under £3,500,000,000 Average return on capital was 16%. Net post tax exceptional items generated a credit of £27,000,000 in 2016, with £228,000,000 of restructuring charges and the impairment of our rough storage asset being offset by write backs of previously impaired E and P and central power generation assets and accounting gains related to our disposals. This compares to a £1,800,000,000 charge in 2015, which included the impact of significant impairments of our E and P and central power generation assets against a backdrop of low commodity prices. Now turning to the businesses. U. K. And Ireland Energy Supply and Services operating profit was up 2% to $9.00 £6,000,000 Profits in UK Home reduced 8% to £810,000,000 Energy Supply profit was down 11% to £553,000,000 reflecting competitive market conditions and a 3% reduction in customer account holdings, while services profit was flat year on year with the reduction in customer accounts being broadly offset by cost savings. Our efficiency program delivered a 9% reduction in controllable costs in energy supply and services in The UK and Ireland, although after the impacts of inflation, lower customer accounts and a one off pension credit in 2015, annualized cost per UK home customer was only down 1%. UK business returned to profitability in 2016 following an operating loss in 2015. With the operational issues associated with the new billing and CRM system having been rectified, bad debt costs reduced and operating cost improvements began to take hold. Ireland again delivered a good performance, with customer accounts up 4% and operating profit increasing to €56,000,000 a 37% increase over the prior year and a 53% increase in sterling. Adjusted operating cash flow for UK and Ireland increased to over £1,500,000,000 primarily due to the recovery of the additional working capital built up in UK business following the billing issues in 2015 and further improvements in working capital management and timing of payments over year end in UK Home. In North America, operating profit was £314,000,000 down 3% on last year in sterling and 17% on a local currency basis. This primarily reflects the impact of warmer weather on consumption and wholesale commodity optimization in the first half on North American business, where full year profit was down 10% or 24% on a dollar basis. North America home profit increased 21% or 6% on a dollar basis, reflecting increased gross margin per customer from focusing on higher value customer segments and continued growth in the annuity segment of the service business, partly offset by increased losses in our solar business. Annualized cost per customer increased 3%, with cost efficiencies being more than offset by inflation, lower customer account holdings and investment in our growth segments. However, as you can see from the chart in the bottom right, second half operating profit was much higher than in the first half as we benefited from higher forward net margin we had under contract at the half year, a return to more normalized weather, further cost efficiencies and reduced losses in the North American home solar business as actions we took in the first half to close underperforming regions were realized. Adjusted operating cash flow was down 13% to £431,000,000 driven by the same factors impacting operating profit. Turning now to Connected Home, Distributed Energy and Power and Energy Marketing and Trading. As you can see on the chart on the right, Connected Home revenue increased by 74%, reflecting strong growth in the number of hubs installed and Hive products sold. However, the business reported an operating loss of £50,000,000 as we continue to invest in developing our technology and capabilities to drive growth. Distributed Energy and Power gross revenue was also up, while the operating loss narrowed to £26,000,000 driven by lower costs as a result of the closure of the Killinghome Power Station and an initial contribution from Energy Cogent. Energy marketing and trading profit more than doubled to £161,000,000 reflecting good trading performance and our ability to optimize a number of our flexible gas contracts in the 2016, and a strong initial contribution from NES Energy. Adjusted operating cash flow was down, reflecting the timing of tax payments and working capital. Moving on to exploration and production. Production was down 9% to 71,000,000 barrels of oil equivalent. European production was down 8% despite stable production in Norway, reflecting natural portfolio decline and a longer than expected maintenance outage at Morecambe. In The Americas, total production was down 12% as we reduced drilling activity and shut in some producing fields for economic reasons in the low gas price environment. Gas and liquids achieved sales prices were down in both Europe and The Americas, with the lower commodity price environment and the roll off of hedges impacting realizations by around £400,000,000 Despite the lower production and unit sales prices, strong cash cost reductions, which I'll come to shortly, and lower noncash depreciation charges from impairments taken at the 2015 meant that operating profit nearly doubled to £187,000,000 However, adjusted operating cash flow fell as lower revenue was not fully offset by cash cost savings. E and P has had a strong cost focus over the last two years in response to the lower commodity price environment. In 2016, European unit lifting and other cash production costs reduced by 15% to £12.9 per barrel, whilst in The Americas, unit lifting costs reduced by 39% to £4.7 per barrel. In total, 2016 lifting and other cash production costs were £352,000,000 lower than in 2014. This reflects both supply chain adjustments in the lower commodity price environment and specific initiatives undertaken by the business, including working with our partners to drive asset efficiency and moving from a regional to an asset based organization structure, which has reduced duplication and enabled headcount reductions. These cost savings, combined with a reduction in capital expenditure, meant the E and P business was again free cash flow positive in 2016 despite the lower price environment. Across 2015 and 2016, the business has generated over £250,000,000 of free cash flow. Moving on to Central Power Generation. Operating profit reduced 41% to £75,000,000 despite higher gas fired and nuclear volumes reflecting lower achieved power prices. Adjusted operating cash flow was marginally negative, driven by the same factors impacting operating profit as well as £50,000,000 of payments related to financing arrangements on the wind farm joint ventures. Generation from our share of wind assets was 39% lower than 2015, driven primarily by the disposal of our interest in the Glid wind farm in March. And finally, Centrica Storage reported an operating loss of £52,000,000 for the year. Revenue was down 40%, reflecting low seasonal spreads. The twenty sixteen-twenty seventeen standard bundled unit price was the lowest since we acquired the asset. And well integrity issues, which resulted in the cessation of operations for much of the second half of the year. Costs were also higher due to the well issues and increased maintenance expenditure. We announced last week that rough would not be available for injection operations until at least the June. This will negatively impact revenue, and we currently expect Centrica Storage to report an increased operating loss in 2017. Turning now to operating costs. In line with our 2015 strategic review, total reported operating costs were broadly flat as we absorbed the impacts of inflation, significant 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, operating costs were down 7%, and after excluding growth investment, they were down 8% on a like for like basis. Taking into account controllable cost of goods sold, you can see here in the graph the progress we have made towards delivering our stated efficiency target. Foreign exchange movements impacted our 2015 baseline controllable costs by just over £200,000,000 while inflation added a further £100,000,000 However, efficiencies of £384,000,000 roughly half of our total target of £750,000,000 more than offset these impacts. As Ian said, delivering this scale of efficiencies has involved a substantial reorganization of the company and overall direct like for like headcount reduced by over 3,400 in 2016. We have implemented a new organizational structure in our energy supply and services businesses and reduced and simplified management layers, allowing us to serve customers more effectively as well as reduce costs and headcount. As you've already heard, we saw significant savings in our E and P business. And the creation of global functions in our large support activities such as IT, finance, HR and procurement has unlocked further efficiencies, avoiding duplication, driving simplification and standardization. The move towards a functional model has also unlocked material savings in third party costs with the consolidation of existing suppliers and the renegotiation of key contracts in areas like IT. In procurement, a central view of all expenditure has enabled us to leverage our scale across our existing contracts and deliver further savings. In addition to the efficiency program savings, we saw other cost reductions compared to 2015 of £261,000,000 This comprised of reductions in costs that are non repeating in nature, for instance, one off charges we incurred in 2015 related to tariff costs in E and P, other recurring savings not part of our efficiency program, such as the normalization of U. K. Business operating costs and bad debt, and portfolio changes such as the disposals of the Glynn Wind Farm joint venture and noncore North American service activities. In total, like for like controllable costs fell by over £300,000,000 in 2016 compared to the prior year. Total net investment, including small acquisitions, was down 20% to £842,000,000 As you've heard, E and P capital expenditure reduced by 28% to £518,000,000 which includes spend on the Cygnus field, which achieved first gas in December. We saw increased organic investment in our growth to build our technology and capability. The material acquisitions in the year were Energy Cogent and NES Energy, and the disposal proceeds of £125,000,000 related primarily to the sale of the Glyn wind farm joint venture and proceeds from some small non core E and P assets. As a result, total net investment was just over £1,000,000,000 22% higher than last year. Overall, we delivered net cash inflow of just over £1,300,000,000 in 2016. In addition to the increases in adjusted operating cash flow and net investment, cash interest payments were lower as a result of a one off accrued interest payment received on a shareholder loan realized as part of the GLID Wind Farm disposal, while cash dividends increased. The other cash flows you see are primarily the cash impact of exceptional charges related to the efficiency program restructuring and the termination of the Ryman Tolling Agreement in The Netherlands and pension deficit payments. 2016 also includes the £700,000,000 cash inflow from the equity placing. Excluding the equity placing and the material acquisitions of Energy Cogent and NES Energy, the group generated more than £900,000,000 of net cash inflow in the year or roughly two thirds of the £1,300,000,000 reduction in adjusted net debt. Let me now turn to what this means for our sources and uses of cash. You can see here our 2015 and 2016 sources and uses and also a forecast view of 2017. Our expected level of adjusted operating cash flow in excess of £2,000,000,000 would be adequate to fund our £1,000,000,000 capital investment plan, the current level of the dividend and our interest commitments. It will also be able to fund other cash flows, such as restructuring, which we expect to be around £150,000,000 in 2017, and pension deficits, which having finalized the March 2015 triennial review with the pension trustees, will result in an additional £76,000,000 per annum over the coming years. We have also reflected the remaining disposal proceeds equal to achieving the lower end of our £500,000,000 to £1,000,000,000 disposal program, which has already been partly achieved through the disposal of the Lynx Wind Farm joint venture completed last week. The reduction in net debt has had a positive impact on the strength of the group's balance sheet and credit rating agency financial metrics. As a reminder, our rating with Moody's is Baa1 with stable outlook and BBB plus with negative outlook with S and P. As you can see on the graphs, the key financial metrics for both agencies improved in 2016 on a like for like basis compared to 2015, although final calculations of the metrics are still to be confirmed with agency. However, in common with many other companies, the fall in guilt rates post the Brexit referendum and the resulting impact on the discount rate used for calculating our accounting pension liabilities has resulted in the group's pension deficit increasing significantly. At the 2016, this stood at £1,100,000,000 compared to just over £100,000,000 at the 2015. As a result, we expect our final credit rating metrics for 2016 to be similar to or slightly ahead of 2015, shown by the purple bars on the right hand side of each chart. With the forecast continued reduction in net debt in 2017 and continued capital discipline, we would expect to be broadly in line with the financial metrics consistent with our existing strong investment grade credit ratings by the 2017, given current market conditions. I'd like to finish with our financial framework that we set out as part of the 2015 strategic review. But let me first briefly touch on 2017 earnings per share. It is still early in the year and is our normal practice and as is our normal practice at this stage, we are not providing specific guidance. Clearly, there are a number of items which will impact us this year differently in 2016, including the prepaid tariff cap in U. K. Home Energy, the Centrica Storage Wealth Program and associated uncertainty with respect to our ability to offer storage products for this coming winter, higher non cash interest charges resulting from the higher pension deficit, and our choice to invest ahead of revenue in our growth businesses. On the other side, we have material momentum in our efficiency program. We would assume more normal weather in North America, The commodity price environment is better for E and P, and there are a range of possible outcomes in U. K. Energy. We will have a clearer sense of both underlying performance and the full year impact of all of the above later in the year. Now returning to the financial framework. We have made good progress in 2016, and we are targeting to achieve all elements of the financial framework by the 2017. Underlying adjusted operating cash flow growth was 14%, and we have indicated that in the prevailing environment, we would expect to restore a progressive dividend once net debt is in the 2,500,000,000.0 to £3,000,000,000 range. Operating costs were broadly flat despite significant foreign exchange moves as we benefited from our cost efficiency program. Capital investment, excluding material acquisitions, was less than 1,000,000,000 in line with our 2016 and 2017 limit. Net debt fell £1,300,000,000 to just under £3,500,000,000 strengthening our balance sheet, and we expect further net debt reduction in 2017. This will continue our progress towards our target of achieving the credit rating financial metrics consistent with our strong investment grade credit ratings by the end of the year. And return on capital employed was 16%, above our boundary condition in the framework. With that, let me hand back to Ian. Thank you, Geoff. I'd now like to update you on the progress we've made in implementing our strategy. First, I'll cover the repositioning of our portfolio and briefly the performance of our asset businesses. Next, I'll cover our cost efficiency program delivery and our efficiency goals for 2017. I'll then spend some time summarizing our progress in building capability, particularly in technology and innovation, which has been significantly enhanced over the past eighteen months and also the launch of a new focus for technology led growth centric innovations, which we announced earlier this week. After touching on The UK energy supply market, I'd then like to spend some time on our future strategy in Centrica Consumer and Centrica Business. Finally, I'll summarize our 2017 targets and outlook. As we announced back in 2015, we are shifting investments and focus towards our customer facing activities while reducing the scale of our capital intensive asset businesses. As planned, E and P capital expenditure last year was reduced further by about £200,000,000 to the middle of our targeted range and we are on track to reduce capital and operating resource allocation to E and P and Central Power Generation in total by more than GBP 1,500,000,000.0 by 2020 relative to 2015. At the same time, in 2016, we invested an additional £400,000,000 of capital and operating resources in our focus areas for growth. We increased organic capital expenditure and revenue investment in Connected Home and Distributed Energy and Power. We also enhanced our customer facing capabilities with the acquisitions of NIAS Energy and Energi Cogen to complement the 2015 acquisition of Panoramic Power. We made good progress in moving towards an E and P business with production of 40,000,000 to 50,000,000 barrels of oil equivalent per annum focused on The UK, Netherlands and Norway. We announced the divestment of our Trinidad And Tobago assets in November and expect the transaction to complete in the first half of this year and we continue to progress the exit of our position in Canada and are targeting disposal also in 2017. We continue to evaluate all options to strengthen our E and P business, including through possible partnerships and joint ventures. In wind power generation, we've now completed our exit from asset ownership following the sale of the Lynx joint venture earlier this month and of the Glid joint venture in 2016. In Thermal Generation, we closed the Killinghome gas fired power station in the first half of last year. Although we are reducing the scale of our asset businesses, we've also achieved some key milestones operationally. In E and P, the Cygnus gas field delivered first commercial gas in December 2016, is performing ahead of expectations and is expected to ramp up towards peak production this year. Our focus for future developments is on the most attractive opportunities, including ongoing projects at Maria and Oda in Norway. We will also continue with further infrastructure led exploration and we've had a recent success at Valeman West. I'll cover the overall cost efficiency program in a couple of minutes, but as you've heard from Geoff, our progress in E and P was particularly strong. Total cash lifting and production costs were more than GBP $350,000,000 below 2014 levels. In Nuclear, excellent operational performance resulted in generation volumes being the highest since we acquired our 20% stake in The UK fleet in 02/2009. In Centrica Storage, the rough asset was unavailable for operations for much of the second half of the year after we identified an issue with one of the wells in June as part of our ongoing testing program. We were able to return 20 wells to service for withdrawal operations in December in time for the majority of this winter season. Our program to test all of the wells is ongoing. Last week, we announced that although we are on track to complete the testing by the previously announced date of the April 30, Rough would not be available for injection operations before the June 30 as we evaluate the test results. Completing the testing program will give us the necessary information to assess the future of the asset. Return to injection operations in 2017 remains subject to successful completion of well testing and timely implementation of any necessary remedial actions. Given we don't yet have all the facts, there is uncertainty around available capacity for winter twenty seventeen-twenty eighteen. Let me now move on to our efficiency program. Geoff already talked about the strong progress we've made on our GBP $750,000,000 cost efficiency program across the group. Although making significant in year savings is very good, the key goal is to build much stronger and scalable foundations for our future. Our 95 projects in 10 major work streams have involved fundamental changes in how we operate and have unlocked significant savings across the company with the biggest impact in four main areas: the reorganization of our customer facing energy supply and services businesses, in E and P, in IT and other group functions and in our supply chain. The strong delivery in 2016 derisks the overall program and has accelerated value capture. It also provides us with strong momentum as we enter 2017. In addition to the continuation of our 2016 initiatives, in 2017, we will focus on transforming our customer operations using enhanced digital and self serve capabilities to deliver market leading and lower cost customer service. We'll also further optimize our field operations activities in The UK, focusing on creating a more integrated and flexible model to drive efficiency as well as further supply chain improvements. We also expect further savings in global support functions as we improve process standardization and pursue a move to global shared services. These initiatives will result in a targeted further GBP $250,000,000 of savings and further headcount reductions on top of the 3,400 roles reduced in 2016, we expect like for like direct headcount to reduce by around a further 1,500 in 2017. The next topic is our progress in building customer facing capability and technology. Our strategy is built around the customer. How we fulfill their needs will be crucial to our success. We have improved our customer service capability and performance, investing in employee training, improving processes and important customer journeys such as moving home, allowing us to interact with customers in a more personalized and consistent way across all of our channels. In both Consumer and Business, a greater understanding of customer preferences and more sophisticated customer segmentation is enabling us to develop more targeted offers as we focus increasingly on customer value. We are now able to offer a greater variety of compelling propositions and offers for our customers utilizing our broader product range. We've invested in our digital platform and an increasing proportion of our sales are now coming through digital channels with more and more customers now managing their accounts online. And we're very focused on improving our technology capability, which is playing an increasingly important role in developing offers for customers. Our markets are changing and harnessing technology and digital skills and innovation will be key to our success, influencing how we compete and the propositions that we can offer. We already have strong data analytics and data science capabilities allowing us to provide valuable energy insights to our customers. We now have a scalable connected home platform, which has been tested to handle 8,000,000 hubs and we have the capability to develop our own connected home devices, launching five new products in 2016 and configuring these devices to different geographies, enabling us to launch our Hive product range in North America. The acquisition of Panoramic Power in 2015 has given us access to technology, which allows us to disaggregate energy data for business customers, helping them improve the energy efficiency of their operations and gain insight into the performance of their businesses. And the acquisitions of NIAS Energy and Energy Cogent have given us the ability to manage and optimize distributed energy systems and dispatch assets for our customers and to develop virtual power plant or VPP capability. The acquisition of Energy Cogent gives us leading combined heat and power capability, while we've also been focused on developing battery technology at scale. On microgrids and distributed systems, in December, we announced a pioneering trial to develop a local energy market in Cornwall, which will see the development of a virtual marketplace and the installation of new technology into over 150 homes and businesses. The program will allow us to test the use of flexible demand generation and storage, rewarding local people and businesses for being more flexible. Technology is key to our success and we've made good progress in developing our own and making a few key targeted acquisitions, which have enhanced our capabilities. Given the pace of market change, another important dimension is our ability to nurture and incubate early stage technology. We announced earlier this week the establishment of Centrica Innovations, a unit focused on innovation and new technology. Centrica Innovations will enable us to scan for, accelerate, incubate and partner around new innovations. We will do this with both in house innovations in partnership with our businesses and access and promote external opportunities. We plan to invest up to £20,000,000 a year over the next five years, up to £100,000,000 in total. We already have a presence in key locations as we scan for new opportunities in Seattle, Houston, London, Cambridge and Tel Aviv. Centrica Innovations will support and accelerate existing in house ventures by providing tools and methodologies to support rapid growth such as lean startup approaches, performance expectations and measurement frameworks. It will act as an incubator for external ventures which are not yet at a maturity level for material investment and require different types of support, for example, business expertise, mentoring or product piloting. All of this builds on what we've already achieved through IGNITE, our GBP 10,000,000 social enterprise investment fund, which becomes a part of Centrica Innovations. The world of energy and services is changing rapidly and technology and innovation will play an increasingly important role in our future. Before I turn to our consumer and business strategies, let me spend a few minutes on The UK energy supply market. In June, the Competition and Markets Authority published the final report on its in-depth two year investigation into The UK energy market. We believe that many of the remedies will further enhance the market and we are currently working to implement them for the benefit of our customers. One remedy was the prepayment price cap, the level of which was announced earlier this month. We currently expect the price cap will negatively impact 2017 revenue by about £50,000,000 The UK energy supply market is highly competitive with over 50 domestic suppliers and levels of industry churn have increased by around 50% over the past two years. Against this backdrop, we are focused on delivering high quality customer service, innovative offers and cost efficiency to aid competitive pricing. And the CMA remedy to remove the four tariff restriction allows us to provide more choice and be more innovative in our propositions for our customers. Our UK energy supply competitive position has improved materially over the past two years. Service levels are much better with complaints down 31% in 2016 and we achieved a 10 improvement in brand NPS over the year. In the 2016, we reduced our residential gas tariffs by 5%. This followed 25% gas price reductions in 2015, meaning British Gas is the only large supplier to have reduced prices three times since the start of 2015. We currently have a standard variable dual fuel tariff that is cheaper than 95% of the market. We also made a number of commitments to our British Gas customers coming into the twenty sixteen winter. These included leaving our domestic standard variable tariff unchanged until at least April 2017. This has now been extended to August with our announcement two weeks ago enabled by the reduction in our own cost base despite industry cost pressures. We are committed to ensuring that existing customers have access to the same energy deals as new customers. And in December, we also launched a tariff which allows customers to fix their energy prices through three consecutive winters until March 2019. Having proactively engaged with 5,000,000 of our standard variable customers towards the 2016, we intend to actively engage with our remaining SVT customers by June 2017. As part of this, yesterday, we announced a new reward program, British Gas Rewards, which will allow our customers to select personalized benefits ranging from discounted energy linked to how long they've been with us, home services and connected home offers bundled with energy and even home entertainment propositions. This is backed by a £100,000,000 commitment over three years. In UK Home, our customer numbers were broadly flat in the 2016. While customer numbers are an important indicator, our focus must be on value, not volume. For the customer, value is represented by fairly priced energy, good service, rewarding their loyalty and giving them propositions they want and need. For Centrica, value means a tighter focus on delivering propositions tailored to those customer segments that deliver economic value to us over a reasonable time frame. We'll provide more insight into our customer segmentation and propositions at our Capital Markets Day. Household bills are hugely important to our customers and helping them with good value, rewarding their loyalty and providing new offers and services must be to the heart of what we do. Let me touch on household bills in The UK. This chart shows the buildup of the average level of the British Gas customer bill since 02/2009. This is the dual fuel bill. The bill has risen by only 1% per year on average over the past seven years, materially less than the rate of inflation. This reflects lower commodity prices and lower consumption due to energy efficiency in the home and is despite a 50% increase in transportation and network costs and a doubling of environmental and social policy costs over the same period. We expect further upward pressure on both of these elements of the bill in 2017. Despite these effects, our profit per dual fuel customer has remained in the range of GBP 42 to GBP 65 over the same period and at '52 was broadly in the middle of this range in 2016. Centrica is committed to being a leader in delivering good value, rewarding loyalty and offering new propositions for our customers in The UK in what is now a highly competitive market. We are demonstrating we cannot only position ourselves effectively this way, but also begin to change the market dynamics. I would now like to focus on the future direction and strategies of our new divisions, Centrica Consumer and Centrica Business, which have been organized to serve the residential consumer and the business customer respectively. Let me start with Centrica Consumer. Residential consumer demands and desires in Energy Supply and Services are broadly similar across our markets. The home is a focal point for a number of service and added value offerings, which we know our customers value and are willing to pay for in addition to receiving good value energy supply. You can see here where we intend to concentrate our efforts, which will be delivered through our consumer business units, UK Home, Ireland, North America Home and Connected Home. There are five pillars to our strategic framework, the first of which is the supply of gas and electricity and the second relates to our traditional service offerings. These two pillars remain core components of our consumer offer. In energy supply, our focus will be on providing value for money, rewarding loyalty and ensuring customers are able to choose from products that meet their individual needs and providing an easy and effortless relationship. In Services, our unique capability to provide service and repair fulfillment offerings and being trusted to do so in customers' homes remains a key strength of Centrica. Where physical meets digital is somewhere we will continue to have unusually strong competitive advantage. The other three pillars reflect areas of customer need which we are now in a much stronger position to address. We are focusing on providing peace of mind products, not only through our traditional insurance offering, but also including other home risk management and insurance products where we can draw on customer data and our fulfillment capability. We are developing capabilities in remote diagnostics and monitoring for the home. In Home Energy Management, we will help customers better understand their energy consumption, giving them the ability to control it and ultimately offer services to optimize their consumption and generation. And finally, in home automation, we'll provide customers with the convenience of being able to control other home appliances remotely and operate their home under conditions of their choosing. We've already we are already active in all of these areas today and let me highlight some areas of recent progress. In Energy Supply, cost efficiency and excellent customer service remain core requisites. We delivered material cost efficiencies and saw a significant reduction in complaints and higher NPS scores in The UK, Ireland and North America in 2016. We continue to focus on offer innovation and launched our smart meter enabled free time tariff in The UK in 2016. This follows successful deployment of smart meter related propositions by North America Home in the Texas market. We're increasingly looking at the bundling of energy, services and connected home products. And I mentioned earlier our commitments to our customers and the British Gas Rewards program. In services, we maintained already high customer service levels and our base of around 12,000 engineers and technicians across The UK and North America gives us strong fulfillment capability to deliver both insurance based and on demand offers, including a new on demand offering we're testing local heroes. Regarding peace of mind, Boiler IQ, our innovative connected boiler device and first subscription based product, is already in around 30,000 UK households, while the acquisition of Flowgem in the 2016 gives us important access to water leak detection technology, which we plan to start offering to customers in 2017. In Home Energy Management, in addition to around 5,000,000 Hyve home heating control installations, the number of households taking MyEnergy in The UK or Direct Your Energy in North America is now 3,600,000, providing customers with valuable disaggregated insight into their energy usage and allowing them to take control. In The UK, we are the leader in the rollout of smart meters, which enables this and the development of further real time energy offers and services. In Home Automation, our Hive products can now be interlinked through recipes, for example, setting a command for a light to come on when a motion sensor is triggered. We're also The UK smart home partner for Amazon Echo, which allows our customers to control their heating, lighting and devices simply by speaking through the Alexa voice assistant. While there's much to do, we've made a significant start in expanding our activities and service of residential consumers under all five strategic pillars. Our Connected Home business unit has been key to developing capability for the pillars of peace of mind, home energy management and home automation and I would briefly like to update you on recent growth. As you can see, we saw a significant acceleration in growth over the second half of last year, reaching 527,000 installed Hive Hubs by the 2016. And we've now sold over 750,000 Connected Home devices in total following the launch of new products during 2016. Connected Home is a key growth node and is now becoming material. Residential consumers like the product and are paying for it. By the 2017, we would expect to have installed over 1,000,000 hubs and to have sold over 1,500,000 products, doubling our end twenty sixteen position. Let me now move on to our strategy for Business Customers. As for residential consumers, business customers' demands are similar across all our markets and we also have a five pillar strategic framework in response. These will be delivered through our Centrica Business division and its associated business units, UK business, North America business, Distributed Energy and Power, Energy Marketing and Trading and Central Power Generation. Energy supply remains a core activity. And in addition, we'll offer tailored pricing and risk management services. We'll also continue to focus on being a wholesale energy trading partner to business counterparties, purchasing and selling energy commodities and risk products to suit their needs and participating in the wholesale markets. This includes our energy marketing and trading wholesale activities, the LNG portfolio and the management and optimization of certain power of central power generation and its interface with wholesale markets. The other three pillars we touched upon briefly at our 2016 interim results last July. We will continue to provide energy insights to our customers from data collection and analytics to help performance manage energy and operations and enable preventative maintenance across their businesses. In energy optimization, we will deliver value for business customers by managing and optimizing all of their energy resources and giving them real time control. We will provide a route to market for energy and demand side response to the commodity markets, capacity markets and grid services. And in Energy Solutions, we'll be able to provide a full range of multi technology on-site solutions from a specific product right through to a fully integrated solution able to design, install, operate, maintain and service our customers' energy infrastructure. Let me update you on our progress in 2016. As in our Consumer Energy Supply businesses, we delivered improved customer service levels and cost efficiencies and UK business returned to profitability following the resolution of our billing issues. In Wholesale Energy, we already had strong capabilities, which have been enhanced by the NIAS Energy acquisition. We've also made good progress in developing our global LNG presence, signing a number of agreements during the year, including with Tokyo Gas, JIRA, a Japanese joint venture and an extension to our deal with Qatar Gas. In Energy Insights, the circuit level energy use disaggregation and analytics we acquired through Panoramic Power is already creating value for the customer, allowing them to take action and save costs or improve utilization and productivity based on the insights received. 40,000 sensors have already been deployed for a diverse range of customers and we are now receiving 10,000,000,000 pieces of data a month from this channel. NIAS Energy has also enhanced our energy optimization capability. It provides services for 2,500 customer assets including wind farms, solar plants and combined heat and power plants with an installed capacity of approximately 8.6 gigawatts, nearly double the capacity of Centrica's existing power fleet in The UK. It also has analytics and IT capabilities, which provide the tools with which we decide how best to optimize our customers' assets to save costs and maximize revenue. We're building new projects in The UK, including two fifty megawatt fast response gas fired units and a 49 megawatt rapid response battery. In Cornwall, as I mentioned with our partners, we're developing an automatically optimized local energy market. In the fifth pillar, Energy Solutions, we already offer solar PV and energy efficiency advice and solutions to our customers and the acquisition of Energy Cogent provides us with significantly expanded combined heat and power technology and capabilities both in The UK and internationally. So there's a lot going on in all of the pillars of our business strategy. As I did with Connected Home, let me touch briefly upon growth in our Distributed Energy and Power business unit whose activities span three of the pillars. You can see here how we've grown the scale of our DE and P business over the past two years. Our flexible distributed energy capacity under contract has grown by nearly 50% over the past two years to five forty three megawatts, while following the energy cogen acquisition, we now have nearly 4,000 active customer sites. As in Connected Home, the technologies and capability we've built in DE and P leave us well positioned for growth and confident to be able to make further investments. That concludes my review of the strategies for Consumer and Business. We'll be updating you in more detail and bringing this to life at the Capital Markets Day in June. So now let me recap what deliverables you can expect from Centrica in 2017. As you already heard, 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 will again be limited to GBP 1,000,000,000 with E and P CapEx expected to be around £500,000,000 Having built the base strategic capabilities, we also expect around £100,000,000 of incremental revenue investment in our growth businesses as we continue to build capability in Distributed Energy and Power, launch Hive in North America and develop subscription commercial models for Connected Home in both The UK and North America. We expect 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 also expect to see a further reduction in net debt over 2017, targeting to be within the GBP 2,500,000,000.0 to GBP 3,000,000,000 range. So let me now summarize. Our customer led strategic repositioning is on track. We delivered a robust financial performance in 2016 including underlying adjusted operating cash flow growth of 14%. We've built solid capabilities in our growth businesses and paid attention to the underlying efficiency of our core systems and processes. We will continue to invest for growth in both consumer and business divisions. We have continued confidence in delivering at least 3% to 5% growth per annum in underlying adjusted operating cash flow on average from 2015 to 2020. This confidence has been significantly underpinned by the robust performance in 2016. In the prevailing environment and obviously subject to final assessment by the Board, we currently expect to restore a progressive dividend when net debt has reduced into the range GBP 2,500,000,000.0 to 3,000,000,000, which we are targeting to achieve by the 2017. And finally, we are reorganizing our customer facing activities around the residential consumer and business customer and we look forward to showcasing those activities in more detail at our Capital Markets Day on the June 21. As I said at the beginning, 2016 was a year of robust performance and progress in implementing our customer focused strategy. We delivered our key objectives while repositioning the portfolio, improving capability and driving significant cost synergies as we build a platform for the future. Thank you for your time and I'd now like to ask Mark Hodges and Mark Hanafin to join Jeff and me on stage to take your questions. Thank you. And as usual, ladies and gentlemen, I will field the questions and, obviously, we'll sweep around the room. Can I just first of all, I would just like to clarify one thing that was raised to me by at least three investors in the meeting just before over coffee, just before we came in here, which is there's some confusion about one statement on our results announcement on the first page in that under outlook and 2017 targets, there is a statement full year dividend at 12p? That refers to 2016. The point of that bullet is it's in guidance because it talks about in the prevailing environment restoration of a progressive dividend currently expected when group debt gets to the range 2.5% to 3%. Obviously, when we get into that range, which as we've said, we currently expect to be able to do by the 2017, the Board will then be in a position to assess whether it is appropriate at that time to restore a progressive dividend. I just wanted to clarify that. I know a lot of people interpreted it correctly, some people didn't, and I realize it's possible to misinterpret it. So I just thought I'd better clarify that. Right. So to your questions. Let's start in the middle here. We've got a nice lineup of three gentlemen there. So please. Martin Breff from Deutsche. A couple of questions. One was just on the working capital. Could you give us an idea roughly what the working capital balances were in The UK Home and Business at the December? Are you were you in a position where you've got significant net working capital left for the customer? Or are you actually do you have positive working capital on those customers? And just trying to maybe this is more of a detailed thing, but just trying to look at the group balance sheet, it seems like the main change in working capital has been payables going up rather than necessarily receivables coming down. I know there's scope changes and there's ForEx and things that can shift that, but just to give an idea a little bit on the working capital. And then the second question was, could you give us an idea about what the net book value for your Canadian E and P business is? Did you do an impairment test of that? And what's the current net book value? Thanks. These sound like questions for Jeff Bell. And if Jeff can't answer the question on UK working capital, then Mark Hodges will be in the slips. So with respect to working capital, a couple of things happening during the year. Of course, working capital and the receivables side, the billing side actually coming down, particularly in The U. K. With the result of recovering outstanding debt in The U. K. Business. I think the other factor, though, that you get in our results, particularly with receivables and payables, is December is a high energy supply month between November and December. And therefore, you get a fair amount of movement between receivables and payables depending on whether it's warmer or colder. We definitely saw in 2016 compared to 2015 a higher level of both receivables and payables. It was colder in North America and in The U. K. Versus 2015, where December was very warm in both markets. And Canadian net book value? Canadian net book value is just it's a little bit under $1,000,000,000 And that's a gross number? No, that's a gross number. Yes, that's really that's the kind of 100% value. Obviously, we have 60% of it. So that's before minorities? It's gross in what sense, sorry? Sorry, just The full joint venture. We only have 60% of it. So that's the whole thing? Yes. Okay, yes. Because I can see the minority in your balance sheet. Yes. Thanks. Let's keep going along the road. We're going to do those three, come then back. It's Marc Freshney from Credit Suisse. Just to make clear on the decision to target 2,500,000,000.0 to €3,000,000,000 net debt and why now? Because I understand this is very much tied to the pension deficit. The actuarial review was done a couple of years ago. You've committed to paying GBP 100,000,000 roughly a year out to 02/1930. So I'm just trying to understand why you've taken the decision to target a lower amount of net debt and mark up that pension liability now. And just secondly, on the cost cutting, mean, looking at it holistically, you've taken EUR 400,000,000 cost out of the business, which is far greater than any of your competitors could have done. There's at least another I say at least another $250,000,000 coming this year. So why is it not really showing up too much in growth in earnings if you're running more quickly than your competitors along a conveyor belt going backwards, I would have thought you'd be able to capture more of the benefit in the short term. So Mark, lots of great questions there. Let me talk about why 2.5% to 3%. I'll ask Jeff to talk about the pension situation and the actuarial situation and the funding agreement. And then I'll come back and just talk strategically about the cost cutting. So why 2.5 to three Really, it's about the fact it's not just about the pension, but it is the fact that circumstances are still somewhat uncertain at the moment in the world. And certainly, I don't think many of us expected some of the effects that we've seen since the referendum. And we clearly want to restore a progressive dividend when the balance sheet is no longer demanding cash flow to reduce leverage. Now actually, we've made a lot of progress. We're below GBP 3,500,000,000.0. In fact, with the proceeds of the second wind farm disposal, we'll be more like GBP 3,250,000,000.00 or something. When you take into account some of our organic cash flow, which we would expect to be on a free cash flow basis positive, plus the expected divestment of Canada, you can see how we get into that range. And obviously, it depends on lots of things like commodity prices and how we do in delivery this year, but we would expect to be in that range. And for the portfolio we've got in the prevailing environment, we actually believe that's the right targeted sustainable net debt range and we've calibrated that on a number of different bases, looking at everything from sources and uses of cash flow to credit metrics to the pension deficit. And there are rather a lot of variables this year. And so it's very simply just saying when we do decide to restore a progressive dividend, we obviously want to do it firmly in the belief that we've met the conditions precedent from our financial framework and that we're confident we can sustain it. So that's the reason it's translated into a net debt range, but there are clearly a lot of considerations associated with it. Now Jeff, one of the big ones is the pension. Do you want to answer Mark's question there? Yes. So with respect to the pension, there's obviously two common calculations that happen there. Of course, it's the triennial valuation that do every year with every three years with the pension trustees. And you're absolutely right, Marc. We finished that off in the 2016, and I outlined the additional payments separately, of course, within our accounts and using a slightly different set of assumptions and basis. International accounting standards require us to effectively do that on a much more mark to market basis. That pension deficit is the one that ends up in our accounts and indeed is picked up as part of the net debt calculations by the rating agencies. And that's obviously the one that's moved from £100,000,000 of deficit at the 2015 to 1,100,000,000 at 2016. We'll have to see where sort of interest rates and inflation go from here. And on your cost efficiency question, let me take you back to 2015 in our strategic review. What we said was we were going to drive cost efficiency so that we could absorb inflation, that we could invest in our own growth and still end up with nominal cost base flat or below 2015 by the time we get out to 2020. And if you look at Jeff's slide earlier, we achieved that in 2016, both on a reported basis and obviously significantly on an adjusted basis when our cost base actually came down. So we're doing what we said we were going to do. Now why isn't it showing up more in earnings, which I think what your question was, Mark? I mean first of all, we have had to absorb inflation. We've also had to absorb foreign exchange on the cost base. We are investing for growth. We're building capability in technology. And we have had to endure customer losses in the first half of last year in The UK, and there are competitive pressures. And we would expect some of our efficiency to be invested in repositioning ourselves so that we can compete at scale in the market without being the high priced offer and that we can invest in offers that are different to just selling energy. When you put all those together, actually, it has showed up in our performance last year. That's why we managed to outperform expectations. Clearly, what we need to do is continue to do that. By the 2017, we will have got to a pretty sizable proportion of our 2020 goal and a sizable proportion of our headcount reduction goal. We're not changing our target at the moment. But clearly, we're making very good progress and we'll keep that under review as we go forward. Next of the three and then we will go somewhere else. AJ Patel at Goldman Sachs. So my question is around E and P. So you highlighted quite a large reduction in lifting costs since 2014. I'm just wondering, to some extent, that's linked to commodity prices and there should be a lag nature to that. How much of a rebound would you expect in those costs now that commodity prices have gone up, if at all? Any guidance you can give us on E and P production for 2017? And then the second question more about home services. If you strip out, UK supply, it looks like Home Services was down even if you take into account the pension credit. I'm just wondering what's the strategy there? Is it more cost reduction to react to that? Is it that you would expect the revenue or the customer numbers to rebound next year? Or are you taking the offering in a different way that you'd like to see some fruits sort of materialize over the coming years? Thank you. So I'm going to ask Mark Hannaford in a moment to respond on E and P and how have we made the progress on costs. I just want to make one comment generically about E and P dynamics and ask Mark Hodges to talk about Home Services in The UK. The general point I just wanted to make is clearly, the point you're making is that cost of goods do come down as sector inflation or rather sector deflation occurs. In my experience, over the last thirty years, typically, the cost of the supply chain tends to adjust within about a two year period of the commodity price move. Now if you get a really dramatic move, it might actually take a little bit longer in some parts and faster in others as the pressures become very significant. And so really, that's what we've seen. If you think of the price fall started actually, it started about the day after I signed up to join Centrica, if I remember rightly. And that two year period is 2016, and we did start we did see a lot of the cost of goods improvement coming through. Your question is, well, what would happen if prices go up? Well, clearly, my assertion would be you will see some firming, but right now the supply chain is still under huge pressure because a lot of projects have actually been deferred in time or even cancelled and people aren't rushing to bring them forward again because of price uncertainty and because of the fact that in North America, there is still the ability, particularly in the Permian Basin, to bring on unconventional oil. And this is causing this debate about where will prices settle out. So my guess is it might be slightly slower to respond to the recent uptick simply because of uncertainty in the market. Now Mark Hanafin, E and P costs. I think that was a pretty good answer, Ian. That's just the I understand cost of goods. Yes. I mean look, your question was are the costs going to come back as prices recover? Think Ian gave a very comprehensive answer to the cyclical nature of that and there obviously would be upward price pressure. What I would say though is that the supply chain and the industry got pretty fast when we had a long period of high prices. So I think some of the a chunk of the efficiencies should be more permanent than cyclical because they just needed to come out and I don't think the industry is going to be quick to let to go back to the bad ways. When we look forward during this year, we're still trying to take cost out. My guess is it won't be anything like the same sorts of numbers that we've seen in the two years. And it's probably reasonable to project similar costs this year to last year. But we are continuing to try and reduce E and P lifting and other cash production costs. Regarding 2017 production, if you exclude North America, broadly, I'd say around 50,000,000 barrels would be the guidance on 2017. Thanks, Mark. Anything you want to add on our own costs? I mean not cost of goods, but just on how we reorganize to drive our own costs? Yes. Mean look, we've where we've got joint ventures, we've benefited from partners, particularly in Norway. Statoil have done a terrific job on reducing their costs. Where we have operational control, we've also had significant cost reductions by working with the supply chain, by collaborating with others, by reorganizing the E and P business and literally taking out our own operating costs. So that's been very successful. And the combination of that plus capital discipline has meant that we've produced more free cash flow in 2016 than even 2015. And so over the two year period to produce zero two five billion pounds of free cash flow was pretty good given what happened to commodity prices. Thanks, Mark. And Mark Hodges on Home Services in The UK. Yes, thanks. Look, it's a core business, very important business, something where we think we have a really strategic advantage over the competition. If you strip the home energy component out of the UK Home division, actually year on year, Home Services is flat. If you adjust for that pension credit that you mentioned in 2015, the benefit, then the underlying profits are up at 10% year on year. And that's really where some of the cost savings are showing up, both in terms of cost of goods, but also productivity and OpEx savings. In terms of retention, it's the same across the whole of UK Home. It's something we're very focused on. We actually had a better second half of the year in Home Services. We lost 70,000 accounts as opposed to about 150,000 in the first half, so we're seeing some benefit there. We're doing a lot on pricing, another contributor to the performance, so much more sophisticated insurance based pricing around postcodes, around boiler types, around house sizes, numbers of radiators in houses. We're just increasing the levels of sophistication around the way that we differentiate prices for customers. And so I think that's not a bad result, but obviously, we're very focused on those customer numbers. There is a shift towards on demand. Ian mentioned this. The on demand market is a market where there are probably more than 10,000,000 jobs per year and we do very, very few. We have a very small market share. We've not focused. So the business we're building called Local Heroes is really our access to that market and we think that will be profitable in its own right, but actually will create a pipeline back into the kind of contract core services business. So that's really how I I view it at the moment. Lots going on. And frankly, more we can do, more we can do around the deployment of technology in the field, and I think more we can do, in terms of making that business more efficient. Well, thank you. Now I'm just going to observe that everyone asked a question so far has asked three. We're not going to be able to get through it if we do that. So, can we try and keep it to one or maximum two components ideally in the same sort of area? Lakis, you've been very patient. Thank you. Lakis Sathanasio, Agency Partners. I'll keep mine to two. First is on dividend policy. It was fairly obvious, think, that you weren't going to move your dividend this year given the pressures on credit metrics. I mean that was pretty much a given, I think, to anybody looking at your company. But next year, your pressures you seem to be implying will ease. How then will you be setting your dividend? Are you going to be using adjusted operating cash flow? Can you just refresh our memories about how you will be looking at the second? And I know it's not going to be year on year kind of thing. It's going to be smooth but taken out of town. My second question is on rough. June, you can decide what to do with it. Can you give us an idea of time frame? If you decide you need to shut it down, you obviously want to speak to government about that. How long would it take and what steps are you going go through to actually start dismantling the thing? And I mean by that, you start producing cushion gas. Thank you, Lucas. So let me try and tackle both of those, if I may. Just to remind on our policy on dividend, we said that when we restore a progressive dividend, we intend it to be linked to our confidence in the growth of adjusted operating cash flow. And we also said that it will not be mechanistically linked. And that's the point I think you were inferring. So we're not going to be changing the dividend rate according to adjustments in operating cash flow within the year. We'll make a judgment broadly reflecting our belief in our medium term growth of adjusted operating cash flow, which currently, we're saying is at least 3% to 5%. So that's the policy. It hasn't changed. But clearly, it's up to the Board to decide when we're in a place where we can restart that progression. It's been a couple of years of pretty significant shocks to the energy system and we want to be sure that, as I said earlier, that the balance sheet isn't pulling on cash anymore and that we're in a position to sustain and meet our financial framework. On Rough, so the way to think about this, first of all, Rough is a very old facility. And normally, fields, as they age and the equipment gets older and frankly thinner, the pressure in the field goes down. That's not the case in a storage facility. Obviously, you keep ramping the pressure up to maximum pressure every year. Now rough is due to the end of life in the 2020s. And we took the prudent decision last year to check all of the subsea and surface containment in the wells and to see how they've corroded and eroded and also how strong are the seals at the top of the wells. We will finish this program around the April as we've prognosed. Then the question is, okay, what does it mean once we've got all the results? And we've seen our early disclosures that about half of the wells, are okay, completely okay, but half of them have some issues. So that will determine the size of the asset that we could immediately have without repair. And then the other issue we've got to assess is the commercial reality of Jeff showed the spreads, which have come down and we think that's partly because Britain is now significantly connected to other sources of gas. And it's the combination of these two, the physical and how much it will cost to remediate and the commercial that will determine the options we've got for the Rough field. Now the final point of your question was, at the very end of life, when we decide Rough no longer can continue to be a storage facility, it will ultimately need to produce the gas that's left in it. It will effectively become a gas producing field, and then it will be decommissioned. Can't give you a detailed prognosis on that yet until we know when that is. But as I say, we currently believe it would be in the 2020s, and that's how the assets reflected on our books. Thank you. Now we're going to go over here and then to Deepa. Please, I'm sorry. Jenny Ping from Citi. Hi. Two questions, please. Firstly, just a clarification on the dividend point. You obviously talked about the 2,500,000,000.0 to $3,000,000,000 at the 2017. So should we expect first half dividend to be flat year on year and then you make up any difference in the second half? Or how is that mechanistically going to work? And then second question, you specifically highlight that there are a range of options or a range of possible outcomes on the energy supply in terms of outlook for 2017. Can you talk about what your anticipation is for that range? What are the possible outcomes that you're thinking of? And how much dialogue have you had with the government? Thank you. Okay. I mean on the dividend policy, I mean, of all, it's not mechanistic, and it's up to the Board at each period clearly to decide what they're going to do. What we've simply said is we expect to get into that targeted range in 2017. That's what we're trying to achieve. Now I doubt that we're going to do that by the middle of the year. If we did and depending on the conditions prevailing at the time, the Board will have to assess what it wants to do with the dividend. But it's too early to give you a first half, second half split. What we have traditionally done is base the first half dividend on the full year, prior year dividend as a proportion and I expect that that's probably what we would do, all other things being equal. On the energy supply outcomes, I think it'd be good, Geoff, if you just you mentioned that in your script. But I mean the bottom line on outlook for this year, it's pretty early and there's lots of parameters. But on The UK energy supply outcomes, Geoff? Yes. I think there was a second half of that, which was around discussions with government and where we are with that, and it might be for Mark or yourself. I think there's a wide there's clearly, at this point in the year, a wide range of outcomes with respect to the business. There's clearly the progress around the fact that we've frozen prices between now and August and what that means for customer accounts. Commodity prices, though, and weather are the two biggest in year impacts that we have in terms of that business. In terms of external factors, it is one of the reasons why we don't give guidance at this point. There's too many factors there. But there's enormous amount of things that Mark and the team are undertaking around the things that we can control in terms of engaging customers, in terms of producing new offers. We've mentioned this morning about BG reward club. And so there's a whole litany of things that we're undertaking that is both investment from our perspective but also the opportunity to engage with customers. Mark, I don't know if you want to add to Yes. Mean we are in dialogue, as you'd expect, with government and the regulator. We have a firm belief that there is no need for any intervention in the energy market, that the CMA remedies were exhaustive and after a very thorough review, should be given a chance to work through. We're seeing lots of competition. There are over 50 suppliers, as you know. We're seeing companies take different approaches to pricing so that there isn't a herd mentality, which is one of the accusations that has been sort of laid at the industry's feet. And so we believe that competition should be allowed to thrive. And from our perspective, as Geoff said, we have a very, very clear plan. We're focusing on retaining valuable relationships. Ian mentioned the debate around value and volume. It's not just about customer numbers. We are continuing to improve our service. Although we saw improvements in 2016, we're not stopping there as you would imagine. We are broadening our offers. We have more to bring to market in terms of innovation. We've launched the reward scheme, which we see as a major intervention to both reward loyalty but to differentiate what we do for our customers from the competition. And we'll keep lowering costs. We talked about the target for 2017 and a chunk of that will obviously fall into The UK and into The UK energy supply business. And then the last thing I would add that we're doing for customers, which we think is good in the round, is obviously leading on the smart meter rollout. So you put all of that together, we don't think there is the need for intervention. And we think that we have a very, very clear plan of action that will help us win, retain customers and frankly will mean that we can also bring the rest of our strengths to bear. We've just talked about services. I still believe that with our brand and with our product breadth beyond energy, we have an advantage over the competition. Thanks, Mark. And Jenny, I mean the conversations with the government have been constructive at all levels. And, I think the government clearly are saying prove it. Competition and Markets Authority, just change the rules a bit, prove it. And I think we are proving it by what we've done on price, the price freeze, the loyalty program, all of these things. And actually, of the more vocal critics of us, some of the new entrant suppliers who've been criticizing us in the last few days, if you actually go and look, their variable tariff is actually above ours and their fixed tariff is pretty much the same as ours. So I find it a little bit bemusing, but maybe people just haven't caught up with the fact that we're offering prices that are rather better than they used to be. Let's go to deeper and then Ian next to her and then, we'll go back to the left hand side. I'm going to keep moving us around. Okay. So Deepa. Thank you. Two questions from me as well. So first one on the cost efficiency. Could you just clarify how much of that is from E and P? I know you said there's EUR $350,000,000 savings, but that's from EUR 14,000,000. So if you can just let us know how much from EUR 15,000,000 so we can work out how much of that contribution was from E and P? And second question is the incremental revenue investment of 100,000,000 that you talk about, how should we interpret that? Is this funded out of the two fifty million euros of cost reductions you have? Or is this a headwind to your profits next year, I. E, we should put 100,000,000 lower profits? UNIDENTIFIED So let me take the second one in a general sense, and then I'll ask Jeff just to touch on the E and P point on costs year on year. I'm not sure we're disclosing that, but let me leave that to Jeff. On the GBP 100,000,000, the way you should we obviously don't tie it to a particular the cost efficiencies pay for that, although you can think of it that way. We did say in 2015 that our cost efficiency program would fund our growth. It would create the space to fund the growth. In terms of how you should treat it in your models and so on, I mean, obviously, I can't guide you on that. But the way I'd encourage you to think about it is it will come it will produce some revenue. But realistically, that type of revenue investment, launching Hive in North America, building capability in distributed energy and power, building capability in energy marketing and trading, these things aren't necessarily going to see the revenue stream come forth in the current year. So I would say most of that additional cost will actually flow to the bottom line and therefore will impact profit in the short term. It's quite a material investment that we're making as we kick start growth in these businesses. And obviously, we will see the revenue stream coming from it. But in the early stage, I would expect it to have a downward impact on earnings. Jeff, on cost efficiencies in E and P. Yes. So I think there's a couple of things in there. In terms of the GBP384 million, which we count as true efficiencies, we don't give a specific breakdown. But you'd say kind of broadly, a third might be from the asset businesses and two thirds from the customer facing businesses. I think the other thing though is when we talk about the E and P costs and if you think back to the slide where I showed the cost between that we delivered over 2016, there was not only the £384,000,000 of efficiencies, but there was about £260,000,000 of other cost reductions as well. So included in the $352,000,000 for E and P is not only their share of the efficiencies, the $3.84, there's also a proportion of those other cost reductions, which either because of volumetric reasons or because they were one off in nature, we don't give ourselves credit for from an ongoing efficiency perspective, but did actually help reduce costs within the E and P business. The other thing obviously is that what I was showing was just one year for E and P, we've talked about 2014 versus 2016. So there's also obviously cost efficiencies that were delivered in 2015 as well. Thanks, Geoff. Ian? And then we're going go to Ed Reed and then Fraser, and then we'll come back to the middle. Two of you have been very patient. So Ian? Yes. Ian Svaner from Exane. I have two questions, if I may. You're obviously quite concerned about credit metrics. Could you talk through what the implications would be for if you had a downgrade from here? And then secondly, looking at the segmental analysis that you produced at the back, and thanks very much for producing that earlier, it's much appreciated. You're showing, I think, a 15% margin in stand alone gas. And I appreciate that dual fuel is more than just gas only. But if you're a legacy gas only customer, aren't you actually getting quite a bad deal at the moment? So Geoff, Credit Metrics and Mark Hodges on the gas only customers. So I think on Credit Metrics, I think as we've talked about at other points in time, the impact of a one notch downgrade would be measured in hundreds of millions of pounds, primarily relates to additional decommissioning liabilities that we would have to post collateral against in our North Sea E and P assets, Also with respect to our energy procurement and trading businesses on the bilateral relationships that we have with counterparties, the lower our credit rating, the more those start to come in. There's obviously a longer term strategic impact to it as well. Our long term procurement contracts that are on very favorable terms for us have are based on the fact that we're a strong credit counterparty. Clearly, at the same time, we set the business up that if it was downgraded, we can operate at that level, but we would be looking to return to the strong investment grade credit ratings, BBB plus Baa1 that we've signaled previously. Obviously, ultimately, judgment is the rating agencies to make. And what we're focused on is ensuring that we achieve the financial metrics consistent with that, as we indicated on track to do that by the 2017. Thanks, Geoff. And Ian, we're not overly focused only on credit metrics. It's just one component of our financial framework. And we want to live within that financial framework. If we deviate from any element, we will try and get back as soon as we can. But we'd like to get to meeting all criteria in that before, for example, we start to restore a progressive dividend. Mark Hodges, gas only margins. Yes. So I mean it's a dual fuel market primarily, as you know, which is how we look it. But one of the reasons we're launching the reward scheme is so that we can recognize the kind of different value relationships we have with different customers. We work very hard to make single fuel customers, whether it's gas or electricity, aware of the benefits of being a dual fuel customer, in which they get some discounts in the way that we engage with customers when they call in. So we're very heavily promoting to our gas customers the fact that they can take electricity. But look, we're very watchful. You can see the difference in the margins per fuel. It's something that we are keeping a very close eye on, and we will have to keep a close eye on as we go through the rest of this year. Thanks, Mark. Ed Reed. Two questions. The first one is on gas storage. I think rough is about 75% of UK gas storage capacity. As you said, it's becoming older and more unreliable. Do you think The UK needs more gas storage? And the second question is on smart meters. You've clearly led the field on smart meters. I guess two subsidiary questions on that is firstly on interoperability of the smart meters. Are you confident that the SMET1 meters will be able to be interoperable? And then secondly, on domestic half hourly settlement, how important is that in terms of getting the full benefits from the SMET-one 100 rollout? Well, I'll leave the power by the hour, if you like, or real time tariffs to Mark Hodges, as I will the interoperability of smart metering. Just on storage, whether or not The UK is short is a judgment that I think the government will need to make. Rough represents about 70% of The UK's gas storage, and The UK has a very low ratio of storage to the size of the gas market relative to Continental Europe. But now, of course, we're plumbed into Continental Europe. And so we effectively are plumbed into a bigger tank. And so one of the biggest dilemmas for the government having spoken to them is, is that enough? And it's perfectly okay, I think, provided those pipes are flowing. And the scenario and often the comment I get back from the government is, well, of course, no one's going to pay for the backup until you need it. And that's got them into this situation with the capacity market in power generation and don't know where they're going to go on gas storage. Rough does represent about 10% though of a daily peak requirement. And so it's a very important swing asset in really tight pinch points. At the end of the day, rough is going to end its life. I mean, there's no question it will at some point. It you'd have to redevelop the whole thing at some point. And I think it's difficult to see how the economics are going to make that sensible. The government has looked at other fields in the past. We, before my time, proposed one of them and the government knew and went for it and then decided not to. So it's a dialogue that we're in and it's a strategic question really for the country. I don't know the answer at the moment. So on the other two, Mark? Yes. I mean, smart meters, as you said, we're leading the way. It's something that we've made a conscious choice to do. We think that it brings significant benefits to the end consumer. We know that they're happier as a smart meter customer, typically about 10% happier in terms of Net Promoter Score. It helps us to reduce cost because as you know, we're removing estimations, and it really helps with the whole billing process. It also gives us data and the ability to design new products. So the Home Energy Free Time product we launched earlier in the year where you get a free Saturday or Sunday is something that we can do with smart meters. So it's all part of the innovation. I'd actually say the kind of half hour settlement regime is kind of wrapped up in all of that. Gives us potentially more data, more flexibility. But the core question, think, was about interoperability. I mean SMETS2 is coming later this year. We're fully engaged in the whole process with DCC, as you would expect. We expect to be in the pilot stage around May time this year with scaling taking place later in the year. Am I slightly concerned a little bit because it's been delayed a number of times? But it's in test, as I say, in a matter of months. And in terms of SMETS1, look, the market has to find a solution. There will be a significant number of SMETS1 meters out there, so we have to find a solution. We believe that will happen. We know it's being worked on. We already know that there are some very, very small use cases out there about making SMETS1 meters interoperable. So I'm pretty confident that we'll find a solution as we go towards the 2020 deadline. Okay. Thank you. Thanks, Moy. Fraser MacKurn. Hey, good morning. Also the two questions. Firstly, on Connected Home. You mentioned the target to reach 1,000,000 overall hubs this year. How many do you think it would need in order to be profitable? And then on UK Home, can you speak a little bit more about how the balance between British Gas and Sainsbury's accounts has moved, especially in the second half? And is it fair to assume that the latter are less profitable? I think both of those are for Mark Hodges. So it hasn't moved in terms of materially Sainsbury's and British Gas. And in terms of profitability, in terms of margins overall, I mean it's it depends really on where we are in pricing. You'll notice that we've increased the pricing significantly on Sainsbury's over the past six months. This is back to the debate we were having earlier that we're interested in balancing value and volume. We haven't been in any collective switches for the last five or six months. Sainsbury's was a useful tool for us being in the market as commodity prices were a bit lower. So but the mix broadly, don't think is unchanged. In terms of Connected and profitability, I wouldn't link it directly to the number of hubs and kind of just draw a direct link. As we hit this number of hubs, we will hit profitability. As we move to a subscription model, obviously, which we're now running in The UK, there's an offer out right now for UK Home Services customers at GBP 9 per month. We bear the upfront cost of goods effectively as the consumer takes on the product. We think that the gross margin over the lifetime of that relationship will be higher. But effectively, the more we sell, the more we'll be bearing that upfront cost. This is one of the issues I really want to go through in detail at the Capital Markets Day so that you can all understand what that process will look like. So I wouldn't tie the two things together, but GBP 1,000,000 is a pretty significant ambition. That will come through the launch in North America. That will come through the launch in Ireland as well, which we shouldn't forget, as well as really advantaging British Gas customers here in The UK. So we're excited about where we are in the development of Connected Home in terms of the ecosystem, the propositions. We've got more to bring to market this year. Is something you know that we've acquired and is out there. So I think it's a big year for Connected Home, we're excited about what we're doing. And Fraser, on that, I mean, just one other thing I'd add. I can assure you, but I can't disclose to you, I can assure you that the gross margins are very healthy. The real question is how deep is the J curve and how sharp will it be on the other side upwards. And so far, so good. I mean just to give you a sense, our estimates are in terms of distributed assets in Connected Home, at one end, you've got people like Amazon who could claim, although it's largely through their marketplace, to have 4,000,000 installations. We are in about the top 10 in the world and there's probably hundreds. Well, are hundreds and hundreds much smaller than us. One of the things that we've got is the customer base that we can deploy this through initially, but we're also selling direct to customers over the Internet who don't take energy from us, and we're seeing high satisfaction and good gross margins. I mean I was in the Apple store in Regent Street the other day, and I was very pleased in their bit upstairs where they've got all of their partner devices. There was HIVE, selling, I'm pleased to say, at £249.99 So anyway, moving on. In the middle, Ashley and then, Gus, please. Yes. It's Ashley Thomas from SocGen. Two questions, one on longer term credit metrics and the other on CMA. Obviously, the rating agencies look at IAS 19. But on the actuarial, given it was set in March 15, presumably were it to be done today, it would have deteriorated. So are you comfortable that when you look at sort of say the post-twenty eighteen repair contributions that they won't need to be increased ahead of the next triannual? And then on IFRS 16, on capitalization of operating leases, I know it doesn't come through till 2020, but will it just encompass vanilla operating leases? Or will it also encompass your LNG and gas transport commitments, which cumulatively are about £5,000,000,000 That's some credit metrics. On the CMA, should the Secretary of State direct Ofgem to introduce a new license modification to broaden price regulation should you then appeal to the CMA. Does that defer the introduction of that price regulation or would it be introduced and then reviewed retrospectively? Geoff, why don't you take the credit metrics points and I'll touch on the CMA. So you're absolutely right, Ashley. The assumptions around and the basis on which we do the triennial evaluations are slightly different than the way they are done for accounting purposes on a like for like basis. It would be a slightly higher deficit than where we agreed our deficit based on March 2015. We remain in dialogue with pension trustees around all of that as we start to three years comes around fairly quickly when it takes sort of eighteen months to do the first one. So you wouldn't be surprised if we're already thinking about different scenarios for eighteen months two years down the road. I think there's a lot of a lot could potentially change over that period. We've seen quite a reduction in discount rates and effectively based on sort of gilt yields in The UK just in the last eight or nine months, let alone the next couple of years. So I think we'll have to see how that plays out. And then obviously we'd be in a discussion with the pension trustees at that point about whether or not depending on where the deficit ended up at that point about what we do with lots of different options at our disposal. On operating leases? On operating leases, you're right, it doesn't come in yet. We don't think those the specific sorts of transactions you've discussed would be caught. Okay. And on the CMA, look, I think it's a bit of a hypothetical question. We would have to, first of all, determine whether what the government was trying to introduce was actually going to so impact us that we had to appeal or whether we should actually change our business model in response. I mean I think it's a bit hypothetical because the government, from my experience, are certainly not certain to be intervening. And even if they did decide to, they're not really sure what to do. Because what they don't want to do is become the price setting mechanism perpetually. And their real issue is if they start regulating, when do they stop? Do they stop? So it's difficult to answer. We would have to weigh up whether we want to respond commercially, whether we want to respond legally. And think my guess is that, if we did make a formal appeal, it might stay an implementation. But I think it would depend on how and how many people made an appeal. And Gus, what do you have on your mind? Maybe what I significant my question is to make the gas confessions. And it's really a flip side to Laffy's question as an extension of Ed's question. Let me talking about rough, and if you were to keep label, say, that the assets in operation to the mid-2020s, even at 50% level, what sort of order of magnitude of CapEx are we talking about? Honestly, Gus, don't know yet. We have to first of all assess the condition The of the condition of the asset will determine how much remediation it requires and therefore how much capital. The condition of the asset will determine which scenario we want to pursue. Is it the same storage asset? Is it a smaller storage asset? Is it not a storage asset? We just don't know. So I'm afraid I can't answer that, but we're going to attempt to get to the place by June where we've evaluated everything and we've got some clear paths forward. We do need to engage the government. There's quite an important stakeholder in this because we do currently have a license obligation on a rolling calendar basis to offer this asset to the market. So that's really all I can say. Thank you. One, two. How many more have we got? We're just about to run out of time. Okay. There's three more questions. I'm going to see if we can do this quite briefly. It's Sam Arie from UBS, and I'll make my question very short. But I'd just like to come back to the numbers you've put out in the segmental statements for UK Retail. And it's been mentioned that you're now showing a 15% EBIT margin on gas, but also minus 4% on elect. And I think if I do the calculations right, it seems that your overall supply margin has ticked up to about 6% and on the residential side somewhere over seven So I guess I'd just be interested in whether you think 7% average or 6% to 7% factoring in your €50,000,000 on the prepaid cap is sustainable going forward. And then secondly, on this gap between gas and elect, whether that's really important and critical that you continue or whether we could expect some rebalancing and a reduction of that very high gas EBIT margin? Mark? So look, apologies, I'll just have to refer you back to the previous answer, which is rather dull because I'm not going to comment on our intentions. We are very, very aware of the difference between the gas and electricity margins. We're very, very focused on dual fuel and making sure that those products are available to all of our customers. We've launched the reward scheme, as I've said, so that we can reward things like tenure and recognize the value of the relationships with customers that we have. And I also said we're very, very watchful. It is a the gap has increased largely because the electricity costs have been increasing, as has already been discussed. It's something we will keep under review. We've frozen our prices now through until August 1, so that commitment remains in place. This is something we will have to look at as we think about what happens next. Okay. We're into the quickfire round now. One, two, three, and that's it. But then you can be quite short, please. Yes, this hopefully will be fairly short. It's one question with 23 subsections. The government is coming up with a green paper, I think, in April on Consumer that may or may not touch on to energy. What's your feeling on the scope of this green paper and how it could impact you? So I don't know I mean, what they've said is they're going come out with a green paper on the functioning of consumer markets and how or how not they are serving the consumer. As a betting person, I have to believe it's going to have an energy component. The degree to which it does will depend on how we've all behaved in the market and how it's changing between last summer and now. I suspect it will have a consultation element associated with it and a consultation period. I don't know how it's going to affect us. It really does depend what they come out with. So I'm afraid that's a really difficult one to answer. Sorry, I can't say more. Olys Alberson at Jefferies. One quick question on North American customer account losses. So do you think the trend we've seen in both Energy Supply Services and on demand jobs will continue into 2017? We don't actually think it's necessarily the case that we're going to see the same trends. We're seeing some difficult trends in some bits of The U. S. Market. For example, we stopped door to door selling in many of our markets. It's a very controversial channel and it's very difficult to control. That's had an impact. On the positive side, we're seeing strong growth on annuities products and warranties, and that mirrors our skills in The UK. So I don't think it's automatically the case. You're just going to see a continuation. That's how I'd answer that. Chris Slabre, JPMorgan. Just one question on your provisions very quickly. They've increased to around £3,000,000,000 in your balance sheet. What proportion of that is decommissioning costs? And the second part of that question really is Shell has indicated that they're looking to keep the concrete legs in place and not remove them. Do your decommissioning costs or provisions include the cost of removing those legs or not? Let me answer the second part, and then I'll ask Geoff to say what's in our provision. In the Gulf Of Mexico, which has done an awful lot of the, shallow decommissioning of offshore installations in the world. There has been a move to what's called Rigs to Reefs. And actually, this is not some sort of scam where you just leave a bunch of stuff lying around. It's very closely monitored. But actually, it really does help the wild marine wildlife and coral and ultimately, the ecosystem. So it's a perfectly valid thing to do. I don't know though whether the British government are going to decide to permit it or not. I believe I'm right in saying that our own provisions are based on industry average assessments, which I believe largely remove all structures to the seabed. And so they do not include leaving large structures on the seabed, I believe. But we are looking at all different ways in which to meet our decommissioning liabilities, not just in terms of minimizing the cost, but doing the right thing. And this is a we're in the very early stages of this, and there's going to be a big learning curve. Geoff? Most of that provision is decommissioning liabilities. I think in our full financial statements, it breaks it out in more detail. Ladies and gentlemen, I'd just like to thank you all for your interest. Centrica is moving to a different place. I hope that we have demonstrated significant progress. I think the results for last year are robust. I hope you've clarified the positions on the dividend and our expectations for this year. And our Capital Markets Day on the June 21, we will be unpacking the strategies for consumer and business significantly more and giving you a chance to see exactly what we're doing in each of those. And we also have a trading update around the time of our AGM on the May 8. So there's a couple of opportunities for us to give you an update in the next few months. Thank you very much for attending. Much appreciated.

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