Centrica H1 2026 Earnings Report

Centrica EPS Results

• Actual EPS: GBX 6.80
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Centrica Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Centrica Announcement Details

• Quarter: H1 2026
• Date: 7/23/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, July 23, 2026
• Conference Call Time: 4:30AM ET

Centrica (LON:CNA) is energising a greener, fairer future for our colleagues, customers and communities. Our integrated business operates across the energy value chain, with over ten million Retail customers, leading brands such as British Gas and Bord Gáis Energy, and the UK’s largest energy services workforce. Our Infrastructure businesses bring gas and electricity to the market every day and provide more than half of the UK's gas storage capacity, while our Optimisation business delivers world-class procurement and route-to-market capabilities to the Group and third parties, supporting energy security and our customers' decarbonisation journeys. By focussing on operational excellence, commercial innovation and investing for value, we are underpinning Centrica for the future, delivering sustainable earnings from our core businesses, creating future growth opportunities, and delivering attractive shareholder returns. For more information about Centrica and our brands visit www.centrica.com.

Centrica H1 2026 Earnings Call Transcript

Key Takeaways

• Neutral Sentiment: Centrica said first-half 2026 adjusted EBITDA was GBP 737 million and adjusted EPS was GBP 0.068, with higher transformation spending weighing on reported earnings. Excluding the GBP 90 million of investment, management said EPS would have been up 8% year on year.
• Positive Sentiment: The company increased its interim dividend by 9% to GBP 0.02, pointing to a strong balance sheet with net cash of just over GBP 700 million despite a first-half free cash outflow.
• Neutral Sentiment: Retail EBITDA was slightly higher year on year, helped by better operations and pricing, but management admitted the business is still facing elevated bad debts and softer second-half economics from the commodity curve. Centrica said it is pushing Ofgem and also wants a longer-term social tariff solution.
• Neutral Sentiment: Centrica Energy remains on track for its 2026 EBITDA guidance of around GBP 250 million, but management said the Middle East conflict has changed the market backdrop and reduced upside for 2027. The business is now expecting 2027 EBITDA to be around 2025/2026 levels, with longer-term growth still supported by LNG deals and route-to-market expansion.
• Positive Sentiment: Management reaffirmed its longer-term ambition of GBP 2 billion EBITDA and doubling EPS by 2030, citing transformation savings, contracted infrastructure investments, and growth opportunities such as Severn, Sizewell C, and the meter asset business. They also said the portfolio is shifting toward more predictable, credit-positive cash flows.

Presentation

[Chris O'Shea, CEO at Centrica]

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. If you get any really difficult questions, they would be delighted to take them at the end of this. We set out several years ago to make Centrica a higher quality, more predictable business, and that journey continues. 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 in power demand, pivoting the portfolio towards more stable earnings, and improving our commercial performance across Retail. 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. Right across our portfolio, the job is far from done. You can see that in the numbers.

[Chris O'Shea, CEO at Centrica]

Retail is not yet growing as we want it to, and EPS is a little bit lower year-on-year. That comes as we ramp up our transformation program. We're investing in change that will set Centrica up for the future. We invested GBP 90 million in the first half, which is over a GBP 0.01 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. Our targets are ambitious. GBP 2 billion of EBITDA and doubling EPS by 2030. 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 we can deliver these targets and grow further into the next decade.

[Chris O'Shea, CEO at Centrica]

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 GBP 3 trillion 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. It's an opportunity to grow by delivering the energy our customers need to power more data centers, more advanced manufacturing, more economic growth. 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.

[Chris O'Shea, CEO at Centrica]

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. 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.

[Chris O'Shea, CEO at Centrica]

It's how we create value for our shareholders. 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.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

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. We continue to deploy our balance sheet and strong financial platform to execute our strategy. To the numbers, adjusted EBITDA was GBP 737 million, down versus last year, and adjusted earnings per share was GBP 0.068. After factoring in a step-up in investment, we had free cash outflow of almost GBP 600 million, which led to a net cash at the end of the period of just over GBP 700 million. 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 GBP 0.02. Let me just unpack some of those numbers in a bit more detail.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Retail EBITDA of GBP 346 million was slightly higher than last year, and optimization generated GBP 87 million. I'll come back to both of those in a second. Infrastructure EBITDA of GBP 355 million was down by GBP 150 million versus last year. Over GBP 100 million of that, though, was driven by the Spirit Energy disposal, while production outages and lower nuclear realized prices were also headwinds. At the same time, we saw strong year-on-year gains across the MAP, Grain LNG, and Sizewell C, and those areas will continue to build predictably over time, having generated almost GBP 90 million of EBITDA in the first half. Lastly, Rough contributed EBITDA of almost GBP 60 million 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.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

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. While the weather was significantly warmer than normal, it was only a small headwind compared to last year. 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.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

While we expect this cost to be socialized and recovered over time, we're laser-focused on improving our performance. As you would expect, we continue to press Ofgem for more proactive steps on the non-payment of bills. 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. You can see that in our margins in the slide, which are broadly in line with the price cap 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 full-year guidance.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

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, R2H, also delivered a solid result. 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. Combined with our fully hedged physical portfolio, this meant our ability to capture additional value was limited. For the remainder of the year, we already have good visibility on LNG shipments and in R2H, which is a more ratable profile.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Alongside what we're seeing in gas and power markets, we remain confident in our guidance of around GBP 250 million of EBITDA for 2026. Looking further out, the conflict does have implications for 2027. Centrica 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. 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.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

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 R2H, and new long-term LNG deals in Mozambique and at Delfin later this decade. That's why we remain confident in the longer-term outlook and earnings growing to GBP 300 million-GBP 400 million 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.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

We don't treat these as exceptional, and by doing it that way, our teams remain focused on maximizing value from every GBP spent. That, of course, means that today's results reflect costs that will support growth for many years to come. How are we doing? In the first half, we had invested just over GBP 90 million, including GBP 20 million 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. Some, such as the 1,300 role reductions we've announced across the group, are more immediate. Operating costs were down 3% year-over-year in nominal terms, giving us confidence that the targets we laid out in February are on track.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

GBP 500 million of underlying savings with flat nominal cost to 2030. 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 was an outflow, largely driven by Retail, with no offsetting release from gas storage inventories that we would 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-over-year, including the GBP 370 million on Severn and further investment to Sizewell C in the MAP. Three great examples of more predictable contracted infrastructure portfolio.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Alongside the other movements you can see, this led to a free cash outflow of GBP 570 million and a closing net cash position of GBP 709 million. To the full-year outlook. 2026 expectations are largely unchanged from the AGM statement in May. I'll be very brief here. No change to either Retail or Optimization. For Infrastructure, performance is expected to be above our previous range, given higher prices. We've updated that for you here. With the phasings I've mentioned in Retail and Optimization, we expect group earnings to be weighted to the first half. Following the acquisition of Severn, we now expect investment to be around GBP 1.1 billion this year. To summarize, our performance in the first half was solid.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

There are still plenty of areas we need to do to improve. We remain focused on the areas we can control to maximize long-term value. Our transformation program is moving at pace. We're continuing to invest into assets that will be the new bedrock for the group. We are 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.

[Chris O'Shea, CEO at Centrica]

Thanks, Russell. The trends shaping the energy system remain clear. Number one, greater electrification. Number two, more intermittent generation. Number three, growing customer engagement. There is no economy without energy. It's the foundation that everything's built on. As we speak, this foundation is being rebuilt, bringing with it a once-in-a-lifetime investment opportunity. The demand growth that's coming is truly huge. U.K. 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. 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. This isn't about choosing between nuclear and renewables or batteries and gas. The need is so much greater.

[Chris O'Shea, CEO at Centrica]

It calls for an everything, everywhere, all at once approach if we're serious about making energy affordable and secure. No one can be certain about the exact path, 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.

[Chris O'Shea, CEO at Centrica]

The acquisition of Severn brings another large, high-quality dispatchable CCGT into the portfolio, the type of asset that will allow renewables penetration to increase by providing a reliable safety net. In return, we get earnings with a contracted underpin and upside optionality as volatility grows. Those are exactly the traits that we look for when we invest. Since we've got the keys, very tight market conditions mean the 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. That starts in 2035.

[Chris O'Shea, CEO at Centrica]

It delivers attractive value for us, it guarantees much needed baseload power for the grid well into the 2050s. We're delighted that we've also been able to announce yesterday the extension of the lives of Heysham 1 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 Rough. It had a good first half, 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, by this winter, Rough will be close to empty, almost exhausted, producing less than 2% of what it could deliver if it was redeveloped.

[Chris O'Shea, CEO at Centrica]

If it was redeveloped, it could do 50 times more than it will do this winter. We continue to discuss Rough's future with the government. To me, it remains a compelling opportunity for the country. It would deliver significant investment and thousands of skilled jobs during the construction phase in the east of the U.K. The window is narrowing. Our current production consent expires in April next year. 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. We will be guided by value. I truly hope that we can reach a positive outcome later this year. Rough is the U.K.'s largest gas storage asset. It provides half of the U.K.'s current gas storage capacity. It's the U.K.'s biggest hydrogen storage opportunity.

[Chris O'Shea, CEO at Centrica]

It's not simply a commercial decision for Centrica. Losing it would not only be a bad outcome for us, it would be a strategic and major loss for the U.K. We continue to make good progress on our organic projects. We've now invested more than GBP 400 million into Sizewell C. Our meter asset provider continues to beat our expectations with an unrivaled growth pipeline. It's clearly the best growth pipeline in the U.K. Recent comparable transactions tell you this business is already worth well over GBP 1 billion. 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.

[Chris O'Shea, CEO at Centrica]

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, building a power portfolio heading towards four gigawatts, underpinned by capacity market contracts, by CFDs and by the RAB we've got at Sizewell C. Our Irish peakers will begin running shortly. They'll be fully commissioned later this year, but they are late. That shows that we've still got work to do as we rebuild our delivery capabilities. We've been working hard to ensure that we do better in the future, including at the planned station at Cashla in Galway. We'll continue to grow our longer-term options.

[Chris O'Shea, CEO at Centrica]

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 U.K. nuclear pipeline through Sizewell C and our X-energy partnership, private wire and data center co-location opportunities, 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, at the same time generating attractive returns for our shareholders by prioritizing only the best projects from a deep pipeline of options.

[Chris O'Shea, CEO at Centrica]

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. 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. 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 efficiency gain. Even greater value comes from what we can do with that foundation.

[Chris O'Shea, CEO at Centrica]

By building our own proprietary tools, we're now a more innovative, responsive partner to our customers, that allows us to better optimize our own positions. That's a key driver of the growth in Retail, 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, is a core part of the flywheel that I was talking about earlier. Our Retail business is where much of our transformation will show up, 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, we're starting to see this coming through. Take our core business. In February, we told you how we'd turned boiler installs from loss-making to profitable.

[Chris O'Shea, CEO at Centrica]

With the foundations fixed, we've pushed harder commercially, we're driving even better performance. The changes are not complicated. We'd always accepted that boiler installs are a seasonal business. Demand is lower in the summer, we advertise in the winter. With modest marketing investment, we grew sales 20% in the warmest June since records began. Over the first half as a whole, sales are up 11% against a market that's down. More sales, more efficient use of our engineers. That's the impact of thinking differently, 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 Currys. 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.

[Chris O'Shea, CEO at Centrica]

Partnerships like that with other OEMs for warranty servicing, for example, are a key avenue of growth for us. Adjacent markets with a strong outlook, very attractive margins. Our digital-first British Gas membership has now passed 1 million members with around 15%, one in seven, already converting to paid products, that's in just a year. It's a strong conversion rate today, 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. Is this delivering transformative value today?

[Chris O'Shea, CEO at Centrica]

Not yet, but you can see the shape of it, a deeper, more personal relationship with customers and their homes, the Hive device, the boiler, the heat pump, the battery, the air conditioning, and the data that connects it all. To get there, we have to deliver as efficiently as possible. We have to get it right first time. We have to reduce the need for the customer to contact us. Most of our customers now self-serve mainly through the app, and contact per customer is down 20% year-over-year. That's allowing us to reshape our business. Fewer roles overall, as Russell mentioned, but the right skills for the future and lower costs. All of this whilst delivering record customer satisfaction. We continue to make progress in building a fundamentally stronger, higher quality, more durable, more valuable Centrica. Our operations remain strong.

[Chris O'Shea, CEO at Centrica]

The transformation program is well underway, and we're already making headway in repositioning the group whilst building a very healthy portfolio of very tangible long-term options. The path to GBP 2 billion of EBITDA by 2030 and doubling our EPS against 2025 is clearly ambitious, and we've got to remain nimble and bold to deliver it. It's not in the bag, but we are super confident that we've got all of the pieces in place to deliver that. I'm going to stop talking. I'm going to thank you for listening, and Russell and I would be delighted to take your questions. I've got to remind you, there are microphones, I think, somewhere in the seats. If you could go for that, and then every so often we'll go to Fraser, who is monitoring the online thing, because I think people have to ask the questions through you, Fraser.

[Chris O'Shea, CEO at Centrica]

I think you want to hear the sound of your own voice. Is that right?

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

Yeah.

[Chris O'Shea, CEO at Centrica]

Excellent. That's right. Mark, we'll go here first. We'll come to Jenny, then we'll come here.

[Mark Freshney, Analyst at UBS]

Hi, it's Mark Freshney from UBS. Just a question on the bad debts. I know you and I disagree about the price caps. I think you've argued for support for consumers. I would argue it distorts the market. Clearly, it's over GBP 2 billion of receivables, massively provided. It's becoming a strain on your balance sheet, which I think we can start to see today. Clearly, you've litigated against Ofgem before to prove that the price cap should allow recoverability. What is your plan to get some of that cash flow back, or at the very least, ensure that it ceases to be a problem in future years? It is a problem for the industry, right?

[Chris O'Shea, CEO at Centrica]

Yeah. Let me touch on the first bit, then Russell can give you the details. Any kind of market intervention will give you distortions. The price cap is here to stay. There's no point in arguing against it. I don't think anybody's going to lift price controls on energy anytime soon. I haven't met a politician yet who feels brave enough to do that. I think that you're right, this is an industry issue. Industry debt is forecast to go to GBP 7 billion by the end of the year. That's up from GBP 1.8 billion, three or four years ago. It's clearly a massive industry issue, and we are looking for some leadership from a regulator. We had a debt relief scheme that was supposed to be in place earlier this year. We all signed up to it.

[Chris O'Shea, CEO at Centrica]

We all said what we were going to do, still not there. For a regulator that has doubled its budget and its headcount over the last five years, that is quite troubling. We've got to see results from the regulator, because we can't fix this ourselves. We can do better, and I think that our relative performance in bad debts, and Russell will come onto that, our relative performance in bad debts has deteriorated. We used to lead the industry in bad debts, and now we're at best, we're in the pack, and if not, we're slightly worse. We need leadership from a regulator. The long-term solution for this is a social tariff. We worked with the new Energy Secretary when she was the Consumer Minister on this, and she was quite enthusiastic.

[Chris O'Shea, CEO at Centrica]

She's in charge of the whole thing, we've got to let her settle in and find out what she thinks. A social tariff, whereby you use DWP and HMRC data to determine who can pay and who can't. At the extreme, those that can't afford to pay anything get a bill for zero. You don't go through all of this stress. You don't bill them and then provide and then pursue them, and then realize that they can't pay. Those of us that can afford more get a double bill, if you assume the same usage. That's the extreme case, if you just get two people in the market. That's the solution to this. The issue at the moment is we cannot differentiate between people who choose not to pay and people who are unable to pay.

[Chris O'Shea, CEO at Centrica]

When you can't do that, you have to treat everybody the same. That means that you have to curtail your pursuit of those people who don't pay you. If we could isolate those people who choose not to pay, we can pursue them a lot harder. I have very little sympathy for people who choose not to pay. I have huge sympathy for people who can't afford to pay their heating, can't afford their food, can't afford their rent, can't afford the basic essentials in life. That's the long-term solution for a market like this one. Russell, we've got some chat-

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Yeah

[Chris O'Shea, CEO at Centrica]

On what we're going to do here.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Yeah. Just starting with the numbers, because there has been quite a movement year-on-year. GBP 216 million charge, which is 4% of revenue in the first half of the year for the U.K. energy supply business. Last year, that was GBP 159 million, or 3%. You can see it's quite a stark change, and you can look at note 14 in the accounts if you want all the details where you can see the aging buckets. It's the older, greater than 360-day debt that's dragging in particular. That includes billed and unbilled, which is now GBP 2 billion, as you say, Mark, outstanding on the balance sheet after the provisions we've made. There's various levers we're pulling.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Gary, who's in the front row here, and his team have redoubled their efforts in terms of the processes, systems, the tenacity of chasing that we can do to make sure that we collect this money as quickly as we can. As Chris summarized, there's only so much we can do in our processes. There's a broader challenge that the regulator will have to face into.

[Chris O'Shea, CEO at Centrica]

Yeah. Brilliant. Thanks, Jenny. Welcome middle here.

[Jenny Ping, Analyst at Citi]

Thanks very much. Jenny Ping from Citi. Three questions, please. Firstly, just on the optimization business. Understand there are things outside of your control going on here, but to get to the GBP 300 million-GBP 400 million longer term, what do you need to see happening in the market, the wider market for you to get there? Give us some clues on the direction of travel of what we should be looking out for. That's my first. Secondly, you talked about Rough and continuing dialogue with the government. Can you just give us a bit more in terms of where we are, when we're expected to hear on that? Lastly, just on share buybacks. Noting where your share price is today versus the last tranche of shares you bought back, which is at GBP 181.

[Jenny Ping, Analyst at Citi]

Can you just talk us through how you see the opportunities between the sort of investment for growth route versus share buyback value creation that way? Thank you.

[Chris O'Shea, CEO at Centrica]

Sure. Yeah. Let me take the last two, then Russell will take you through what we need to see in optimization. Look, on share buybacks, we have a huge pipeline of very attractive opportunities, and I think we can create more value by working through that pipeline. If the opportunities are as good as we think they are, then investing in those will create more value for shareholders than the share buyback. We're very disciplined, and so if we get to the point where we'd recognize that these investment opportunities are not as good as we think they are, then it's the shareholders' money. We have been very clear about this, and we are very comfortable returning money to shareholders. We've got a lot of opportunities just now, and so I don't anticipate that being something that we have to work through imminently.

[Chris O'Shea, CEO at Centrica]

On Rough, look, everything takes longer than you would expect. I'd had some discussions with the previous Prime Minister about a short-term deal for Rough over this coming winter, and he displayed some interest. We have written to the previous government to outline what that would look like. What we proposed was we would use our working capital to fill the reservoir. We would get a return on that, and the government would take the risk. If prices went down, they would take the loss. If prices went up, they would take the profit. Just to bridge us through this winter, because I think that if I was in government, I'd be very worried that we're going into this winter with less than four days of peak gas demand available. We've not filled up our storage.

[Chris O'Shea, CEO at Centrica]

I doubt very much whether others have filled up their storage, because you'd be buying at a price in the summer higher than you could sell in the winter. There's one thing about capacity. There's another thing about actual storage. Andy Burnham's been Prime Minister since Monday, we've got to give him a little bit of time to get his feet under the table. Miatta Fahnbulleh has been Energy Secretary, I think, since Tuesday or late Monday night, maybe. I don't know, turnaround midnight or something. I've already spoken to Miatta. We spoke yesterday. She wanted an introductory call. Need to give her a little bit of time to get her feet under the table. We're getting close to this asset simply disappearing. When it closed to storage operations in 2017, there was a Conservative government in place.

[Chris O'Shea, CEO at Centrica]

The Labour opposition were incandescent with rage about how we let that close, including some recently departed members of the cabinet, some current members of the cabinet. I'd be amazed if they changed their position in the last nine years. I'm hopeful that we'll get something. I think it would be extremely foolish to allow this asset to close. I'm not the Prime Minister, I'm not the Energy Secretary. If they allow it to close, I think it's a shame. I think we've got a brilliant team, a really brilliant team there. They will find jobs elsewhere because they're really good, and that will be a loss in some ways to the U.K. because some of them will find jobs overseas doing what they do. That's the biggest risk for us.

[Chris O'Shea, CEO at Centrica]

The biggest risk to this dragging on is not that the reservoir becomes unusable. The reservoir's been there for hundreds of millions of years, and it will remain usable. The biggest risk is that we lose the crew, and it's not easy to rebuild. Let's see. Our offer stands, and we also said to the government, "If you don't like us using our working capital, you can use the treasury cash. We don't mind. Let's just fill the thing up for the winter." The government has to take the risk on the prices and insurance policy for the government. They will take the upside. This is not a heads I win, tails you lose type of thing. If the gas price doubles, they've made a lot of money. If it halves, they've lost a bit of money.

[Chris O'Shea, CEO at Centrica]

This is really, we keep hearing from energy security department when the media get in touch that this is a commercial decision for Centrica. That is absolutely not the case. We've been very clear with them that that's not the case. If this is a commercial decision for Centrica, the decision's made, the thing will close. This is a decision for the government as to whether they want adequate gas storage. Optimization, Russell, how are we going to make GBP 300 million-GBP 400 million? Maybe we should get Kasim to answer this actually.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Yeah

[Chris O'Shea, CEO at Centrica]

Now that he's there.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Thanks for the question, Jenny. Actually, there's quite a few moving parts in optimization, it's probably useful just to unpick it a little bit to answer your question about what that market backdrop needs to look like, as we go through the next couple of years. If you start with 2026, and look at the three different elements of that business, R2, LNG, and gas and power. R2 had a really strong first half, and it grew again versus half 1 last year. That business has proven to be quite resilient. It's a different risk categorization versus the other parts of the trading business, and we expect that to continue to grow year-on-year. Assets under management now at 19 GW. That's a very solid part of the portfolio.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Gas and power trading in the first half of this year was actually stronger than it was last year. Remember last year we were talking about the storage markets in Europe being quite difficult. There are still some challenges on economic storage gas spreads in Europe, it was beginning to pick up and be a bit more normal. The Middle East crisis came, and that of course, resulted in further unpredictable behavior. Actually, overall, we were quite happy with gas and power trading in the first half of this year. LNG was softer. We've got to remember some of that was because last year we were still seeing the contracts deliver that were priced at the time of the Russia-Ukraine crisis. That's a natural part of the decline as we moved into this year.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

We were fully hedged on 2026 in LNG and in the coming years, as we said in February. We've proactively managed the risk on that portfolio and overall those portfolios. One of the things that we're able to do is, while managing the LNG in 2026, was to move some cargoes from the first half to the second half at a profit. That underpins what we're going to see in the second half of this year, and as I said earlier, the GBP 250 million worth of EBITDA. It's in the future years where there's been a bit of a change in the update today. Just to repeat, that was because we were thinking, as the whole industry was, that the new LNG supplies from the U.S. and Qatar would come into the market. There'd be a bit of a gas glut.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

We'd positioned the portfolio to both protect and take advantage of that. Of course, when the Middle East crisis happened, we had to step back from that. We now see the gas glut later in the decade. We've repositioned the portfolio for the next couple of years. We've got very tight risk management controls. When we saw the markets moving, they were enacted, but that just meant we've taken money off the table for the next couple of years in terms of position. That's really the core of the update today. As we sit today, the news flows, the way that the markets are pricing certainly the back end of this year into next year, it's hard to see that that's driven by fundamentals.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

A lot of it is driven by news flow, and it's very hard for Cassim and his team to take positions in that backdrop. For now, we thought the prudent thing was just to wait, and that naturally just brings the profitability down for the next year, 2027. Your question was, what does it need to look like to get back to that GBP 300 million-GBP 400 million? We're very confident that we can get back up to that GBP 300 million-GBP 400 million because of the three core parts of the portfolio I just described. For LNG, as we move towards the end of the decade, we've got the Mozambique, Delfin, and Severn gas producer deals already locked in. We're very confident that's going to underpin the LNG business. Retail, as I said, continues to grow.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

The renewable market across Europe will continue to diversify or give opportunities for us to step in, as we've done successfully over the past couple of years. Gas and power, yes, it does require a degree of normalization in the markets from what we see today. If you look over the past four or five years, when the markets have been right, we've definitely been able to capitalize on that. You've got to remember, this portfolio is skewed to the upside. When we've taken positions and they move away from us, the risk controls lock it in, and we make sure that we don't have a negative impact. Of course, if it's going in our favor, we've got the risk capital to ride that wave and capture value, and we've done that successfully in the past.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Overall, I think, we need to get through this current period, but the underlying business remains strong, and we're confident in GBP 300 million-GBP 400 million in the medium to long term.

[Chris O'Shea, CEO at Centrica]

If anybody's wondering how it works, you could see when Russell said we've got really tight risk controls, you looked at Kasim. He sensed that little pause there, it just reinforced the message.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Excellent.

[Chris O'Shea, CEO at Centrica]

Pavan, we'll hear, Fraser, we'll come to you.

[Pavan Mahbubani, Analyst at JPMorgan]

Thank you. Pavan Mahbubani from JPMorgan. I have a couple questions, please. Firstly, on the transformation costs, you talked about expensing around GBP 75 million in H1. Is that the sort of run rate we should expect as the program goes on? At the full-year results, you had mentioned that there were some costs incurred, but that they were offset by benefits. Can you talk a bit more about whether we've seen some of those benefits in H1 or the phasing of how those benefits should be coming through to the extent you can provide color there? A couple other small questions. On Retail, Chris, you just mentioned that your performance relative to peers on bad debt collections has deteriorated somewhat, you have said in the past, it's a bit more of a relative game than an absolute game.

[Pavan Mahbubani, Analyst at JPMorgan]

Can you talk a bit about what's driving that? Are your peers doing better? Is it operational? Is it customer behavior and maybe your mix? It would be good to hear what's driving that change in performance that's new today. Russell, I don't know if you can give You talked about how you were positioned next year for a gas glut. Can you give a bit more color on what that actually looked like? Was it trading positions, how you sold forward LNG? It would be good to get some color as to that sort of positioning and how that changed. Thank you.

[Chris O'Shea, CEO at Centrica]

Okay. Brilliant. Thanks, Pavan. On looking at bad debt, it's inescapable. We look at the chart of absolute bad debts and the chart of our share of bad debts. At the point other suppliers restarted the involuntary installation of prepayment meters, our share went from 23%-34% of bad debts. That might be coincidence, but I doubt it very much. I think what it shows is that for a bunch of consumers across the industry, there has to be a proper sanction before they pay the debt. The vast majority of consumers want to pay their bills, and they pay their bills. We've got to be kind of clear-eyed about that. We've got to really think about what we do to collect our debts. If there's no sanction, then why do you do anything?

[Chris O'Shea, CEO at Centrica]

I think we've just got to make sure. As part of the price cap, you've got to make sure, and this sounds really, really unambitious, you've got to make sure you're in the pack. We're not in the pack just now on debt collection. I think we can do more without restarting involuntary installation of prepayment meters. I do think we can't discount that. Russell, what needs to happen in gas and how much transformation benefit?

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Well, let's do transformation first. Just to remind the numbers, GBP 90 million spent in the first half of the year. If I was to compare that to last year, maybe last year on a comparative basis might be GBP 30 or GBP 40, it's a relatively big step up. If you look at that GBP 90, GBP 70 is OpEx, probably a third of that would be redundancy costs and efficiencies that we've gone through there. Probably another third might be tech spend. We're pushing quite a few initiatives to try and harness technology to make us more efficient, the remainder are various initiatives across the piece. Some of this will be short term, in terms of where we get the benefits. Some will take a couple of years to through. If you think about the tech, in particular. What are we seeing in the results?

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Customer contact has fallen. Average contact per customer has fallen 20% year-on-year. That's just less interactions. That means less people that need to serve a customer. We can see that already. 1,300 colleagues leaving the group, and that takes cost out naturally and just makes the whole machine more efficient. OpEx is down 3% year-on-year. There's various moving parts inside OpEx, but you can see that the combination of that includes the transformation investment. You can see that some of this is beginning to come through. Overall, I think we'll keep you updated as we go. It's not early days. I think some of this is moving at pace.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

I would expect in the second half of the year to see both a ramp-up in that transformation spend from projects that I can already see and Rob's already pushing ahead, and also, beginning to see the compounding benefit of those efficiencies coming through. That's one part of it. Centrica Energy, the question was 2027 positioning, how do we get into that? I'll just go back. It's no different to what I said in February, actually. For the LNG portfolio, we'd hedged all the physical cargoes we had. We were fully hedged out to 2028, and I think 80% hedged towards the end of the decade. That just means that your base is solid. Naturally, the traders will have looked at the expected market outcomes, expected movements.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

As we moved into their gas glut and some of that they'd have taken positions on. When that started to move against us, those positions were locked right down. We did not make a loss on shutting down those positions overall, which we were happy about. That was good execution from the team. It just means now that you're looking at a market without money at work, you've not taken longer-term positions, and we're just going to step back a little bit until we see how things flush through. Does that make sense? Thanks.

[Chris O'Shea, CEO at Centrica]

Thanks. Fraser, any questions from the online audience? These have got to be online questions, not Fraser Jamieson questions.

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

I promise they are online questions. We've got a couple from AJ at Goldman's. Firstly, Centrica have now executed a sizable part of the GBP 4 billion CapEx plan. If we move to 2030, can you explain how the portfolio fits together rather than just a set of attractive individual assets? Can you highlight the improvement in returns the portfolio effect gives? That's question number 1. Question 2, it's clear that Centrica is in transition. Can you detail how much earnings volatility will reduce by the end of the plan? What benefit do you expect to get from the credit rating agencies from that transformation?

[Chris O'Shea, CEO at Centrica]

Good. Perfect. The second question is clearly one for Russell. Look, the 1st one, how does the portfolio fit and portfolio effect? I think the best example of that is the Severn acquisition, whereby we bought a power station. I didn't expect this power station to be as well-maintained as it was. It was a financial buyer, Beal Bank, owned it. They'd repossessed, I think, four years ago. I was a bit nervous because in a repossession, you tend not to expect to find something very well-kept. This has been unbelievably well-maintained, and I think credit to the previous owner. They've invested an awful lot of money.

[Chris O'Shea, CEO at Centrica]

You can see I went there with Russell on the day that the acquisition closed. They had a new DCS, distributed control system, in the control room. You very rarely see that in assets that are owned by long-term strategic owners. That had been put in, I think, at the cost of GBP 2.5 million this year. Very well maintained, but run very conservatively. Only ever having one unit on, really not looking to be up and down. As we have been figuring out with the trading team and the power team how to optimize this, we've been testing lots of different markets. We're testing lots of different startup regimes. I don't know the number, but this thing is probably starting 20 times as much as it was starting under the old ownership. We're beating our expectations in terms of the ownership.

[Chris O'Shea, CEO at Centrica]

Now, very tight market. That's the way that this portfolio fits together. We buy this asset, which has got nice capacity market contracts. It's got very good long-term possibilities. As you have more wind build out, more solar build out in the UK, the need for better price capacity market contracts is going to increase because these things are going to run less. Therefore, long term, the outlook for this asset is to reduce earnings volatility. That said, we're going to have an asset that when it is needed to start. Dave's going to have to make sure the maintenance regime is absolutely perfect because when we're called on to start this thing better bloody start, otherwise under the capacity contracts, you're going to have a hellish time with penalty payments.

[Chris O'Shea, CEO at Centrica]

When it does start, then we've got Kasim and the team figuring out what market we put this into, what price that we charge. We've got something which is the kind of asset that we love, which is what we're looking for in the portfolio, which is a downside which is very much acceptable to our shareholders. Very predictable, and there's only a skew to the upside because we can make sure that this thing is maintained very well and will start. Therefore, we don't have that downside risk. Then the upside, we've got the team in Kasim's shop to capture that additional value. That's the portfolio effect, and that's really what we're looking for as we move towards the end of the decade. Russell, how will the rating agencies reduce our FFO to net debt from 45%-10%? I'm greatly sorry.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

I think, and you can see if you read the S&P or the Moody's reports on Centrica, the strategy that we outlined in 2023 to rebalance the infrastructure side of the portfolio into more ratable cash flows has not just been seen as a benefit in the earnings generation we're seeing so far, but they can see that that stable part of the portfolio is credit positive. That's the MAP, Sizewell C, Isle of Grain. Everything that we've been putting has a favorable element to the business risk profile, which is one of the big determinants of the FFO to net debt metric and, therefore, the credit rating thresholds. Last year, we had a movement from 50%-45%.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

We've had discussions with S&P and Moody's over the past couple of months, and I think in those sessions, they are giving us confidence, and you can see it in the reports, that if we continue our investments over the next couple of years, we will continue to get more flexibility. We have to deliver, and we have to put that capital to work, and we have to get the earnings to come through. You can see that happening already. In the first half of this year, we had earnings of GBP 80 million from Sizewell C, the MAP, Grain. Really solid long-term cash flows. That'll be about GBP 175 million by the time you get to the full year this year.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

If you move that forward, you can see how we're growing very well towards that GBP 700 million worth of infrastructure cash flow as we expect by the end of 2028. The nuclear extensions are positive. The Sizewell B CFD is very positive as well. I'm confident on that dynamic we're moving in the right direction. Then just to link back to your other question about earnings volatility and how we see that moving. Earnings volatility is reducing for the group. For Retail, there will always be some volatility, but that's partly to do with the recognition of revenue and costs between periods. That sort of settles down over time. In the past couple of years, we've significantly reduced the merchant exposure in the group. The Spirit assets with the second divestment happening at the end of the third quarter this year will underpin that trajectory.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

The effective tax rate of the group has gone down from 40%-35%. That will continue to go down as we move out of those higher taxed regimes. More and more of the EBITDA will be coming from contracted and regulated cash flows as we move into the next couple of years. It's both credit positive and more easy to understand.

[Chris O'Shea, CEO at Centrica]

Okay. Thank you. Harry, and then we'll come back to you after Harry. Harry, Dominic, and then we'll come back to you, Fraser.

[Harry Wyburd, Analyst at BNP Paribas]

All right. Thank you. It's Harry Wyburd from BNP Paribas. We've covered a lot of ground, but a lot of it's been quite negative, so I'm going to try and be a little bit positive.

[Chris O'Shea, CEO at Centrica]

Excellent.

[Harry Wyburd, Analyst at BNP Paribas]

If we think about earnings next year, and depending on which consensus you use, we're probably around something like 14.5p for EPS. I think we, this morning on Centrica Energy, have all mentally taken about GBP 0.01 off. What's happening that's positive that could offset that? Obviously, you've done your CCGT deal, and you just said it's performing very well. You said the cost-saving execution's been very good. You're seeing more opportunities to cut OpEx. Should we take that as a 1p hit on the chin for next year? Or is there actually stuff that we haven't asked you about that's going better? That'd be the first part.

[Chris O'Shea, CEO at Centrica]

I know you're asking for a forecast disguised as a bit of optimism.

[Harry Wyburd, Analyst at BNP Paribas]

Yes. Yeah.

[Chris O'Shea, CEO at Centrica]

Okay.

[Harry Wyburd, Analyst at BNP Paribas]

That's my job.

[Chris O'Shea, CEO at Centrica]

Yeah. You know my job is to see.

[Harry Wyburd, Analyst at BNP Paribas]

The second one is also positive. It's a hard one for you because you've got to lock everything up, presumably a week or two ahead of this event. Forwards have just really spiked in power across Europe. I won't ask you this time to try and give me a number, but could you maybe just help us understand how unhedged you are? What kind of level of open position? I know we've got your disclosure from this morning, but it's done based on balance of year. How are you feeling about your ability to capture the higher power and gas prices that we're seeing over the winter?

[Harry Wyburd, Analyst at BNP Paribas]

Would I be right in saying that there's probably some upside there if prices hold that you haven't included in your ranges this morning because simply the price spike happened after you would have locked them? Thank you.

[Chris O'Shea, CEO at Centrica]

Look, I'll give you one, and Russell will probably want to come in on both of these things. We're not going to give you a forecast for next year. That's your job to figure that out. There's a whole bunch of things that could go better than expected. Power prices have been one. Bad debt recovery has been another. Those are two big things. More investment. Depending on when you make the investment, maybe more investment towards the end of this year, then you see that coming through in 2027. If we make it in 2027, you've got the cost of acquisition, et cetera. There's a whole bunch of things there, but you'll have to figure out yourself as to where we think things will be. We don't really know. In terms of how hedged we are, I don't have that down.

[Chris O'Shea, CEO at Centrica]

I don't know if we give that out in terms of for power. We've got merchant exposure. All four of the AGRs have merchant exposure. I think because of operational risks and because we don't want to be caught on the wrong side, we don't want to be caught on operational issues being down and being hedged and over-hedged in a rising market, I think we hedge about 50% of that. You can assume, I think, that half of the existing nuclear fleet is unhedged at any one point. You've also got the PWR at Sizewell B. Remember that CFD doesn't kick in for another nine years, that's merchant exposed. You've got our shares, what, 1.2 gigs? You've got probably seven terawatt-hours or so in 2027. Russell will tell you, but I would gather around half of that's probably unhedged. You've then got Severn.

[Chris O'Shea, CEO at Centrica]

I think that's probably mostly unhedged because we don't know when that thing's going to run. We don't know when it's going to be called on. We know that the nuclear is base load. There should be quite some exposure there, but it works both ways. The question when you see these spikes is do you go and lock things in? We've had some real problems at Hartlepool this year. If you cast back, when I joined Centrica in 2018, I think we made GBP 18 million from our nuclear fleet because we saw GBP 55 a MW hour, I would hasten to add, before I joined, and we locked it in. We had eight reactors at that point, I think.

[Chris O'Shea, CEO at Centrica]

With eight reactors, including Dungeness and Hunterston, I think we made GBP 18 million, most of that was the extreme pain we had of being over-hedged in a rising market. We saw GBP 55, we thought, "That's brilliant," which it was. I would've done the same probably if I'd been in position. Locked it in, then all of a sudden, these things fell over. That was quite painful. We probably wouldn't look and say, "Okay, let's take the hedge in nuclear from 50%-80%," because we've still got operational. These are old assets. I mean, Heysham 1 and Hartlepool must have been going since like 1981 or 1982 or something like that. I mean, these are bloody old things. Russell, how much nonsense I've been talking? How hedged are we?

[Russell O'Brien, Group Chief Financial Officer at Centrica]

I think you covered most of the portfolio there, I'm struggling to find what to add on.

[Chris O'Shea, CEO at Centrica]

I made some mistakes, though.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

I think Spirit, just to note, and we've covered it on slide 30 in the pack, that we've got the divestment happening at the end of the third quarter. We separated out there the element of that production. We then move into really Morecambe being the only producing asset for Spirit thereafter. We're not going to be hedging that as far out in advance because it's a single asset. We'll have merchant exposure there going forward. On nuclear, indeed, we were, I think, 11% down versus the first half of last year. That was mainly the Hartlepool challenges.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

One of the benefits of having had those nuclear assets down for planned and unplanned downtime in the first half of the year, of course, is you're able to get through quite a lot of maintenance that gives you support into the second half and into next year. There might be a little bit of upside in production, which could capture the higher prices we're seeing today. I think that's it.

[Chris O'Shea, CEO at Centrica]

Excellent.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Okay. Thank you.

[Chris O'Shea, CEO at Centrica]

Dom.

[Dominic Nash, Analyst at Barclays]

Hi there. Yeah, it's Dominic Nash from Barclays. Sort of three questions. The first one's probably a bit of a narrative, I think, which is at the full year results, I think it was fair to say that you talked up quite a bit about the role of gas in the future energy mix, and that basically it was going to be higher for longer. Indeed, subsequent to that, you clearly bought Severn CCGT. We've now got a new energy minister who I think you said that you know earlier, Fahnbulleh.

[Dominic Nash, Analyst at Barclays]

I'd be interested in your view, because the press reports that have coming out on her view on gas and electricity, I'd be interested in whether you think this government can distinguish between electricity and energy and what they think is the role of gas in the long duration of the transition and whether we're going to need it and whether we should have indigenous gas. Coming onto your two gas assets. You clearly talked well about Rough, I will ignore that one. That's point taken. Severn and LNG. Severn, you've got a potential single asset risk there. Is this a strategy that you're potentially going to be looking at building more to protect that asset value? Are you going to scale into more gas from here?

[Dominic Nash, Analyst at Barclays]

Looking at your release this morning, you're talking about potential behind the meter data centers for both LNG and for Severn. What licenses and permissions and permits do you need from government to have an extension of gas, particularly in light that this current government is clearly more uncertain on that one? There's one very quick one here, I think following up on Connor on the optimization. What's your invested capital that you've got in optimization at the moment, including the leases on the vessels and your trading position? As we edge up towards that GBP 300 million-GBP 400 million target, how does your invested capital go, please? Thank you.

[Chris O'Shea, CEO at Centrica]

Excellent. Thanks. The last one for Russell. Let me try and deal with the first three. Look, I know Miatta from her time as consumer minister, and I spoke to her yesterday for 10 minutes. I wouldn't overplay my relationship. I don't know her deepest thoughts, I think what's happening is that because she's been elevated really quite quickly, people are going through her past, and they're saying like, "In 2017, she was running some think tank, and she said this." Well, I said something in 2017, which is probably completely inconsistent with positions that I've got today. I think we should wait and see.

[Chris O'Shea, CEO at Centrica]

I find her very pragmatic, and I find her. In the first meeting we had, if I was looking at what went on with previous ministers in that role, she'd call in the energy company CEOs, she'd wag her fingers, somebody would come in and say, "Oh, is she in. The TV cameras are outside. sheet so" They've been tipped off that we've been called in for a slap, and as we go out the minister has been really quite tough. It wasn't like that at all. She called us in, and she wanted to hear what we thought about the issues and consumer affordability. There was no TV cameras outside. It was really quite different.

[Chris O'Shea, CEO at Centrica]

I just assumed it was the usual thing, telephone directory down the front and back of the trousers, and you get a bit of a kicking, and it was quite different. I find her very pragmatic. How she'll perform in this role, who knows? We can all have our own personal views on carbon emissions, and I think people are trying to position Miatta as being more extreme than Ed Miliband. Ed, in private, was very pragmatic. Ed would rather there was no fossil fuel burnt at all. He would tell you he recognizes the need for it, especially gas. If you look at Chris Stark's work, he used to lead the Climate Change Committee. Now the government's mission control are or something Clean Power 2030.

[Chris O'Shea, CEO at Centrica]

Chris will tell you that we probably need to rebuild the entire U.K. CCGT fleet and have it on standby. These people are very pragmatic, and I would expect Miatta to be in that same place because her role is to make sure that we have secure and affordable energy, and it's clean. The guidance I gave to, I mentioned to Ed when he was energy secretary and other people in the government is, in the U.K., we lead on it has to be clean and secure and affordable. Texas has got more wind power and more solar power than the U.K. It's also got more oil and gas than we've got probably. They lead on the fact it's affordable. A lot of the stuff that we're doing in clean power will help to stabilize the energy prices.

[Chris O'Shea, CEO at Centrica]

The government didn't do itself any favors because it was all about. You'd have all these people trying to beat the crap out of them. I think we've got to wait and see what Miatta's views are. I would hope that she's very pragmatic. I think on gas, I'd like to do more. If there was more CCGTs of the quality and scale of Severn in the U.K., I'd like to buy them. What we won't do is we won't go out and say we just want to buy more CCGTs because all of a sudden you then lose your price discipline. It's all about value. If we could find more of these things at the same type of price with the same type of returns, I'd be delighted to put it in. I think you know this, but Severn is two separate units.

[Chris O'Shea, CEO at Centrica]

Although you've got single asset location risk, you've got effectively two 410, 420 MW CCGTs in there. Then on data centers, look, I think this is going to be an issue for the government as we think about this which. We've got two very attractive units at Severn. People come and say, "Would you give us the output from one of the units to power a data center?" The question is, well, what kind of price certainty, what credit risk are we taking on the counterpart? If you step back from it, if you look at it from the government's point of view, taking one of the units out from Severn takes out 1% of the U.K.'s electricity demand from the market. I think we've really got to think about how. Behind the meter generation is a huge opportunity for us.

[Chris O'Shea, CEO at Centrica]

Our forecast is that fixed system costs are going to grow to about two-thirds of the bill by the end of this decade. If you want to then decide that you're going to go behind the wire, behind the meter private wire networks, you're going to not pay that network charge. You can afford to pay a lot more for the power. You can have more redundancy in there because to get the reliability data centers require, you've got to have redundancy. You spread the system cost across a lower base.

[Chris O'Shea, CEO at Centrica]

I think we're going to have to work really closely with government, with the system operator to say, "Okay, exactly what does this mean?" I think that what we'll find is that you'll build behind-the-meter solutions for data centers to get around these grid constraints, you'll then connect them subsequently to the grid. I think it can only be a temporary solution, because otherwise we're going to have a real problem, I think, in electricity bills. I think the government's got to engage with this because it's like anything, and I think we'll find this as the government goes into power. I remember when Obama became president, his campaign, and he was saying, "This is terrible, this Guantanamo Bay.

[Chris O'Shea, CEO at Centrica]

I'm going to shut it down." Eight years later, when he was leaving office, someone said, "You said you'd shut Guantanamo Bay." He said, "Yeah, I know. Who knew how difficult it was? You learn a lot when you get into office." I think that the current government will get into office and think, "Okay, you've got these competing things. We want more data centers. We want to continue." The U.K. is the third nation globally in AI. If you think about that, you've got the U.S., you've got China, you've got the U.K. We're punching well above our weight. The government wanted to keep that. We've got a lot of well-paid jobs. We want more data centers because they bring good jobs as well. We want affordable electricity.

[Chris O'Shea, CEO at Centrica]

I think what the government will find as they sit down and think, "I've got all of these competing things. How do we work?" That's where Centrica is unbelievably well-placed because we are the company that can help unlock all of this. We've got huge opportunity in front of us. What that allows us to do is to be very disciplined in the capital deployment, because we've got all of these opportunities, we don't need to take them all. We never are dependent upon a single investment opportunity. If you take Severn Power, we love that asset. It's absolutely fantastic. Had it not been right the day before we signed, we would have walked away from it because we've got a bunch of other things to look at. Rob leads our strategy and business development.

[Chris O'Shea, CEO at Centrica]

We will always have far more opportunities than we have enough money. What's the worst case scenario? The worst case scenario is that we say to Russell, "You have to find some more cash because we've got these brilliant opportunities." I think we'll wait and see, but I do think that there's going to be a lot of discussion about this private wire network type thing. I think we've got to help the government understand exactly how we work the system on that. Russell, are you going to disclose the invested capital in Centrica Energy? Remember, part of our model is that we get three returns from one bit of capital. We invest in assets, we get an asset return there, we get a trading return, we reduce the return with that, and that underpins the Retail market.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

It also underpins the credit rating, which is, of course, the sort of main cornerstone when we think about how strong this group has to be to be able to do all of the businesses that we have, whether it's Retail infrastructure, but also the optimization business. When we think about how we manage that business, there's a couple of different tools that we have. First of all, we want to maintain that BBB investment grade credit rating because that allows us to have efficient contracts. We have to margin less. We can be on the exchange in an efficient way. That serves as well. That allows us to manage also the liquidity draws naturally of that business. Interestingly, over the past couple of months, I think quite a few other counterparts saw big cash flows moving in and out as the Middle East crisis came through.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

We'd actually learned quite a lot from the Russia-Ukraine crisis, and we're much better prepared for that. Actually, if you look in the first half of this year, we had a GBP 126 million inflow just from margin stabilizing in that period. In terms of how we manage capital day to day for Cassim and his team, we do that through risk capital, value at risk, profit drawdowns, all the normal things you would expect. We have shorter-term limits for each of the books, and longer term are things like LNG we manage in a slightly different way. The dynamic is not just about sort of capital as in like capital on the balance sheet. We're managing credit risk, market risk, and liquidity risk, and each of those have effectively different capital requirements. Some you would have to post cash to mitigate that risk.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Others, you have limits for individual counterparts. I think we've got a relatively sophisticated operation, very tight risk limits that's served us well in the past couple of months. The balance sheet overall is in a strong position, so when Cassim and his team come forward with good ideas, we can grab them. On your leasing question, we've probably got about GBP 100 odd million on the balance sheet at the moment. We've got a recycling of vessels coming in the next couple of years, just as we look at that growing LNG book that I mentioned before, but we're still to decide what's the best way to contract them. Hopefully that helps.

[Chris O'Shea, CEO at Centrica]

Excellent. Brilliant. Fraser, we'll come to you. It's funny because we've got a screen here that says questions from webcast, and there's no questions on it, so I'm going to check this later.

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

There's emailed questions.

[Chris O'Shea, CEO at Centrica]

Yeah, of course. From fraserjamieson.com, yeah.

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

I'm going to combine a couple. One from Bartek, who was also asking about behind the meter growth. I think we've answered that one. His second question is with regards to the optimization EBITDA outlook. Given how you're hedged and your growth in the LNG book towards the end of the decade, are we talking about the lower end of the EBITDA guidance range for 2028, i.e., around the GBP 300 million level? Are you confident that you can hit somewhere else in that range? A second follow-up from AJ around the transformation plan. How much of the cost has been incurred of the total? How much of the benefit have we received? What is the shape of the net benefit out to 2030?

[Chris O'Shea, CEO at Centrica]

Excellent. These sound like they are both questions for Russell. I would say, for Russell answers on the transformation, it is still evolving. We are still in transformation. We are still identifying more opportunities, and we are still refining the cost. We could say, a certain proportion at the moment, but I would expect that this program will continue to grow and we will refine the cost. Sometimes these things prove to be a little bit less expensive than we first fear. Russell, two for you.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Look, it is inherently difficult to put guidance ranges on a trading and optimization business. What we can see at the moment is that 2027, we have just got less opportunities open to us. We have just been transparent that with the less capital at work, that the range, the number will be lower next year. 2028 is a long way away, and our teams have got lots of ideas and plenty of opportunity and risk capital behind them if the market stabilize to try and capture value. For 2028, we are not providing any additional guidance, really just the focus today is on 2027.

[Chris O'Shea, CEO at Centrica]

Excellent. Thank you. Any last questions in the room or any last questions online, Fraser?

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

There is one more.

[Chris O'Shea, CEO at Centrica]

One more? Are you sure?

[Fraser Jamieson, Group Head of Investor Relations at Centrica]

Yes. How much of the EPS for 2030 is already underpinned today, and how much is reliant on future developments?

[Chris O'Shea, CEO at Centrica]

That's a good question. I would say that most of it is underpinned in that we know what we need to do, but it's not underpinned as in it's in the bag. We have clear line of sight to that, but the use of the word underpinned, I would just hesitate a little bit on that because it suggests that it's already there. We have a shetton of heavy lifting to do to get there, and we're also talking about a market that's four years out. The only thing I can tell you just now is the mix will be different, in 2030 than we think it will be today. The margins in different businesses will be different. We're looking to expand in the U.S. with Kasim's business. We're looking at a couple of other markets.

[Chris O'Shea, CEO at Centrica]

We have no idea what that market is going to look like next year, let alone 2030. I feel confident enough to say that we can do this, but also realistic enough to say that there's a lot of wood to chop before we get there. I don't know if you brought.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

No, I agree.

[Chris O'Shea, CEO at Centrica]

Russell, it's not the limit of our ambition. We don't sit and say, "Okay, if we can really lock in GBP 0.22 EPS by 2030, okay, that's it, done." I'm notoriously impatient and never satisfied. We would keep going.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Maybe just to reinforce, though, the building blocks of moving up to the GBP 1.7 billion worth of EBITDA at the end of 2028. The GBP 2 billion by the end of 2030.

[Chris O'Shea, CEO at Centrica]

Yeah.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

That EPS overall. For the Retail and optimization businesses to the end of 2028, that's just middle of the guidance ranges we've given already. What we're expecting is by the end of the decade, which is four or five years away, we've got the opportunity to be able to just get to the top of the ranges that we've been working to for the past couple of years. With all the work on transformation, I think we should be able to get there. The other side of the mathematics is of course, the infrastructure business. What we need to do there is just continue to deliver the investments that we are planning for the next couple of years. It's not like we need to find many new investments because we've got a very clear trajectory for Sizewell C, and that's a very stable return.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

The MAP is a million-plus meters a year with very good contracted returns. The Irish peakers come online the second half of this year. We've got the potential for the Galway, which is plant, which has also got a large capacity market underpin. Actually, the infrastructure side of it is actually quite easy to see how we get there. As I mentioned earlier, if you just roll that through, you have a much lower effective tax rate in this business as you go forward, which is another amplification to get you to the higher EPS.

[Chris O'Shea, CEO at Centrica]

Brilliant. Look, if there are no other questions, thank you very much for your time, for your patience. I will see you, I don't know, it's the third week in February? Is it February the 21st, 22nd or something next year to do the full-year results. Thank you very much, everyone. Thank you.

[Russell O'Brien, Group Chief Financial Officer at Centrica]

Thank you.

Participants

Executives

• Chris O'Shea, CEO
• Russell O'Brien, Group Chief Financial Officer
• Fraser Jamieson, Group Head of Investor Relations

Analysts

• Mark Freshney, Analyst at UBS
• Jenny Ping, Analyst at Citi
• Pavan Mahbubani, Analyst at JPMorgan
• Harry Wyburd, Analyst at BNP Paribas
• Dominic Nash, Analyst at Barclays