Centrica plc

As usual I'm joined by our CFO Russell O'Brien and we've got our leadership team and our chairman sitting in the front row so if you get any really difficult questions they would be delighted to take them at the end of this. So we set out several years ago to make Centrica a higher quality more predictable business and that journey continues and in the face of sustained volatility around the world we've made more progress in the first half of 2026. Investing to support huge growth and power demand pivoting the portfolio towards more stable earnings and improving our commercial performance across retail. Now not everything's gone our way. The Middle East war has weighed on Centrica Energy and some of the delivery has been slower than I would like. and right across our portfolio, the job is far from done. You can see that in the numbers. Retail's not yet growing as we want it to and EPS is a little bit lower year on year. But that comes as we ramp up our transformation programme. We're investing in change that will set Centrica up for the future. We invested 90 million pounds in the first half, which is over a penny a share. If you strip that out, EPS would have grown 8% year on year. Our operational foundations are strong. Our product range is expanding. Our growth pipeline remains rich even after the significant investment over the past couple of years. Now our targets are ambitious, two billion pounds of EBITDA and doubling EPS by 2030. But by remaining nimble, driving transformation and keeping a clear eye on what we want Centrica to look like in the long term, I'm really confident that we can deliver these targets and grow further into the next decade. Unprecedented growth in power demand is a defining theme for the world over the coming years. It's a once in a lifetime opportunity driven by electrification and the growth of AI. The investment required to meet that growth is truly huge. It's over 3,000 billion pounds over the next decade just in Europe. And that's a huge opportunity for us. It's an opportunity to harness AI to become much more efficient. And it's an opportunity to grow by delivering the energy our customers need to power more data centers, more advanced manufacturing, more economic growth. But it's not just about building new capacity. It's about linking up generation with bespoke tariffs and services that give consumers what they want. It's about managing energy flows to optimize the system. It's about assuring that energy is affordable, that energy is secure and energy is sustainable to drive that economic growth. The companies that do that will be the real winners and at Centrica we're uniquely positioned for that future. Think about what we can see. A generator can see wholesale prices. A retailer can see demand. A trader can see market flows. We see all of this at once, updated in real time by millions of connected devices, millions of smart meters, and a global trading operation. and that means that we generate more data and more insight than our competitors. That sharper insight means better decisions and better decisions win us more customers and more assets. That's the flywheel and we see that playing out every single day. By combining our customer relationships, our trading expertise and our infrastructure capabilities, we can offer things our customers want, our partners value and crucially, that our competitors are unable to match. That's how we turn our strategy into earnings growth. It's how we create value for our shareholders. So enough from me at the start. Our very capable CFO, Russell, is going to take us through the numbers and then I'll come back to you and talk a bit more about the strategy. Russell, over to you.

Thank you, Chris, and good morning, everyone. Let me start with the headlines from the first half. We've delivered solid numbers in a volatile market, demonstrating the resilience of our business. and we continue to deploy our balance sheet and strong financial platform to execute our strategy. So to the numbers, adjusted EBITDA was 737 million pounds down versus last year and adjusted earnings per share was 6.8 pounds. After factoring in a step up in investment, we had free cash outflow of almost 600 million pounds, which led to a net cash at the end of the period of just over 700 million pounds. and with the balance sheet remaining strong and confidence in our underlying earnings trajectory, we continue to progress our shareholder returns, raising the interim dividend by 9% to two pence. Now let me just unpack some of those numbers in a bit more detail. Retail EBITDA of 346 million pounds was slightly higher than last year and optimization generated 87 million pounds and I'll come back to both of those in a second. Infrastructure EBITDA of £355 million was down by £150 million versus last year. Over £100 million of that though was driven by the Spirit Energy disposal, while production outages and lower nuclear realised prices were also headwinds. At the same time we saw strong year-on-year gains across the map, grain, LNG and size we'll see, and those areas will continue to build predictably over time, having generated almost £90 million of EBITDA in the first half. Lastly, Ruff contributed EBITDA of almost 60 million pounds as we kept our focus on costs and produced unhedged indigenous gas which captured higher prices in recent months. We won't see a repeat of the performance in the second half as lower reservoir pressure naturally reduces production. As always, you'll find more detail on business performance in this morning's release. In retail, EBITDA was marginally higher than last year, reflecting stronger operational performance and favorable price effects, offsetting a step up in transformation investment, higher bad debt, and a more normalized result in business. And while the weather was significantly warmer than normal, it was only a small headwind compared to last year. And in the end, this was offset by selling excess commodity back into a higher priced market. Given the shape of the commodity curve, however, we expect a negative earnings impact in the second half of the year and therefore more of our retail profits than normal falling into the first half. Bad debt remains an industry-wide challenge and our charge of just over 4% of revenue is still elevated. We're not happy with that. So while we expect this cost to be socialized and recovered over time, we're laser focused on improving our performance. And as you would expect, we continue to press Elfgem for more proactive steps on the non-payment of bills. Now the movements we've seen in the first half speak to the essence of home energy supply. Short-term mismatches between revenue and costs offset by through the cycle predictability with a regulated underpin and you can see that in our margins in the slide which are broadly in line with the price gap since it began. Our focus here is firmly on value over volume and I'm pleased we're moving in the right direction with customer satisfaction up and greater engineer productivity. Moving to Centrica Energy, which remains on track to deliver its failure guidance. Gas and power trading had a good first half, capturing value from structural volatility across asset-backed and algorithmic strategies, although pricing driven by non-market fundamentals still proved challenging. Our renewables route to market business, RETO, also delivered a solid result. But LNG is a more complex story. Profitability was lower in half one, partly reflecting normalized commodity prices and partly reflecting a conscious decision to delay cargoes into the second half to maximize value. Although disruption caused by the Middle East crisis created price dislocations and volatility, it also led to Asia temporarily buying less LNG and disruption to shipping and insurance markets. So combined with our fully hedged physical portfolio, this meant our ability to capture additional value was limited. So for the remainder of the year, we already have good visibility on LNG shipments and in retail, which is a more rateable profile. And alongside what we're seeing in gas and power markets, we remain confident in our guidance of around 250 million pounds of EBITDA for 2026. Looking further out, the conflict does have implications for 27. Centriga Energy's portfolio was positioned for higher global LNG supply and weaker gas prices, a gas glut. The conflict in the Middle East changed the market significantly. As the risk-reward balance evolved, the team reacted and repositioned our portfolio, exactly what a prudent approach to risk management looks like. But the same actions that protect the downside mean we've reduced our exposure to upside opportunities across the portfolio. Combined with continued volatility driven by news flows rather than fundamentals, that means we currently expect our value at risk to remain muted for next year. Now, while there's a wide range of outcomes, that means we currently think EBITDA is likely to be around the level we delivered in 2025 and expect to deliver this year. That's frustrating but if conditions change we're ready to react and we continue to develop our underlying capabilities driving long-term value. Expanding our reach in gas and power, further asset growth in RETO and new long-term LNG deals in Mozambique and at DELF in later this decade and that's why we remain confident in the longer term outlook and earnings going to three to four hundred million pounds by the end of 2028. Our transformation program is now well underway and underpins our outlook. As promised we wanted to give you the tools to assess our performance and be transparent about the associated costs. We don't treat these as exceptional and by doing it that way our teams remain focused on maximizing value from every pound spent. Although that of course means that today's results reflect costs that will support growth for many years to come. So how are we doing? In the first half, we'd invested just over 90 million pounds, including 20 million pounds of capex, a significant step up from our normal run rate. We've got several programs on the go, and most of those are multi-year journeys with benefits building over time. But some, such as the 1,300 role reductions we've announced across the group, are more immediate. Operating costs were down 3% year on year in nominal terms, giving us confidence that the targets we laid out in February are on track. 500 million pounds of underlying savings with flat nominal costs to 2030 and we're doing everything we can to accelerate delivery. The first half highlights the importance of a resilient balance sheet that allows us to absorb market shocks and take advantage of opportunities. Working capital is an outflow largely driven by retail with no offsetting really some gas storage inventories that we'd normally see. We already run an efficient working capital position but see a number of opportunities to improve further and we've got several projects in the works for the second half of the year. Investment tripled year on year including the £370 million on Severn and further investment to size we'll see in the map. Three great examples of more predictable contracted infrastructure portfolio. Alongside the other movements you can see this led to a free cash outflow of £570 million and a closing net cash position of £709 million. Now to the full year outlook, 2026 expectations are largely unchanged from the AGM statement in May, so I'll be very brief here. No change to either retail or optimisation. For infrastructure, performance is expected to be above our previous range given higher prices, so we've updated that for you here. With the phasings I've mentioned in retail and optimisation, we expect group earnings to be weighted to the first half. and following the acquisition of Severn, we now expect investment to be around 1.1 billion pounds this year. So to summarize, our performance in the first half was solid. There are still plenty of areas we need to improve and we remain focused on the areas we can control to maximize long-term value. Our transformation program is moving at pace and we're continuing to invest into assets that will be the new bedrock for the group. We're putting the building blocks in place to deliver on our targets, support our progressive dividend, and create long-term value for shareholders. With that, let me hand back to Chris. Thanks, Russell.

The trends shaping the energy system remain clear. Number one, greater electrification. Number two, more intermittent generation. And number three, growing customer engagement. There is no economy without energy. It's the foundation that everything's built on. and as we speak this foundation has been rebuilt bringing with it a once in a lifetime investment opportunity. The demand growth that's coming is truly huge. UK electricity demand is set to grow for the third straight year and it's forecast to increase by 40% by the middle of the next decade. And yet despite all the investment being announced, dispatchable generation capacity is expected to stay flat and perhaps even decline by 2050 as existing generating plants reach the end of their lives. Increasing system risk and constraining economic growth. So this isn't about choosing between nuclear and renewables or batteries and gas. The need is so much greater it calls for an everything, everywhere, all at once approach. If we're serious about making energy affordable, and Secure. Now no one can be certain about the exact path but my job, our job at Centrica is to make sure that whatever route we end up taking and at whatever pace we end up going we're setting the company up to deliver for our customers, for our colleagues and for our shareholders. That means building a portfolio that's resilient and adaptable with the people and the capabilities to navigate a fast changing environment. It's about remaining disciplined and laser focused on value in every single thing that we do. We've taken some important steps this year that fundamentally strengthen our group for the future. The acquisition of Severn brings another large high quality dispatchable CCGT into the portfolio. The type of asset that will allow renewable penetration to increase by providing a reliable safety net. In return, we get earnings with a contracted underpin and upside optionality as volatility grows. And those are exactly the traits that we look for when we invest. And since we've got the keys, very, very tight market conditions mean that performance has been much better than we expected, underlining the value of combining the right asset with our operating and trading capabilities in a fast changing market. We've also been working hard to reposition our existing assets and I'm delighted that many months, in fact many years of hard work have paid off recently at Sizewell B. A contract for difference turns merchant exposure into predictable regulated earnings for decades to come and that starts in 2035. It delivers attractive value for us and it guarantees much needed base load power for the grid well into the 2050s. and we're delighted that we've also been able to announce yesterday the extension of the lives of Haitian One and Hartlepool again by another two years and now they're aligned with the rest of the advanced gas-cooled reactor fleet. I'd hoped to be able to talk to you today about redeveloping Ruff. It had a good first half but the position cannot be sustained and we're at the limit now of what this asset can deliver. Without a support framework in place, we've not injected any gas into the reservoir this summer. The reservoir pressure continues to drop. And by this winter, RUF will be close to empty, almost exhausted, producing less than 2% of what it could deliver if it was redeveloped. If it was redeveloped, it could do 50 times more than it will do this winter. And we continue to discuss RUF's future with the government. To me, it remains a compelling opportunity for the country and it would deliver significant investment and thousands of skilled jobs during the construction phase in the east of the UK but the window is narrowing. Our current production consent expires in April next year and we do not currently intend to ask for an extension. That doesn't close off redevelopment but it does underline the need for a prompt decision. Our position is consistent and we will be guided by value. I truly hope that we can reach a positive outcome later this year. Ruff is the UK's largest gas storage asset. It provides half of the UK's current gas storage capacity. And it's the UK's biggest hydrogen storage opportunity. But it's not simply a commercial decision for Centrica. And losing it would not only be a bad outcome for us, it would be a strategic and major loss for the UK. We continue to make good progress on our organic projects. We've now invested more than 400 million pounds into Sizewell C and our meter asset provider continues to beat our expectations with an unrivaled growth pipeline. It's clearly the best growth pipeline in the UK. Recent comparable transactions tell you this business is already worth well over a billion pounds. That's on the back of us investing around half a billion to get here. That's real value creation in assets that will underpin our business and our cash flow for years to come. These aren't one-offs, they're a deliberate pattern. Looking back to where we were in 2023, you can see how far we've come. We've recycled capital out of legacy merchant assets into critical infrastructure with far more predictable earnings, pivoting North Sea merchant gas exposure into highly contracted assets like grain LNG. and building a power portfolio heading towards four gigawatts, underpinned by capacity market contracts, by CFDs and by the RAB we've got at size we'll see. Our Irish speakers will begin running shortly and they'll be fully commissioned later this year, but they are late and that shows that we still got work to do as we rebuild our delivery capabilities and we've been working hard to ensure that we do better in the future, including at the planned station at Cashline Galway. We're continuing to grow our longer term options. As the grid gets more constrained, our customers are more willing to consider a much broader range of options than they ever have been before to secure the energy that they need. Waiting patiently for a good connection is no longer the only choice they have. That's creating very exciting opportunities for us. We're building on several fronts. The leading UK nuclear pipeline through Sizeable Sea and our ExEnergy partnership. private wire and data center co-location opportunities and our fuel cell partnerships to support behind the meter power generation opportunities for us to deliver practical solutions for our customers faster connections secure long-term supply decarbonized industrial heat and at the same time generating attractive returns for our shareholders by prioritizing only the best projects from a deep deep pipeline of options Now a great physical portfolio gives you the right to participate in the market but the value that you create depends on how you operate that portfolio and although we're facing some headwinds in Centrica Energy right now the foundation we've built and that we continue to improve gives us confidence in the long-term outlook. The standard approach in energy trading is to buy technology, pay a vendor, get a platform. Then you've got exactly what your competitors have got. We took a different decision over the years. Kasim and his team have built our own in-house platform, bringing together data and insight from across the group to automate back office tasks, to improve controls, and to give our team faster, more consistent insight. That is a massive, massive efficiency gain. But even greater value comes from what we can do with that foundation. By building our own proprietary tools, we're now a more innovative, responsive partner to our customers, and that allows us to better optimize our own positions. that's a key driver of the growth in retail and it's the basis for what we're doing in algorithmic trading building on our existing capabilities to optimize physical positions in real time adding another layer of return to the underlying trades that is super hard to replicate and it's a core part of the flywheel that I was talking about earlier our retail business is where much of our transformation will show up and there's real value to unlock there More commercial innovation backed by exceptional service and more efficient operations. There's much, much more to do, but we're starting to see this coming through. Take our core business. In February, we told you how we turned boiler installs from loss-making to profitable. With the foundations fixed, we've pushed harder commercially, and we're driving even better performance. Now, the changes are not complicated. We'd always accepted that boiler installs are a seasonal business. Demand is lower in the summer. So we advertise in the winter. But with modest marketing investment, we grew sales 20% in the warmest June since records began. And over the first half as a whole, sales were up 11% against a market that's down. More sales, more efficient use of our engineers. That's the impact of thinking differently. And it's a model for expanding into markets built on emerging demand. In April we launched nationwide air conditioning installs alongside an in-store partnership with Curries. Early demand is very encouraging. With warmer summers now seemingly the norm, being able to offer both heating and cooling will be a growing competitive advantage for us. Partnerships like that and with other OEMs for warranty servicing for example are a key avenue of growth for us. Adjacent markets with a strong outlook and very very attractive margins. Our digital first British Gas membership has now passed a million members, with around 15%, one in seven, already converting to paid products, and that's in just a year. It's a strong conversion rate today, but the bigger prize is reach. As we roll this out across our customer base and beyond, we can speak directly to millions more people. Every single one of them a route to cross-sell, every single one of them a route to grow.