Centrica plc (CNA) Earnings Call Transcript & Summary

And as always, I'm joined today by Kate Ringrose, for our last results as Centrica's CFO. And before we start, I'd like to pay tribute to Kate's achievements during 20 years at Centrica, and to personally thank Kate for the unstinting support that she's given me during my time both as CEO and a CFO, and Kate leaves with our very, very best wishes for the future. As you can hopefully see, you're well covered today. We're joined by our Chairman, Scott Wheway. Most of the leadership team, including Russell O'Brien, our new CFO; and Russell is sitting over beside the Chairman. I know Russell's broad energy experience will be a huge asset to us, and I'm really looking forward to working with Russell in the coming years now. I'm not sure what the collective noun is for a group of CFOs, but there is a free hive, but you'll have to come in the mail because we don't have it with us for the most creative suggestion at the Q&A session. So in total today, our presentation will last around 30 minutes, and then we'll be delighted to take your questions. We're making strong progress in delivering our strategy, and today's results demonstrate the benefits of our balanced portfolio with complementary activities across retail, optimization and infrastructure. And this has allowed us to successfully navigate what I'm sure you'll agree with a somewhat challenging time for the energy sector in the past 12 months or so. We've now got the balance sheet, the capability and the assets to play an important role in the energy transition and in the journey to net zero. In retail, we continue to invest in improving customer service and in future-proofing these businesses to enable us to capture the huge opportunities from the essential decarbonization of homes in the U.K. and in Ireland. We're also managing elevated and volatile commodity markets particularly well, capturing value from our optimization positions and our capabilities. And our infrastructure assets delivered strong uptime leading to higher volumes and higher profits. Now the outcome was the best ever financial results in our 25-year history. Earnings per share increased to 34.9p, free cash flow doubled to GBP 2.5 billion, and we closed the year with GBP 1.2 billion of net cash. And although the 2022 results were strong, we did see a poor result from British Gas Services and Solutions. After years of underinvestment and action more focused on in-year profits and long-term value, we've been investing in the infrastructure underpinning this business, investing in our people, investing in our systems and investing in our customers by absorbing the impact of inflation. We're putting in place the right foundations for the net zero world, which is definitely coming. We've now reached a point where we need to grow out of the situation in services. But having stabilized the operations, I'm really confident that we're able to do that. The strength of our balance sheet and the financial performance means that we're delivering cash returns to shareholders again with our proposed final dividend of 2p, making the full year dividend 3p per share. And we're now over 40% through the GBP 250 million share buyback program announced in November. And I'm very pleased to announce today that we plan to extend the program to buy back a further GBP 300 million worth of shares. Now the current share price before we opened this morning, this would result in us buying back roughly 10% of stock in total under this program. Now we're acutely aware of the impact this current environment is having on customers and in colleagues, and we're going to continue to do what we can to support them. For customers, we've invested well over GBP 200 million in customer service support and pricing across 2022, including more than GBP 50 million in voluntary support for domestic and business energy customers in the U.K. and Ireland. We believe this is the biggest ever energy support package in those countries, and we've committed to donate 10% of what British Gas Energy and Bord Gáis profits until the current crisis is over because protecting vulnerable customers is a priority for us. And that's why I was really disappointed by the allegations from a couple of weeks back that one of our third-party contractors and their approach to our prepayment customers. We immediately took action to address this, and we're completing a thorough investigation. And we've been working to make sure that customers have gas and power when they need it with a multibillion pound deal with Equinor to increase gas deliveries to the U.K. and the reopening of Rough as a gas storage facility. Without our dedicated colleagues, however, we would be nothing, and that's why we're supporting all of our 20,000 colleagues during challenging times. Pay deals have taken prevailing inflationary pressures into account, including 2 significant one-off cost of living payments. We've worked hard to reset the relationship we've got with our colleagues. And I was really delighted to see another significant increase in colleague engagement to 73%. That's almost double what it was less than 2 years ago because engaged colleagues means better customer service. Now part of this is undoubtedly down to the fact that we're growing, that we're creating jobs with 1,000 new apprentices across 2021 and 2022 and 700 additional U.K.-based customer service roles in British Gas Energy to improve answer rates and to improve customer service levels. And last but not least, we take our responsibilities to our communities really seriously, providing GBP 130 million of support to vulnerable customers through the warm home discount scheme, repaying in full the GBP 27 million received in furlough from the U.K. government, and we're going to pay around GBP 1 billion of tax relating to 2022 profits. Now right at the start of the journey, we set out 3 overlapping phases to our turnaround, and I'm delighted with the progress that we're making. We completed Stage 1 in the first half of 2022, with the sales of Direct Energy and Spirit Norway together raising $5 billion, and we're now in a net cash position. We've removed more than GBP 1 billion of decommissioning liabilities, and our pension liability has been materially reduced. We're now well into Phase 2. We fixed the basics, and the focus can move to continuous improvement and delivering growth. And I'm never going to be happy with operational performance because there will always be room for improvement, but we are so much better than we were. We're now increasingly turning and engaging to Phase 3. The opportunities presented by net zero for our business are absolutely huge. We've talked before about our capabilities in Energy Marketing & Trading and how increasing system penetration of renewables and the resultant intermittency and electricity played to our strengths. We have the know-how to facilitate both our own and third-party net zero investments. And we're progressing a number of flexible distributed generation and storage projects in addition to progressing the material options we have to repurpose existing assets into net zero infrastructure supporting the energy transition. Now I'll be back in about 15 minutes to provide a bit more detail on our progress. But for now, I'm going to hand you over to Kate, who's going to walk us through the financials.

Thanks, Chris, and good morning, everyone. Let me move straight on to the results. Financial performance was strong in 2022, demonstrating the virtues of our balanced portfolio. Revenue and gross margin increased, reflecting strong operational performance against the backdrop of higher commodity prices. Operating costs increased by around GBP 400 million, largely reflecting a GBP 235 million increase in the bad debt chart, specific in a financial support for customers and colleagues and the furlough repayment. Adjusted operating profit was up significantly to GBP 3.3 billion, of which GBP 0.5 billion related to the disposed Norwegian Spirit Energy assets. Net finance costs reduced as we earned more interest on our gross cash position, and the group tax charge increased to over GBP 1 billion, reflecting the increase in operating profit and increases in upstream tax rates. This resulted in adjusted earnings per share of 34.9p or 34.2p when the disposed Spirit Energy assets are excluded. Moving now to operating profit, where I'll start with retail. We saw a poor result from our British Gas Services and Solutions business and reported a small loss, while customer retention was marginally higher than in 2021, sales remain challenged against the weak economic backdrop and some customers have been trading down to lower-priced servicing and installation products. This coupled with investments in both service and pricing impacted the bottom line. We are continuing to invest in the efficient delivery of better service for customers as well as the longer-term opportunities from the decarbonization of heating in the U.K. We expect to start seeing the benefit of these investments in 2023. Moving to British Gas Energy, where operating profit reduced to GBP 72 million. This reflects the choices we made to repay furlough money and support vulnerable customers against the backdrop of high commodity prices. The high and volatile wholesale prices were the patterns, changing customer consumption and regulatory interventions during cost of living pressures were complex factors through 2022. However, we manage the risk around these well with the impact broadly balanced from a financial perspective. Finally, for retail Bord Gáis Energy demonstrated the value of a vertically integrated business model in Ireland with a loss in the energy supply business, due to the investment in customer pricing and support offset by good trading performance and strong availability from the Whitegate CCGT, which was offline for most of 2021. Next on to optimization. Energy supply was the driver of the significant year-on-year improvement in Centrica Business Solutions operating profit to GBP 44 million. This reflected a recovery in demand, given COVID was still a factor in 2021 and upside from selling back surplus gas and power into the markets in periods of warmer weather. However, we did also drive a reduced loss from the services part of the business, reflecting improved commercial focus and lower operating costs. Moving on to Energy Marketing & Trading, which is well positioned when commodity prices are high and/or volatile. We deployed more working capital against this backdrop, and we're well rewarded with operating profit of GBP 1.4 billion. We delivered material profits from each of our gas and power trading route to market and LNG shipping and trading activities. We have a good track record of delivering returns in much more benign commodity environment in gas and power trading, but significant price dislocations between markets and volatility and seasonal spreads meant we delivered material incremental value in 2022 from our contracted pipeline, interconnector and gas storage positions across Europe. As we talked about in our teaching in December, our route-to-market activities deliver a sustainable base level of profit, but also benefited in '22 from the higher price environment. And in LNG, even though we typically sell cargoes forward at least a couple of years, large differentials between U.S. and European gas prices provided opportunity to capture additional value. We have now sold forward all cargoes for 2023 and 2024 at a profit. It is also helpful that the historically painful legacy gas contract for Sole Pit is nearing its end of life. In 2022, it contributed a profit of GBP 19 million. And at current forward commodity prices, we now expect it to lose around GBP 100 million in total before it ends in 2025. This is an improvement of GBP 50 million from our expectation at the interims last July. Moving on to our infrastructure businesses and after excluding the disposed Spirit Energy assets, pretax operating profit was GBP 1.3 billion. The retained Spirit assets delivered operating profit of GBP 245 million, with gas production up 3%, reflecting strong operational performance at Cygnus and Greater Markham and higher achieved prices despite the impact of forward hedging. This was partially offset by higher depreciation rates as a result of impairment write-backs last year. Centrica Storage operating profit increased to GBP 339 million, largely due to strong returns during periods of gas price volatility in the fourth quarter, with Rough now operational again as a gas storage facility. Nuclear reliability was much improved, which resulted in a 5% higher volumes year-on-year despite the end of generation at Hunterston B and Hinkley Point B, operating profit was GBP 724 million, reflecting higher achieved prices. And finally, in 2022, we initiated a global profit share award for all colleagues so they can participate in our success and to encourage colleagues to drive future performance. The total cost of this in 2022 was GBP 23 million. Moving to cash flow. EBITDA was up by over GBP 2 billion, which is the main driver of increased tax, including amounts paid so far in 2023, we have paid almost GBP 1 billion in tax related to 2022. We deployed around GBP 600 million of working capital in the year, which is largely a function of higher commodity prices and market volatility. I will briefly outline the big ticket items. In British Gas Energy, we saw an inflow of GBP 1.1 billion, given higher prices we would normally expect an outflow, but as we typically pay for commodity in advance of receiving payment from customers. However, the introduction of both the energy price guarantee and energy bill support scheme in the second half of 2022 actually resulted in us being paid quicker than understanded consumer payment patterns. Offsetting this was a GBP 1.2 billion build of working capital in energy marketing and trading, driven by our investment in gas inventory for our storage and LNG positions and unrealized profit on derivative positions. We also invested GBP 0.4 billion of working capital in Rough as we injected 16bcf of gas into store. While we would expect these positions to reverse over time, movements in working capital can be material when commodity prices are moving as significantly as they have over the last 18 months. Hence, the importance of a strong balance sheet and cash flow flexibility. Underlying CapEx increased as we invested in flexible generation assets, and we would expect CapEx to ramp up again in 2023. Exceptional cash flows related to the substantive closeout of our 2020 restructuring program. Overall, free cash flow from continuing operations was GBP 2.5 billion, up from GBP 1.2 billion in 2021. Switching to the right-hand side of the slide, the most significant movement is the GBP 1.2 billion outflow in margin cash in an elevated and volatile commodity price environment, initial margin requirements are greater and the likelihood of large variations on variation margin are also increased. This margin cash is the cash held on exchange or with counterparties to support both trading and hedging positions. We returned over GBP 100 million to Centrica shareholders in 2022 from both the start -- restart of the dividend and the share buyback program. We also paid a GBP 273 million dividend to our Spirit Energy Partners, their share of the proceeds from the Norway disposal. The net impact of all of these movements was a closing net cash position of GBP 1.2 billion compared with GBP 680 million at the end of 2021. Our balance sheet is far more robust now than it was a couple of years ago. We showed a version of the chart on the right last July, and we've updated it for the end 2022 position. In September 2022, we finalized the triennial pension agreement with a March 2021 technical deficit valuation of GBP 944 million and unchanged deficit contributions. On a roll-forward basis, that deficit now stands at around GBP 850 million compared with GBP 2.4 billion less than 3 years ago. We've also delivered material reductions in decommissioning liabilities. This improved position underpins our strong investment-grade credit ratings, important for our energy procurement, asset hedging and EM&T activities. As I highlighted at half year, a core capability in managing our business risk is how we balance the trilemma of market credit and cash liquidity risk. Our strong balance sheet and robust liquidity ensures we can manage this effectively and capitalize on any opportunities which arise. During periods of extreme commodity price movement over the last couple of weeks in August, we saw margin cash outflows of over GBP 2 billion across initial and variation margin. However, our liquidity levels at the lowest point was still around GBP 5 billion, and a large portion of the outflow quickly unwound as commodity markets settled. We did opt to temporarily increase the size of our committed facilities by GBP 1.1 billion expiring in mid-2023, as market illiquidity was impacting commodity prices and other participants were relying on government support. This is reflected in our current liquidity levels of GBP 7.6 billion. With uncertainty regarding future levels of commodity prices and volatility, we will maintain a prudent balance sheet that provides us with cash agility, resilience and the ability to respond to opportunities as they arise. Finally, let me move on to cover the outlook for 2023. As always, there are a number of external factors outside our control, in particular, weather, commodity prices, the economic backdrop and any changes to regulation or government policy. This results in a range of outcomes for many of our business units. However, we've put a lot of focus over the past few years on creating a balanced portfolio and improving the foundations of the group, leaving us well placed to profitably manage a range of external environments. We have also developed good growth options, and we expect total expenditure to increase in 2023 compared with 2022. In retail, we'll continue to invest in further improvement in our operations and services, in particular. Our focus is also on improving commercial performance, and we'll be looking to drive some financial recovery in 2023. In optimization, although we do not plan for 2022 conditions to repeat in 2023, we've sold forward LNG cargoes out of profit and where volatility is a factor, our strong capabilities and contractual positions should enable us to capture value in physical storage, pipeline, LNG and generation offtake. We expect to continue to invest working capital in this area and for infrastructure. Although wholesale commodity prices have been falling since towards the end of 2022, they remain elevated compared with historic levels. As hedges roll off, we expect to see higher captured prices in our gas production and nuclear activities, albeit earnings will be significantly impacted year-on-year by the implementation of additional upstream levies. As we've done before, we've provided our hedging positions in the table on the right, which you can use to construct your Spirit Energy, Centrica Storage and Nuclear forecast. Thanks. Now I hand back to Chris.

Thanks, Kate. Okay. So what does the future hold? Maybe I can remind you of how I see Centrica today. We are a uniquely integrated energy company, able to unlock synergies across retail, optimization and infrastructure. We've got a diverse and balanced portfolio, the strength of each of our focused business units, reinforce and derisk others, making the whole greater than the sum of the parts. As we've recently seen, our markets are rather dynamic. Our simplified organization allows us to respond quicker than competitors. We have a very short chain of command. We're market-led, we won't invest material sums into primary research and development. We will, however, continue to invest in our proprietary optimization technology, and we will deploy new technologies faster than our competitors can do it. And of course, we'll only invest where the risk is compensated by the returns available. We have growth opportunities across the entire energy value chain. We can choose where to invest, and we can change the mix dependent upon our circumstances. We have choice, we have flexibility, we have the ability, we have the capital and we have the discipline. In British Gas Energy, we're improving our operational performance. We've materially accelerated customer migration with more than 2 million now on our new IT platform. We've bolstered customer service capacity through recruitment, and we're seeing higher customer Net Promoter Scores. Now as you can see here, Net Promoter Score is materially higher on our new system. It's a better customer experience. Our underlying cost per customer remained flat despite the impacts of dual running IT costs and inflation. And remember, we no longer exclude transformation costs from our results. And we're growing customers organically for the first time in many, many years. Now all of this has come whilst managing the operational requirements of bringing on over 700,000 new customers under the supplier of last resort mechanism and implementing new customer support schemes. We've made over 35 million individual payments under 1 government bill support scheme. Catherine and the team have done an incredible job. But we've also got a rise in the future. Our Peak Save trial launched in early 2023 is enabled by the new platform and by its flexibility. And we're excited by the response of our customers and our offering is the best in the market. It pays energy consumers more than any other company. We'll increasingly bring demand-side response offers to our smart meter customers over time. This is the future of the electricity market. As we go through the energy transition, a regulation, however, must evolve along with the evolution in our underlying markets. Over the past 18 months, more than half of the U.K.'s energy suppliers have ceased to trade, which impacted more than 4 million customers and is costing energy consumers billions of pounds. And in response, Ofgem has made a number of positive regulatory changes, the introduction of the market stabilization mechanism and the ban on acquisition tariffs, both of which have recently been extended to March next year, will ensure that responsible companies like us are not commercially disadvantaged by hedging appropriately. However, we all recognize that the changes made have been reactive in nature, rather than fundamentally fixing systemic issues in the energy market. The undercapitalization of market participants, including some of the largest suppliers in the U.K. market today has not yet been addressed. And that's why we're going to continue to push for financial services style prudential regulation with 4 main themes: number one, fit and proper person tests; number two, capital adequacy rules; number three, well-monitored risk management activities; and number four, full protection for customer deposits. Now at Centrica, we already have all 4 of these. So we know that it's doable. And at the end of the year, we held GBP 643 million of our customers' money in a separate bank account, we voluntarily ring-fenced their money. It's their, not ours. We believe a fundamental route in branch review of regulation is required urgently to ensure the system: a, it's ready for the energy transition; b, it works for consumers; and c, it allows well-run suppliers to make an appropriate return, compensating them for the risks that they take in this market. Turning to services. I said earlier that we stabilized the operations. And you can see this here in improved operational metrics with lower absence rates, lower job reschedule rates and higher customer Net Promoter Score. The GBP 80 million investment that we made in customer service and in pricing in 2022 contributed to the poor financial results, but we now give far better service, and we're in a place to address years of decline in customer numbers. Jana and the team have a clear commercial plan for 2023 as we drive this business forward. Now clearly, the current cost of living issues are impacting customer demand, but we're fixing this business, which is a great business for the long term because it's hard to overstate just how well positioned we are to benefit from the decarbonization of 30 million households in the U.K. and Ireland and also how excited I am and the rest of the team are by this opportunity. We've got the largest energy services fuel force in the U.K. with our award-winning training academies allowing us both to train our own apprentices, but also to upscale our engineers. And we've now set up a net zero business within British Gas Services, giving this growth area the level of focus that both deserves and it needs. And we're already installing and maintaining net zero technologies. In 2022, we installed more heat pumps than any other energy provider in the U.K. It wasn't enough. It was a small amount but we're leading the market just now, and we want to continue to lead the market. Now as you can see from our results, we have world-class optimization positions and capabilities. We listed the lead in these a bit at the half year, and again, in our Energy Marketing and Trading teach in last December. We understand energy markets very well, and we're able to manage system complexity to add value in all commodity price environments but particularly when prices are high and/or volatile. And we've always had physical trading and risk management capabilities, principally to support the retail gas and power supply businesses, but we've developed our capabilities, our proprietary digital platforms and our team to become the world-class operator we are today. What we've created over a number of years is very, very hard to replicate. There are huge barriers to entry. In gas and power trading, we're active in 24 countries. We have a world-class team managing a network of physical positions across Europe, moving gas and power to the highest value markets. We've got interconnected capacity. We've got pipeline capacity. We've got 11 terawatt hours of contracted gas storage capacity across Europe. We've got one of the Europe's largest third-party renewable energy portfolios, and one of the most advanced cross-European virtual power plants, I think it's the most advanced, but the lawyers wouldn't allow me to say it. Today, we manage around 5,000 individual assets with a combined capacity of 16 gigawatts of which approximately 75% of renewable technologies. Now to put this capacity into context, 16 gigawatts is enough to power almost 10 million homes in the U.K. With an increased proportion of renewables coming online. This creates a great opportunity for us, both due to the growing size of the overall market and the volatility in prices created by the increased intermittency of renewable generation when the wind doesn't blow and the sun doesn't shine. By having the assets and the ability to move gas and power across Europe, we're able to capture value from this very broad portfolio. Our world-class team have got a deep understanding of the global LNG market and of its logistics. So we are well placed to benefit from the increased importance of LNG in global gas markets, in particular, driven at the moment by security of supply concerns in Europe. This is another set of physical options backed by great expertise. In 2022, we traded 284 physical cargoes, including those from our contract with Cheniere. We sell these cargoes forward to manage risk, and we've now sold forward, as Kate mentioned, all cargoes in the Cheniere contract until 2024. We've done this at a profit, and we would expect to generate further upside from the embedded optionality we've got in this portfolio. Being able to move molecules and electrons physically is key to our optimization activities. This is so much more than a bunch of people trading financially in a set of screens. Cassim and the team are the energy movers, they keep the lights on without anyone seeing what they do, they work in the background. LNG is an important business for us. And as we previously indicated, we're going to hold a teach-in on this part of our portfolio probably in April to give you a better understanding both of the people that we've got, the positions that we've got, the capability that we've got. And we're managing a lot of third-party assets and our optimization capabilities give us the confidence to deploy our own capital into flexible generation and storage assets. In the past 12 months, we've approved 4 new gas peaking plants, 2 in Ireland, 2 in the U.K. all of which will be capable of being converted from running on methane to 0 carbon hydrogen. We've also approved 3 new batteries, 2 in the U.K. and 1 in Belgium. All 7 of these sites come with existing grid connections, which avoids the need for additional network CapEx and speeds up the time from approval to operations. And as you can see, the CapEx is relatively small, and the build cycles are relatively short, we're always looking to retain optionality and to maintain flexibility. Maybe I can move on now to our existing infrastructure positions. All of our assets generated good levels of cash flow. However, they all have a limited lifespan. We have an amazing opportunity to reinvest cash flows into new, profitable and stable net zero assets, which will continue to provide the balance our portfolio benefits from today. The retained Spirit Energy business delivered strong production during 2022. There will be no further exploration spend, but we may pursue some infill drilling opportunities if returns are attractive. Otherwise, we expect production to decline by around 10% to 20% each year, which is fairly typical for this type of business. Neil and the team in Aberdeen continue to develop our plans to repurpose the Morecambe gas field into one of the world's largest carbon storage facilities. And recently, we submitted an application for a carbon storage license as a first step in that journey. In Centrica Storage, Rough is now operating again as a gas storage facility, which is hugely exciting and absolutely critical for the U.K. We've got a 10-year storage license. The asset is currently running at a capacity of 30 billion cubic feet, which is around 20% of its previous capacity. Martin and the team at continue to work up longer-term plans to convert Rough to roughly 200 billion cubic feet hydrogen storage facility, the largest in the world. We believe that this will require an appropriate support mechanism from the government before we can sanction that investment. And on nuclear asset availability was very high in 2022, and that's a result of us and our partners investing several billion pounds in recent years to improve operational performance, which resulted in very strong output. Two of the remaining 5 nuclear plants are due to close in 2024, although Dave and our team are working with our partners, EDF and the nuclear regulator on reviewing the case to extend these assets. And we're also exploring options to invest in new nuclear. If we think there's an opportunity to make an investment that delivers attractive returns, we'll discuss that as a Board, and we'll make a call. It will clearly have to add value. Our core markets need material investment to achieve net zero. We said at the interims that an estimated GBP 200 billion is required in the U.K. and Ireland between 2021 and 2030 to help meet decarbonization targets. Now don't worry, Centrica doesn't have to fund all of that. Much of the spend will be in intermittent renewables. The increased intermittency will result in a growing need for distributed rapid response electricity sources. And with energy security of supply moving up the agenda gas peaking plants and gas and electricity storage must play an increasingly important role as must hydrogen. All of these are areas in which we have experience, ability, expertise. The company's best place to succeed will be those with strong balance sheets, flexible business models, operational capability and detailed knowledge of the market in short company like us, companies like Centrica. The regulatory and political landscape is also a factor in our investment decisions, and we welcome the establishment of a new department for energy security and net zero in the U.K., and we really look forward to working with the government as we develop the pathways to net zero. We're already deploying capital into flexible generation and storage projects as I've laid out, and we also have the potential to deploy capital into renewables with partners, which provides market access for our route-to-market activities. And we've been building further expertise in both hydrogen and carbon capture and storage, taking small nascent positions as well as developing the material plans we have for Rough and for Morecambe. With Russell due to take over as CFO in a couple of weeks, we'll provide more detail on our longer-term investment plans and the expected returns alongside the interim results in July. Let me quickly summarize before we get into the good bit with your questions. Centrica is a uniquely integrated energy company with a strong balance sheet and strong positions, market-leading capabilities and exciting growth opportunities across retail, optimization and infrastructure. We've made good progress in improving operational performance. There's more to do, and we don't get everything right, but we're on a much more stable footing now, and we're able to look forward rather than backwards. And we'll continue to deliver stable and attractive cash returns for our shareholders. Through our progressive dividend policy, and where appropriate, additional returns of surplus structural capital through share buybacks, such as the extension that we announced today. Now finally, if you permit me, I thought it was worth mentioning that our previous record year 2012 delivered 27p of earnings. At that point, our share price was GBP 3.50 with GBP 4.4 billion of debt. And I've told it's not good to say to analysts, you're going to work into your models, but I'm sure that you'll be looking at this and see where we are today versus where we were 11 years ago. But obviously, I think there's a huge amount more potential in our company. I think there's a huge amount more potential in the assets that we've got and the people that we've got and the positions that we've got. And our job as a leadership team in the company, and our job as a Board is to demonstrate that to you as we go forward. So now we're going to move on to Kate and I will be delighted to take your questions. And we're going to try and manage it as a hybrid. We've got screens here that will give us some questions from the webcast. So if it seems less than professional, because it's kind of difficult to read the small print on the screen, but we'll start in the room. Let's go.

Jenny Ping from Citi. A couple of questions, please. So just firstly, on the optimization business. Clearly, you've done really well there this year -- well, in 2022, but can you give us some sense of what you've been able to lock in. You obviously talk about profitable LNG contracts '23 and '24. Any sense in terms of the magnitude there, that would be helpful. Secondly, you talked about a step-up in terms of CapEx, 23 versus 22, again, a sense of the step-up. And then linking to that a more longer-term strategic question, I guess when I look at your slides, a lot of the larger CapEx spend are really coming in longer term, things like more come and investments in nuclear, et cetera. So how should we be thinking about the bridge of what you've got in terms of cash coming through the door and cash on balance sheet today versus that longer-term need? That would be helpful.

Right, Jenny, thanks very much. Let me try and take the advantage moving on the cursory answer to the first and then let Kate give you the right numbers. Starting on the strategy of Brigg, we're very active in identifying areas that are within our capabilities in order for us to develop projects. And it's really quite difficult to see how long term these investments are. We did look at expanding the capacity of Rough for the coming winter that in itself would have been a material investment. It would have been conducted over a period of 1 year. We didn't have the right regulatory framework there so we decided not to do that. We are disciplined. But we're working through our plans, so you probably have to be a little bit patient with us on that, but we do have a lot of -- we have a lot of ideas. We have a lot of optionality in our portfolio, which is really quite nice. Kate will talk to you about the step-up in CapEx. And I would say in terms of what we locked in. The easy thing to say is we don't expect to have the same year in optimization in 2023 as we saw in 2022. So I mean, that goes without saying, but we also don't expect to go back to what we saw in 2021. So we would expect to be north of that. I'm pretty sure that Kate's going to tell you that she's not going to tell you what we've locked in. But we have locked in the senior cargoes at a profit. If you remember, a couple of years ago, we were having a conversation about it could be GBP 300 million. We do start GBP 300 million behind the so to speak. So to have them locked in at a profit in '23 and '24 is great, but I'll pass it over to Kate to probably tell you the numbers.

Thank you very much for the question. With regards to optimization, just as a reminder of what the pillars behind that business are. So you got the route to market activity that we talked about in December, the LNG activity that we have that you referred to in the gas and power trading. The underpin around the gas and power trading in particular, is the investment we make in storage position. So this is predominantly in Europe. Now the way I hold that business is when you've got volatile and elevated commodity prices, the optionality of that investment comes through in the LNG, the ability to move gas and power across continents and the like. So that's the way to think about it, combined with the track record that we have over a number of years when you take that costly gas asset aside and you look at the underpin. So that's the way I would hold it is what's the track record, what kind of environment are we moving into, how we demonstrate that we operate in that environment and then hold that as to how you look forward. As Chris says, I'm not going to give you a degree of underpin exactly what sits in LNG as an example. There's a lot of route to go, I think, in 2023 in terms of how the portfolio unfolds. Cheniere is a meaningful contract that we moved 280 cargoes in 2022. So Cheniere is a portion of that, but not the only thing we do.

It's Martin Young from Investec. If we can pick up on what you were briefly alluding to around the regulatory sort of backdrop for supply in this country, Chris. I guess there are 3 things I wanted to explore there. Firstly, around the differentials between the cost and the tariff cap or those who pay on prepayment meters and those who pay via direct debit. I think if you look at the latest price cap, GBP 80 difference, give or take, 4 million households, so a little over GBP 300 million additional cost there for those customers. Surely, that's the type of number that should be socialized across all customers with an appropriate mechanism to make sure that those who have the prepayment meter customers in their portfolio are adequately reimbursed with the additional cost. So I just wonder what your thoughts were on that. And then that leads me, I think, neatly into social tariffs. I would suggest that they are probably now an inevitability in some way, shape or form. So just wondered what Centrica's views were on structure and who should ultimately pay for a social tariff? And then the final question is around the prepayment meters. I just wondered what you were doing before the times kind of forced your hand, so to speak to change practices around prepayment meters given that it is an issue that has been bouncing around for quite a while?

Well, thank you very much, again. I'm always nervous when an ex-employee of Ofgem ask questions about regulation. Look, I think on the last part, the prepayment meters, we've got an investigation ongoing, so I can't get into details as to what's going to happen in that investigation. But I would say you probably have to take it up a bit at a level. Firstly, last year, we installed 100,000 prepay meters, just under 100,000. 20,000 under , 80,000 -- almost 80,000 voluntarily. So prepayment meters in and of themselves are not the issue. And that links into your question about socializing the cost. The cheapest electricity you can buy in the U.K. under the price cap is on a prepayment meter. And the second cheapest gas you can buy is on a prepayment return. So there is a bit of misinformation out there that prepayment meter customers are paying a whole lot more than others. It used to be the case. It's not the case anymore. But the reason the distinction between those who choose to go into prepayment meter and those who have them fitted involuntarily as important as at high level, you talk about how do you socialize this extra cost if such an extra cost exists. I know you socialize across people that are not on prepayment meters. If you were to simply do that through the price cap, everybody would go into prepayment meter, there'd be nobody to subsidize because it's voluntary. So you have to really think about this in terms of the overall structure. The question we've got to ask ourselves is as a society, what do we want to do for people who cannot pay their bills. Now remember, where we install a prepayment meter involuntarily. The customer has -- we've tried for about 6 months at least to get in touch with the customer. We've visited their house, but we haven't been able to make contact. And so the only options that we face at that point are you let a customer continue to run up unsustainable debt that you know they can't pay, which in another industry would get you in a huge amount of trouble or you install a prepayment meter to stop that debt accumulating. And neither of those are particularly nice options. But this is not really in the gift of Centrica or British Gas to fix. And it's actually not really just limited to energy. This is something that goes far broader. People are struggling to pay for food. They're struggling to pay rent, they're struggling to pay mortgage. And it's a question for us as a society, which is what do we want to do for those people who can't afford the basic necessities in life. When you talk about social tariffs, there are a lot of voices involved in this debate, and we're one of them, but I would prefer to do that in the bank and our social tariff is a possibility. And it could mean those that are less able to afford their energy bills are subsidized by those that are more able to afford. The devil then gets into the detail, which is administered by companies or by government? Is it something whereby 1 energy consumer subsidizes another? Is it something that comes from general taxation? If we go down the route of a social tariff, I think the easiest way to have this administered is through the department for working pensions because they know who is financially vulnerable and who's not, and it's easier for them to manage it. But I'm sure that the new energy department and the chance I've got lots of people giving them advice. I mean, what's clear is we have to fix this. What's also clear is that the -- what was exposed in the times is unacceptable in terms of the language that was used for customers. That's not how we want to do business. And whether you work for us or you represent us, you cannot talk about customers, you have to treat customers with dignity. It happened to just 1 customer that's one too many. When we get the results of our investigation, we'll fix it, we'll make it right and we'll contribute to the ongoing industry debate.

Deepa from Bernstein. So I have 3 questions. One, just picking up from the regulatory backdrop. What are your thoughts on the current EBIT consultation from Ofgem, which proposes to kind of moving from the margin kind of being variable to maybe hybrid and then revisiting some of the assumptions on capital employed, et cetera. Second, a question on British Gas Services. Obviously, you have invested GBP 80 million last year, but can you give us an idea of long term, what is the kind of profitability we should expect versus historic? And what is the ramp to get there given the current economic backdrop? And my last question is for Kate. Just on the customer deposits that Chris mentioned, which have been ring-fenced. Just wanted to make sure that, that's not included in your cash position? Or is it? And then can you also tell us what's the balance of your margin payment? You've made a lot of outflows this year, but last year was an inflow. So is there a balance of how much margin net you still have to pay or receive from your various parties?

Thank you very much. Let me take the first 2 questions, and then Kate can take the question on customer deposits. Look on the profitability, as you say, given the economic backdrop, very difficult to give you a clear picture because I don't know how long this cost to live in issue is going to go and I don't know how long inflation is going to be and it gives us decisions to make in terms of how we absorb -- well we absorb inflation and pass out. What I can say, this is a fantastic business. And it's been damaged because we will be managing for the year profitability. So what I don't want to do is to say this is when we're going to get this thing back to the profits that we saw in the past. I'm confident we can get it back to what we saw in the past. Very few industries have that entire customer base having to replace their -- the products over the next 10 years. Every one of our customers are going to have to do that, hydrogen boiler, heat pump. Now we've got 6%, 7% in the boiler install market. I don't think that's enough. And why it's not more. Now I don't know where the number would be. It's not going to be 50%. It could be 20%. in the heat pump market. We've got 1% of the radiator install market. So our focus in some parts of that business has been quite narrow, how do you install a boiler actually what we think now, how do you install a heating system? How do you maintain that heating system? What we've seen recently, which is quite good is we're ramping up our sale of on-demand products. So we've run this business in the past, trying really to match capacity with customers. And you've got anybody who's ever run any operation knows you've got to have excess capacity in there. So we're looking at it on a different basis, which is how do you build in the excess capacity to give the customer the service that they want. And then when you've got that excess capacity, how do you have the right commercial team who's going to sell that excess capacity in day. So you got engineers. One of the things we talk about internally is we'll know we've got it right when we see engineers sitting in , and we're comfortable with it because they're between jobs and we've got commercial teams trying to sell them. We've seen a substantial ramp up in the first part of this year in those on-demand jobs, they've sold direct to consumer through digital channels. So there's a lot of good work going on in there, but I can't give you a straight path because I just can't tell you what the economic backdrop will be. I can tell you that boiler installs performance in the first month of this year was stronger than we expected. So there's a lot of demand out there. We have been our own worst enemy in this business. It's why we're investing so much in fixing, it is a fantastic business. On the EBIT consultation and capital employed. So Ofgem last year said that some companies were using customer deposits like an interest-free credit card and then they completely flipped the position and said, we're not going to make companies ring-fence customer deposits. I have no idea how they could have such a flip in the position. I saw that the FCA announced bizarrely this week that they should have fined that on bank GBP 73 million, but they didn't because they would have gone out of business, which I just think is the weirdest that we have this thing for a regulator to see. Our view for other companies in the sector, not all of them, but a lot of them, including some of the largest companies was that if they were forced to ring-fence customer deposits, they would be forced to raise capital. Ofgem explicitly said they couldn't raise capital in this market. So the only conclusion I can draw is that the companies in our market today that are arguing against ring-fenced customer deposits have already spent that money and cannot afford to ring fence it and they're not making a profit. And so therefore, you've got to ask what's going to happen in this market. And the reason I think that's linked to the EBIT consultation is I can't think of another energy market that has had such turmoil -- re-energy retail market that's had the turmoil that we've had in the U.K. And a very simple view, I take and I encourage the regulator to take is, if no one else is as broken as this why do you look at what others are doing? And in other markets, the EBIT margin is between 4% and 6%. Now you can get that through having an EBIT margin or you can get that through having a return on capital. If you underestimate the capital that is required for this business, you'll underestimate the return that's required, which is a long to see, and we will contribute to the review. But as I mentioned earlier on, we think a root-and-branch review, so this is not about change in 1 or 2 little things. We need to step back and say, what do we want from this market. It has to be a market that works for consumers, it has to be a market whereby if companies fail, shareholders pick up the TAM. If the consumer is paying GBP 88 just now for the cost of failure excluding and excluding any future failures. And it also has to be a market where profit is not a dirty word because without a profit companies will fail. So I think we've got a long way to go on this. And I think moving to some kind of fixed EBIT margin if the idea is that you reduce the EBIT, why you would think reducing the EBIT in a market that has lost half of its participants and is structurally loss making, why you think that's a good thing for consumers is beyond me, but we'll continue to contribute and talk about customer deposits.

So I think I've got some -- slightly easy a bit so it's just a couple of numbers to point to you. So with regards to the credit balances, so it was like just around GBP 640-odd million of credit balances we had at the end of the year. It is included in our cash numbers. It's a ring-fenced. It's in a separate bank account. But it's not treated as yet as regulatory capital. So -- but it is included in our cash balances. With regards to the margin, so GBP 820 million margin out is where we were at the end of the year. So that's a movement of GBP 1.1 billion in the year. The beginning of the year, we were margin in, so with derivatives more in the money than out the money. Just as a reminder, the driver behind those margins. Remember, this is the kind of accumulation of our hedging activity for upstream and our downstream businesses as well as the trading portfolio. And as an example, that very steep fall that we had in commodity prices at the end of December meant the hedges that we put in to our downstream business switched to very heavily up money.

It's Alex Wheeler, RBC. Just one for me, please. Just on the retail business. You've spoken a lot about plans for 2023. I'd be interested to understand what you would consider to be a successful 2023 for that business in terms of what you actually want to achieve, obviously, outside of any regulatory changes?

Do you mean in energy or in general?

Across the board in the retail business.

Very simple, higher profits, higher customer Net Promoter Scores, better customer service, more customers. That's what I would consider to be a success.

I have 2. Firstly, a very pointed question on capital deployment. I mean, even after the on-market share buyback that you work through this year and perhaps next year. You still have some billions of capital on balance sheet, and you've given us a sprinkling of what you can invest in. But then clearly, the big ones are Rough and potentially a slice of Sizewell, right? These are very big investments. The alternative is to give it back to your investors and let them find the return, right? And it's the age-old debate between investors and management teams who can get the best returns. And I guess we saw the slide that you put up at half year going through the various options. But can you talk about how -- if you do invest in these big projects, how we can be sure that they're not going to lead to the same problems of a decade or 15 years ago that led to value destruction, which has ultimately come right but led to a lot of the problems. And just secondly, just on nuclear retirements, Kate, and I know you sit on the Lake Board. Just regarding the timing for the 2 retirements in March 2024 and the capacity auction, I was just wondering what you would expect the retirement date to be?

Mark, thanks very much. The first question is a really open-ended question. I'll do my best to give you something that's not a long rambling answer, and then Kate will talk about retirements. But remember, I said in the presentation that we're working on extensions for these. So -- but you require the nuclear regulator to approve that. So there's a lot of work going on there. Hopefully, you'd agree that the prudence that we've shown, the caution that we've shown has been the right thing to do. And so as we've focused on our 3 phases of the turnaround, which is ultimately, how do you walk before you can run the . How do you walk and chew gum at the same time. We have deliberately been cautious because we recognize that we haven't always got things right in the past. But what we also want to do is we wanted to get the portfolio in the right place. So a bunch of assets that we wanted to own it by design, they sit together, they make things better. We also then wanted to make sure that we fix underlying issues in those assets rather than look for something new and shiny that take your attention away from the underlying issues in past. We're not there. And I don't think well ever be on customer service, you can always make it better. We are better than we were. And now we turn more to say, well, where do we invest the cash that we've got. I don't think it's a difficult debate the shareholders because it's only difficult if we want to invest in something that doesn't make them an adequate return. If we want to invest in something that doesn't make an adequate return. It's not actually a question of capital, it's a question whether you've got the right management team. If you make the right return I think shareholders would prefer that you invest. But what they want us to do is to invest in things that are within our wheelhouse so to speak things where we can focus, where we can bring expertise, things where we can add value. What they don't want us to do is to just invest for the sake of it. So obviously, look, we do have a good portfolio of opportunities. You missed out and you mentioned Morecambe as a carbon storage facility. And the reason that that's really interesting is because you know geographically, it's in the Irish Sea rather than in the North Sea. There's a lot of carbon storage facilities in the North Sea, but more comes actually quite uniquely placed. They can help to decarbonize the West Coast. It's slightly more difficult because it's not adjacent to an existing industrial cluster. So the concept we're looking at there is to ship CO2. Now to give you an idea of some of the complexities, one of that is saying you're not allowed to ship waste products across borders in Europe, and CO2 is a waste product. And so we've been talking to the government about if you want to have a revenue stream, allow the ship in a CO2 and then we stick it in the reservoir in Morecambe. Now there's quite a bit of work still to be done there, but that's another material investment opportunity. How do we guarantee that we don't repeat the sins of the past. I think you got to look at this business through the long term, through the cycle. So there's at some point where we say, God, I wish we hadn't done this. And now we're saying actually we're quite glad that we've got it. You look at Rough, for example, I don't know we paid for Rough GBP 300 million or something if even that while -- so there have been some real successes, and there have been some things that have been less successful. But remember, as we proceed and we proceed with caution, the returns that -- we were very disciplined on returns, the fact we didn't invest in the capacity expansion for Rough, I think, demonstrates that discipline because that was a difficult decision not to do that, but it didn't make financial sense. But there'll be a mix. We want a mix of regulated merchant assets. The more regulated the assets are, the lower the return you're willing to accept, the more merchant, the higher return you need. But then we can also bring further value through the fact that we're in infrastructure optimization and retail, and that's value, I think we bring to assets that nobody else can, really. So we've got a real opportunity there. But just be patient with us. We're not holding it for the sake of it, but we also don't want -- I mean one of the dangers you get when you have more capital on your balance sheet as it burns a hole in your pocket. One of the things we're lucky we have a very engaged Board. So even if I got a twinkle and I've to spend the money poorly . And then Russell would say you must be Chairman sitting here, who's probably looking at me thinking he sounds like he's not, but we've got a very engaged Board. So we're really disciplined and we want to just take our time to work through all of the opportunities. The great thing is we've got the opportunities.

Sorry, I say you want the nuclear question. Mark, I'm not going to be able to add very much. I'm really sorry. I don't actually sit on the Board, but notwithstanding, that's not relevant, but as has been reported, there are desires to extend, but I'm certainly not in a situation where I can give you any indication by when or how or how much.

The key thing on that is you've got to do it well in advance. So we looked at it was Heysham B, one of the Heysham stations closed last year. And we've been asked by the government. Could we look at extending it and we had to say, "Look, we just don't have the time to get the safety case in the right place." What we'd like to do is to focus all of our efforts in the safety case with the 2 that are going to close in 2024. So we've been working on that already for a while so. But hopefully, it's not a kind of 6-month extension. I mean, it's going to spend the time in the safety case you want. It's not going to be 10 years. It's not going to be 6 months. So somewhere in between.

Ajay Patel, Goldman Sachs. I guess mine is more of a strategic question. EMT fantastic performance. And I just think, well, does -- are you happy with the way that the portfolio is set up at the moment. Now I'm thinking like EMT, LNG contracts, the business was bigger in the past and relative to that made more sense. And now if you think about an ongoing business, maybe in an environment where commodity prices normalize, does that still make sense to have that portfolio? Or does it belong with a bigger company and you're realizing that profit and taking advantage of other opportunities. I'm just wanting to ensure your sell thought process behind that, please?

So look, I think EM&T is the glue that holds the group together. It helps us with our infrastructure assets, it helps us with our retail business. Remember why we set that, we had that business in order to hedge our downstream exposure, our upstream exposure. We have got -- I do -- I mean, I use it a lot in the presentation, I genuinely think we've got world-class capabilities in there. We've got world-class people. And if we didn't risk capital to work in some of the optimization activities, we still have, by and large, the same group of people doing the hedging for the downstream and the upstream. You never ever going to get away from that. And so my view on this is, we manage this very closely. We've got a very talented team led by Cassim sitting in the front. We manage it very closely, and we have very strict limits on the risks that we take in the optimization capabilities. And I think that's an area that I would like actually to grow rather than to shrink, but grow in a controlled way. And as we see, as we grow forward, we look for example, all of the systems and infrastructure and controls have got in place and the bigger you get, the more you step those up. And so you get this forward momentum, you get better profits, you get more to invest, you get better underlying systems, you can grow more. So what we're not going to do is to grow in an uncontrolled way. But the opportunities there are absolutely huge. And there are many companies that can and do trade gas being able to trade power. It's a very different skill set and been able to optimize that and doing that across 24 countries in Europe is really quite something and it's just going to get -- this scale is going to get more and more valuable as you see more and more renewables coming on to the system. But it also gives us the confidence to deploy in is deploying capital in flexible generation storage projects. The fact that we've got Cassim's team that can do the optimization gives us more confidence that we can get a better return out of installed, it's not just the asset return. It's how do we get the return of optimization. So all really knits together very well. It's a core part of our group. And as I say, I think it's the glue that holds us all together.

Sam here from UBS. I just like to make 1 comment and then a question for each of you. you can take the question. The comment we haven't in Q&A, which is the buyback. And obviously, lots of kind of media focus on that and question this morning on the buyback. So I just want to share for what is the perspective on that, but I think to me the buyback is not controversial. And then it says the controversy is that we grow profits and taxation and we've through that as a country last year, and we have a . So given the wonderful taxation, outcome is what it is, I think the buyback is not controversial. I think let's see where the discussion goes. But also I think from a valuation point of view, money, whether you give it back or not, but it's more of a message back and opportunity to invest. That was my comment then and on to my -- I hope . On to my questions. Okay. Some of us here, we're delighted to couple of years ago, which is -- every success -- but if you could give us maybe your decision to leave to what's driving that. It's a question -- and Chris Yes. My question for you is a bit of follow-up of Ajay's and little bit with what Ajay was saying. I think a question advance to the future of Centrica, but versus last year. And some of that is driven by their trading business as you spoke some of other businesses that you expressively wanted to get out of a few years ago. In the British Gas Activity, which you guys have been the core of Centrica. I think you understanding a couple of years ago seems to get weaker every time. We see this -- can you say a little bit about where you see setting -- is it really a big turnaround maybe when we of renewables and the natural infrastructure -- What do you think with your intellectual position of 3 years ago that you want to be less commodity exposure and more -- focused and then you take the opportunity to exit some of the commodity activities .

No, no. Look, it's -- take that. I mean I would touch on, so thanks to the comment on the buyback. I would say I agree with you it's valuation neutral. It's not just a comment though and our ability and opportunity to invest is also a comment on where we see the valuation of the company. And so we thought the company was fully valued, we wouldn't be buying back shares, the fact we are that we think is materially undervalued. Look, on the question, it's interesting. I was the CFO, as you know, before I was the CEO, and we were actively looking to get out of nuclear and out of Spirit. Unless I could understand the Spirit thing, I could never really understand nuclear, if I've been honest because it was zero carbon electricity, baseload with a very good operator in a country that was short of energy, that was short of electricity. So never really made all that much sense. And there was -- when the Chairman asked me to be the CEO, I said, can we keep nuclear? I didn't say anything else I said just I've never really understood I felt uncomfortable. There are not that many buyers, but it's also a bit of a bugger to sell. So -- but I thought it made perfect sense. I thought to give our portfolio a stability. And I said, okay, no problem, but we'll have to look at the value of it, of course. We then look to sell more assets than we actually did sell, not because we didn't like them, but because we had to do something to stabilize the company. And you remember when Scott became the Chair and I became the CEO, our market cap was lower than a company whose sole activity was renting our smart meters, that's how bad it was. So we had to stabilize the business. We looked at selling Spirit in this entirety, we didn't get decent bids for it and then we decided to actually split it up. And we looked at optionality, and we saw optionality in the Morecambe gas field. There's a beauty in big infrastructure businesses, if you own a 100% of field, a pipeline and asset almost never happens. Now we've got partner in Spirit, but we control the borders. We have 4 of the 7 Board seats. So we effectively control the entire value chain. So when we looked at them, it's actually you can shave years off this process because you don't have partners that are disagreeing you've got 2 partners at the corporate level. We are very comfortable in keeping that and some other assets, we're very happy actually that we didn't sell. And the only that I think we got it wrong, we sold the power station and I was -- I made a mistake. I think it was Peterborough or Kings I can't remember which one. And that was just because we were trying it was a start of COVID and we're trying to figure out how to stabilize the group, how to make sure that we stayed a float. And that was a cockup we should have stopped that because the same logic applied to the sale of that business is applied to and to nuclear. I think the way the portfolio sits just now with the infrastructure business, with the optimization business, with the retail business, I think it works actually really quite well. I would like the profits in retail to be higher. Clearly, but we set the business up so that some days do better and some don't. So there's a bit of balance in there, I think that's natural. But we're working really hard on investing profits and improving customer service in the downstream businesses. We believe -- I mean the issue in services is in our own hands. How much of this market can we grab? We believe we can grab a bigger share of the market than we've had historically. The issue in energy is -- to some extent, is in the regulators' hands. However, you got to look and say the U.K. must have a functioning energy market. And so at the moment, it's not been great since the price cap come in, it's not been great. Our engagement with the regulator with politicians is to say rather than identify a problem come up with a solution and try and sell it to us, why don't you identify a problem and get people together who know what's going on and come up with multiple solutions. Ultimately, the government they regulated is still the decision makers. The price cap had deep flaws when it was introduced. Quite clear what we've seen in the energy retail market was inevitable. When we brought the price cap in design as it was. That's why we're calling for root-and-branch review. But if we don't have a properly function in energy retail market in the U.K., I think we've got a whole bunch of other issues. So long term, I think that's going to be a good market. However, we're not in it for sentimental reasons. We're in it because we think we can make a return, we're in it because we think we can do the best for consumers. So whilst we don't discuss every time we have a Board meeting, should we be in this business, we also don't sit and say, we're in this business for 100 years, no matter what. It's got to make sense, it's got to make a return for our shareholders. And so we're considered, we're patient, we're engaged, but we're not sentimental. So I wouldn't want to comment on what the group could look like in the future rather than to say it's going to be different, but the balance that you get from having this huge retail business with 10 million-plus amazing customers, this great infrastructure position, which we want to transform and this fantastic optimization position, which hopefully you learned a bit today is way more than just some people on the screen is, I think is unique. I think it's difficult to replicate. So I like the portfolio. I'd like to grow. We get 8 business units, all of them are with good growth opportunities. And we're pursuing -- we've got the right management and they are pursuing the growth in all of those business units. So with that and then Kate?

So Sam, we've walked a bit of this journey together. It's been almost 20 years. I've done 10 jobs at the time that I've been with Centrica. And I mean I think I have been there through thick and thin. I mean I would say this is a moment that I genuinely am really proud of. Since I became CFO, the share price has doubled. If you look at the quality of the balance sheet, it's just unrecognizable. And I leave a really good, incredibly capable function in Russell's very, very capable hands. It's really all credit to Chris and the Board for the support that they've given me in making this decision and allowing me time. I'm hoping that we're not going to be buying out forever. That's definitely not my intent, but I am certainly intending on taking a break.

We have many more questions. We've got 1 -- we've got 2 in the call, one from Harry and one from Ahmed. So we got Harry first.

First question from the phone is from Harry Wyburd from Exane.

My line dropped for a few moments. So it may pan out that these have already been asked and in such case, I apologize, but I've got 2. And firstly, just on the buybacks more clarification. Did you say you were 40% through the original 250 million buyback, in which case, you had GBP 450 million left to do, just to make sure I heard that correctly?

Yes.

That's first one. And the second one, this is really more of a follow-up to Mark's question on capital deployment. If you sort of think through towards the end of this year, if you get maybe some of the margin cash back if you do EPS and you find that the cash you have on your balance sheet exceeds what you can reasonably invest organically in a short period of time, you basically have a quality problem of too much cash. Would you consider an acquisition -- sort of transformational acquisition for the business? Or would you rule one out conversely? And if you wouldn't rule one out, is there any area that you think an acquisition might work well from any particular sort of industry or vertical that you think would see you from an acquisition perspective?

So on the buyback, you're absolutely right, we are 40% through, so we've done 100 of the first GBP 250 million, so GBP 450 million to go. The capital deployment, as you say, via high-quality problem to have. If I have a natural biases towards organic rather than inorganic development, however, that's not to rule out acquisitions, they just would have to be the right acquisition. They carry more risk. Historically, you can see that they don't create as much value as organic development. But if you look at the business that we've got in EM&T, a big part of that is the business we've got in Denmark that we bought in 2017, I think Neas, 2016, 2017. It's been an incredible acquisition. You look at Centrica Storage. That was a great acquisition. You look at Bord Gáis, that was a great acquisition. We've got a history of doing some really good acquisitions. We could probably have done some more questionable acquisitions as well. So I would neither rule them in, nor out, but I would say that my preference would be to do organic acquisitions. It just carries less risk. And then I don't know -- we've got Ahmed -- I'm not sure if there's no more question. Is Ahmed there on the line as well from Jefferies?

Yes. The next question is from Ahmed Farman from Jefferies.

A few from my side. I just wanted to sort of first ask, could you just help us understand as the business stands today, how much balance sheet headroom do you actually see that you have for capital investments and further shareholder returns. And the way so I'm thinking about it is there's probably 2 parts to it. One is sort of the cash that you have on the balance sheet, and there's probably the GBP 1.2 billion, but we need to sort of maybe add back a few of these collateral outflows, but then deduct customer deposits? And then there may be potential capacity to sort of relevel, but interested in your thoughts on that. Then secondly, I wanted to come back to, I think, one of the sort of the questions asked earlier about the Retail division. And it's been volatile and you have just sort of given some explanation on that. But can you just help us understand a baseline of what is -- sort of how should we think about a baseline for the profitability of this business into 2023? And then finally, energy market and trading, the GBP 1.4 billion. Can you give us some more granularity on how that number splits between the various subdivisions of book-to-market, LNG trading?

Ahmed, thank you very much. So the last question is easy switches. We wouldn't give a further breakdown on that. But all of the parts of our optimization business had a good year in 2022. So that -- those results are not dominated by one part over another. Retail base, that's really difficult to say our aim is to make the services, is to increase the market share in the services business and installations and is to grow the addressable market. We've got the 50% of the market of people who pay to ensure the heating systems. So I don't think we can grow market share, but we can certainly grow the market because there's only, I think, less than 1 in 4 homes in the U.K. that actually have that product. So there's a lot more we can go after, whether it's on demand or whether it's growing that market. So our aim for services is to make it better than it was. That's why we're investing a huge amount of money. And in energy, again, it's in part dependent upon the regulator, as Kate mentioned, you've got weather volatility in there as well. So it depends, is it warmer than normal. Is it colder than normal, depends what part of the year. But the thing I would say to you is if you added back the things that we've voluntarily did, the GBP 50 million investment in energy, the GBP 27 million furlough, we fund, you'd see that, that business would have been GBP 150 million could last year. I'm not saying that's what it's going to make this year because we're only 6 weeks into the year. But I would look -- you have to look at the decline from 2021 into 2022 in the context of things that we voluntarily did to support our customers. But our aim in every 1 of our businesses is to make it better. To be clear, the infrastructure businesses rely on price. Commodity prices are lower. I'm not expecting the same result from them this year and the Energy Marketing & Trading result whilst we want to grow that over time we're not taking GBP 1.4 billion, as Cassim smiling, we're not taking GBP1.4 billion as a baseline and looking to grow off that, but we're also not expecting to go back to 2021. So on balance sheet headroom, I think it's quite a difficult one, but it's probably one for you. I would say that when I was CFO, I was quite conservative in the balance sheet. Kate is quite conservative. And I'm hoping with another Scottish accountant that Russell will be quite conservative as well that is -- but I always think about how you structure our balance sheet is -- if you think about -- I was talking about earlier on, when Scott was appointed Chair, when I was appointed CEO, we had to do stuff. Now we got good prices for the things that we had to do that when you have no choice, you're a price taker, where is what we've tried to do and what Kate has done well over the past couple of years is to have the balance sheet in a place where we have choice. If we want to sell an asset, we sell an asset because we want it because we create value. We don't sell an asset because we need the cash. And so that would be the context in which I would look at our balance sheet, I think, hopefully, it's something -- for as long as I'm CEO, hopefully, it's something that we will carry on because to be in charge of your own destiny is so important and so valuable.

So I mean Chris has described the philosophy around the balance sheet. And I think during 2022, we've demonstrated the value that, that flexibility comes to pass. If you just kind of reflect on the degree to which commodity prices have changed, just as an example, you can see we're holding that additional liquidity flexibility cash to have has been something that we've both benefited from, from a risk perspective. But also very consciously invested on and got very good returns from in terms of how we've deployed that within EM&T. So for now, I wouldn't see that philosophy changing very materially. However, I certainly wouldn't want to put the new CFO in a box in terms of how he would look at the degrees of capital and choices and uses of that. And I'm sure there'll be more on that to come later in the year.

I think we've got no more questions. Oh no, we do have one on the screen -- it's probably going to be the last one because I'm aware that I'm keeping you all from very important things. And if we keep going up, we're keeping you all from lunch, which is really not what you would expect. And so we've got Bartek from SocGen, and then I think probably we'll call it a day and . So Bartek, over to you.

Just 2 please. Firstly, on Rough, whether you can tell us how Rough storage facility is operating right now, i.e., are you withdrawing gas and selling it on the market? Or are you simply given the fact that prices have gone down, are you buying back hedges over this winter? And for instance, rolling it forward to next periods and consequently, prolonging the life of Rough as it is right now. And this also gives me the second question related to Rough. Are you going to have Rough operating the same mode back in the upcoming winter? So that will be the first series of questions on Rough. And secondly, on retail and competition, are you seeing any emergency of competition on the U.K. retail market given the fact that prices have gone down? And are you expecting actually the competition to emerge? Or you think the market has more or less stabilized for the next couple of whatever quarters or years?

Bartek, thanks very much. In the retail market, we are growing organically. It's very small numbers, and I'm always going to nervous to say this because I don't ever want to think that we're declaring victory, but we grew organically in most weeks in 2022, and we're still picking up additional customers, very, very small volume. So the customer churn rate is very small. I think a lot depends on where the government sets the EPG, the price guarantee from the 1st of April as to whether you see an increase in churn. The Ofgem actions to stabilize the market, the market stabilization charge and the ban on acquisition tariffs makes it more difficult for companies to go back to the behaviors of old, which I think is a good thing and then Ofgem are also monitoring people that come into the market. They've denied a bunch of license applications, but they're also monitoring financial resilience for new entrants probably more rigorous than they are for existing entrants. So all of that suggests that we should have a more orderly market, but we are still growing. On Rough, look, it's a mixture in terms of -- and we -- again, it's one of these things we've been very flexible. So you make your nominations, I think, 3 times in a day, and you nominated 6 in the morning, noon and 4 in the afternoon, as I can remember. And so we can go between all 3 modes during the day. Rough is a very, very flexible asset. Martin Scargill, who leads that business, has team works very closely with Cassim, who leads the optimization business, and we make a decision in real time. Do we withdraw gas? Does the market need gas? Do we inject gas or do we buy back the hedges and roll it forward? So it really does. I think the first withdraw was the 30th of November, when the weather was very, very still, quite cold and no sun whatever. Cloud covered over us for a good few days. But since then, we've injected and we've also bought back hedges. We will operate Rough. We intend to operate Rough in the same way at the same capacity for the coming winter, so winter '23,'24. Remember, we've got a 10-year storage license for it, although we don't talk about this winter and next winter, we have a license for 10 years, but we would intend to operate that as a 100% Centrica asset in the coming winter as we continue to progress plans to have the full field redevelopment and get this up to being the world's largest hydrogen storage facility kickstart in the U.K.'s hydrogen economy. So that's our long term in. So with that, I don't know if there's any other questions to say thank you very much for coming along. Thanks for being with us. It's slightly longer Q&A session. We were actually kind because in the first call this morning, we limited the journalist to 2 questions each. But you are actually all -- you all demonstrated quite a lot of discipline by doing that yourselves. But just to remind you, very strong year. We expect another good year in 2023. We don't expect to be the same levels that we saw for 2022, but we have growth opportunities in every one of our businesses, and we're going to continue to invest in our retail businesses, because they're bloody good businesses, they're very strong, and we're in them for the long term as long as the regulation is in the right place. So thank you very much.