Good morning, everyone. Thanks for joining at such short notice. Joined on the call today by our Group CFO, Kate Ringrose. It feels a bit like Today programme. It's Chris O'Shea in London and Kate Ringrose in Windsor. This is our second call in less than two weeks. As you can see, we're making a habit of it. Hopefully, not too many going forward. We don't like to disturb your morning when you're very busy. We'll move on to answer your questions shortly, but first, I'd like to just take a few minutes to make some introductory remarks. Hopefully by now, you've seen the trading update this morning. Our performance since the interims has been very good overall. We've seen strong volumes from the electricity generation and gas production businesses that we've got.
That alongside the reopening of Rough as a storage facility plays an important role in strengthening the U.K. and Ireland security of supply. Energy marketing and trading, optimization and route to market activities also continue to perform very well. These play an important role in storing, transporting, and balancing energy supply and demand across Europe. This is a really important profit stream for us, and we plan to hold a teach-in for you, a virtual teach-in on the energy marketing and trading business in early December, just to show you a bit more of the quality, both of the people and the business that we've got there, and to let you see a bit more as to how repeatable those earnings really are. I'll obviously give details of how to join that in due course.
Now, in the retail businesses, we've seen high inflation and broader economic weakness having an impact, particularly in the British Gas Services & Solutions business. Now, this is to be expected with inflation running where it is, then people are looking through and they're reviewing all of the different expenditure decisions. We've seen that impact on customer numbers in there. We're also not passing on inflation in our core services businesses to customers. We're absorbing the impact of that. Warmer weather also in October, you'll have noticed that it was unseasonably warm in October in the U.K. and Ireland, and that's impacted volumes and profits also in British Gas Energy. When you see the warmer weather, you see lower prices into which you sell volumes where you may have overhedged.
As a result of both of those things, we expect lower operating profit in the retail division than we did at the time of the interims. We remain acutely aware of the difficult environment facing many people, many of our customers, and we're committed to doing what we can to support those most in need. I'm really pleased that today, we're also announcing an additional GBP 25 million help for our customers. That takes the amount we've invested in voluntary customer support this year to GBP 50 million. A lot of companies are announcing support packages, which are actually amounts that are mandated at the end of a supplier license. We want to do the right thing for all of our stakeholders, so we put GBP 50 million in over and above what we're mandated to do. I just want to touch on the share repurchase program.
We said at the interim results that we'd continue to make efficient use of capital, and that includes the potential return of any surplus structural capital to shareholders. I'm really pleased that given our good performance and the strong balance sheet that we've got, that we're now in a position to be able to announce plans to commence a share repurchase program, where we intend to buy up to 5% of the issued share capital of the company. We plan to get going on this ASAP. This doesn't impact the ability to invest for future growth either in flexible generation, in opportunities to repurpose some of our infrastructure for net zero activities such as Rough and Morecambe, or in things such as hydrogen production. It is evidence that we're gonna be disciplined with our capital.
I've said this on many occasions to you, in Centrica and other companies, that it's very clear to me that we work for the shareholders. We deploy the shareholders' money. When we've got excess, we give that back to the rightful owners. I always like to do what I say I'm gonna do, so I am particularly pleased about this. It's. I know it's not been the easiest ride being a Centrica shareholder. It's been hopefully a bit better over the last couple of years, and this is maybe a sign that you can see that your money's in safe hands. Look, with that, rather than me drawing on, we'd love to get your questions.
Can pass over to Harry now, and he'll moderate your questions and pass them on to Kate and I, and we'll do our best to answer whatever questions you've got.
Thank you very much. If you are listening on a phone and wish to ask a question, please press Star followed by five on your telephone keypad. If you change your mind and wish to remove your question, please press Star followed by five. When preparing to ask your question, you'll be told that you are allowed to unmute. Please press Star followed by six to unmute locally, then introduce yourself and your company before asking your question. If you are listening on the Teams call and wish to ask a question, please press the Raise Hand button. If you change your mind and wish to remove your question, please press the Lower Hand button. When preparing to ask your question, please unmute yourself locally. To confirm, that's Star followed by five to ask a question via telephone and raise your hand via the Teams meeting.
Your first telephone question today is from Mark Freshney of Credit Suisse. Please press Star followed by six to unmute yourself locally.
Mark, are you there?
Mark, please press star followed by 6 to unmute yourself locally.
Mark, I don't know if you're asking a question just now. We can't hear a thing, so you might still be on mute. Harry, maybe we could move on to the next person if Mark's got some communication issues.
Certainly. Your next telephone question today is from Pavan Mayuranathan of JPMorgan. Pavan, please go ahead. Please press star followed by six to unmute yourself locally, Pavan.
Hey. Morning, guys. Thank you for the update and for taking the call. I have three questions, please. Firstly, on services, how are you looking to sort of mitigate the negative impacts? 'Cause it feels like it's becoming, the weakness is looking to be more structural and by that, I mean, you're losing customers. So how are you mitigating the impact in the near terms, and do you think you can get those customers back? Secondly, looking at supply, is the main driver of the weaker result expectations this year just lower volumes? Is there anything we should be aware of?
Finally, in terms of when you think of your outlook, and, you know, you're clearly quite confident to be doing a buyback heading into this winter, my question around that is, have you taken any view on upcoming windfall taxes or an announcement or what's your latest thinking around that, please? Thanks.
Pavan, thank you very much for the questions. I'll try and do my best to answer all three of them. Take the last one first. We've not taken any view on that. That's for the government to decide. Obviously, we're subject to a windfall tax already in our gas production business in the North Sea. you know, we've made clear our view to government about how you encourage investment and how you discourage investment, and we leave that up to them to make their decision. On supply, obviously, the warm weather has impacted on the quantum of gas. This is more an issue on gas. There's two things. One is you get lower volumes consumed.
As a responsible supplier, we obviously hedge our books so that when we make a commitment to sell to somebody, we've locked in that price. There's always a weather risk in this business, so weather when it's too warm, you may be overhedged because the demand is low, and you have to sell that back into the market. We've seen softness in the front end of the curve. Obviously, where we bought gas at X, we'd be selling at X minus because you sell into the within-day market. That's the same for any supplier. That risk exists on the upside and the downside. If it's too warm, and you've got too much and the price falls, you get hit.
If it's too cold and people use more and you've not bought enough and the price goes up, then you get hit. It's always been the case. I mean, the weather risk's a bit enhanced at the moment in the higher price environment, but that's, those are the two things happening there. Look, in services, when you say structural, I mean, I think this is more temporal rather than structural. We've obviously seen issues in terms of our service levels, and we've invested quite a bit of money this year and effort in getting our service levels to the right place. I'm really pleased with what the team's done.
Obviously, with inflation running as it is, people are looking and they're making buying choices, whether it's trading down or whether it's actually canceling their cover. The other thing to bear in mind is that when you see a real correlation with weather, when it's warm and you're not using your boiler, you're less likely to buy boiler cover. It's not always something that people say, "I want to buy this, and so I'm gonna do it no matter what." When it then gets cold and we see a cold spike, and we see this in our daily sales numbers, people are more likely to buy that. I think this is more temporal rather than structural.
I think we have to be realistic and say that this is gonna last for the duration of what people call the cost of living crisis. Now, how do you mitigate that? What we would've done in the past is we would've gone into slash and burn thing and cut costs and damaged customer service and chased more customers away. What we do with everything, as you see with the share buyback, is we try and manage for the long term. We're gonna make sure that we cut our cloth accordingly, but what we're not gonna do is we're not gonna make short-term decisions to prop up in-year profitability. This is a great business which has got a super long-term future.
It's in a turnaround, you know, like as Centrica was in, and it will take, I think, a couple of years for us to see the full potential of this business. We're gonna continue to invest in customer service. We're gonna continue to invest in giving our customers what they want. We're probably gonna have to try different propositions. I think that maybe in the past we've been a bit overly focused maybe on what we call the insurance product at the detriment of what we might call on-demand. You know, you can buy a year subscription, we'll fix your boiler, and that's fine. We probably have to get a bit more into the boiler breaks down, you give us a call, we get someone out same day to get that fixed.
I think there's gonna be some more, there needs to be some more commercial innovation in there. I want to make sure we do the right things for the long run rather than prop up in-year profitability.
That's very clear. Thank you, Chris.
Thanks, Pavan.
Your next questioner has had their line opened. Please press star followed by six to unmute yourself locally, then introduce yourself and your company.
Hello?
Hi, this is Deepa Venkateswaran from Bernstein. Can you hear me?
Hi. Can hear you, Deepa. How you doing?
Good. I had one question, which is the follow-on from the Rough storage reopening. How much of the upgrade to the 2022 earnings is coming from your usual upstream and nuclear versus the Rough storage repurposing? Or should we actually expect most of the Rough storage repurposing earnings to come next year? I think that was my main question. The second one is obviously, you've announced all of this customer support of GBP 50 million, but still, I'm not so sure that the tabloids and the others will take this buyback all that kindly. Can you just explain the thinking behind wanting to return that capital amid what might lead to a lot of scrutiny? Thank you.
Yes, sure. Deepa on Rough, all of the benefit of that in 2023 than in 2022. What we're doing just now is filling the facility in order for us to have gas when people need it, when it gets really cold, not much of this is Rough. Look, on the tabloids, I mean, that's something we could spend an age talking about. I've always taken the view that I have to run the company for all of the stakeholders. I work for the shareholders. We've got over 500,000 shareholders. We've got more than 10 million customers. We've got 20,000 amazing colleagues and obviously we've got other stakeholders.
My focus is on our 10 million customers, our 20,000 colleagues and our 500,000 owners. The public are a key stakeholder, but that's in terms of the public being our customers. I'm hopeful. I'm always hopeful the press will write the right story rather than try and write something to get some clicks on a Twitter page. You know, I'll leave them to their job. The journalists don't really. They shouldn't really factor highly in business decisions, if you think.
Okay. Thank you so much.
Thank you very much. Your next question today is from Mark Freshney of Credit Suisse. Please unmute yourself locally and go ahead.
Hello, can you hear me now?
I can hear you now, Mark. How are you doing?
Yeah, good. Hey, I've got a couple of questions. My first question is for Kate. I mean, you've had a little bit of a benefit on your GBP 3.5 billion of gross debt, right? In that debt was financed at very expensive rates, and given the rise in yields, that debt is a lot cheaper now to buy back than it would otherwise be. My question is, why have you not launched a tender offer to buy back some of the debt? Because arguably, that may offer even better, God forbid me for saying this, but even better value than the equity. And secondly, just on the services business, I mean, there were some operational issues with COVID, some of the labor relations issues, which were weighing on profitability in previous years.
I just wondered how those things are now being resolved. Thank you.
Mark, thanks very much. Let me take the second question and then touch on the first question before handing over to Kate. The operational metrics and services, I'm really happy. I'll give you a couple of examples. I think a year ago we were probably rescheduling 10, 12% of appointments. Last week it was 1.9% appointments rescheduled. Now, a lot of those appointments, the 1.9%, were actually within days. They're saying, "Look, we're stuck at a job. Rather than be with you by one o'clock, we'll be with you by three o'clock." We count that as a reschedule.
You know, a year ago it was saying, "You know, we're not gonna come on Wednesday, we're gonna come on Friday." We were pissing our customers off. Another one is that we have very strict tolerances in terms of when do we get priority calls, how quickly, when do we get to second level priority, when do we get to third level priority. All of our operational metrics are within tolerance. As you know, we're regulated by the FCA in this business. The work the team's done has been absolutely fantastic.
Now, we have prepared, for example, for a one in five winter, and it's a bit warmer at the moment, and so we are deliberately carrying excess capacity because I think what we've been doing in that business for years has been running too close to capacity and not really planning the work and balancing things as well. You know, when you sell a premium product, you better bloody well give the customer the premium service. So I'm really happy with where the operational metrics are. But I think we're, you know, we're seeing like many people, customer behavior, customers have prioritized their spend. The other thing I'm happy at, we have actually gained market share in boiler installs. Now, it's not huge market share that we've gained.
It's, you know, maybe it's, you know, 50-100 basis points. The overall market is down. I'm always trying to look and see how are we doing in absolute terms, but how are we also doing against the market? Again, there's a long road in this business. Another couple of years, I think, for this business really to get firing on all cylinders. We're setting it up for the next 20 years rather than, you know, in the past it might have been the next 20 weeks. I feel comfortable with the operational metrics, but I feel deeply uncomfortable until this business is back making the kind of profits that we saw in the past. Then I'll hand over to Kate on the debt buyback.
I would say that, you know, obviously we look at all of these things and some of the debt does look a wee bit expensive, but it looks a lot less expensive than it did a year ago. You think about it, when we've got investments to make, and we do have a clear line of sight on a number of investments, do you want to go into the bond market and buy back your debt and then go into the bond market and maybe issue new debt? We've got to think again. We're always thinking kind of 2, 5, 10 years ahead. Let me hand over to Kate and see if she's got anything to add to that.
Mark, hi, good morning. I think Chris has covered the high level principles of this. I mean, rest assured this is something that I continue to look at and will continue to look at, as you would expect with good balancing discipline. With the rates that are out for us, also earning more on our cash than we did before. Yes, there's an improvement versus where we were a year, but it's got to be balanced as well by the cash that's invested. There is still a meaningful range in terms of the coupon rates that we have available to us, but we continue to keep this under watch.
Very clear. Thank you very much, both.
Ladies and gentlemen, if you would like to ask a question, please press the star followed by the five on your telephone keypad, or raise your hand in the Teams meeting. Your next questioner has had their line opened. Please press star followed by six to unmute yourself locally, then introduce yourself and your company.
Hi there. Can you hear me?
Yep.
Morning, everyone. I just wanted to come back onto the buyback and just understand the thinking around that. Firstly, can you just indicate how long you would expect it to last for you to be able to complete the 5%? Then when you get to the end of that, what conditions will you be looking at to decide if it should be extended or expanded? Then finally, why a buyback versus doing something with the regular dividend?
John, thanks very much for that. Depends. Obviously, you know, depends on the market, volumes, but, you know, probably the quickest we could do this is about 3 months. You know, it could take 4, but it depends really on volatility that we see in the market. In terms of expansion, I think this is the first buyback in about 9 years. Let's get this one done then we'll look. I mean, we as a board, and we met as a board this week, we as a board are always looking at what's the capital framework of the group? What capital do we have? What capital might we need? How do we make sure we've got the right buffer?
I mean, I've always been really clear that whether as a CFO or as CEO, that I like to sleep at night, and I like to make sure that we've got enough liquidity, enough facilities available, enough cash, enough capital, so that we're never forced into making a decision. That all the decisions we make, we make through choice rather than through circumstance. Give us some time, but hopefully this is a very clear demonstration of when we see that we have excess capital, and we can afford it, we want to give it back to shareholders. Look, then in terms of the regular dividend, and obviously, you've got a regular dividend, which we want to be something that we can grow over time in line with underlying earnings.
When you've got chunks of capital, you think, "You know what? That, that's probably spare from a structural point of view," then I think the best way to do that is to give it back to shareholders. The most efficient way or judgment is the most efficient way was to do it through a buyback rather than necessarily through a one-off special dividend. No doubt we'll hear from our shareholders as we talk to them as to what their preference are. It's our judgment is this was the best way to do it.
Okay. Thank you.
Thanks a lot. Thanks, John.
Your next telephone question is from Bartek Kubicki of Société Générale. Please press star followed by six to unmute yourself locally.
Hello. Good morning.
Hi, Bartek.
Just one thing. Very good. Thank you. Just one thing on this weather risk you discussed at the very beginning. Just putting a thesis here, and please let me know if you agree or not, because this winter may be peculiar in the way that people may have in mind that storage levels of gas will be very low at the end, and it will be more challenging to fill them up for next winter. Consequently, if there's any demand destruction or warm weather, it will be used by traders to fill up storage sites. Consequently, there will be an additional demand which will put gas prices up.
My question is whether you will agree that this year, the sort of demand destruction, mild weather risk is a little bit different than in years before because prices may stay up? Or you think this winter will be like in previous winters, mild weather means lower prices, you will potentially lose money on unwinding your hedges? Thank you.
Bartek, it's a great question. As with everything, there's a bit of a multilayer of answer. It depends how full storage facilities are when the warm weather comes. If you think about trying to push gas into a bottle, when the bottle's empty, you can push the gas in easier. When the bottle gets more full of gas, the pressure increases, it becomes harder to push gas in. Storage levels in Europe are, I think, 90% plus full. Right now, where you've got a warm front, if you look the, you know, last night the price for today was about GBP 0.90, and the price for December is GBP 2.70. The price for January is GBP 3.14, February GBP 3.21, March GBP 3.14.
You do see this softness in the front end of the curve when you've got warm weather. Now, if we get quite a cold snap and take stuff out of storage, then we get a warm snap, you'll be able to put that gas in. As I'm talking pan-Europe rather than UK, you'll be able to put that gas into storage, so you should see some amelioration of that price impact. If the storage levels are so you need to look at the storage levels before you understand where the gas can go. In Europe, quite full. We're obviously putting into Rough at the moment in the UK. But you know, the UK's got 90 days of storage. You know, the Netherlands has got well over 100 days.
France has got over 100 days. They're all full, but if they take that out quite quickly, then you could see some propping up there. Other than that, you'd expect to see the same kind of weather risk. It's actually a bit heightened this winter because obviously with the prices being higher, to start with, then your risk is higher as well, on the upside than the downside.
Okay.
We have a follow-up question from Mark Freshney of Credit Suisse. Please unmute yourself locally and go ahead.
Hello. Thank you for taking my follow-up. A question for Kate, just on technical reporting. I mean, as I understand, as I imagine it, the remainder of the Spirit business, the cash flows are effectively locked up until they cover one and a half times pre-tax decommissioning. My question is, will you present an earnings number excluding the profits from Spirit, which in any event is very short-lived? Of the upper end of the range in the guidance upgrade that you gave today, how much of that 25 GBP maintains to Spirit?
Mark, can I take a little bit of that first? The line broke up a little bit, so apologies if I get the question wrong. There's two things. One is some of Spirit Energy's assets are relatively near life. If you take Morecambe, for example, we expect cessation of production in Morecambe to be about 2027. Obviously, this depends on price, technical life extension. For example, if you take Cygnus, we expect that to go into the 2030s. Although Spirit Energy has got, I think probably six years reserves to production life, that doesn't mean it's got six years to go. It's got. You can see line of sight for another maybe 15 years or so now.
You know, if prices get incredibly low, as you know, then you bring forward your shutdown date 'cause, you know, it's very clinical. You know, are you making money or not? I mean, so on the question of would we present earnings separately, what we said is the group, the structure of the group is one that we like. Now, that's not to say that it's never gonna change, but we spent quite a bit of time getting this group in the right shape, where we've got our retail businesses, our optimization businesses, our infrastructure businesses. Spirit is a core part of that. I would like, and Kate keeps me very honest in this, I would like to have our reporting as simple as possible. Now, I'm gonna get a row from. I can actually, you can't see, I can see Kate.
I'm gonna get a row for saying this, but you can back solve Spirit by looking at the minority interest in the group. You've got the information. You know the share that SWM have got. I think, I believe it's called non-controlling interest. Now I'm an ex-finance person, as you know, so I used to call it minority interest. You can kinda back solve through that. No, I wouldn't want to kinda represent something saying, "Here's the group. Here's the group ex Spirit." Because that's not how we think of the group. I'll be with the team in Aberdeen tomorrow to go through some of the stuff that they're doing. It is a core part of the group, and it's managing well.
Now I'm gonna hand you over to Kate who can take any of the technical questions, but also will tell you quite clearly, we're not gonna give you a breakdown of how much of this is Spirit and how much of this is other places are. I'll save her having to be rude. I'll do the rude one. Kate, hopefully I got that right. If I didn't, get up to date, Mark.
Yeah, no, spot on, Chris, one of the many advantages for working for an ex-CFO. With regards to cash, I mean, I think you talked about just a bit of clarity, Mark, in terms of how we're dealing with that cash. It's basically a restriction to dividend out of our Spirit such that we make sure that that entity can cover decommissioning in the long term. With regards to, you know, the consolidation of cash, how it's used to contribute to margining, et cetera, you know, that's absolutely part and parcel of the flow of cash on the balance sheet. I think just a little bit of clarity there.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press the star followed by the five on your telephone keypad, or raise your hand in the Teams meeting. This concludes our question and answer session. I would like to turn the conference back over to Chris O'Shea for any closing remarks.
Super. Harry, thanks very much. Thanks again, everybody, for joining. As I say, second short notice call in two weeks. Hopefully you, as you see, we're giving you notice, a bit of advanced notice, come along and learn a bit more about the energy marketing and trading business, in early December. We'll get the invite out to that very shortly. We're really keen to continue a dialogue to help you see the quality that we see. I want you to see the quality that I see in the underlying businesses. Just to recap, strong performance, strong cash position, strong balance sheet, strong liquidity. As I say, we like to do what we say we're gonna do.
Returning money to shareholders through shrinking the capital by 5%, we think is the right thing, but we're also looking to take care of our other stakeholders by putting another GBP 25 million into a support fund for those of our customers who need it most. I hope to speak to most of you, if not all of you, in a few weeks when we can learn a bit more about energy marketing and trading. Thanks everyone. Hope you have a good day. I know you've got a busy day today. You've got other results. I am really grateful that you found the time to dial in. Thanks, everybody.