Good morning, everyone, thank you for coming to Centrica's 2015 preliminary results presentation. Just a word on. I'll get into a couple of things in a minute, but just a word. If you've been watching the FT online, there's a headline that says, "Centrica cut dividend," we haven't. I just want to make that clear. That was a year ago, but they're not that quick off the mark this morning. 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 by tannoy. Emergency exits are marked at the rear and front 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's Street.
I'm joined here today by Jeff Bell, our Chief Financial Officer, who, in a few minutes, will run through the financial results. We're also joined by Mark Hanafin, who's the Chief Executive of Energy Production, Trading, and Distributed Energy. Mark Hodges, Chief Executive of Energy Supply and Services for the U.K. and Ireland, and Badar Khan, the Chief Executive, Energy Supply and Services, North America. Mark, and Badar will join Jeff and I on the stage to take your questions after the presentation, which we expect to take just over an hour. In the front row, we're joined by our Chairman, Rick Haythornthwaite, Grant Dawson, who's General Counsel, Jill Shedden, Group HR Director, and Nick Baird, Group Head of Corporate Affairs.
We also have two new members of the Centrica team here today, Charles Cameron, Head of Technology and Engineering, and Chris Cox, who has joined Centrica from BG Group PLC to head up our E&P business. Before Jeff runs through the financials in detail, I'd like to take a few minutes to cover some of the key points from our results announcement today. A lot has happened since I joined Centrica just over a year ago, even since we set out our new strategic direction last July. Firstly, a word on our top priority of safety and compliance. In 2015, our safety performance was slightly worse, with a total recordable frequency of 1.1 per 200,000 hours. We're very focused on intervention to return our personal and process safety performance to an improving trend.
In compliance, we've worked hard on our performance and on strengthening our relationship with all of the regulators that we deal with, of course, with the CMA as they conduct their review into the functioning of the U.K. energy market. Commodity prices have continued to fall, creating a challenging environment for our E&P and nuclear power businesses. However, in 2015, our financial performance was resilient against this backdrop. The low commodity price environment has sent shockwaves through the global markets and has caused investors to doubt the strength of companies exposed to oil, gas, and minerals. The robustness of Centrica to this much lower oil and gas price environment is so important that I want to take you through it in some detail later on in the presentation.
What I can say is that we've tested the group in a continuing world of $35 a barrel Brent, GBP 0.35 per therm NBP gas, and GBP 35 per megawatt hour power prices in the U.K. We project that we can more than balance sources and uses of cash in that environment. We're also confident that in that environment, we can deliver at least the 3%-5% per annum operating cash flow growth we announced last July. In fact, as you might expect, the growth rates from a rebased 2015 in such a low commodity price environment are actually a little higher than this. We are committed to paying our dividend at the current level and to deliver progressive distributions in line with our ability to grow underlying operating cash flow.
In short, the strategy of the group and our financial offer to investors is unchanged by the current commodity price environment, even if it persisted for the next few years. What it does mean is that we've experienced some one-off impacts in resetting the group to this environment. In response, we must continue with our plans to cut capital in E&P to reflect the currently impaired view of that business at low commodity prices. I should note, however, that our E&P business was free cash flow positive in 2015. We must also pursue with intensity our cost efficiency agenda across the group. I'm very encouraged by the progress we've made since the announcement of our strategic review conclusions in July as we develop our platform for growth focused on our customer-facing activities, reposition E&P and central power generation, as we deliver on our major cost efficiency agenda.
Our strategy implementation is on track. The cost efficiency program is underpinned in our plans. I therefore remain excited about this next phase and continue to believe that Centrica has all the components necessary to deliver an attractive investor proposition, one of returns and growth, even in the current commodity price environment. Let me now turn to the 2015 results. Earnings were down 4%, with earnings per share of GBP 0.172. This was against an extreme fall in commodity prices, indicating the robustness of the group portfolio to manage through major shocks. However, within this, operating profit from our energy and services businesses, a key part of our focus for growth, was up 19%, helping to partially offset the impact of low commodity prices on our E&P and power businesses.
Operating cash flow increased 2% to GBP 2.25 billion, while we maintained capital discipline with total capital expenditure of just over GBP 1 billion, including two small acquisitions. These factors, combined with our decision to rebase the dividend a year ago and some divestment proceeds, enabled us to reduce net debt by 9%, or GBP 449 million, to a level of GBP 4.7 billion, even in such a challenging environment. However, given the prevailing prices at the end of the year, we had to recognize major asset impairments on our E&P assets and our nuclear investment. In total, the charge for exceptional items after tax was GBP 1.8 billion. This resets the group's balance sheet to reflect today's commodity reality. Before I hand over to Jeff, who'll cover all of these areas in more detail, I'd like briefly to summarize some of the early progress we've made in implementing our strategy.
As laid out in July, our stated purpose is to provide energy and services to satisfy the changing needs of our customers, and our focus in everything we do will be to enable us to be excellent in serving those customers. We already have distinctive customer-facing positions and are developing new growth nodes. We must also maintain a strong portfolio of businesses and the balance sheet necessary to allow us to manage the risks associated with serving such a large customer base. We've made very good early progress in the delivery of our strategy. We're focusing our efforts to grow on five areas: energy supply, services, energy marketing and trading, the connected home, and distributed energy and power. We've restructured the company along these lines, creating new business units and centralizing functional activities.
This will allow us to serve the customer more effectively while unlocking our ability to realize material efficiencies. In E&P, given the current commodity environment, we are reducing investment levels and driving lower operating costs. We have good capabilities in E&P. We've made good progress, and as I said, E&P was free cash flow positive in 2015. Given the severity of the downturn, this may not be enough. As a result, we're pursuing further cost reductions, and we'll continue to explore all options to structurally improve and strengthen the E&P business. In the other portfolio changes announced last year, we're making progress on divesting our wind-generating assets. We announced earlier this month the sale of the GLID wind asset for net cash proceeds of GBP 115 million. Underpinning all of this in the near term is the delivery of cash flow growth through improving our own efficiency and effectiveness.
We remain on track to achieve our GBP 750 million per annum cost reduction program, which is now underpinned in our plans. We expect to deliver GBP 200 million of the savings in 2016 while reducing the number of direct roles in the organization by 3,000 by the end of the year. When we look at our financial deliverable of operating cash flow, our progress in delivering the strategy means that we expect adjusted operating cash flow to exceed GBP 2 billion again in 2016 and at current commodity prices. With a strategy developed around the customer, our diversity of cash flows, and further efficiency we can drive into the group, we remain confident in delivering long-term shareholder value through returns and growth and even in the current low commodity price environment. This can also be done while funding all of our needs from our own cash flows.
I'd now like to hand over to Jeff to take you through the financial results. Jeff, you might want to bring your own water.
That's one.
I haven't used it.
We're a close team.
It all happened too fast.
Thank you, Iain, and good morning, everyone. I'd like to start with the external environment and financial headlines of our preliminary results this morning and then review business unit results before finishing on cash flow and the balance sheet. Once again, the external environment, commodity prices, and the weather in particular, had a significant impact on our performance in 2015. As you're aware, the year was marked by dramatic changes in oil and gas prices, both in the U.K. and in North America. Having fallen substantially in late 2014, the Brent oil price averaged $52 in 2015, around half the levels experienced in the previous year. The reduction in the U.K. NBP gas price was less pronounced, but the month ahead price was still on average 16% lower than in 2014. In North America, Henry Hub gas prices were on average 36% lower.
We've seen further falls in late 2015 and early 2016, with Brent dipping below $30. The impact of and our response to this low commodity price environment will be covered by Iain later in the presentation. With respect to weather, in both the U.K. and North America, average temperatures were colder than normal in the first half of the year and warmer in the second half of the year, with both the U.K. and the U.S. Northeast having the warmest Decembers on record. However, in comparison to very mild conditions in the U.K. throughout 2014, U.K. residential gas consumption per household was up 5%. The impact of the external environment played through into our financial results, where revenue decreased 5% compared to 2014. Lower commodity prices reduced E&P revenue and led to lower retail prices in our energy supply businesses.
In the U.K. residential energy supply business, customers saw two gas tariff reductions in the year totaling 10%. Adjusted operating profit fell 12% to just over GBP 1.45 billion, with a 19% increase in energy supply and services profit more than offset by the impact of lower commodity prices on our E&P business. However, the adjusted effective tax rate reduced to 26%, reflecting the shift in profit mix to the lower taxed energy supply and services businesses. As a result, adjusted earnings of GBP 863 million was down only 4%. These figures now include fair value depreciation related to our previous investments in venture and nuclear, a change in definition we announced in our December trading update. The full-year dividend per share is GBP 0.12, consistent with the 30% rebasing announced at the 2014 preliminary results.
Importantly, reflecting our focus on cash, adjusted operating cash flow increased to GBP 2.25 billion. The actions we took in 2015 to reduce capital expenditure meant that the group net investment of GBP 855 million rose only 3% compared to 2014, which benefited from nearly GBP 800 million of disposal proceeds, while net debt fell to just over GBP 4.7 billion. The return on average capital employed of 11% was within the 10%-12% range we announced we were targeting back in July. Before turning to the individual business unit results themselves, I'd first like to review the exceptional items that Iain referred to earlier. Post-tax exceptional items were just over GBP 1.8 billion, with the continued decline in commodity prices during 2015 resulting in significant impairments in both our E&P and power generation businesses.
In E&P, post-tax impairments of GBP 1.48 billion were recognized, predominantly relating to declining gas and oil prices. In power, a combination of declining forecast capacity market auction prices and clean spark spread prices resulted in post-tax impairments and onerous provisions of GBP 485 million. These impairments were partially offset by a GBP 116 million exceptional tax credit following the change in U.K. tax rates announced in the March 2015 budget. The net remeasurement of our energy market derivative trade positions was a credit of GBP 129 million. Moving on to the results of the different business units. You can see on the slide a breakdown of operating profit and each business's relative contribution.
As I mentioned earlier, the customer-facing energy supply and services businesses increased profitability 19% compared to 2014, as increased contributions from British Gas Residential Energy, Direct Energy, and a first full-year contribution from Bord Gáis Energy more than offset the lower result in British Gas Business. However, the impact of lower commodity prices in E&P and power meant that Centrica Energy operating profit fell 61%, and the group overall saw 12% lower operating profit compared to 2014. I will now turn to each business in a bit more detail. In British Gas, profits were down 2% to GBP 809 million. Residential energy profit increased to GBP 574 million, up 31% on 2014. This was driven by improved efficiency in the delivery of our ECO program requirements, service improvements, and a return to more normal customer consumption levels following the warm 2014. Post-tax margin was 5.6%, in line with historic levels.
Residential services operating profit was down 5% to GBP 257 million. The market environment remains challenging as customers shift demand to cheaper on-demand and home emergency products, and overall product holdings reduced by 4%. In response, the business has continued to focus on improving its cost base, driving down cost to serve per account, while also launching in October last year our new simpler HomeC are product range, which is enabling the business to compete more effectively. In British Gas Business, we reported an operating loss of GBP 22 million. This reflects a significant one-off increase in our bad debt charge and temporary additional operating costs related to resolving the issues arising from the migration of customer accounts and associated data onto a new billing and CRM system.
Additionally, this impacted the business's ability to acquire new customers and was a key driver of the 11% fall in customer supply points during the year. However, with all customer accounts now migrated onto the new system and operational performance metrics now at or above the levels before the migration began, we expect the business to return to profitability in the current year. We also expect the raised levels of working capital as a result of the operational issues to be largely normalized over the coming year. In Direct Energy, profit more than doubled to GBP 328 million. In Direct Energy Business, profit increased to GBP 251 million, with the absence of additional costs experienced in 2014 from the polar vortex, having a material increase and material impact on the year-on-year increase.
In addition, since the start of 2014, we have been writing higher unit margin contracts that are more reflective of the risk of supplying energy. Combined with a strong optimization performance from the utilization of our pipeline and storage contracts, Direct Energy Business' performance in 2015 creates a strong base to build on going forward. In Direct Energy Residential, operating profit increased 23% to GBP 111 million, also driven by the lack of polar vortex-related costs, but also increased electricity volumes per customer as the business shifted its focus to targeting higher-value households. Direct Energy Services reported a GBP 34 million loss compared to a GBP 4 million like-for-like operating profit in 2014 after adjusting for the contribution of the disposed Ontario Home Services business.
This reflects accelerated investment in our solar installation capacity, a new line of business in the bundled energy and services offering that Direct Energy is building. The number of contract relationships continued to grow, up 12% year-on-year, as customers reacted positively to the new protection plan and warranty products. Turning now to Centrica Energy Gas. Operating profit fell 73% to GBP 153 million, reflecting sharp falls in the average realized price for both gas and oil across all regions of the business. As announced at this time last year, the E&P business moved quickly to reduce cash costs, which when combined with strong working capital management and lower capital expenditure, meant that the business was net cash flow positive in the year.
Operationally, overall E&P production fell 1% to 78.6 million barrels of oil equivalent, with a 3% reduction in gas production, mostly offset by a 7% increase in liquids production. In Europe, production declined by 1%, with strong output from our Norwegian assets, including a first contribution from the large-scale Valemon project in the North Sea, which mostly offset the impact of the natural decline in our U.K. fields. In the Americas, total production fell 2%, with the benefit of new wells in Canada largely offsetting the natural decline in the portfolio. As mentioned, cost focus was a key priority. Total lifting and other cash production costs were down 7%, reflecting numerous initiatives across all aspects of the cost base.
European lifting and other cash production costs were down 6%, while costs in the Americas reduced by 13%, in part reflecting reduced Canadian royalties as a result of lower North American gas prices. Unit depreciation was down 9%, predominantly reflecting the impairments we recognized at the end of 2014. In Power, operating profit increased 40% to GBP 102 million. Gas-fired generation volumes were down 37% year-on-year, and the thermal business once again reported an operating loss reflecting low market spreads and low utilization rates. Nuclear profit was up 14%, with higher volumes reflecting improved reliability from the fleet and cost management, more than offsetting the impact of lower achieved power prices. Wind profitability increased to GBP 29 million without the one-off project development write-downs that impacted 2014, while midstream profit declined in comparison to a strong performance in the prior year.
Finally, to storage, where seasonal spreads fell to historically low levels in the second half of the year, which you can see in the bottom right-hand side of the chart in the blue. However, operating profit increased in 2015 with a sale of cushion gas more than offsetting the negative impact of reduced capacity following the limitation of the maximum operating pressure of the Rough asset. Improving the operating efficiency of the group is a critical element of the strategy announced in July. While we saw improvement in the second half of the year, full-year operating costs were 5% higher than the previous year. Even allowing for adjustments related to depreciation, one-off items, and investment in growth, like-for-like operating costs still increased, albeit by only 1%. With our GBP 750 million cost efficiency program now underpinned, we expect like-for-like operating costs to fall this year compared to 2015.
With respect to net investment, organic capital expenditure of just under GBP 1 billion, was GBP 500 million, or 34% lower than in 2014. Reflecting the actions we took at the start of 2015 in response to the fall in commodity price environment, E&P capital expenditure was down 30% to GBP 728 million, and included spend on the Cygnus gas field, which is expected to achieve first gas in the second quarter. We also reduced capital expenditure in British Gas by nearly 40%, as the large-scale systems projects in BGS and BGB concluded. The 2015 acquisitions of AlertMe and Panoramic Power totaled GBP 79 million, while disposal proceeds were realized on our debt financing of the Lincs Wind Farm.
The lower level of organic investment and acquisitions meant that despite the higher level of disposal proceeds in 2014 related to the sale of the Texas power stations and the Ontario Home Services business, overall net investment was only slightly higher at GBP 855 million. Moving on to cash flow, 2015 saw a net cash inflow of GBP 597 million, compared to a net cash outflow in 2014 of GBP 255 million. EBITDA fell 14% to GBP 2.4 billion, primarily driven by the impact of falling commodity prices on the E&P business. However, this impact was more than offset by a combination of lower cash taxes, reflecting E&P's significantly lower profits, an increase in the dividends received from our nuclear investment, and the net result of changes in working capital and other items. As a result, adjusted operating cash flow rose 2% to GBP 2.25 billion.
As previously discussed, net investment was broadly flat year-over-year, the absence of a share repurchase program and lower cash dividends reflecting the rebasing of the dividend announced last February, and the impact of the scrip alternative resulted in GBP 852 million of additional net cash flow compared to 2014. Taking into account non-cash movements, group net debt fell by 9% to GBP 4.7 billion. This excludes a margin cash posted balance of GBP 535 million, which was GBP 240 million lower than at the start of the year, resulting in an overall reduction in net debt and margin cash of GBP 690 million or 12%. Although not visible in the numbers, during the first half of 2015, we concluded the issuance of EUR 750 million and GBP 450 million of hybrid securities, helping underpin the group's credit rating and increasing the group's liquidity.
As we have said previously, we believe that it is appropriate to target strong investment-grade credit ratings with Moody's and S&P. However, the group can operate at a lower rating. While we expect our 2015 retained cash flow to net debt metric to be in line with Moody's minimum Baa1 threshold of 25%, as you may have seen, Moody's has placed Centrica on review for downgrade as part of a wider review of the European unregulated utility sector as a result of the recent declines in commodity prices. Moody's has stated they expect to conclude their review within 90 days, and we will be engaging with them over this period. In July, I set out the financial framework we will use to set the boundary conditions and evaluate our financial progress towards achieving the group strategy.
The framework will use 2015 as the baseline for comparison purposes going forward and provide a set of financial parameters that the group will operate under, linking cash flow generation and reinvestment in the business with the desired outputs of a progressive dividend and a strong investment-grade credit rating. Only in the most extreme scenarios, such as a further sustained downwards move in commodity prices, would we expect to need to move away from the financial framework parameters. We also mentioned in July that we would publish rules of thumb with respect to the profit after-tax impact of changes in commodity prices. We have now published these on our website, and they are included at the back of the presentation, and we believe these will prove helpful in understanding the financial impact of our asset businesses of changes in prices. Let me summarize before handing back to Iain.
We delivered a resilient financial performance in 2015 against the backdrop of a challenging environment. The customer-facing businesses turned in a strong improvement year-over-year, with operating profit up 19%, despite the system migration issues experienced in BGB, although not completely offsetting lower profitability from the E&P business from the fall in commodity prices. As a result, earnings fell 4% to GBP 0.172 per share. The lower commodity price environment also meant that our E&P and power generation assets were impaired, with write-downs totaling GBP 1.8 billion after tax. Operating cash flow increased 2% to GBP 2.25 billion. When combined with the additional actions we took in 2015 to balance the group sources and uses of cash, net debt fell to just over GBP 4.7 billion. Looking forward to 2016, E&P and central power generation earnings and cash flow will continue to be impacted by the low commodity prices.
With our focus on cash flow growth and cost efficiency, we expect to deliver operating cash flow in excess of GBP 2 billion, subject, of course, to the usual variables of weather and commodity prices. With that, I will hand back to Iain.
You did take the water. Right. Thank you very much, Jeff Bell. I'd now like to talk in more detail about the themes I covered earlier, and in particular, how we'll fare in a low commodity price environment. Firstly, I'll remind us of the fall in commodity prices since our prelims a year ago. I want to spend much of the remaining time on the group in a low commodity price environment. I'll touch on the implications for E&P and central power generation, our sources and uses of cash flow, the role of our efficiency program, and what this all means for our ability to grow operating cash flow. Our ability to balance sources and uses of cash, and our ability to grow operating cash flow in this environment, are the key determinants of how secure the dividend is in our ability to deliver a progressive dividend over time.
We're very committed to the dividend and to our ability to grow it over time in line with our confidence in cash flow growth. Having outlined the financial picture, I'll briefly cover our recent organizational changes and how that positions us to deliver our efficiency program and growth objectives. Finally, I'll update you on the progress we've made in implementing our strategy in some of our growth areas. Starting with commodity prices. These graphs show how the commodity curves for oil, gas, and power have fallen over the last year. These falls have been significant. Oil's fallen from about $60 a barrel to $35 a barrel, NBP gas from about GBP 0.50 a therm to GBP 0.33 a therm, and power prices from about GBP 45 per megawatt hour to GBP 34 per megawatt hour. Centrica is, of course, exposed to such price falls.
As our robust 2015 results have shown, the impact is limited to the upstream parts of the group. The key questions in this environment must be: How will Centrica fare? Is the dividend secure? Can Centrica deliver growth and returns? This next section deals with Centrica in a low commodity price environment. After oil and gas prices began falling, a year ago, we took the very difficult decision to rebase the dividend with a cut of 30%. The degree of dividend cut was designed to allow the group to be free cash flow positive, and also to provide, as a result, a cushion against adverse circumstances, including further falls in commodity prices, allowing us to balance sources and uses of cash in an even more challenging environment. This has proved to be the right decision.
We've remodeled the group for a flat real $35 per barrel Brent oil, GBP 0.35 per therm NBP gas, and GBP 35 per megawatt hour U.K. Power commodity price environment. I'll refer to this in this presentation as the $35 environment. We've assumed reduced capital expenditure with a major impact on E&P as we respond to lower oil and gas prices. We've improved our focus on cash flow delivery and are pursuing our major efficiency program, which we laid out in July. As a result of these actions, in the $35 environment, the headlines are that firstly, sources and uses of cash flow are at least balanced for the next three years. This is before any major divestment proceeds from portfolio restructuring of E&P and the Power portfolio.
Secondly, we expect 2016 adjusted operating cash flow to exceed £2 billion, providing ample ability to fund capital, pay the dividend, and our other obligations. Finally, we're confident of delivering at least the targeted 3%-5% per annum operating cash flow growth out to 2020 from a lower 2015 base. In fact, with 2015 rebased to this environment, we estimate that our operating cash flow growth rate would actually be slightly higher. Let me take you through that. This slide shows 2015 operating cash flow rebased to the $35 environment. In addition to the price effect, if we also exclude the actual benefits from hedging we saw last year, then operating cash flows fall by £600 million to £1.7 billion. When combined with disposal proceeds last year, even at this level, it would've been sufficient to cover commitments of £1.9 billion.
Those commitments include CapEx in E&P, which was above our target range. This demonstrates the group would've been at least free cash flow neutral in 2015, even if prices had fallen to current levels for the whole year, and without the transient benefit from hedging, and before reducing E&P CapEx to our target range of GBP 400 million-GBP 600 million per annum. As we move forward in a $35 environment, clearly the additional benefit of hedges will roll off, we'll also be able to respond in terms of costs and capital investment, once again allowing the group to more than balance sources and uses of cash. I'll show you the multi-year picture in a moment. Turning to the necessary response in E&P to a $35 environment.
We clarified the financial role of E&P in the Centrica portfolio in July, over the commodity cycle, to provide diversity of cash flows and balance sheet strength. We concluded that we have more exposure to E&P than is needed to fulfill this role, we announced that we would move towards a stable E&P business that produces between 40 million-50 million barrels of oil equivalent, and requires between GBP 400 million and GBP 600 million of capital expenditure a year. Our E&P activity will be focused in the U.K., Netherlands, and Norway. We're developing a plan with our partner, Qatar Petroleum, to exit Canada at an appropriate time. It only makes sense for us to continue to invest in E&P if the group's cash flows can support the investment, our new projects are of high quality and add value at a range of price environments.
If current prices were to be maintained, we're likely to make further cuts in our capital expenditure. In 2016, we therefore expect to spend around GBP 500 million on CapEx in E&P, a reduction versus 2015 of more than GBP 225 million, significantly below the 2013 and 2014 levels of GBP 1.1 billion per annum. The 2016 CapEx largely reflects expenditure on existing projects such as Cygnus and Maria, and a core level of maintenance expenditure. Beyond 2016, we would reduce capital still further to the bottom end of our target range of GBP 400 million-GBP 600 million per annum if the low price environment continues. We'll also be pursuing further operating cost reductions in 2016. We now expect cash production costs to be 15%, or GBP 150 million lower in 2016 compared to 2014, GBP 50 million lower than the levels previously announced.
Finally, as I outlined at the beginning, we'll consider all avenues to make E&P more robust in this environment, including sharing infrastructure and scale economies with other market participants. We're targeting making E&P broadly free cash flow neutral for the group in this $35 environment in the 2016 to 2018 period. We've also been responding to the current environment in power. As we announced back in July, we're moving towards a more focused central power generation business. We'll have less emphasis on large central thermal power generation, preferring to seek opportunities in peaking units and distributed generation offerings linked to serving our B2B customers. On our gas-fired fleet, we're in the process of rationalizing our portfolio with a view to simplification and cost reduction while retaining low-cost optionality.
Humber and Langage remain core assets alongside Brigg, which is now operating as a distributed energy asset, and Peterborough, where we have the potential to make a similar conversion. Killingholme will close next month once its supplemental balancing reserve contract ends, while Barry will only continue to operate if profitability can be secured in short-term flexibility markets. We do also retain optionality to rebuild the King's Lynn A gas-fired station, which is currently mothballed, and also to build a new power station on an adjacent site, King's Lynn B. Any future investments in central power generation are likely to be dependent on the evolution of the U.K. capacity market. In nuclear, we announced in July that we would consider the portfolio role to be financial in nature. In delivering this, our focus with our partner, EDF, will be on excellent operations and cost efficiency. We've made progress on both during 2015.
Output from the fleet was the highest for 10 years, while earlier this week, EDF announced life extensions for four of the nuclear power stations. We also announced in July that we intended to exit our positions in wind power generation. The disposal of our 50% interest in the GLID group of wind farms for net proceeds of GBP 115 million leaves us with Lincs as our only remaining wind generation asset, which we intend to exit by the end of 2017. We'll continue to purchase wind power from other market participants. That covers what we're doing to reposition both E&P and central power generation, the businesses most impacted by these low commodity prices. I'll now turn to the group cost efficiency program.
As we said back in July, our cost base and the efficiency with which we go to market is a major opportunity. We announced a GBP 750 million per annum efficiency program by 2020, focused on operating costs and controllable cost of goods to be delivered without compromising improvement plans to safety and compliance and customer service. We remain on track to achieve this target. This will allow us to more than offset the impact of inflation over the five-year period. By 2020, we expect to see like-for-like controllable costs GBP 300 million lower than in 2015. It also creates the space to invest additional operating resources into our growth areas, estimated by 2020 at around GBP 200 million per annum in services, connected home, distributed energy and power, Energy marketing and trading, (Still report) nominal operating costs in 2020 at a lower level than in 2015.
We've made material progress towards this cost-efficiency target. Our plans across the group are in place and underpin this objective. We've already made a number of restructuring announcements across the group, focused on simplifying our business structure, and to date have announced a reduction of over 2,000 roles, including 700 third-party resource. We plan to have reduced direct headcount by 3,000 roles by the end of 2016, halfway towards our expectation of 6,000 as a result of the efficiency program. Reflecting this and some third-party cost savings we're already achieving, we expect to deliver GBP 200 million of pre-tax savings in 2016 and are on track to deliver two-thirds of the GBP 750 million annual savings by the end of 2018. As this slide shows, in 2016, we will therefore be able to more than offset the impact of inflation.
When combined with our interventions on CapEx and E&P and a continued focus on working capital efficiency, this allows the group to more than balance cash flows in this environment while planning to deliver progressive dividend growth. Let me now put this all together and show you our cash flow projections in a low commodity price environment. This chart shows our sources and uses of cash in a $35 environment. A positive hedging effect is in place in 2016, but to a very limited degree thereafter. What you can see is that organic sources and uses of cash are at least balanced in this environment. The dark blue bars represent adjusted operating cash flow.
In addition to organic operating cash flows, we've indicated the GLID wind farm divestment into 2016 cash flow and assumed the divestments necessary to reach the minimum of our announced GBP 0.5 billion-GBP 1 billion range, or an additional GBP 385 million, are achieved in 2017. That's the light blue bars. We're presuming further reductions in CapEx to GBP 850 million per annum if this environment persists, mainly by taking E&P CapEx to the bottom of our planned range. Clearly, there's also flexibility beyond that level, should prices worsen significantly. In 2016, in addition to the hedge benefit, the operating cash flow bar includes a one-off release of working capital, as levels in British Gas Business built as a result of the IT system response roll-off. All of this means that for 2016, we continue to expect to be able to reduce debt levels, even in a $35 environment.
In 2017 and 2018, with the further cuts in CapEx if this environment persists and the benefits from our cost efficiency program and underlying growth, we are still able to more than balance our sources and uses of cash flow even once we lose the benefit of forward hedging. We've also stress-tested the group in an even lower environment and are confident we have the ability to approximately balance cash flows, even at $25 per barrel Brent, GBP 0.25 per therm NBP gas, and GBP 25 per megawatt hour U.K. power prices. This would require further reductions in CapEx. In summary, the actions we've taken to date and are continuing to take mean that we're able to cover our interest, capital, and dividend commitments from existing cash flow, even at current low prices, a strong position for the group to be in.
We have built our growth strategy around operating cash flow and have firmly indicated our intent to tie our progressive dividend to our ability to grow underlying operating cash flow in a flat commodity price environment. In July, we showed you this picture in a very different flat commodity price environment: $70 per barrel Brent and GBP 0.50 a therm NBP gas. This chart shows the resultant group operating cash flow growth from 2015-2020 in both the conditions we modeled for you at the time of the group's strategic review last year, and also in a GBP 35 environment, with 2015 rebased to those conditions and excluding any hedge benefits. Under the conditions of the group's strategic review, we can grow adjusted operating cash flow on average at 3%-5% per annum out to 2020, as we said last year.
If we rebase 2015 and our expectations of 2020 to a continuing GBP 35 environment all the way out to 2020, we would still be able to grow operating cash flow, and at a slightly enhanced rate relative to our goal of 3%-5% per annum from this lower base. When combined with our ability to more than balance cash flows, this should give you confidence in the investment proposition for a range of environments. To summarize this important section on Centrica in a low commodity price environment, the group's sources and uses of cash flow are more than balanced at today's prices and with today's level of dividend. When combined with our divestment program, we would expect to continue to pay down debt in both 2016 and 2017.
With the prospect of underlying operating cash flow growth from our cost efficiency program and our focus areas for growth, we are confident in delivering of at least 3%-5% operating cash flow growth per annum from today's base, underpinning a progressive dividend policy. In a moment, I would like to then move on to some of the strategic progress we have made since the announcement of the conclusions of our strategic review in July. Before that, let me briefly comment on the ongoing Competition and Markets Authority investigation into the functioning of the U.K. energy market. The CMA is expected to publish their provisional decision on remedies next month, with the final report due in June. Throughout, we have welcomed the review of the market and worked hard to contribute to the process.
Ensuring customers have faith in the proper functioning of the energy market is something that all market participants should welcome. We believe the CMA has a unique opportunity to encourage innovation in the market. Moving to a principles-based regulatory regime and rolling back aspects of the retail market's review that have restricted innovation and aspects of competition will be critical next steps in this regard. We have also been clear that we have concerns over some of the provisional findings, most notably over the need for potential introduction of a safeguard regulated tariff, and we have concerns regarding their analysis of profitability and returns. However, evidence of our desire to contribute has been our suggestion to end evergreen tariffs to increase customer engagement. We will welcome changes which support the development of an even more competitive energy market. We believe Centrica is well-placed to compete in the future.
Innovating for customers, increasing product choice and relevance, and ensuring prices are competitive are all central to our strategy. We will, of course, continue to engage with the CMA as their process comes to a conclusion over the coming months. I'd now like to turn to progress we've made in restructuring the group to deliver the strategy. Part of the targeted efficiency savings are enabled by a major shift in the way that Centrica is organized. Until now, Centrica has operated as a holding company for a number of different and largely self-contained companies. Each of these companies had its own organization and way of doing things. However, this model created silos, making it harder for us to work together across the businesses and more difficult to be efficient and share best practice or new ideas.
It also meant that we were not taking advantage of the international scale of Centrica. We're therefore now moving from a holding company of companies, if you like, to a single joined-up group. We'll make Centrica greater than the sum of its parts. Our business units will continue to be the core building blocks of our organization. We'll have 11 business units in total, represented on this slide in dark blue. The home and business BUs in each of North America and U.K. will be supported by the common operating functions of field operations and customer operations. These functions are where we touch the customer and are fundamental to our success. They'll also act as a route to market for our new connected home and distributed energy and power businesses, ensuring that we maintain a coherent face to the customer.
EMP, Nuclear, and Centrica Storage will be operated as individual business units. All our business units will be supported by center-led group functions to enable access to international scale efficiency. This new organization structure will make us more efficient, enable us to serve our customers better, and make Centrica more scalable. To reflect the new organization structure, we've also changed our reporting segments. These are shown on the left-hand side of the slide, and essentially represent the BUs I've just described. The only exception is that all of Central Power Generation will be reported as a segment comprising nuclear, large central thermal generation, and wind for as long as we have it. We've also defined a new suite of key performance indicators we will use and report against to allow us and you to track our success. This slide shows a summary of the group-level KPIs.
We'll also be showing additional KPIs for the individual segments. All of this can be found in the results announcement from this morning. We'll continue to report performance and safety. The KPIs for our energy and services businesses are consistent across geographies, in line with the establishment of a common operating model, while the KPIs for all business units are intended to provide an appropriate balance of growth and efficiency metrics. We'll report these KPIs and against these segments for the first time at our interim results in July. I'd now like to cover some of the progress we've made in developing our main focus areas for growth before summarizing energy supply and services, the connected home, distributed energy and power, and energy marketing and trading.
The two growth nodes of energy supply and services, of course, remain key contributors to group cash flow, and we are making good progress in improving our businesses in the U.K., Ireland, and North America. As Jeff outlined, in 2015, we saw a 19% increase in operating profit. We have dedicated additional resources to customer service, and we are seeing the results in terms of improving Net Promoter Scores, particularly in services in the U.K. Our energy pricing stance has been very proactive, and in the U.K., we have now reduced gas prices three times since the beginning of 2015. As a result, the number of energy customer accounts fell by less than 1% in a highly competitive market.
Finally, being the leader on smart meter rollout in the U.K. is also giving us the potential to provide more helpful insight into energy use while reducing the number of calls we have to deal with related to estimated bills, a major simplification and advantage of smart meters. We continue to develop energy services promotions, propositions, sorry, targeted at new segments, which we plan to launch during 2016. The number of energy customers who are taking new My Energy Report products from us is increasing, and the feedback is very good. This is changing the nature of the relationship and giving customers what they want and find useful in addition to commodity energy supply. In North America, we saw an improved customer mix, acquiring higher consuming customers and selling more bundled energy services and connected home propositions.
Improving the value of customers and growing market share remain key areas of focus in 2016. Turning to the connected home, we continue to build on our high-quality capability. We have now sold over 300,000 smart thermostats in the U.K. and nearly 200,000 in North America. We are utilizing our end-to-end capability in operating platform design and operation, hardware and software development, data analytics, installation, and maintenance to develop new products. We recently launched three new products under the Hive range in the U.K., the Active Plug, window and door sensors, and the Hive Motion Sensor. We expect to launch Active Lights later this year and are currently trialing our innovative connected boiler with 300 customers. Our Hive products are all powered by the same hub and controlled by the same app. As soon as you have got one Hive product, you can easily add others.
Later this year, we plan to launch something called Rules and Recipes, linking all of our Hive products together, creating the ability for a powerful combination of customer actions. For example, you could set a recipe when you go on holiday to put your heating in frost protection mode, turn your lamp on a random schedule, and activate your motion sensors. We have launched Hive in Ireland and are also developing plans to launch Hive products into other geographies, such as into North America, where we can leverage our strong existing positions in energy supply and services. We increased our capability this year in the field of data analytics. We already have 3 million customers with access to our analytics and insight products in the U.K. and North America and are targeting an increase to 5 million by the end of 2016.
We have a good starting position in the connected home and believe it could become a material part of the group by 2020. Distributed energy and power is a market into which we're expanding. As a reminder, this is for the business consumer, sorry, business customer, and is focused around five offerings: energy efficiency, flexible generation, integrating new technology offerings such as battery storage, energy management systems and virtual power plant, or VPP, and optimization. This activity is being focused at commercial and industrial customers, many of whom are seeking ways to drive energy efficiency and save costs but may not have the internal capability or capital capacity. We have a strong starting position with many of the relevant skills already residing in the group. These have been brought together with the establishment of our new distributed energy and power business unit.
We already have over 1,100 customers across 4,500 sites, mainly in the U.K. and the U.S., though with the acquisition of Panoramic Power, this has now extended to more than 30 countries and added new technology and insight into our offering. Our customers include the NHS and Heathrow Airport in the U.K. and Johns Hopkins Hospital and University in the U.S. In North America, we have 450 megawatts of demand-side response assets and 20 megawatts of solar projects in partnership with SolarCity. In the U.K., our virtual power plant will allow us to remotely control and optimize a portfolio of customer assets, earning revenue and reducing costs for our customers. We expect to commence installation of new VPP assets on customer sites in the summer, ready for optimization next winter.
We continue to believe that distributed energy could become a very material growth node for Centrica, and over time, in geographies outside our core markets. Our fifth and final focus area for growth is in energy marketing and trading. As we said in July, we have good capability to pursue growth in LNG, marketing and risk management services for customers, and in trading and optimization of our portfolio, where we delivered a strong trading performance in the second half of 2015. In LNG, we completed a number of free onboard cargoes, including our first delivery to South America. That covers an update of the progress we've made in delivering our strategy in our growth areas, and how we're reorganizing to achieve it. Before summarizing, let me remind you what you can expect from Centrica this year. This slide shows our targets for 2016.
We expect adjusted operating cash flow to exceed GBP 2 billion in the current environment. Capital expenditure will be limited to below GBP 1 billion, including any small acquisitions of less than GBP 100 million. And within that, E&P CapEx is assumed to be around GBP 500 million. We will deliver GBP 200 million of cost efficiencies, and therefore see like-for-like direct operating costs below those of 2015 in nominal terms. As part of our simplification efforts, we would expect like-for-like headcount to fall by about 3,000 during the year. Now let me summarize. The group delivered resilient financial performance in 2015, with operating cash flow growth and good dividend cover from earnings. I've demonstrated that the group is robust in a low commodity price environment.
We project sources and uses of cash to more than balance with today's dividend level, even at current low commodity prices, and before divestment proceeds. We have stress-tested at even lower commodity price environments, of up to 30% worse than today. Although there would be regret costs, we would be able to balance sources and uses of cash flow out to 2018, even if we see this further degradation from today's environment. We're confident in delivering at least 3%-5% per annum underlying operating cash flow growth, as outlined last year, underpinning our progressive dividend policy. We've made good early progress against the strategic objectives set out in July, with our cost efficiency program on track, and good responsiveness in E&P and central power generation to the current environment.
We've delivered solid profit growth in energy supply and services, and important milestones in capability development in our connected home, distributed energy and power, and energy marketing and trading business units. Although the environment is challenging, we're making good progress in reshaping our business so that it's aligned with what our customers need. We're on track to deliver both returns and growth. Thank you for listening, and I'd now like to ask Mark, and Badar to join Jeff and me on stage to take your questions. Thank you very much. In responding to your questions, I'll, as we've done before, field the questions. It would be very helpful if you could identify yourself before asking the question, just your name and affiliation, and that helps us keep track of who's. Answer lots of questions. Okay. Well, we'll start over here, and we'll just work across. Please.
Hello, it's Mark Freshney from Credit Suisse. Just on the Moody's review for downgrade, my understanding is that Moody's gave you a courtesy call ahead that didn't give you the opportunity to respond. Given everything that you've announced today, do you think that's enough for Moody's to take you off the review for downgrade and to attain the Baa1 rating? If Moody's were to, for whatever reason, decide that that wasn't enough, perhaps because you're in the wrong industry, I don't know, and take you down to Baa2, would that require remedial measures from Centrica?
Let me just give a general response to our demeanor towards our rating. Then I'd like Jeff to just talk about the impact and what options are available if that were to occur. Our financial framework, as Jeff outlined earlier, clearly indicates a target of strong investment-grade, Baa1, BBB+. Moody's have put us on, and a number of other companies, on review for downgrade. We believe the business, as Jeff said, is very robust in these conditions, as we've outlined today. We'll be working with the agencies over the coming months. If we were downgraded, we've indicated previously, and in one-on-ones with you, that we could operate at BBB, Baa2, but it is below our target, and we would seek over time to restore our target rating. Jeff, the impact, the options
Yes.
How are we going to be working with the agencies over the coming months?
I think, Mark, to your early observation, it's early days in terms of Moody's having announced the review of the European unregulated utility industry. We haven't had a chance to engage with them as part of the process that will unfold over the next 90 days. Clearly, we will be doing that, as I said. In terms of the impact, the actual impact is primarily around our requirement to post additional collateral for decommissioning liabilities or within our trading and procurement activities. That is not significant or not of a great extent, moving from Baa1 to Baa2. However, as we've said previously, over time, that would start to impact our business model, particularly in terms of being able to, in North America, provide some of the longer-term fixed price contracts that are a function of that market.
As Iain has said, we do very much believe that Baa1 is the most financially efficient rating for us to be at, but we could absolutely live and operate at Baa2. As you'd expect, we have other levers. Iain's talked about those, capital expenditure, the timing and implementation of our cost efficiency program, and divestments. We'd be looking at all of those levers depending on the rating agency's view of our forecast and the commodity environment we're in.
Jeff, to Mark's question about, I know it's speculative, about how do we think the rating agencies will react to what we've just shown. Any views on that?
I think at this point I wouldn't want to speculate before we get into a discussion with them.
Mark, I think we believe this is a very strong story about the investor story, our ability to manage our own cash flows. Obviously we'll have to see how they feel about it.
Okay. Just a follow-up, where do you think RCF to debt will have landed for 2015? I know it's a complex calculation, how do you think it would have come out?
Jeff?
I think I said in my statement that we expect to be at or slightly above the minimum threshold for Moody's of 25% that they've set as part of their Baa1 threshold. It will be, as Moody's has undertaken, the sort of look-forward of those calculations in the lower commodity price environment we're in that I'm sure we'll be talking with them about.
Thank you.
Gus, I want to take two more here, I want to get some in the middle, then we'll come back.
That's great. Gus Hochschild from DECC. Just two very straightforward questions, if I may. With regard to the CCGT fleet, what was the average load factor? Somewhat surprised in the November trading statement when you guided us to over 75 barrels of oil per year, and indeed 78. Your timeframe for the 40-50 production range, is that for this year or 2017 or 2018?
I'll just touch on that last one then ask Mark Hanafin to comment on both the load factor and also how did we achieve such an over-performance versus our guidance in E&P. Look, first of all, we haven't given a timeframe quite deliberately because I think some of our shareholders would say rushing to sell E&P assets at $35 a barrel when we've got this strength of sources and uses of cash flow would probably be not particularly appreciated. Clearly, what we want to do is do everything we can to strengthen the business. We believe that through the right capital selection and the right optionality retention, we can create the right value for our shareholders.
I did mention the one specific thing, of course, we've kicked off, which is alignment with our Qatari partners on how would we exit Canada for value for our shareholders in the right way. We're not giving a timeline for the obvious reason I've described. Most people in the commodity market at the moment, it's clearly a buyer's market in lots of ways, but it's a very difficult market for people to want to sell assets. You wouldn't expect us to be rushing to do anything, actually. We are looking at lots of different ways we could strengthen it. Mark, on flow factors and how did we deliver such a good result in E&P?
Sorry, I thought the question was CCGTs.
It was CCGT flow factors, I think was what I heard, Gus.
The first question was on your average load factors of the CCGT fleet.
Oh, load factors.
Yeah.
Sorry.
Less than 20%.
Marginally better than the 15% for the first half. Was it 15, do you-
No, probably not. Sorry. Langage had a generator problem in the first half that was fixed. In terms of the overall performance, it was probably better, but very low load factors across the fleet.
Yeah. Thank you.
One more here, then we'll go to Ed in the middle.
McLaren from Merrill's. Good morning. I have three questions about the actual cash flow targets, please. First, if the implied hedging benefit for 2015 was around GBP 500 million, what is the equivalent number for 2016, and do these all roll off in 2017? Secondly, do your numbers assume that there is no negative effects from the energy market investigation on BGR? Thirdly, just to check, are you saying that if we take the rebased starting point of GBP 1.7 billion and increase it by, say, 5% each year to 2020, that you would merely make it back to 2025 reported levels? If we then take cash as a proxy for earnings, does that imply that earnings could be broadly flat over the next five years?
Can I touch on the last two and ask Jeff to address the cash flow question? Look, firstly, on your last question, Fraser, the graph was trying to help explain that we can maintain the growth trajectory at lots of different environments, and that we weren't locked on to planning at USD 70 a barrel or USD 35 a barrel, but the growth strategy is intact. Which means if we can pay for the dividend, and we can grow cash flow in a range of environments, the progressive dividend should also be underpinned. Your statement about going from GBP 1.7 plus 5% per annum and only just getting back to the reported level of 2015, if you look at the graph, and you imagined a world all the way out to 2020 at USD 35 a barrel, then it's conceivable that we would only deliver a flat profile of operating cash flow.
In that scenario, in a reported basis, obviously on an underlying basis, it would be growing quite strongly. In that scenario, there are sources and uses of cash flow would still pay for the dividend, would still demonstrate confidence in cash flow growth, and therefore, should still underpin a progressive dividend as well. Clearly, the nominal cash flow in any year is going to depend on lots of things. Don't take that graph, please, as a plan graph. We're not predicting that cash flow in 2020 will simply be what it was in 2015. We're just pointing out how the growth rates look at a range of different environments. On the CMA effects, I'll just comment briefly, we've assumed, as we indicated last year, some competitive degradation in our unit margins in British Gas Residential Energy, and we've not published the degree of that degradation.
Clearly, there are aspects, given that we're the largest market shareholder in the U.K., there are aspects of our starting point that are akin to running up a downward escalator, which is why Mark is spending so much time on pricing and offers and innovation. We think we've got the judgment about right, but we'll know in a month where the CMA are going to come out. Geoff, cash flows and hedge benefits.
I think we've talked previously at times about the fact that in our asset businesses, we have roughly a two-year hedging strategy that rolls in over a two-year period. What I'd say is that as you look to any particular year in terms of the hedge benefit rolling into that year, is to imagine that as we come into the year, for the beginning part of that year, we're largely hedged. At the end of the year, we're roughly half hedged, so it's maybe two-thirds. If you then take your view of commodity prices over the previous 18 months to two years, gives you some indication. The rules of thumb in the back can help in terms of using that sort of commodity price to get some estimation of roughly what the hedge would look like.
Thank you. Ed, then we'll take two or three here.
Eric Murray from Lazard. Three questions. The first one's on nuclear. There was quite an improvement in nuclear output in 2015. I think EDF have put out some numbers around 2016. Would you expect nuclear output to remain strong in 2016, obviously, given various variables, et cetera? Second question is on Nest in North America. Can you just remind us on your relationship there, and what might happen if you start selling Hive products in North America? The third question is on the impact on depreciation from the impairments. What kind of impact would that be? Thanks.
Thank you, Ed. We'll go in the order. Mark Hanafin on nuclear, Badar on Nest in North America, if Mark Hodges wants to add any comment from the Connected Home perspective, because Mark looks after the Connected Home broadly across the world, add that. Geoff on the impairment impact on depreciation. Mark.
Nuclear. 60.6 terawatt hours for the fleet for 2015. As Iain said in the presentation, a record over the last 10 years. That was despite the boiler spine problems at the four reactors at Heysham and Hartlepool. By the end of the quarter, this quarter, three of those four reactors will be back at 100% load, subject to other factors, but in terms of the boiler spine work. The one with the original crack in the boiler spine, Heysham One, reactor one, should be at the 75% load, so that's three-quarters of the boilers in the reactor. In the remainder of the year, work will be done with the regulator to see is there a way of increasing upwards from 75, but that will require a lot of additional work.
I would say, difficult to give numbers in terms of what it could be, but from a planning point of view, we would hope that it would be at or above last year's production.
Nest, Badar and Mark.
Let me take it first. We have an ongoing relationship with Nest in North America. We are continuing to have that relationship for some portion of 2016. We haven't landed when that relationship will change, where clearly it makes sense for us as a group to be thinking about joined-up capability with regard to insights for our customers, propositions for our customers, and to develop them for all of our markets and the Connected Home team that Mark oversees is delivering that for us. We are looking at our plans for expansion of all of our capabilities and particularly insight and analytics offers, where we can help our customers engage in their own individual energy consumption and help them to control their consumption in North America. It's an ongoing dialogue.
Just a quick build. We're obviously working on the technology stack in Connected Home to make sure it's operable in the U.S. market. That's a key focus so that it gives us choice and working with Badar, looking at which states in the U.S. where Direct Energy isn't present, that we have a clearer run in terms of the Hive brand.
Badar, do you want to say anything about the benefits of this data analytics? Just how are customers responding to it?
Yeah. We've launched a number of different offers in our markets in the U.S., where we've launched this past summer a tool that helps people understand their consumption by household appliance. We've introduced an offer where people can customize their energy and services in Connected Home bundle, which allows customers to choose from the contract length of energy, to the energy type, to energy efficiency programs, to services protection plan offers. That offer, since we launched, it has now become the second highest most chosen offer or program by our customers for digital and inbound sales. What we're seeing from all of that is what we were hoping to see, which is that we're attracting what we would consider higher value customers. There's a very large range of home size in North America, and we're attracting higher value customers as a result of that.
We're also seeing some fairly good evidence of higher levels of loyalty. That's very consistent with our strategy around differentiating our offer in a marketplace in the U.S., which is largely undifferentiated. We think we have a source of real competitive advantage, particularly when we put together our capabilities across the group.
Thanks, Badar. Ed, sorry.
I was just going to ask on Net Promoter Scores , if you can give us any metrics around customers with data analytics. Do they have better Net Promoter Scores or do they give you better Net Promoter Scores ?
Briefly, guys.
Yeah, in the U.K., whether it be Smart or whether it be Hive or whether it be the My Energy Report, wherever we are, I think having a broader relationship with the customer, we do see an improvement in Net Promoter Score . Anything in the range of 18-21 percentage points, so significant. As Badar said, that helps also, I think with churn and retention.
Very consistent. I think the point about Net Promoter Score is that you're likely to stay with your energy and supply and services provider, and the proof is whether loyalty's rising, and loyalty is rising.
That's good. Thank you. Thanks, Ed. The impairment impact?
The short answer is about GBP 0.01 per share. The slightly longer answer is, of course, that it's non-cash, so it doesn't affect operating cash flow. The second thing is that our impairments were a combination of write-down of asset values and impairments of goodwill, roughly two-thirds, one-third. There is an element of that impairment that, of course, won't have any impact from an earnings perspective.
Thank you. Two more questions in the middle here. I think there's one there and one at the back, we'll go over to the left-hand side, we'll sweep back.
Thanks. Martin Brough from Deutsche Bank. It's a couple of related questions. One is that following the write-downs, I think your book value of equity is now about GBP 0.24 a share. Doesn't it mean the return on capital metrics aren't really all that useful now, given that the capital employed is, on an equity basis, is so low? I guess related, the U.K. nuclear business, if you did a mark to market, it would be roughly free cash flow zero after CapEx. Obviously, hopefully power prices would increase, but if they do turn cash negative, would you participate in a capital increase in U.K. nuclear if that was required temporarily? If you decided to write off your stake in U.K. nuclear, I think that would take your book value of equity below zero, because I think it's GBP 0.32 book value for U.K. nuclear.
Would that constrain your ability to pay a dividend if there was a write-down of some of your upstream and that brought your overall group equity below zero?
Jeff, why don't you take both of these?
Two observations. The first, in terms of the return on capital employed metric, it's very fair, particularly in customer-facing businesses, which is clearly where the strategy is taking us. They tend to be more capital-light businesses, and why is over time, as we indicated in the strategy itself, we would expect over time our return on capital employed to move in a success case, well above the 10%-12% range we've articulated. It's why also there's a number of KPIs that we've indicated in the back that we're setting out that aren't capital employed related, because in those businesses, it's as much about efficiency, customer growth, profitability type measures. I think we will over time see that.
I wasn't going to comment on the value of the sort of nuclear example at all, more to say that we've clearly taken a level of impairment such that we believe the value we have on the books for all of our assets are appropriately, fairly valued and believe that value exists based on our view of the sort of discounted cash flows.
The actual ability to pay dividends is related to the distributable reserves we have within the group and within Centrica plc itself. We have sufficient distributable reserves to pay dividends there, and we run a process each year to make sure that we move distributable reserves up the chain of statutory entities we have to ensure that that continues to be the case going forward. It's not directly linked to our level of book equity.
The only other thing I'd add about the ROCE thing is that the financial framework is designed to be exactly that, a framework. The ROCE metric can be argued about. Some people prefer different return metrics, but it's a boundary around the framework. If we go below, as Jeff said earlier, if we go below any one of these metrics, obviously we'd be designing plans to restore ourselves to within the framework. I think you've heard a number of times from me and Jeff that our level of commitment to the dividend is extremely strong, and you would find us adjusting capital and doing all sorts of other things before we'd think about going anywhere near the dividend again. I don't think based on the cash flow projections, although you can never say never, it's very difficult to imagine a scenario where that's likely to happen.
That's how you should think about the ROCE as part of a financial frame. There's one at the back there, I'll come back in a Well, all right, we'll take four in the middle.
Hi, it's John Musk from Royal Bank of Canada. Going back to Hive firstly, given the positive net promoter scores and the retention benefits, are you looking at other ways of offering Hive out to customers, perhaps even offering smart thermostats free with energy tariffs, perhaps once we get through the CMA process? Secondly, specifically in a 35/35/35 world, how do you look at the value of the Cheniere long-term contract that you have? Just your current thinking around how that contract is going to pan out.
Mark Hodges first, and then Mark Hanafin on Cheniere.
Okay. Can I get to Hive just via the CMA because you raised that point specifically. Obviously, we're hoping the outcome will be pro-competitive. In a pro-competitive world, we have a very strong brand. We're working on our cost base so that we can leverage scale. You come to something like Hive, but I would also throw Smart into the mix where we are innovating, and we think we're leading the market in terms of innovation. Do we see a world where we can start to, I think, utilize those innovations, utilize the investments we've made in a broader way post CMA? The answer would be yes, hopefully, so that we can capitalize on the strength we've created.
In terms of pricing models for Connected Home, this is both in North America and in the U.K. and Ireland, there are a number of different ways we can create value. We can reduce churn, as we've already talked about. That's a useful way of creating value. We can make margin on the sales of the devices, of the Hero products. We have the thermostat out there today, as Iain referenced. We'll have another Hero product in terms of a connected boiler in a few months' time. Those products can make margins. It's really this integrating of the devices, the Hero products, the hub, through to data analytics and trying to figure out a way to monetize that in terms of a revenue stream that we see as the real prize. We don't have an answer for that now.
There isn't an answer out there in the market. That's something we're working on. We think we'll get there through testing and learning different types of opportunities. That's a key focus for the team every day right now.
Can I just add, just as a point of evidence? In North America, 46% of new customers that are attracted to our company, at the residential level, have chosen a bundled energy and services protection plan or Connected Home offer. That's up from 11%. I think the point is when you develop innovation and propositions to appeal to customers in ways that they don't yet have, we can find very good response rates. Particularly in North America, where the market is really very undifferentiated, we have a real source of advantage. Being able to bring that kind of innovation and that kind of thinking to the U.K. would be outstanding.
Just a small data point. With the 300,000 Hive thermostats we've sold to date, around 11% of those customers have gone on to buy another British Gas product. Remembering it's not just energy, there's also the very valuable services area as well. I think we see opportunity, but obviously the challenge for us is to create more value from that.
Mark, on Cheniere.
Cheniere. The main driver to watch, of course, on the Cheniere contract is not the absolute 35/35 world, it's the spreads, it's the differentials. If we look forward to the first full year, 2020, maybe let's say a $4 Henry Hub world, you need about $5 to liquefy, to ship, and to regasify to Northwest Europe. You'd be looking at $9 per MMBtu in Europe, GBP 0.50 per therm. In 2020, it depends on your view of those spreads at that time. My view is that LNG will be oversupplied in that period. The spreads will be reasonably flat. We may have some losses in the first year or two of that contract. I think when you look into the 2020s Clearly, all the liquefaction projects that are not under construction at the moment have been pushed back. They're not getting built.
I see the market going back into a tighter situation, spreads opening up. Remember, this is a 20-year contract. I'm quite positive about that. I've only given one example of a simple movement from North America to the U.K. This is a FOB contract. We have worldwide options. We have options to market gas on Henry Hub. We have options to market it on percentage of Brent all around the world. The second aspect of it that I would mention is, the other way to think about this contract is, where is the liquefaction project at these commercial terms in the merit order globally? One of the things that I take comfort from is it is extremely well-placed when you look at future liquefaction projects around the world. It's very competitive.
The final point is that although spreads at the moment, because of the oversupply of gas in the world, are squeezed, that's given us an opportunity to really start building our capability. We've built a very strong LNG team. That team is buying and selling cargoes around the world. That would've been difficult to do 2 or 3 years ago when spreads were very wide. We're building that capability in this oversupplied period. We have a 20-year contract that I think is very valuable.
Thank you, Mark. I just want to make one other comment on the questions around Connected Home and Distributed Energy and Power, which is simply to your question about, are you going to market all these products to your energy customers? The answer is, of course, yes, as Mark and Badar Khan have talked about. We also have the opportunity to market these products to customers we don't have in geographies we don't have. That makes the business units that we're building here much more translatable into new value pools as we face customers in other geographies, potentially. As you've seen with the acquisition of Panoramic Power, we've suddenly found ourselves with a customer base in lots of countries, and the potential to expand as well in that. There's one more question in the middle, and then I'm going to check on the left-hand side.
Hi, it's Jenny Ping from Citi. Just two questions. First of all, on your use of cash flow that you have in your presentation, what sort of assumption do you make on scrip dividend? Secondly, in terms of the GBP 750 cost-cutting plan, would you be able to put that into context in terms of retail business in terms of cost to serve, whether you've given out a target or a range of what the most efficient company would be?
On the second part, one of the KPIs that you'll see in the back of the announcement today, that you'll hear more about in the summer, relates to cost to serve. I'd like to leave that part of your presentation until we give the disaggregated picture of the group in the new segmentation with the new KPIs, I think we'll be able to have the right conversation about that at that time. In terms of the scrip, Jeff, what are your plans?
We had quite an atypically high scrip take-up originally back in May, but the interim dividend in November of 2015, which was just under a 20% take-up, we consider to be probably more normal, and therefore in our projections of operating cash flow and overall Sorry, in our projections of net cash flow, we've assumed something similar to that.
Right. Over this side, we've got Lakis and I've forgotten your name. I'm sorry. Lakis.
Lakis Athanasiou, Agency Partners. Three very quick questions. One on the write-downs below book value. How is that impacting the headroom for your hybrid equity component? Secondly, on the working capital. You show the working capital move up in calculating the adjusted operating cash flow despite the issues at BGB. Could you give a flavor of how you expect that to evolve going forward in a rising price and a falling price environment? Thirdly, nuclear depreciation. Could we please have a number for that? Because it's going all over the shop, and we have no idea what it is, even looking at the EDF segmental accounts.
Jeff, these all sound like good ones for you.
With respect to the hybrid bonds, we think we're within the appropriate parameters still. I'm happy to take that one offline in more detail if you'd like. From a working capital perspective, the business itself, primarily because of weather in any particular year, we could see working capital moving around by anything up to probably GBP 200 million would not be uncommon or would be quite normal. Within those sort of boundary conditions, only sort of outside that would we be looking to flag up working capital movements as outside the norm. You're absolutely right. Within 2015, while we had working capital degradation in BGB, we actually had very strong working capital management, particularly with Direct Energy, and also to an extent within British Gas Residential Energy.
As I said earlier, we would expect the higher working capital levels that we had within BGB at the end of 2015 to largely have worked off through the course of 2016.
How they evolve in a rising and a falling price environment, other things being equal?
Yeah. All else being equal, in a falling commodity price environment, you would expect to see slightly less working capital because of that.
Still positive?
Yeah. Absolutely.
Pretty much your adjusted operating cash flow projections are underpinned by other things being equal, i.e., weather, flat to positive working capital movement.
That would certainly be true of 2016. Beyond that, we would expect it to be broadly normalized around zero, in a sense.
Around zero.
Okay.
Depreciation?
Yes. Sorry. In terms of depreciation, the 2015 fair value depreciation.
No, no. I want the total depreciation.
You'll have to give me a minute for that number.
While you're thinking about that, and maybe we'll take it up with Lakis offline if you can't. Lakis, what you just pushed on, I just wanted to use it, if I may, just to illuminate something. We've not given earnings per share guidance for 2016. I suspect that hasn't passed you by. Let me just try and use the cash flow conversation, however, and Jeff's disclosure just now to try and give you some help with that. Our operating cash flow guidance for this year, we said over GBP 2 billion. For 2015, we delivered GBP 2.25 billion, and we didn't indicate that there was a particularly abnormal working capital movement. Jeff just said anything up to GBP 200 million is pretty normal, so you can assume that the working capital component from 2015 is less than GBP 200 million.
Our underlying operating cash flow in 2015 is a bit above GBP 200 million, for argument's sake. You then say, well, we've just announced over GBP 2 billion operating cash flow for 2016, but we haven't given a working capital number in that. If you recognize that the BGB number, which we're not giving, is normal or normal-ish, but it could be hundreds of millions, not tens, which I think is the important point. It could be the GBP 200 million or whatever type number again. We've not specified it as an abnormal item. If for judgment's sake, let's go to the top end of Jeff's range, and then you recognize that there's some efficiency that we're driving in to the business, which is going to improve the underlying.
You could argue that the operating cash flow this year on an underlying basis is basically around flat to slightly below 2015's operating cash flow. That translates into, look, the consensus view of earnings for this year is below 2015, but it's in quite a range. Obviously, I've given you a description of an imputed EBITDA way of thinking about things. There's lots of other moving parts in all this, but we would therefore, on balance, agree that earnings below 2015, in line with consensus, is probably a sensible place to be, at or below, but it's too early to give any specific guidance on it. At the end of the day, operating cash flow comes from EBITDA, so does earnings, and just giving you a way to think about it, but we're not giving earnings per share guidance at this time.
Elchin Mammadov from Bloomberg Intelligence. I have three questions. First one on the margins. Apart from your BGB business, there was a very strong performance in both North America and the U.K. How do you expect your supply margins to develop this year versus 2015? Is it going to be driven by market share or costs or changes in demand? Second question on life extensions, like EDF announced a 5-year extension to 4 units. What does it do to your CapEx and cash positions going forward? The third one about the U.K. market in generation. We've seen some reports that some generators consider shutting down plants that were granted capacity payments if current low price environment persists. Do you see this happening, and if so, at what scale? Thank you.
Can we make these quite brief? Mark and Badar on supply margins, given we don't actually publish them, how do you want to characterize the drivers? Mark Hanafin, the last two on life extensions and U.K. generation.
Shall I start in the U.K. in terms of supply margins, just the characterization as you describe it, Ian? We're taking a price leadership position around the standard variable tariff. You've seen that we've reduced three times in just over the last year. That's had a positive impact on customer numbers. We think that's something that we can continue. Obviously, the CMA review is the big issue on the horizon, not too far away now, and that will, I think, set us up for a more longer-term competition. Right now, price leadership, reducing churn, maintaining customer numbers, or certainly fighting hard for those customer numbers, improving service. You'll see that there are, in the pack, quotes around reducing complaints, improving NPS, that all helps with customer numbers as well.
It's really all of those forces are going into our U.K. energy supply market and making sure we're competing hard.
Yeah. I think your question was on the B2B, on the margins for businesses in particular. We've been saying for a couple of years now that since the polar vortex that hurt us and many others in the marketplace allowed our customers and the market to realize that we weren't pricing the risks that we manage on behalf of our customers around price and volume variability. We have been developing, consistent with our strategy, deeper relationships with our customers, both homes and businesses, while at the same time repricing that risk more properly. What we're seeing in 2015's results is the effect of that repricing of risk to what we consider more normal levels.
So on-
I'm sorry, with strong loyalty, with no impact on the loyalty of our customers. I think that's partly because of the level of differentiation and innovation in our offering. Sorry, Mark.
On life extensions, there's really no impact on our cash flow. If you look at previous statements, there was an expectation of an average of 80 years of life extensions across the AGR fleet. All that's happened is that the specifics of which plant that applies to has been revealed. It's been part of our assumptions, it's been part of our plans going forward. On the capacity market, you've seen a number of different plants, different types, making these sort of decisions or looking like they're making these decisions. If you look at Trafford Park, a new plant, surprisingly, suggesting it would be built at less than GBP 20 per kilowatt, not getting funding, and not looking likely. That's one example.
Longannet was never actually bidding on the capacity market, but elected to say that it would be available, therefore was taken out of the procurement requirement. That now not being available, creating a gap. Fiddler's Ferry that won a contract, and the owner electing to take the penalty and not build it. There's a lot of different examples there. From our perspective, and I don't know whether there'll be other examples like that, but from our perspective, we have two plants that have won contracts in the two auctions so far. Those plants currently, which are Langage and Humber, I currently see those as broadly cash flow breakeven pre-CapEx, pre-capacity market. The CapEx that we would need to put into those plants in the next three years is really seen as needing to get a return in the capacity market.
Once the capacity market comes in, they're cash flow positive, and if you see rising clearing prices in the future, then you'll see rising cash flows associated with them. At the moment, I'm fully expecting to bring phase one of Humber back on stream ahead of the capacity market, and I'm fully expecting the rest of Humber and Langage to be participating.
Thank you, Mark. I know there's at least one, okay, two, three questions. Are there any more? I just want to four questions. I think we're going to really struggle. If these are quick and if we can keep the answers quick, we'll try and do them. We need to finish at about 11:30 A.M. latest, I think. Over at the back, who's been very patient.
Thank you. It's Ashley Thomas from Societe Generale. Three quick questions. The operating cash flow forecast that you've given on slide 33. Obviously, in 2018, you've got a lower operating cash flow, but you'd also have lower debt. That sort of indication that you've given, is that in line with the Moody's 25% RCF target? Secondly, the GBP 70 million provision, I assume that's Spalding. Does that basically cover the annual losses for Spalding out to 2021? Lastly, could you give us a feel for the scale of the ECO cost reduction you saw last year and the broad scale for the ECO cost reduction you'll see this year? Thank you.
The easy one on the last one is we don't publish the ECO phasing. I can deal with that. Jeff, on the other two, quickly.
The GBP 70 million is on Spalding and is a combination of the asset and an onerous contract provision out until 2021. You're exactly right. On, just remind me, the operating cash flow question.
If you look at the 2018 projection-
2018. Yes
is that comfortable for the RCF?
Certainly, with the repayment of debt over the next three years, we would expect by 2018 that those metrics are in line with Moody's thresholds.
Thank you. There's one more here, and then I've forgotten where the other two here.
Yeah. Ian Turner from Exane. The segmental results at the back show you're making basically zero margin in electricity, residential, and about just under 12% in gas. I just wonder if that's a very sensible position to be going into the CMA review.
Well,
It's the wrong number in both, really, I guess is my.
We've been traditionally very aggressive on our gas pricing, and we have been offering a high price position on gas before. Don't forget, the market is principally a dual-fuel market. Everyone's got different positions. Mark, is it sensible?
It's where we are.
Look, I think you've answered the question, to keep it reasonably short. We can have a longer philosophical conversation, it's mostly a dual fuel market. We have been traditionally cheap on electricity. Gas margins are higher, which is why we've been bringing the gas prices down. You can see in terms of the results from customer numbers, it's not having an enormous detrimental effect. Certainly over time, I think we need to be rational, and in our thinking about individual products, individual fuels, and make sure they can make a return. I think it's one of those things that we'd want to sort out over time.
Thank you.
Hi there. It's Dominic Nash, Macquarie. Just one question, please, on the linking between operating cash flow and dividend policy. Can you just make it clarified that your underlying is 1.7? You're basically saying that you think you can raise it by the higher end or even greater than the 3%-5% over the medium term, which I guess is then linked to the dividend policy. In next year, we'd like to have a lower operating cash flow than we have this year. Will you be overlooking potential dividend cuts, or do you think you're going to try and have a floor on the dividend?
What we said last year in our dividend policy, it's not mechanistic. It's really important that it's not like in any period you take the operating cash flow, you calculate a relative, that immediately translates into a dividend change. That's not what we're saying. What we said is that the progressive dividend is based on our confidence to grow operating cash flow. We've indicated confidence to grow operating cash flow at least 3%-5% from where we are today. You should assume from that we are hoping and confident to be able to grow the dividend at a rate comparable to that. Clearly, any dividend decision at any moment is a matter for the board, we'll take it each period. We are committed to a progressive dividend, not a mechanistic dividend.
Just a last inferred point in your question, we didn't say that operating cash flow in 2016 is going to be below operating cash flow in 2015. We just said operating cash flow in 2016 is going to be above GBP 2 billion, as was operating cash flow in 2015. You'll have to wait and see what operating cash flow is going to be this year. Again, it is also about our underlying operating cash flow growth that's really important. To Lakis' question, we're going to have swings of working capital, but when we have unusual working capital releases, we'll obviously put it into the balance sheet and pay down debt with it if we have that ability. This is about underlying operating cash flow growth, our confidence in it, which will translate into a progressive dividend policy.
Thank you. Just to clarify, if you have a lower base and a potentially higher growth, we could look forward to a higher dividend growth as well.
That is clearly conceivable within what I've just said. I'm not going to clarify it any more than I already have. Thank you very much. The last one, I think, behind you there.
Hi, this is Deepa Venkateswaran from Bernstein.
Can you press the button? I'm sorry.
Sorry. Deepa Venkateswaran from Bernstein. I have two questions. One is on BGB. Can you quantify what was the one-off charges this year relating to bad debts, extra customer resources, et cetera? The second one, I think coming back to the dividend policy, if I look at chart 33, if you lived in the 35/35 world, would it be then fair to say that in that world, given that your underlying cash flows will largely be flat, going from the 1.75 to getting to 2 plus, would it then be fair to say that in that world, your dividend would be flat in absolute terms versus today's level, rather than progressing at three to five?
I think you've asked the same question in a slightly different way to the last one. It's very simple that if our underlying cash flow at the operating level is growing, and we are confident of it continuing to grow, we will be confident about a progressive dividend. It's not mechanistically tied to reported operating cash flow in any particular year. We will guide you about how our underlying operating cash flow is getting on. You'll find one of the KPIs that we are going to be giving you in the summer is underlying operating cash flow. Obviously, the complexity in all that is environment and rules of thumb, and hopefully that we're not going to have an environment quite like we had this last year, which does make calibration a little bit difficult.
You should all assume that provided we are confident in delivering underlying operating cash flow growth, that that will translate, subject to my chairman and the board support, into a progressive dividend. Now, the first part, Jeff.
In terms of BGB, we would put sort of roughly half the costs, or the change in profitability down to a combination of bad debt and, well, probably two-thirds bad debt and additional operating cost investment because we needed more people to handle sort of customer service and handle the migration. Clearly, there was an element of lower supply points that made it difficult, as I said in my presentation, to be acquiring customers when the systems weren't working, there's an element of just a lower margin from those supply points as well. Kind of a third, a third, a third.
Ladies and gentlemen, it's 11:30, and thank you. You've been very patient for two hours. I'd just like to thank you all very much for coming. On behalf of the chairman, our board, and all of my colleagues, I hope that's been useful, and I hope you now understand that Centrica has been resilient in this environment, but also is going to be very resilient in this environment. We have confidence in ability to pay for all of our needs from cash flow out of our own cash flows, we have confidence in our ability to pay our current level of dividend, we have confidence in our ability to grow underlying cash flow. By inference to the last two questions, we have a high degree of confidence therefore, provided we do it, of course, of delivering a progressive dividend.
I think that the combination of all of those factors means an investor proposition of returns and growth from here in this environment. Finally, we've said that if the environment worsened, we would still be able to stick to the strategy and balance our sources and uses of cash with our current level of dividend and look to continue to grow the company. Thank you very much indeed for coming, and look forward to speaking to a number of you on the road. Thank you