Centrica plc (LON:CNA)

Earnings Call: H1 2021

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Jul 22, 2021

Good morning, everyone. Thanks for joining our group CFO, Kate Ringrose and I, today for Centrica's 2021 interim results presentation. We're once again doing this virtually with restrictions in The UK having only just been lifted. And hopefully, I'll be able to meet up with many of you in person later in the year. But in the meantime, I hope you and your families are all keeping safe and well. In total, our presentation will last around thirty minutes, and then we'll have a live Q and A session where Kate and I will be joined by our Chairman, Scott Weeway. As you'll be aware, last year, we started a major transformation to turn our company around and to rebuild shareholder value. We recognize the need to make changes as a company as we'd clearly failed to adapt quickly enough to challenges from competition and changes in regulation in our markets. This was the driver of the significant restructure we announced last year, and the changes we're making will help us to get the basics right. We are absolutely focused on improving customer service and on stripping out bureaucracy and unnecessary costs, which over time will allow us to grow customer numbers in a sustainable and profitable way. But this won't happen overnight. I'll hand over to Kate in a minute to cover the financial performance in the first half, but let me briefly cover the headlines. Overall, our first half performance was broadly as we expected, with both operating profit and earnings flat when compared to last year. Our cash flow performance was once again very strong as we maintained tight control on all expenditure and we disposed of noncore assets with net debt falling below £100,000,000 Although our balance sheet is in a much stronger place now, we're still only part of the way through the pensions triennial valuation process, and COVID-nineteen restrictions have only just been lifted in our core markets. Therefore, we're not yet restarting our dividend. However, we continue to recognize the importance of dividends to shareholders, and we intend to restart them as soon as it's prudent to do so. Our customer numbers fell again as we saw further intense competition in The UK energy supply market and operational issues caused by COVID-nineteen and industrial action in British Gas Services and Solutions, which negatively impacted customer service levels. But we are absolutely committed to reverse this decline over time through focusing our businesses and improving customer service, And I'll cover the progress we're making after Kate has taken us through a detailed review of our financial performance. Over to you, Kate. Thanks, Chris, and good morning, everyone. Let me move straight on to the results, and I will start with the group P and L. I'll focus on continuing operations, which excludes Direct Energy, following the completion of its sales in early January. Revenue was up 6% to £8,200,000,000 which reflects higher commodity prices and colder weather. Gross margin was slightly down, however, operating costs reduced by £63,000,000 which reflects our cost focus. When we include an increased loss from the nuclear associate, operating profit was broadly flat. I'll take you through the drivers in more detail shortly. Our net finance costs were lower as we benefited from the lower interest rate environment on the floating element of our debt book and our decision to redeem the €750,000,000 hybrid at its first call date in April. The tax rate reduced to 35%, which includes one off deferred tax credit related to rough decommissioning as well as the future change in The UK's corporation rate to 25%. The non controlling interest relating to our partner in Spirit Energy is slightly higher with the net of that all being adjusted earnings per share of 1.7, which was 0.1p higher than in the 2020. The operating profit split is shown here under our new business unit structure, which we laid out in February. We have also moved 450,000 small business sites into British Gas Energy from Centrica Business Solutions given their needs closely match those of households. As we did at prelims, we've reconciled the prior year adjusting operated profit from the previous segmentation in an appendix slide. There you will recognize the corporate cost reallocations, which were acquired following the sale of Direct Energy, which I talked to in February. In total, adjusted operating profit from continuing operations was broadly flat at $262,000,000 Going through the segments, profit was down by 34,000,000 in British Gas Services and Solutions with benefits from cost efficiency more than offset by the combined impact of COVID-nineteen and industrial action. These totaled around £50,000,000 largely relating to the increased use of third party labor and customer refunds. We delivered higher profit in British Gas Energy, which includes benefits from colder weather and reduced COVID-nineteen related impacts, including bad debt and small business volume recovery. We also saw material efficiencies, which more than offset the impact of competitive pressures on customer numbers and margins as well as the increase in eco costs. Energy Marketing and Trading reported a loss of £40,000,000 in the 2021 and given the scale of change relative to 2020, I'll cover this in more detail shortly. Centrica Business Solutions saw a significantly improved result with energy supply to large and mid sized businesses having been materially impacted by COVID-nineteen in the first half of last year. Losses were also reduced in new energy services with signs of demand picking up in the second quarter as COVID-nineteen restrictions began to ease. Boardgash profit was down, largely reflecting the outage of the Whitegate CCGT that we talked about at prelims and upstream profit was up with the impact of higher achieved gas and oil prices more than offsetting the impact of lower E and P production and reduced nuclear generation volumes. I'll summarize the main drivers on the next slide, but let me cover exceptional items first, which are shown on the right. We recognized three sixty six million pounds of write backs on oil and gas assets, predominantly due to the increase in near term commodity prices. These write backs are expected to result in an additional depreciation charge of about £40,000,000 in the second half of the year. It is also worth highlighting that there were no exceptional restructuring charges in the 2021, as I indicated would be the case in February. Any future transformation initiatives will be treated as business as usual. In fact, there was actually a small release of the restructuring provision we put through at the 2020 with pension strain costs coming in slightly below our original estimate. We also recognized the £597,000,000 profit on the disposal of Direct Energy, which allows me to turn to the summarized operating profit bridge. I will talk to each brick and turn. First, I will help you unpack the year on year impact of COVID-nineteen and industrial action. These are somewhat intertwined. The gross impact of COVID and industrial action versus overall in 2021 as some recovery in business energy demand and a more normal bad debt charge in all our energy supply businesses more than offset the additional costs incurred in British Gas Services. However, in 2020, we benefited from some significant mitigating actions which were not repeated, such as using The UK job retention scheme and choosing not to pay cash bonuses to management. As a result, COVID-nineteen and industrial action actually had a net negative impact on us in the first half of the year. Moving on to the effects of weather and commodity on our downstream businesses, a colder than normal first half in 2021 compared with a warm first half in 2020 resulted in increased energy consumption year on year. The additional gross margin from the increased volumes more than offset the impact of both the incremental cost of gas and power, which was at higher prices as well as higher within month balancing costs. Given its one off nature, we've also highlighted the financial impact of the White Gate outage at 28,000,000. Given seasonality, the impact is not linear, but we would now expect the full year impact to be toward the upper end of the 25,000,000 to 40,000,000 range, which we previously indicated. Concentrating on the underlying performance, our Energy Supply Services and Solutions businesses improved when compared with last year with all benefiting from efficiency programs. In British Gas Energy specifically, we also benefited from 20,000,000 from an additional temporary allowance in the default price cap in the first quarter, which follows a judicial review in late twenty nineteen. This allowed the part recovery of additional wholesale costs, which were originally incurred when the price cap first came into being in 2019. ECO spend was £55,000,000 higher as we increased activity in advance of the end date of the current ECO three scheme in March 2022. We also saw some impact of competitive pressures on margins and customer numbers. In addition, as we move our platforms in British Gas Energy toward a software as a service model, our IT related operating costs increased. However, this was offset on a cash basis by reduced capital expenditure on the legacy system. I'll come on to energy marketing and trading on the next slide. Underlying Upstream operating profit was up £58,000,000 The pretax benefit of higher commodity prices for Spirit Energy was partially offset by the impact of hedging, lower volumes and high unit lifting costs. In CSL, the impact of the natural decline in production was more than offset by higher commodity prices. And in Nuclear, ongoing operational issues meant generation volumes were down 8%, negatively impacting the result. Given the scale of the change in the first half result, I wanted to spend a bit of time covering energy marketing and trading performance in more detail. The charts you see here on the left show EM and T gross margin from 2017 to 2020 split into its major activities. These show reasonably consistent gross margin contributions from proprietary trading and route to market. These are profitable extensions of the required risk management of our commodity exposure primarily for British Gas, Spirit and Nuclear, which EM and T provides on behalf of the group. The gross margin contribution from LNG and the legacy gas contract have been more variable. Moving to the first half result and as you've already seen, EM and T operating profit decreased by £151,000,000 compared with the first half last year, which I'll attribute to four primary factors. First, we saved around CHF30 million of OpEx in 2020 in response to COVID to support the group. Second, as you can see on the dark blue bars in the charts on the right, the contribution from our core proprietary trading and route to market activities was lower than in the 2020, albeit still made a positive contribution. Thirdly, 2020 was, as we described, an exceptional year for our LNG portfolio. We do not expect the structural advantage which we held in 2020 to repeat this year or next. Fourth, the legacy gas contract lost 57,000,000 in the 2021 compared with $27,000,000 in 2020. This is due to increased prices in unhedgeable indexes as well as the decision to take more gas in 2021, which is economically sound over the life of the contract. We therefore expect full year 2021 to be at or above the high point of our 50,000,000 to £100,000,000 range and the remaining four years to fall within range. Moving on to cash flow. Free cash flow from continuing operations of £524,000,000 was 4% higher than 2020 despite EBITDA being £68,000,000 lower. We saw net tax rebates in relation to E and P activities in the first half of the year. In addition, working capital was broadly stable with cash collection to date remaining sound. However, we remain cautious on our customers' ability to pay beyond the end of the government support schemes and will continue to robustly review trends. CapEx was also reduced with lower spend in Spirit Energy and reduced IT outlay. As I've already indicated, we are now expensing costs related to the British Gas and Volt platform having historically capitalized spend on the legacy SAP billing system. So overall IT cost will shift from the balance sheet to the P and L. British Gas Energy CapEx reduced by £18,000,000 compared with the first half of last year. Divestment proceeds were also lower with the first half of last year including €100,000,000 disposal of the King's Lynn Power Station whilst this year's figure largely relates to the proceeds from the sale of British Gas headquarters. Free cash flow from discontinued operation relates to Direct Energy with 2020 reflecting the performance of the business and 2021 the disposal proceeds. If we shift to the table on the right, the big change compared with last year is the scale of the contributions which we have made to the pension schemes. In addition to the regular H1 payment of £76,000,000 we also paid £167,000,000 of pension strains. These were incurred during previous redundancies as we restructured the group. We saw £130,000,000 inflow of margin cash as our position as a net buyer means margin cash generally flows into the group in a rising commodity environment, all of which has led to a £2,900,000,000 reduction in net debt over the first half of the year and a closing net debt position of less than 100,000,000 As I said in February, balance sheet strength remains a major focus of mine and I'm pleased with the progress we made over the past twelve months. The stronger position also supports our credit metrics as we continue to target investment grade ratings. However, as mentioned previously, due to the reduction of diversity in our cash flows, which follows the Direct Energy disposal, credit rating thresholds have risen. This reduces our capacity for net debt if we are to maintain the same credit rating. While we redeem the hybrid in April and our net debt is much reduced, we still have an expensive and long dated gross debt book totaling £3,400,000,000 Moving on to pensions, the IAS 19 net pension deficit has reduced from $6.00 £1,000,000 at year end to £130,000,000 at the June, as we have made payments into the schemes and discount rates have improved by 40 basis points. However, as you'll be aware, it is the technical provision deficit which determines the level of cash contributions we are required to fund. As a reminder, this funding deficit calculation is designed to incorporate a level of prudence and is based on guilt rates as opposed to IAS 19, which is a best estimate calculation based on corporate bonds. The triannual pensions negotiations for the valuation date of 03/31/2021 are well underway. We have fifteen months to agree the valuations and the contribution profile. We agreed with the pension trustees at the time of the Direct Energy sale announcement in July 2020 that we would contribute a portion of the disposal proceeds to the pension deficit. We have been encouraged to see the deficit fall significantly since then. In February, we said that we estimated the deficit was roughly 1,900,000,000.0 on a roll forward basis. And with the continued rise in real gilt rates since then, we estimate it would currently be around 400,000,000 to 500,000,000 lower again. So to close my section, I'll summarize where we are and provide a perspective on the remainder of the year. Our first half financial performance was overall broadly in line with last year, with the benefits of efficiencies and colder weather being offset by the lower profit in Energy Marketing and Trading and one off impacts of COVID-nineteen and industrial action. I am also encouraged by signs of underlying financial improvement in many of our businesses. Looking to the full year, as well as these factors that impacted first half performance, the areas I highlighted in February to take into consideration for your modeling remain valid. We expect the Whitegate Power Station outage impact on 2021 full year operating profit of lost revenue and the requirement to purchase more electricity to be up to £40,000,000 And we still forecast ECO costs in British Gas Energy to be around £80,000,000 higher in 2021 than in 2020, with the higher run rate expected to continue into 2022. The ECO scheme for ECO four will start in April. In the other direction, we still expect to materially benefit from the restructuring with expected year on year savings of more than 100,000,000. In addition to these factors, we are also beginning to benefit from higher commodity prices in upstream to a greater extent than we had assumed at the start of the year, given the increases we have seen so far this year. However, we will see high unit depreciation rates in the second half, and due to our ratable hedging, the benefits won't fully come through this year. E and P is also very heavily taxed of course. Spirit production is now forecast to be 50% to 20% down compared to 2020 and an increase on the 10% estimate we provided in February. Although we now have greater operational clarity on the nuclear fleet, generation volumes are expected to be lower year on year. And as already mentioned, we now expect the remaining legacy gas contract to lose around 100,000,000 or slightly more this year. A key unknown for us remains customer bad debt and what happens once various COVID nineteen government support schemes end. We will also begin to get a better view of what the new normal for business energy demand looks like. We are still experiencing a volume shortfall of 5% to 10% today compared with pre COVID nineteen levels. We will continue our focus on free cash flow and the strength of our balance sheet, in particular keeping a tight discipline around operating costs, cash restructuring and CapEx. In summary, although there is more we need to do to improve the performance of our business units, there are some encouraging signs and the progress we have made in strengthening the group's financial position over the past year or so puts us in a strong position from which to continue with the turnaround of Centrica. I'll now hand back to Chris. Thanks, Kate. I've got a very simple view of business. You look after your colleagues, they'll look after your customers, and that will take care of your cash flow. We've had a turbulent six months with our colleagues as we made the difficult but necessary changes to modernize our terms and conditions I'm pleased that the industrial dispute with our engineers has now concluded following acceptance of our revised offer earlier this week. And one of the real benefits of modernizing our terms and conditions is that we can now build directly employed capacity to reduce our reliance on contractors, creating the jobs which will help us deliver a net zero future for our customers. To put it into context, we've recruited more experienced and apprentice engineers in the 2021 than in the previous four years combined. Our new business unit structure and delevered organization is now being embedded. As part of this, we split British Gas into two distinct businesses, UK Energy Supply and UK Services and Solutions. These businesses are distinct, allowing us to focus on what's important for our customers, but they work very closely to deliver combined solutions to those customers who want both energy and services. And whilst we continue to generate cash by disposing of noncore assets and businesses, We want to ensure that we balance speed of disposal with value delivered. For Spirit Energy, whilst we had bids for the whole, these were not compelling either in terms of price or continuing exposure to future liabilities. But we remain committed to exiting hydrocarbon production, and we've made real progress towards pursuing alternative sale options, which will simplify the sales structure, enabling us to maximize the value of our assets whilst derisking liabilities. While we maintain our stake in Spirit Energy, we'll continue to actively manage it. The business generated £239,000,000 of free cash flow in the first half of the year, and the recent increase in gas and oil prices means we expect the business to remain comfortably free cash flow positive for the full year. I believe a well managed business will always actively manage its portfolio. And in the first half, we sold a small gas fired power station in Peterborough, a data management business, Isle Tahoe and the former British Gas headquarters site in Staines. These disposals will generate around £50,000,000 of net cash when completed. As I've said, we are absolutely focused on eliminating unnecessary costs to improve our competitiveness. And you can see the impact of this in British Gas Energy, where the cost to serve to a residential customer is down 7% against last year and 10% against 2019. We launched British Gas EVOLVE last year, trialing a lower cost software as a service platform and more agile ways of working, allowing us to compete more effectively with challenger brands. The platform's greater flexibility compared to our legacy system means we can now bring propositions to market in a matter of hours rather than weeks. We've now proved ourselves that we can make this work, having both migrated the Simplicity and Naboo Energy customers and organically acquired new customers directly onto the platforms. In total, we now have over 250,000 customers on the platform, up from around 100,000 at the start of the year. We'll continue with a controlled approach to migration as we scale up and migrate all residential and small business customers over time. And whilst this will ultimately result in lower costs, we'll obviously have dual running costs during the migration, and this added around GBP 2 per customer to our cost to serve in the first half. We also continue to engage with Ofgem on the future of retail energy markets in The UK. And whilst we remain concerned that the current regulations could lead to serious negative issues in the market, we have been encouraged by proposals which, if implemented, would reduce the ability of unscrupulous suppliers to operate the reckless business model. These proposals include an increase in the number of suppliers who must offer customers the warm home discount and the requirement that all suppliers must either ring fence customer deposits or offer parent company guarantees for them. We'll continue to work with our regulator to ensure we achieve a level playing field in The UK energy retail market. Moving now to British Gas Services. We are the largest energy services company in The UK, with around 7,500 directly employed engineers and technicians. However, we've been in decline, losing more than 1,000,000 customers over the past ten years. We've been losing competitiveness and damaging customer service. We got into a spiral which went something like this: lose customers, cut costs, damage service lose customers and so on and so forth. You get the picture. But the root cause of our issue was the fact that our cost per job was between a half and a third more expensive than smaller contractors. So when our engineers left, we replaced them with contractors. Our engineers are the best in the business, and our customers reasonably expect a British Gas engineer to turn up when they book an appointment. Rather than continue the slow, painful decline, we decided to take the actions necessary to lay the foundations of a sustainable and growing services business, and that required the painful process of modernizing our terms and conditions. The changes will improve productivity, making the cost of our own labor much more competitive relative to third party contractors. This means we're able to ramp up the recruitment of engineers that I referred to earlier. We remain committed to a direct labor model, which delivers a much better experience for our customers. They get the British gas engineer that they want. The changes will also increase our flexibility so we can offer our customers appointments at times that will better meet their needs, further enhancing the customer experience. Now as you heard from Kate, there was a negative impact on our first half financial result from the combined effects of COVID-nineteen restrictions and industrial action. We also let down some of our customers, causing a drop in customer satisfaction levels over the first quarter, and that's simply not good enough. However, we saw improvements in our key operational metrics over the second quarter. As you can see in the charts on the right, productivity, measured here by jobs per engineer per day, reached pre COVID-nineteen levels in the second quarter. And engineer NPS, which has remained high but not quite at the world class levels we aspire to and have previously achieved, has also been recovering. This will allow us to drive further recovery in customer service levels, which should improve customer retention from the current level of around 80%. With the organizational change now complete, this business is on a more stable footing and plans to drive further improvements are in place for the second half of the year. Although the past twelve months have been difficult for our colleagues, the changes we're making are the right thing for us in the long term, not just to improve our business today, but to allow us to capture future opportunities arising from the move to net zero. We now have a much more sustainable platform from which we can deliver customer growth. The drive to net zero presents a significant opportunity for our services and solutions businesses and for Centrica as a whole. We already have the largest field services force in The UK, and we're looking to increase this, as I've already mentioned, through the recruitment of both qualified engineers and apprentices. And we're on track to recruit 1,000 new apprentices in British Gas across 2021 and 2022, creating new, highly skilled and well paid British jobs. Our award winning training academies also provide us with a competitive advantage, allowing us to upscale our engineers to install newer technologies such as electric vehicle charging points and heat pumps. We already have over 300 engineers multiskilled across heating, smart meter and EV installation. We'll be looking to expand our range of low carbon propositions across the second half of the year, including the launch of new electric vehicle, heat pump and home energy management propositions. We've also been reconsidering whether our interest in nuclear can play a role for the centric of the future. Our focus remains on the customer. However, as we look to help our customers reduce their carbon emissions, our interest provides us with an important source of zero carbon electricity. Therefore, we may decide to keep our 20% interest in The UK's operating nuclear fleet. Hydrogen must be a part of a lower carbon energy mix in the future. We're engaged in a number of hydrogen initiatives. And in January, we joined the Hydrogen Task Force Coalition of Companies. We're looking into the possibility of repurposing the rough field so it can act as a hydrogen storage facility and play an important role in The UK's and in our net zero ambitions, potentially creating thousands of green jobs in the North Of England and providing green gas to millions of UK customers. Clearly, any development plans would be dependent on a regulated support model allowing appropriate and stable returns, But we continue to view this as an interesting option for Centrica should the economic model look attractive. We also continue to support the build out of renewables throughout Europe by providing route to market services as we look to add to the 11 gigawatts we already have under contract today. And as we laid out in February, we're committed to achieving net zero by 02/1945, and we'll outline how we'll champion a just transition for customers and colleagues when we publish our climate transition plan later this year. Let me briefly summarize. The journey we started last year to transform Centrica continues, and I want to leave you with three things. Firstly, I'm really excited by the opportunities that I see from the energy transition, the path to net zero. There are undoubtedly risks for us, but the opportunities are huge. Secondly, we're making progress in building the foundations to capture those opportunities. And thirdly, we're looking forward to laying out our future strategy at our Capital Markets Day in November. I'd like to thank you all for listening, and we look forward to the Q and A session shortly. Thanks, Helene. Good morning, everyone. Thank you very much for joining us for the Q and A session for the 2021 interim results. So you've all seen the presentation and read the release. I thought we would just go straight into taking your questions. I'm joined here by our group CFO, Kate Wingroze, and we've got Chairman, Scott Beavay, available as well. So with that, I'll ask Hailey to give us the first question. If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by 2. When preparing to ask your question, please ensure that your phone is unmuted locally. And the first telephone question is from the line of Mark Freshney of CS. Please go ahead. Hello. Good morning. Thank you for taking my questions. Firstly, regarding the EM and T business, Kate. The LNG profits are fairly low, as you acknowledged, after two or three good years, which is surprising given you've got more infrastructure now and given the dispersion in global gas prices. So I was just curious as to why the performance in the LNG element is not I mean, it derisking in that business ahead of getting it for sale? And secondly, I I guess this would also be for you, Kate, on the pension fund negotiations. Clearly, hugely sensitive, and and and I'm sure you pushed the envelope by going and disclosing the 1,500,000,000.0 mark to market. But, when can when is it likely that we can expect a resolution? Is it is it something that comes, June next year? Can we expect something before then? Thank you. Mark, hi. Thanks very much for your questions. Let me start with the EM and T bit on LNG. So a lot of this is actually a 20 story as opposed to a 21 story. I mean, you're quite right. There's more capacity. We've got the Cheniere contract. But remember that kind of starts, you know, as Chris talks about it behind the eight ball. It's it's a it's a negative price contract. But actually, structurally coming into 2020, we were actually very well placed for what turned out to be a falling market in LNG. We set up, you know, kind of the the structural dynamic over a couple of years coming into the year, And it so happened that we were very well placed for that change in price in structured energy and positive from that accordingly in 2020. So what is happening in 2021 is more a dynamic of a non repeat of what was a rather exceptional performance in energy as opposed to anything else. And with regards to the pension negotiation, quite right, it is sensitive. As we said, there's fifteen months we have from the March to agree the negotiated settlement. I will say that we're working very constructively with the scheme trustee chairs and the trustees as a whole for those three teams. So we're making really good progress, but it is going to be something that could take another year. Clearly, I'm hoping that it won't. We've all, both from a trustee and from a company perspective, look forward to resolution on both the technical deficit and the payment profile that would accompany that. But I'm not able to commit to exactly when that would happen. But we're moving along as swiftly as we can. The next question is from the line of AJ Patel of Goldman Sachs. Please go ahead. Good morning. I had a couple of questions, please. Could you just help me with the definition of the technical deficit? The reason in terms of on a roll forward basis, Pat. The reason I ask the question is that we had a 1,400,000,000.0 pension deficit back in '18, and we're rolling that forward to now to 1 and a half billion by the June. But there's quite considerable pension deficit payments this half. So I just wondered how do they get incorporated into the calculation. Do they just get subtracted, and then it's just discount rates that are explaining an increase, and then they're offset by that number? I just wanna make sure that my understanding of the calculation is right. And then the second piece is on the E and P side. It seems like you're making progress. What sort of options are you considering? What are the what are the things that hold you back, in regards to, the audience that you potentially could sell this to? And and what are you doing to maybe help with that? I just want any more color there would really help. Thank you. Alright. So hi, Adrienne. I think I'll take the first question and then pass on to Chris for the second question. So, I mean, basically, the dynamics with regards to the change in the the pension valuation is effectively we value both the liabilities and the assets separately. Likewise, we have made some significant contributions into the pension, but that was in large part due to the pension strain to expect to increase the liability to increase it and then take it off again when you pay that down. So that's the dynamic around that. And then, you know, the primary factor that changes that valuation is the movement in real guilt rate. We've effectively kept all other assumptions entirely consistent with the technical valuation that was closed for the March 2018 period. Clearly, those assumptions when it comes to, you know, membership behavior, governance, etcetera, etcetera are are all what's being reviewed at the moment now. So so it's just important to note that, you know, what I'm talking about really is based on those on those '28 assumptions. But, broadly, you're right. When we pay money in, then all else being equal, the deficits would come down. I think the thing that you're probably missing just a little bit is with regards to the AG, on E and P, it's really around we are committed to exiting this business, we have to do it in the right way. We have the the value and the the commission liabilities are dealt with appropriately. So I I would you could bear with us. I'd far rather tell you what we've done than tell your plan because, obviously, there's a commercial lens to this. Okay. Thank you very much. The next question is from the line of Deepa Venkateshwaran. Please go ahead. Thank you. I was gonna ask you ask a question about the restructuring of E and P, which, I guess you're not going to answer. So, my question really is that you said that there's a CMD that that you're outlining, in November. So what what are the broad, areas that you would seek to cover? Would you would you clarify the dividend policy, by then and also outline whether there are other noncore divisions like LNG, etcetera, that that, that you might still consider selling in the future? Thank you. So Deepa, on on that, I mean, we'll lay out our own term strategy and our and the financial framework and financial structure and at at the Capital Markets Day. And similarly, in terms of the E and P question, I always think if you preannounce disposals of disposal candidates, you often harm your ability to get the best price. So I think I don't think there'll be, you know, too many surprises. We're clear the future for us is net zero. Hence, the reason that, you know, we'll get out producing hydrocarbon. It's very difficult to invest in hydrocarbon production and have a a future in in net zero. But in terms of other, I mean, part of it rather be is to be judged on what we do to simplify the portfolio. And as you can see, you know, the disposal direct energy, that's huge disposal, which is also the balance sheet. You'll also notice we've a few smaller disposals. So, you know, we sold a small gas line power station in Peterborough, sold the old British Gas headquarters, and sold our data management business to bring in £50,000,000. So so if we look at big things, we look at small things, but everything that we do is about simplifying the business, about reducing volatility in earnings, and it's about making sure that I'm progressing past it. And, you know, that's the framework that we assess pretty much all of our decisions on. Thanks, Chris. The line was just a bit unclear. What was the third priority? I couldn't quite hear that. Simplify, reduce volatility, and what was the last thing? And does it help us on helping our customers, our comp our most countries on the path to net zero with the decarbonizing energy system? Because that that is the future for us, huge opportunity. Okay. Great. Thank you. The next question is from the line of Dominic Nash of Barclays. Please go ahead. Good morning. Thanks for allowing me questions. I have two, please. The first one, could you just give us in amount what the accounting rules are for the revaluation of your E and P asset, the £366,000,000 uplift or the write back? Are you obliged to do the lower of value or book on this? And does that imply that the actual, value of that asset is up 366,000,000 if if your assumptions are correct, or is it purely an an accounting, sort of irrelevance? The second question I've got is on power prices and gas prices. Obviously, they've roofed it in the last few months. What do you think the impact of what you're seeing are gonna be on residential bills and on the retailers out there to sort of pass through this volatility without getting sort of financially distressed? And the follow on question from this is is that carbon is obviously a part of the rise in in this. Do you see any carbon intervention coming from the government either on reducing the supply and demand imbalance, reducing the carbon tax supplement or maybe even going down the continental route of carbon windfall recovery? You. Dominic. That's my second question. Let me take the second question first and then will talk to about the E and P revaluation. I think probably we assure you that it's just an almost irrelevant noncash dividend reflecting price changes. But if we've gone to do we expect any intervention on on carbon? I think the government and the regulators are working really hard to to figure out what the pathway is to net zero and what the best way is to to get there. That will include things like carbon certificates, carbon taxes, policies, etcetera. So I I wouldn't want to second guess that. They're quite busy with some other things. In terms of the volatility in in in gas and power prices and the impact I think the question was about the impact on on on suppliers as well as individuals. It because we hedge, and so we we hedge based on our forecast demand and and prices that down. And for companies other companies that hedge, then your exposure is to get your volumetric forecast from then if you're overhead, but the market goes up, you're in a good place because you're selling your excess hedges in the market. If you're under hedged and the market goes down, you're in a good place. But you can really have some pain if you're over hedged in the falling market. Remember, that's what we saw last year in when COVID hit in the in the b to b space primarily because you're selling as volumes in the market is falling, so you're and you're you're pushing to get a big buyer. You're pushing that fall down. I think in terms of suppliers, we don't have fuel line of sight. So we hedge and a number of other suppliers hedge. Those that don't hedge will be in a world of pain at the moment. Those that do hedge, it's not I don't know if it's pleasurable, but you, you know, you hedge to take risk out. And the the hedges that are are in the money. Obviously, there's a danger that some of some smaller suppliers that may have hedge the hedge is in the money, then the temptation you're struggling in other parts of the business, the temptation is to cash those hedges in, which is a little bit like burning the furniture to stay warm. So short term gives you some relief. Long term is not not a thing to do. So so I think the volatility in the market, the responsible suppliers manage that volatility as we do by hedging the book. Therefore, as an upward sloping curve means the prices go up, you're not really too worried about the the the in day volatility in your in your supply. But if you're unhedged, I I can't imagine what it must be like to be an energy retailer over the past two months and not be hedged. It must be an incredibly stressful journey, and it would undoubtedly put a lot in in the in the finance. So so with that, I'll hand over to to Kate about the the question on E and P revaluation. So, Dominic, thank you very much for a a good gnarly accounting question. There's quite a lot of detail on this note six on the RNN. But briefly, the way we deal with this cover a month, the recoverable amount is the higher of value in use and what we term as a fair value cost of disposal. And this is assessed on a field by field basis. Basically, if the recoverable amount is being as higher than the book value and we pre at the field, then we have to write it back. The process of assessing that is pretty mechanistic, and we moved and we've been fairly consistent on this for the last few that we reported to looking at third party curves, looking at the peers reported within that set of third party curves, and also looking at the liquid curves that we can see in assessing according to that. A big driver behind this right back is liquid curves that we have at the moment. But as I say, it's a pretty mechanistic calculation, which is why you see large ups and downs. Last year, it was mostly down, but it's far up. Sorry, can I just follow-up quickly, Chris, on the so thank you both, by the way? But can I follow-up on the first part of my question is that do you think we're going to see significantly higher retail bills coming through as well? Are they have you sort of quantified what the scope will be? I think our expectation of the because the price cap is set with, observable forward market prices, and I think we expect it to be up about 10 times a month. I think that's the numbers. I think about a 120,000 or so. So so it's not insignificant, but that would be for the Austrian will announce that, I think, August 2 in effect, October 1. There's roughly a 10,000,000 a month on a dual fuel The next question is from the line of Chris Laybert of Morgan Stanley. First question just on operating profit seasonality, actually, like operating cash flow. Just wondering whether you can give a sense for first half versus second half SKU in the current environment. And you had a strong performance in first half with your free cash flow across the group. Do you expect that to continue into the second half? And I guess any comments that you could make, that would be terrific. And then second question, we've we've seen some policy documents released in the last couple of days by Bayes. Just wondering whether you can comment on a couple of policy changes that might be coming your way in retail. Firstly, just on the collective switch policies and your views on those. And today, it looks like there's a move to address ECO and some of the market distortions that we're seeing. So some comments there would be terrific as well. Thank you. So thanks, Chris. Let me take the question of the policy docs. I'll touch on seasonality, and then Kate Kate can correct any any mistakes. Mean, selected switch. We argue against that quite strongly. We don't believe that that's the right thing. And it I mean, ultimately, what a collective switch says is the government, the regulator wants to make decisions on behalf of consumers. And I'm not sure that, that there's any basis on which to to do that. So we believe that you should have a competitive market with even markets. And I I collect the switch pricing was completely and utterly against that. And I think you could argue that it's a bit insulting to consumers. So so that's that's not something that we think is is something we supported in the past. It's something that we would we would argue against to go and see that as being necessary. And and I and I think if you look at the vast majority of retail energy buyers in The UK making a loss, hard to see what the just justification for a collective switch would be unless the regulator is looking to deepen the losses in the market, and that would be very, very odd position. You mentioned that another policy what was the other policy you wanted me to comment on? Sorry. It was the the the consultation on the eco program to remove the distortion for small suppliers. Yes. So the so the more important this gets us to take it down from, I think, probably 2,000 suppliers that stepped down to one fifty, and the proposal now is to take it down to 1,000. What we argue for is competitive market level playing field. And and, therefore, the fact that, basically, what this would do is require every supplier We would encourage that, because we think it is right. But, so there's no comment on in and of itself. However, then you've got a scheme you have to apply to everybody. So we think that's very positive. There's also a consultation issued by Ofgem, I think, on the supplier license and even the requirement to ring sends customer deposits. We not only support that, but we have been encouraging that because it is the nice lead in to the cash. Think, you know, customers tend to be a lot of them pay by direct debit over the year. And in the first half, when your profits are up, you're not recovering all the cash that you would otherwise recover because you're buying more commodity because your customers more during the summer months. You get more cash from them, and you get into the winter. And so if you if you've got customers that paid for a product that you haven't delivered and you spent that money, that's quite serious. So we think it is absolutely right that anybody's paid customer deposit regularly could be regulated, like financial services companies. That's why we welcome that. On on on the cash flow, I would I would say that if anything, you would expect in our downstream business to cash flow to be quite negatively impacted in the in the first half. So Kate Kate can talk about guidance. It's a nice step. Yes. We give you guidance and but taking talk about it. Now to be one thing, I'm I'm glad you picked incredibly strong cash flow generation. And and and one of the reasons is we've got a CFO who is laser like focused on cash. We've got a CEO who is quite interested as well, and our chairman is also quite interested. So we are all focused on cash because you can't pay the bill bills of property, pay the bills with cash. And we're quite disciplined on our investment criteria as well. So we we would like to invest behind good ideas, but we're only gonna we'll invest with a if it is a good idea. So I think one of the things misunderstood or under appreciated by by people is the incredibly strong cash generative attributes of this business. With that, Gabe, give you a view in terms of seasonality and cash flow. Sure. So I mean, I think, you know, what Chris has talked to is correct me. When you look at the dynamics of seasonality, you have cash more weighted to the the front half and the back half. And then from an operating profit perspective, you know, it differs by business units, and the energy is probably the most obvious one where we tend to have profits more weighted to funds in the back half. I think a couple of things that I'll just point to note in the look forward, you know, on on cash steady as as Chris has already mentioned. So the dynamics in working capital and so far as they impacted by COVID remains a dynamic of uncertainty. But but the other thing just to be aware of is in a in a period of of high commodity prices, particularly in energy, that tends to consume more working capital because if you think about, you know, what that means is that you're paying for or we're paying for the commodity and and settling it for the month and month and arrears. And our customers take take longer over the winter period for those on direct debit too. The other things as well just to point out that have been positive is is margin cash. So, again, you know, we tend to be net buyers in the market. That means the rising commodity environment that cash is cut into us as margins whereas a bit over the last couple of years and where commodity prices have fallen, you know, we've had margin placed without the counterparty. So that's been a swing factor, and it's very uncertain as to how that's going to, know, manifest by the end of the year given it's so commodity price dependent. And then the other other things that I'll just just remind us of is, you know, we talked to pensions earlier. Pension settlements will come through as well at some point in time. We still got degrees of interest to pay. So, you know, those are, you know, those are the other sort of key movements that will come through. But all in all, I would expect to waiting more to the front than to the back for cash. Thanks very much. The next question is from the line of Jenny Ping of Citi. Please go ahead. Hi, good morning. Three questions from me, please. Just following on from that cash flow question from Chris. I just wanted to know whether there are any lumpy one offs or any funnies in the 1H cash flow that we shouldn't think about or think about taking out for the second half? Secondly, just in terms of the services business, clearly, this year's the strike and COVID has had an impact. But I was also hoping for some commentary around as you look forward into 2022 when the new FCA rules kick in, in terms of the ban on auto renewals, how you think that would likely to impact the churn of the business and the profitability of margin of the business? And then thirdly, just going back, onto Spirit. I wonder if, Chris, you can say, whether you have thought about listing stand alone spirits rather than through a disposal process and whether there are any quirks in there which effectively stops you doing the the stand alone listing. Clearly, is an option that some of the other utilities are thinking about with other parts of their business. And I just wondered whether that's, something that you've explored. Thank you. Good morning, Jenny. Thanks very much. Let me take those questions in reverse. I'll then some of the spirit and touch with the FCA comment, and then he can talk about any one of lumpy things in the in the cash flow. So on spirit, there's no restriction for listing the business, but there's it's I think it's highly unlikely we would do Thank you for for for it. And and so I wouldn't don't don't hold your breath on on that one. And on the on the SEO, on all of the new retention rate in services in the first half was 79 and a half percent, and I'm quite disappointed at that. Normally, it's north of 80. So my my drive on this make sure that we have a service the customers want to buy. And COVID has really impacted us 2020 COVID impacted again in the first half of this year. Obviously, the industrial action impacts what I'm really focused on is to get the service in a place where not only retention goes up, but we can actually grow the customer numbers. So I wouldn't want to be complacent and see any changes wouldn't have an impact, but I'd like it either the service is in a place where where the customers are coming to us, I mean, and we the retention rate rate as well. So don't anticipate any any impact there, but we do have work to do in terms of improving customer service. And with that, ask Keith to take the question on cash flow. Hi, Jenny. So I mean, and honestly, it's nothing particularly major that really comes to mind. I mean, on tax, we got a couple of rebates, particularly with regards to Norway and and Spurs. That's probably one thing. I've talked about the pain payment that we made, but then I'd also highlight that there's probably a couple of lumpy things to come. So, I mean, the key things that I would call out, the attention that we talked about as a potential, albeit unknown, you know, other things like the renewable certificates that Chris has spoken to in terms of the supply contribution in August, so that's another lumpy thing too. But no, nothing in particular. Sorry. If I may, just to follow-up, Chris, on Spirit. Highly unlikely, is that because there is the the need to add additional cash into a separate business because of the decommissioning liability? Is that is that is that why? Just trying to understand why, highly unlikely. And then just on the FCA, when you talk about retention rates and aiming to continue to have that high, presumably, the no price walking will hit margins as a result if you want to keep the retention rate high? So, so second question. So we we tend not to do what you would call, price walk. And we do give customers sometimes introductory offers, but we don't then auto renew and walk walk them up in in prices. So that's not something in part of our of our business model. So we we want you know, we've been identifying we're looking to have them here because we also have our own essentially, it's fulfillment. It's not just a settlement settlement policy. So what we tend to find is you get people good service, then to see. You don't get people good service, and they tend to go somewhere different. So the key thing for us is is not really start up with incredibly low prices and and walking customers up. It's about giving customers very good service, and and that's why the focus is on making sure the service is the right place, the things that we can control so that customers have empathy for the service that they that they get. On on Spirit, it's not about having to inject cash because I don't think it's the best way to realize value from from that business. And if you know the the reserves to to production by for that is is shorter than than an average e m e and p business. And and I think the best way to get value from from assets like that are probably through private sales rather than and to go out and and list something. Maybe something's got lots of growth opportunities, lots of growth projects that are ongoing, then then that's the thing that's traditionally quite easier to to list that you saw with, for example, Harvard Energy, with or backing into Premier. I don't think the Spirit has that same profile, but the real thing is that IPO is a lot, an awful lot of effort, and I don't think it's the best way to get the value. I don't think we need to to go down that route. Thank you very much. The next question is from the line of Elcin Mamadov of Bloomberg Intelligence. Please go ahead. Thanks for taking my questions. My first one is on your customer losses. I mean, the number of active UK suppliers keeps declining, yet you keep shrinking your customer base. When do you expect to stabilize your customer numbers and potentially even grow it? So that's question number one. The second one is on Newk's Dungeness b, it was announced that it would be shot seven years earlier that planned. Is this a one off event, or is it a more widespread issue? And what does it mean for your plans to eventually sell your nuclear stake? And the final question is on your energy services business. I mean, of your peers, notably Angie, is divesting it. Do you still think it's a good business to be in and why? Thank you. Okay. Thanks, David. So let me take The UK customer losses and and energy services and then Kate has responsibility for the nuclear business as you'll answer that one thing just at the back of your mind is, well, I think, some of the plans are closing earlier than current expectations. The life has been extended quite quite a bit. So if you look at when the expected closure dates were originally constructed, I think they've they've gone on a bit longer than we. And so but for energy services, we think it's very good to our our home energy services is very good. Suspect that, Lange, you're talking about the the BTD energy services. I think this is something where, in many companies, you have to focus on what you're good at and, and and get better at it and and do do more of it. We have good business there. In Centrica Business Solutions, we're not yet at at the level of profitability, but we've got, I think we've got a very strong business there that that can get, to to breakeven and then beyond to profitability. We don't have infinite patience with it, and we've got a lot of commercial focus to it in terms of how you you go after your orders and how you manage your your cost base. But but this is a business that we see real potential in others. We may not see the same potential in in in their business. We got to a point where we thought this didn't give a serial profit contributor to the group, then we would stop the activity. So there are there are no sacred cows in the in the company, but we see the possibility of this in a good business. And UK customer losses, we've been quite clear that the number of things that we need to do, we're making progress. So one of them is we need to have a more flexible system and a better way of serving our customers, which is why we've we've launched a new software software as a service platform. And we've now got 250,000 customers on that. We have a 100,000 at start of the year. We're testing and learning, and we're confident now we can do migration, taking customers direct on to the platform. We've migrated customers from our existing system, and we have migrated active five customers to now do this with the energy. So we are we're testing how how we can do that. We're increasing and confident and get the we've also need to have the cost to serve in the right place. The cost to serve has come down by 7% in this year, and so first half twenty twenty one versus from year 2020. Just bear in mind that within that, there is two pounds of fuel running costs. And the fuel running costs are gonna increase as we go forward as we bring more customers onto our new system, and we still have cost of the legacy system. So, again, we've got to balance the need for speed on on this, but also with the need to do this very responsibly. Give our customers a a good experience. So get cost to serve in the right place. You need to give your customer better service. We see some really good indicators in in in that, but I'll never be happy. And I can assure you, none of us will happy. Kate will be happy. Our chairman Scott will be happy until we see customer numbers going in the right way, but we have realistic. Doesn't just happen overnight, but but it but it's not something that we are waiting possibly to to keep it actively working this, but it's got to be the right customers, and and we've got to also see how the how the market can change that results. Although we've had a few supplier failures, we still have an awful lot of unprofitable suppliers in the market, and and we'll see how that comes out. Okay. Thanks a lot. That's very encouraging. Thank you. So if I just pick up the question on nuclear. I mean, as you'll be aware, Dungeness hasn't done for a couple of years. It was a difficult decision that we made with our partners to close the station. But Dungeness is quite a unique construct of a station. I think it's quite a long time to just come online in the first phase, and there were other stations started to build later and finished earlier. So it's always been a little bit tricky. And so hence, the the decision to close early. In in terms of read across, I mean, there are a number of ADRs as you'll be aware in the speech. So the key thing that, you know, both the regulator and and EDS monitor very closely is any issues with with cracking. I mean, that's just something that remains, you know, under constant review, but there's sort of no update certainly on any of those dynamics there as yet. And then Seizwell is, you know, a different, you know, complete different technology that is used while it's on outage at the moment, and that's been slightly extended. As per the image, we expect that it will come back in August as the latest information that we have. In terms of what this means from a from a sales perspective, I mean, I think we've talked about, you know, how we're thinking about holding nuclear in the portfolio, and Chris about this to some degree with regards to how we feel about the fit of nuclear and its carbon credentials. But more broadly, if I look at the nuclear portfolio for us, you know, there have been a number of uncertainties that we've been working through with EDF, both with regards to reliability of the fleet and also with regards to agreements with Bays. And the latter has been resolved, which we view as as very very positive. As, you know, EDX and ourselves, you know, work towards a fleet that will be smaller over time as these stations reach their natural end of life. So there's very key activity going on within, you know, the nuclear business to ensure that we manage the cost accordingly. Thanks a lot. Thank you. The next question is from the line of Bartek Kubicki of Societe Generale. Please go ahead. Good morning. I would like to discuss three issues, if you don't mind. Firstly, on the RAF and the conversion to hydrogen storage. I think this is quite a CapEx intensive program. I saw some numbers about 2,000,000,000 or more pounds. I wonder what do you think your sort of contribution to this could be in terms of amount of money potentially to be spent? And I guess this this is this could be one of the ways how you can spend your excess capital following the disposal of direct energy. And then also on this, what kind of sort of regulations or subsidies are you already, if discussing with the with the with the government, whether something like sort of regulations of this on the RAP basis would be something of interest. And then consequently, if you get RAP regulations or RAF regulations and you get whatever two, three, 4% return, if this is something which is of your interest as well. So maybe if we can elaborate on this one. Second one, a bit shorter on the legacy contract. Are you actually considering selling it and closing it earlier? So also one of the possibilities to to sort of use your, in my opinion, excess capital you are having right now on your on your balance sheet. And thirdly, on heat pumps, where do you think this could sort of kick start really in terms of installations in The UK? And whether you think this could be a game changer for your services business as well and basically given your your engineer fleet, whether you could be a clear winner here? Thank you very much. Okay. Thank you very much. Great questions. And actually, the rough question and Efom's question are linked, and then Kate can talk about the legacy contract. But I'll warn you in advance, and we're obviously not going to talk about what we'd like to do commercially with the contract. So look, on rough, the number I think has been quoted is in a very, very, very high level estimate, non engineering estimate is about 1,600,000,000.0 pounds to to convert rough to hydrogen storage facility. That's about 300,000,000 pounds to basically pull all of the steel out of the holes in the ground and re get and sell new steel because these are old wells. You need to have them running for quite some time. There's another 300 pounds, 300,000,000, 400,000,000 pounds on what we call the top side. So that's like the processing kit on top of the platform. So basically, the legs are fine, but you need some new kit on top. And then there's about another seven, eight hundred million pounds or so, which is about what's called cushion gas, and you need some you need something at the bottom of the reservoir. And so that's where you get full amount of money now. Maybe you don't need the the cushion gas would be beating. So if the price of beating is 80p a pound, it is just a lot more than the price is 30p a pound. So there's there's a huge amount of uncertainty there. And so I I would just speak those numbers. They're they're very, very rough ballpark number. What we said to the government is, first and foremost, The UK has the ability to store 1% of its annual gas demand. So ignore hydrogen. The 1% of annual gas demand in Germany can store 31. We'll say the government is actually the founding government, I'd be quite worried about that because it puts you at the mercy We don't have enough domestic gas to to meet demand. It puts you at the mercy of of supplying shops, and you see prices. You know, LNG doesn't come here. You see prices moving as we do at moment. So just first and foremost, security supply makes sense to have storage. Plus, this a great storage facility was a great storage facility. Then you see, actually, we think of the I think we need to do some engineering work to test our hypothesis, but we're we're fairly confident it can be quite quite good. So let me talk to the government and say, well, what can I support you? Because I don't think people are gonna spend this amount of money on a merchant basis, on a special basis, something that may or may not work. So we talked about the two main areas you could have for this would be, if you see, a regulatory asset based model on a cap and floor regime. And they both they work in a relatively similar way, but cap and floor, obviously, you can put down saving more upside. You've just got a bit more of a of a fairway. And so it's really down to, I think, government, see what do they think they're comfortable with. I think one of the tricks on it, I think, is if we wouldn't try and use existing frameworks rather than to try and propose And that that's something that's a bit different to be able to us today than us in the past rather than have some deep intellectual exercise as what could work. It's never worked before it takes longer. So if you can point to and there are capital of regimes and there are raft regimes. So we're just simply pointing to two possibilities to make it work. We haven't had any any confirmation from from government. It's really got to be done to them. And then when you get to what level of return, so you mentioned 2%, I I've struggled to lend the government money at 2%. So I think that would be quite easy. I think the recent vo-two or the recent vo-two settlement was 4.7%, 4.8%. If you think the risk free rate is two ish percent, and that's lower than our cost of capital just now, it is truly risk free, then if you consider it because, obviously, your cost of capital is determined by your overall asset. So all I'm gonna say is it has to be attractive for us. How much would we put in? I think the the real question for us just now is can we value from an asset that we've got? And the second order question, how much do we want to invest in it? Do you do we want to invest all of it? Do we want to invest some of it? Do we want to have a project finance vehicle? Do we want to leverage it? So I think there's loads of questions, but the first thing we've got to do is find out whether actually there is an investable option there. And if there is, then we'll we'll figure out. And I can assure you that we've got I'm looking at as I'm looking at Kate, it's no no easy to get money out of Kate, so it has to be pretty good returns to us to invest in that. But, really, it's about taking an option. The question on heat pumps, and I think the reason that the linkage is that the solution to The UK's decarbonization issue has to include hydrogen and heat pumps. It cannot be pure electrification, and it will not and cannot be purely hydrogen. 85% of UK's homes are are attached to the gas infrastructure, gas network. We have a network that works really well. We need to spend some money to adapt it. But bear in mind that The UK ran on hydrogen up until the mid seventies. Town gas is 55% hydrogen. And we were a hydrogen economy before, and we can be a hydrogen economy again. There's about 6,000,000 five and half, 6,000,000 homes in The UK that cannot state hydrogen. They should have heat. The heat pumps cost about four times three to four times as much to install and about 40% more expensive to run. So there's a cost implication there. The solution's got to be both. But for us, it's a great opportunity. Not heat pumps, overhydrogen, but heat pumps and hydrogen. Because the installation of a heat pump is something that we're very well pleased to do. We'll do about a thousand heat pumps this already doing it for trial and hybrid heat pump. We do it through social housing. We're doing the trial and hybrid heat pumps for their colleagues in West Midlands. So that's a a heat pump with a a very small gas boiler so that you can get some really hot water. You probably don't want it right now, but you might want to to hold back. So we are doing that at the moment. We see huge opportunity. I think the thing to be that, I mean, heat pumps are not new technologies. So France installed them 400,000 a year. If the government said they want to get 600,000 a year by 2026, that's a massive, massive offer. But there will be an issue with customer acceptance, customer adoption. There's quite a bit of disruption in the moment when you get one. That's a long way to We are in a great position, that the decarbonization of energy, the net zero transition is something that is a huge opportunity for us. And it will be a combination. It has to be a combination of electricity, gas, heat pumps, and hydrogen. Both of those present great opportunities for us. There are some nuances in terms of how you drive the the change, but but those are our threats that are more opportunities. So so I'm quite excited about the the future. And we continue to work with government regulators to point out what we think is right for the customer. We have to see this to the customer the customer's eyes, and we'll continue to push that. And in case we will see us more representing our customers' view. So rather than representing just company view, it's really what's good for customers. That's why it's good for us. So with that, I'll let Kate tell you why we won't discuss what we're going to do with the gas asset group contract. So I think this has set me up for a short answer. I mean, fundamentally, the gas asset book finishes in 2025, not specific to the gas asset book, but we look at all of our contracts with our portfolios as to what is the right of the special thing to do and the gas assets. And we have a follow-up question from the line of Mark Freshney of CS. Please go ahead. Hello. Thank you for taking my follow-up. Two follow ups. Firstly, on within The UK nuclear fleet, I agree the, you know, the UK government's agreement to take take the assets once they're defueled is is a big positive because it cuts out the middleman and some of the the risks of decommissioning and recovering cash from, what, a a government or a fund that hasn't got any money. But, regarding the reactors when they're defueling and once they've they've shut down, and we can see another couple of shutdowns, I think, next year, the date's already on remit, are those reactors going to carry operating cost? And will that weigh on the profitability of of The UK nuclear fleet? And just secondly, within EM and T, I think there was a tacit acknowledgement from from your predecessor Kate a year ago that, you know, Centrica was looking at at divesting parts of EM and T, in particularly the LNG and follow-up press speculation. Can is that something that's feasible? Can you talk about whether that's still under consideration? So Mark, it's Jimmy. Let me take some of the EM and T question and then we can touch on the nuclear question. Any good business keeps its entire portfolio under review. What we've got in EM and T is a really good business. And and I think probably what you're referring to was the LNG business. Wouldn't if we had a time again, we wouldn't have the senior contract. Not a great contract. However, we've got a really good team managing LNG. The business I've been about for many, many years. I wouldn't claim to be an expert in it, but I understand it well and I'm comfortable with it. I'm very comfortable with the portfolio that we've got in EM and T, very comfortable with the team that we've got. And they do based question, although there's a reduction in profit, I think we've disclosed that with the LNG was profitable in the first half of the year. We started behind the it started behind the eightfold, so we have got a really good team that started the contract that is out of money. And they have to work bloody hard to get contract in the money. Last year, they did an unbelievable job. This year, they did just an incredible job. So I'm very comfortable with with what we've got there. But but then it's about you know, our job is to create value for our shareholders. So we don't have a for sale sign up above everything. If somebody serious wants to come talk about parts of our business, then, you know, we we could well have a conversation. And I actually I worry more, but nobody wants to talk about parts of our business because it means it's not desirable. I I would love it if people were looking endlessly at parts of our business. Not to say we would get rid of it, but that would be a sign of a high quality business. But, Luke, hopefully, answered your question on that and give give you the the lowdown on the mute. No. It does. Thank you. Just in terms of nuclear, I mean, quite right. So Huntsman is point that our due closed in January, July '20 actually, Huntsman is on its final six month production run. Hinckley is on its second and final production run. And in terms of, you know, I I think your question is around look forward, really, in terms of how we think about nuclear. You know, in the current year, we weren't able to really benefit from the prices because we're hedged, but also because of the outages and the timing of the outages earlier in the year, means that hedges that were put in place, you know, needed to be bought back in order to make that good again. So, you know, if I look forward into into you know, the the things that, you know, we'd be monitoring would be price, you know, and the price which we're hedging also benefits from depreciation as the Dungeness closure has been decided earlier on. The other thing is what is to be to be aware of as well as just parts operating costs. And I think I've talked this a little bit earlier in the q and a. You know, EDF, you know, are are leading on, you know, a a cost strategy. You know, we're very alert to the risks of cost stranding within the nuclear business, and there is a program in place where we need. Okay. Thank you. The next question is from the line of Verity Mitchell of HSBC. Please go ahead. Good morning, everyone. I just got a couple of questions, and apologies if they've been answered already. One is just about retiring debt. You mentioned in the statement that you're actively looking at that. So, obviously, post the the pension settlement. But do you see that as being NPV positive? And should we be thinking that that's something that's quite likely? And then I just wanted to come back to, software as a service. I know they've seen some comment about it already, but I think my simple question is, why are you not migrating more customers more quickly onto this? Is there a is there a constraint, and should we expect a big acceleration of that as with some of your competitors who are using these lower cost platforms in the future, say, the next six to twelve months? Thank you. Verity, thank you very much for the the questions. So on the migration, you could migrate incredibly quickly, but you have to be careful that you get it right. So I prepare for us to test and learn. Test this in cohorts, find out what the pain points are, fix them before you aggressively migrate. I can't comment on what others have have done, but I can't comment on other things that I've done in previous companies, and you tend to the the system migrations, you know, act in hasty to repent of later. So you've got to make sure that you get it right, and and that's the most important thing. Now it doesn't take rocket scientists to figure out if you migrate at the rate of a 150,000 in six months. This is a ten plus year project. It's not a ten year project. You would see it'll be nonlinear migration. The the the the key thing really that we that we get this and we get it right. Maybe I'll hand it over to Gabe on the on the question of of the way I've always thought about debt retirement is never NPV positive. It's always NPV neutral. Now it can be earnings positive because effectively, and it's a it's private note, you have to have a make whole payment. If it's a public note, you have to buy it on the market. So, I mean, effectively, you pay the net present value of the future delta between the current interest interest rate. So really, will it ever be a net if the net present value positive, you have to find arbitrage opportunity in the market, and then you suggest that for the bond markets. That's the way I would always think about it, but it's far better than this. We'll give you our view on that. Thanks, Chris. I mean, with regards to debt, do have significant amount of process still outstanding, $34,000,000,000. Where we have debt that's holding due, then we're choosing not to finance that. That's the economic way of doing it. I mean, the thing really that we're also just looking at is what are the potential make whole cost that we need to outlay in terms of cash and from from a bond perspective, you know, everybody is looking for us to redeem these funds at a discount, which is is good, I guess, from the perspective that our credit is holding. So I think this is something that will be under review, I mean, as the balance sheet efficiency would always be under review. But I wouldn't look at it as being anything imminent. Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Chris O'Shea for any closing comments. Thanks very much, Haley. So just to say, thanks very much, everybody, for taking the time to watch the presentation to give us such good questions. I mean, just to wrap up, lots of moving parts, but stable profits, stable earnings. In many ways, a tough first six months of the year. Some of the, operational issues that we've seen, tough six months with the industrial action. But you can see from some of the operational metrics, we're seeing movement going in the right direction. So it's far too early to declare victory, but I am incredibly optimistic with the progress that we're making and about the opportunities that the net zero transition will afford to Centrica. We're incredibly well placed. Capitalized business. There's a there's a lot of work to do, but there is a huge market opportunity there. And, we've got great people. I think that they are starting to to to believe again. I'm sure that you all noticed our employee engagement was incredibly low level, higher than it was last year in Thailand. Think of all the change our people are going through that is quite something. We're still not where we want to be, but things are starting to move in the right direction. Thanks very much. Really looking forward to seeing all of you at the Capital Markets Day that we'll have on the November, where we'll be able to lay out more clearly the future strategy and the financial framework of the group. Thanks again.

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