Centrica plc (CNA) Earnings Call Transcript & Summary

Good morning, everybody. Thank you very much for coming. It's super to see so many of you here. It's very nice to say hello to those of you that are online using the hybrid format that we've got. I'm joined today by our Chairman, Scott Wheway; our CFO, Russell O'Brien; and the rest of the leadership team are also here. So you'll have the opportunity to catch up with them over refreshments after the Q&A session. Let me start by briefly reminding you of our strategy laid out last July. As we said before, Centrica is a uniquely integrated energy company where each element of our portfolio complements, derisks and adds value to the other. There is significant value in the balanced nature of our business model. The way the energy system is changing plays to our strength. The deliberately integrated nature of our portfolio means that we'll benefit from growing electricity demand and system complexity. In addition to providing customers with energy tariffs and services and solutions that work for them, our retail businesses will increasingly help customers flex their energy use towards lower price periods. Our infrastructure businesses are investing in assets to generate more green electrons for our customers and to help to improve energy resilience. And our optimization capabilities and positions mean that we are able to procure commodity for customers effectively, whilst also monetizing our own and third-party assets, all whilst helping to balance the grid. These capabilities and trends underpin the green focused growth and investment strategy that we announced. And our strong cash generation provides us with choices as to how we deploy our capital with investments made because they are strategically aligned and they generate attractive financial returns across the group, in addition to helping us maintain balance in our portfolio and to deliver net zero for our customers and for our company. We believe that this strategy creates significant value and represents a highly attractive investment proposition. Now when you look at 2023, we made very good progress. We've transformed our operations, we've transformed our colleague engagement over the past couple of years, and that's resulting in improved customer satisfaction in the retail businesses, and this will underpin our long-term profitability. We reported another strong financial result. Adjusted operating profit and earnings remained at elevated levels, while strong free cash flow once again demonstrates the highly cash-generative nature of our portfolio. This strong performance underpins our confidence in delivering compelling cash returns. In total, we returned GBP 800 million to shareholders in 2023 through the progressive dividend and our ongoing share buyback program. And we're building a pipeline of projects having commenced delivery of our green-focused growth and investment strategy. I'm really pleased with how most things have gone in 2023, and I'll come back in a bit to provide some more color on our operational and our strategic progress. But first, let me hand over to Russell, who's going to cover the financials in more detail.

Great. Thank you, Chris, and good morning, everybody. Let me first remind you of our refreshed financial framework, which underpins long-term value creation for Centrica, namely sustainable earnings with GBP 800 million of operating profit from retail and optimization over the medium term and earnings from infrastructure on top, maintaining a strong balance sheet, progressive dividends moving to 2x cover over time, investing for value and our clear philosophy on the return of surplus capital. And although this is the long-term financial framework for the group, our performance in 2023 against all aspects has been good. Excluding the impact of Spirit Energy Norway disposal in 2022, adjusted operating profit and earnings per share were broadly flat as the impacts of high and volatile commodity prices across '21 and '22 continued to provide tailwinds into '23. The highly cash-generative nature of our business model was again demonstrated with free cash flow of GBP 2.2 billion. This includes an increase in CapEx to just over GBP 400 million as our green-focused investment plan starts to build momentum. We closed the year with GBP 2.7 billion of net cash, up from GBP 1.2 billion at the start of the year. And as Chris has said, we returned a total of GBP 800 million to the shareholders in the year, and our strong financial position means we have confidence to increase the full year dividend per share by 33% to 4p, consistent with our progressive dividend policy. As I've shown on the slide here, the operating profit split between retail, optimization and infrastructure. The business unit split is in an appendix of the pack which we've laid out today, and there's more commentary and performance in this morning's RNS announcement, but let me cover the headlines. Starting with retail then. We generated GBP 799 million of profit, over GBP 700 million higher than in '22. We saw an improved result in British Gas Services & Solutions, which returned to profit off the back of operational improvements, helping to underpin revenue growth and providing a good platform as we move into '24. Bord Gais made a small profit having been loss making in the first half with significantly improved financial performance in the second half as challenging market conditions for energy supply eased providing strong foundations to drive an improved result into '24. But the increase was largely in British Gas Energy, where operating profit was up materially, and I'll cover this in a little bit more detail in a minute. Next, optimization, where profit was GBP 878 million. Centrica Energy, our new name for Energy Marketing & Trading, had another good year, although profit nearly halved compared to the very favorable environment we experienced in '22. Lower prices and market volatility naturally impacted gas and power trading profit. However, we saw the benefit of our diverse portfolio with both the LNG and route to market businesses delivering higher profit in part due to tailwinds from '22. We also saw increased energy supply profit in Centrica Business Solutions with a 14% increase in volume sold to medium-sized businesses and margins supported by effective risk management and optimization. And finally, infrastructure, where profit was down by a little over GBP 200 million year-on-year to GBP 1.1 billion. Within this, Rough profit was very slightly down year-on-year with a strong first half, reflecting high seasonal gas price spreads last winter, followed by a much reduced second half profit against the backdrop of lower spreads. Volumes in each of Spirit Energy and Nuclear were down by around 15% year-on-year, reflecting natural decline in the upstream portfolio, and a nuclear higher planned outages as well as the closure of Hunterston B in '22. Now these impacts were more than offset by higher achieved prices despite lower market commodity curves underpinned by a ratable hedging strategy. And just to remind you, that in our infrastructure businesses, we start hedging 24 to 30 months ahead, so profits are, to a large extent, sheltered from moves in commodity prices in the short term. In Nuclear, the newly enacted Electricity Generator Levy also impacted operating profit by GBP 326 million. Before I move on to cash flow, let me provide some context on the strong British Gas Energy operating profit of GBP 751 million. There were a number of drivers of this result, including as flagged at the half year, the industry-wide one-off recovery of wholesale costs from prior periods through the domestic price cap. This was worth around GBP 500 million to us. In addition, we delivered effective risk management and optimization, particularly during the first half, while higher commodity prices naturally drove higher unit margins. These positives were partially offset by the impacts of reduced underlying customer consumption and an increase in our cost per customer. We incurred dual running IT costs with good progress on the continuation of our platform migration, and we chose to ramp up investment in customer service. And we committed a further GBP 84 million of direct voluntary support for customers in the year. We also saw our bad debt charge increase by GBP 244 million to GBP 541 million across the residential and small business customer base. There are allowances for the residential element under the price cap, but it is something we will continue to closely monitor and manage as we move through '24. It is important to remember that the structure of the residential supply model in the U.K. is such that you should expect to see some degree of volatility between reporting periods. In any given period, the Ofgem price cap does not always allow suppliers to perfectly match revenues to costs. Earnings will also be impacted by the other risks we face, such as the weather or wholesale market pricing dynamics. Looking at the result over time, you can see on the right here, the multiyear British Gas Energy residential margin since the SVT price cap was implemented in 2019. And on average, we have been profitable, achieving a margin of slightly above 2%, which is broadly in line with the margin allowed under the price cap. It is this performance against what has been a challenging regulatory and economic backdrop that gives us confidence in our medium-term sustainable profit guidance of GBP 150 million to GBP 250 million for U.K. residential energy supply. Moving now to cash flow. And as we've demonstrated over the past few years, Centrica is a highly cash-generative business. In 2023, EBITDA of GBP 3.1 billion was supplemented by GBP 220 million of dividends from our nuclear investments. We paid over GBP 1.1 billion of tax when including the payments related to the Electricity Generator Levy. And we saw working capital inflow of GBP 244 million, including around GBP 600 million of inflow in Centrica Energy as high profits from 2022 translated into cash flow as positions closed. This was partially balanced by an outflow in British Gas Energy, largely related to the impact of falling commodity prices. As I said earlier, capital expenditure was up to GBP 415 million, with just over half of this on flexible and renewable power assets in the U.K. and Ireland as we start to build towards our GBP 600 million to GBP 800 million per annum green-focused investment plan. And all of this led to strong free cash flow of GBP 2.2 billion. As you unpick the cash movements in Centrica, you should and do see a degree of volatility between periods. Our business environment can be complex and is constantly evolving, although the portfolio is set up to thrive against that backdrop. This does mean though that we do see movements in working capital between periods, but its deployment helps underpin our sustainable earnings. So again, it is useful to look over multiple years. And over the past 4 years, you can see we have delivered nearly GBP 7 billion of free cash flow. Closing net cash of GBP 2.7 billion was GBP 1.5 billion higher than a year ago and after the GBP 800 million of cash returns to shareholders we referred to earlier. So our balance sheet remains strong, even after including a technical pension deficit of around GBP 900 million, broadly unchanged over 2023, and pretax decommissioning liabilities of GBP 1.5 billion. As we've seen in the recent past, margin cash can move around materially. In 2023, we saw an unwind of the significant amount that was deployed at the end of '22 with more than GBP 0.5 billion of inflow resulting in GBP 240 million posted at the end of the year. We need to maintain balance sheet flexibility and adequate liquidity at all times. This supports our strong investment-grade credit rating, and that allows us to secure energy in advance for our large customer base and capture opportunities to add value across the group, including in Centrica Energy. Our positions against the credit metrics is very strong, even though the agencies require us to hold more material buffers than many of our peers, for example, 50% FFO to net debt with S&P for our BBB rating. As we set out last July, we currently consider the right level of medium-term leverage to support our credit ratings has been up to 1x net debt to EBITDA. Now this is a level, I believe, provides enough buffer to manage the inherent volatility in the markets we operate, provides the flexibility to continue to invest for the future and importantly, allows us to grow shareholder distributions in line with our progressive dividend policy. So moving on to our investment plans, and we're continuing to deploy capital across the group in a disciplined manner, creating value while seeking to maintain balance across the portfolio. In 2024, we expect to spend more than the GBP 415 million we spent in 2023 as we ramp up this capital investment. In addition, to spend on power assets, we've started to deploy capital into our meter asset provider on that business. This offers an attractive and ratable return with the capital almost immediately productive. We installed our first British Gas smart meter in late 2023 and expect to build this investment gradually to GBP 100 million a year. Chris will update on the early-stage progress in building a pipeline of power assets shortly. But before he does, I'll remind you of the framework against which we assess these potential investments. We set the bar high for new projects and maintain a disciplined and cautious approach against the changing macro environment. All projects have to meet our return thresholds as we target average post-tax unlevered portfolio returns of at least 7% to 10%. And for all our investments, we target additional group portfolio benefits of around 2%, including from optimization. When we make an investment, we aim to make 3 returns, an infrastructure return, an optimization return and a retail return. Now we have a lot of potential projects, but I won't let us waiver from our return thresholds. I chair Centrica's Investment Committee, and there are plenty of potential investments we turned down because they don't have the right financial profile or they don't provide additional portfolio benefits. Finally, let me cover the outlook. As you would expect, we are not changing the medium-term profit expectations we provided for our business units last July. Obviously, in any given year, the actual results by business unit will fluctuate and so the guidance should be seen as an average over time. But as Chris outlined, one of the benefits of our balanced portfolio is that our businesses derisk each other, and our 2023 performance has reinforced our confidence in delivering these profit projections. Let me share how I see some key trends playing out over 2024 and how that might flow through to the results. As is normal at this stage in the year, there are a wide range of uncertainties, the most material of which is the weather. The wider competitive backdrop and the impacts of a weak economy on bad debt and customer demand are also something we will continue to monitor closely. Therefore, there are a range of possible outcomes. We know that there won't be a repeat of the one-off cost recovery seen in British Gas Energy in 2023. And while there are various moving parts, from what I can see, the medium-term expectation of GBP 150 million to GBP 250 million is also a good yardstick for 2024. In addition, the recent strong performances of British Gas Services & Solutions and Bord Gais provide strong foundations to drive an improved result in both these businesses in 2024. In addition, while lower commodity prices and reduced volatility relative to 2023 will naturally reduce optimization opportunities in Centrica Energy, Spirit Energy and Nuclear are largely protected from further moves in 2024 by our ratable hedging strategy. We've shown our hedging positions at the end of 2023 on an appendix slide. Thank you. And I'll now hand back to Chris.

Thanks, Russell. As I said earlier on, I'm really pleased with our financial performance in 2023 because it does demonstrate just how cash generative our portfolio is, and you're going to hear over the next few minutes. I'm also very pleased with the progress we've made in delivering better operational and improved customer outcome, better operational performance. What underpins our retail strategy in the U.K. and Ireland is very, very simple. We're investing in our colleagues, we're investing in our brands and communities, and we're investing in our customers. As I said before, if we take care of our colleagues, they will take care of our customers and the resulting performance will take care of the shareholders. That's why improving colleague engagement is such an important foundation. And I was super pleased to see this approach in top quartile across 2023, and it's a significant improvement from where it was less than 3 years ago. A number of our businesses are already top quartile. This is resulting in materially improved customer satisfaction and sentiment. As you can see by the fact that British Gas now has a 4-star Trustpilot score, I believe it's called [ deep green now ], so we're very happy. We know times are tough for many of our customers right now, given the cost of living crisis and the uncertain economic outlook. And you've heard how this has translated into higher customer bad debt, but we're doing what we can to help our customers. We've now committed GBP 140 million in direct voluntary support for customers struggling with their bills in the U.K. and Ireland since the start of 2022, and that includes contributions to the British Gas Energy Trust. So this GBP 140 million, which is completely voluntary, can be up to GBP 2,000 per customer, which makes a huge difference for those of our customers that are struggling most. In British Gas Energy, we're making excellent progress in migrating customers onto our new technology platform. This is modernizing our operations, and it's allowing us to broaden the product offering, including our innovative Peak Save range. We've now got well over 5 million customers in the new platform, and we aim to have all customers migrated by 2025. This system migration is improving customer service, and it will ultimately lower our cost per customer. Although as it's fully expensed through the P&L, it will continue to add costs in the immediate term as we have dual running of our systems. You can see we also experienced almost 1 million extra customer contacts in 2023 when you compare it to 2022. But it's about 5 million more when you compare it to 2021. And in the current economic environment, more people they want to call us more frequently, they want to speak for a longer time, and we want to make sure that we're there for them. So we've, therefore, continued to invest in customer service, including hiring 700 additional contact center colleagues in areas where we know that they're needed. And this resulted in a 40% decrease in our average speed to answer despite the increase in customer contract volumes. And as you would expect, this is having a positive impact on customer satisfaction with higher NPS scores and stable customer numbers. And of course, we'll continue to operate as efficiently as we can, but not at the expense of being unable to offer our customers the product range or the service levels that they both demand and deserve. This will underpin customer retention and growth and long-term sustainable profits. We move now to British Gas Services & Solutions. As we said last July, the growth opportunities here are truly huge. So British Gas in combination serves around 30% of U.K. households, but the services business serves around 10% of U.K. households. What's critical for the future health and growth prospects of this business is embedding the operational improvements we've delivered over the past couple of years. And the performance over the past year has been strong with reschedules greatly improved, more customers left satisfied and engineer NPS increasing. The strong performance has started to flow through into commercial performance with improvements in customer retention, resulting in a stable customer base in the second half of the year. In line with the strategy, we've also seen a significant increase in the number of jobs we've undertaken for customers who do not have a contract with us. And we can do that because of the extra capacity created from both improved productivity and our recent recruitment drive, which will continue. Importantly, we're seeing improved revenue per customer, which given the fixed nature of a large portion of the cost base, will be critical as we continue our journey to get this business back to the range of GBP 100 million to GBP 200 million of operating profit over the medium term. Let me move now to cover the progress we've made in the early stages of building our pipeline of power assets. In addition to around 600 megawatts of operational assets in the U.K. and Ireland, we've got around 450 megawatts of capacity under construction right now, another 300 megawatts in the detailed planning stage. This increase includes the addition of new solar and battery projects since July, which are expected to deliver returns consistent with the investment framework that Russell reminded you of earlier, and there will be group portfolio benefits on top of that. We're also now evaluating around 2.5 gigawatts of early phase projects for a range of potential options. The assets we've been investing in will deliver high-quality, long-term returns for Centrica, and they'll play an important role in the changing energy system in our core markets for decades to come. But it's not all about these new projects. As you know, we've got some very, very valuable existing assets, which can play the dual role of reinforcing the country's resilience and adding value for Centrica shareholders. The assets have finite lives, but we're delighted that we've been able to extend the majority of our assets over the past year and progress a longer-term net zero options at a number of these assets. Firstly, if you look at Nuclear, we've already extended the lives of Heysham 1 and Hartlepool so that they will remain operational until March 2026, 2 years later than previously forecast. And the possibility of further life extensions for the entire fleet has currently been looked at. There's 3 more reactors in addition to those 2. We've also said before that we could consider investing in new nuclear, although I want to reiterate that we will only invest if the risk and the reward balance are right for us as a shareholder. Then when you look at Rough, we've doubled the storage capacity, meaning that this now provides enough gas to heat around 10% of U.K. homes throughout the winter. And we've got exclusive use of this asset until 2030. We own 100% of the field, the pipeline and the terminal, and we have exclusive use until 2030, it's a hugely valuable asset. We stand ready to repurpose this asset and to becoming the world's biggest combined methane and hydrogen storage facility, which would bolster the U.K.'s energy security and help to deliver a net zero electricity system. But again, to do this, we've got to see the right regulatory support framework, which would unlock around GBP 2 billion of investment and create thousands of U.K. jobs. Spirit Energy remains important for the U.K. Last year, it produced enough gas to heat a further 10% of U.K. homes. And although we won't be investing in any new exploration from Spirit, production from the Morecambe gas field is now expected to last into the next decade. And following the granting of the carbon storage license, Morecambe also has the potential to be one of the U.K.'s biggest carbon hubs, creating thousands of more additional jobs in the north of England. Now, we talk about Morecambe and we talk about Rough, but it's also worth remembering that we own 2 of the U.K.'s largest gas processing plants, Easington on the East Coast and Barrow in the West Coast, combined these 2 plants can process half of the U.K.'s total daily gas demand, not half of what homes demand, but half of what the U.K. uses in gas. Gas remains an important part of the U.K.'s energy mix, and these assets, in our view, will continue to play a vital role for years to come. They should be part of a hydrogen future. And to that end, we've built a nascent operation production study in technologies that could play a key role in helping the transition to net zero in our markets, and that includes 3 hydrogen joint ventures in the U.K. and in Ireland. At the same time, we're reviewing the potential for Europe's first-ever ammonia-fired power station at the Bord Gais Energy Whitegate site in Ireland following the announcement in November that we signed an MOU with Mitsubishi Power Europe to explore this development. The number of these larger projects is potentially in addition to the GBP 600 million to GBP 800 million per year CapEx range as set out as part of our green-focused investment strategy, but we will be disciplined with our balance sheet. We will not bite off more than we can chew. These projects provide further evidence of just how well placed Centrica is to create value from the energy transition. So in summary, 2023 was another strong year for Centrica. Our progress has reinforced my confidence that we will deliver against the strategy and the investment case we laid out last July. We're focused on what's important. We're focused on colleagues. We're focused on customers. We're focused on cash. We've got an organization that is confident, but is not complacent. We have a well-balanced portfolio. In short, we're confident of and we're focused on delivering. And at the end of our presentation, Russell and I will be delighted to take your questions. There's microphones in your seats. A.J.'s already got his hand [ on my word ]. There's microphones in your seat, please, if you can take them out and press the button because those online will be able to hear you then. We're going to start in the room. And once we've gone from the room, then we'll go to any questions that we've got online. So we'll go first, A.J., and then we'll come to Jenny, and then we'll come to you. [indiscernible] Russell or the Chairman or the leadership team that are here.

But [ mine's ] one question is around capital allocation. So you finished the year '23 with GBP 2.7 billion of net cash. Clearly, it looks like the business is set up for further cash generation over '24. If you think about working capital, inventory and gas stores, bills coming down and should see that working capital continues to be an inflow over '24 as it stands on the current forward curve. So that does point to a lot of cash as a proportion of market cap and as relative to the 1x net debt-to-EBITDA target. So how do you think about that? As in, is there going to be an assessment of that? When could we hear about that? Is the steering more towards maybe acquiring to add to your pipeline or accelerate your investment path? Or is it more around capital returns? Just wanting to understand where the weightings like.

Yes. Thanks. So maybe it's good just to sort of stand back and just reflect on the balance sheet in general, the moving parts in Centrica and so the way that I think about it, and certainly the way that we laid it out last summer. So the need for the investment-grade credit rating is paramount for Centrica. The liquidity draws in this business are massive if things move around. We want to have the liquidity in those moments to be ready to pounce. It's good for the downstream business, good for the optimization business, good for the upstream business. And as you saw in 2022, when the markets were particularly volatile, we had margin cash out of the business of some GBP 2 billion. So those numbers are quite material. We also want to make sure we've got the capacity to invest in the long term. We want -- and we've laid out our plans for that. And -- but apart from -- as you look at it, we do have a strong balance sheet. And when we have situations where we have surplus capital, we will look at that and judge that some of that can come back to our shareholders. And we've got a track record. In '22, we started a share buyback program that continues through now. It will be a total of GBP 1 billion. We don't have any more updates on that today. But the philosophy is pretty clear. The balance sheet is strong. We've got options. And that's, I think, the way we're looking at it today.

[indiscernible] We didn't really have any options. We had a balance sheet under real pressure, operations that were not in a good state. And so we had to sell stuff. Thankfully, I think we sold well. But that's quite defining for me, which is we want to have options. So you talk about would we consider acquisitions to add to the portfolio. I don't mind whether something is an acquisition or whether it's organic. We have exactly the same requirements in terms of the returns that we want to see. There are different risks with organic. There are different risks with acquisition. But what we want to do is to take our time and make sure that we invest this money wisely. It's not burning a hole in our pockets. The team here if they actually will tell you they've come recently with investments that we said no to. So we have enough money to fund all of the ideas the teams got if they don't meet our return criteria, but absolutely not going to be invested. So you've seen the liquidation of our asset position over several years because they're naturally declining businesses, whether it's a gas reduction, whether it's nuclear power generation. And as we've turned those assets into cash, what we didn't want to do is to get ahead of ourselves and start to invest too quickly. We wanted to stabilize the operations. We wanted to make sure the customer service got in the right place. We wanted to make sure that we could start to grow the business. And once we got the plan, once we got to that, then we could turn our eyes towards where do we invest this additional money. So the way I think about it is we have these assets in the balance sheet 3, 4 years ago, which were worth more than they are today, although we've taken steps, I think, to increase the value. And we've done some of that stuff over warehouse and the cash, and then we'll look forward to invest it. We don't -- we can't get the right returns, we will not invest. And as Russell said, we're -- it's very important that we restarted the dividend. It's very important we've increased it. We also really wanted to show that we understand this is shareholder money that we manage, which is why we got these capital returns going on. So I say bear with us, give us time, but I think we've got a good use for the money, but if not, then, it belongs to the shareholders, who'll get it back. Jenny?

Two questions, please. Firstly, just following on from A.J.'s cash flow question. I was hoping you would help us with the net cash position, how we should think about it through '24. Obviously, we've had a volatile couple of months, but presumably, collateral is unwinding there, and that would give you a decent headroom on the net cash to start off with just based on the 2 months of trading today. So any help there? And then just on Sizewell, where are you now? And any discussions you're having with government, if you can elaborate on some of your comments, that would be great.

Let me do the Sizewell question first, and then I'd love to hear the answer because I'm continually asking Russell where the cash is going to end up. Look, where we are at the moment, there's an ongoing process in Sizewell. We are involved in that process. I can't really say much more than that other than if the returns are in the right place and they compensate for the risk, then we will certainly consider that as a Board. And if they're not, then we don't feel we need to be involved in it. If it works, we'd like to be. But if not, there's plenty of other investment opportunities out there. So we're looking at lots of things to bring green electronics to our customers. That's what our customers want. We hear that that's what our shareholders want as well, but not at any price. So time will tell, see how that goes. Russell, how much money are we going to have at the end the year?

Nice try. The -- so a couple of things as we look at 2024 and think about cash. So the margin cash at the end of the year posted was GBP 200 million. At the end of the previous year, it was GBP 800 million. So that was a GBP 600 million benefit in '23. But quite frankly, where that number goes, really depends on so many factors, the positions we take, the movements in the market. So I wouldn't want to guide you on the margin cash number in particular. Working capital more generally though, in a lowering price environment, yes, that should be some release to the company. It's a little bit volatile in the retail business as you look at the payable balances between periods. But if you stand back from that over time, that should be a help. On the other hand, we are committed to ramping up our green-focused investment plan. So that was GBP 415 million in the year 2023. You should expect to see that growing in 2024. So I think that's probably the main moving parts. The rest of it, the cash generation, have guided to earlier in terms of core performance.

Anna Webb from UBS. Two questions from me. Firstly, on the provisions, which were up significantly, you discussed the bad debt charge, which has almost doubled. Can you talk a little bit more about what you're seeing on debt deterioration? It would be great to hear your thoughts on that. And then secondly, maybe on Energy Marketing & Trading or Centrica Energy is now. I appreciate that it's difficult to give guidance in this division given the volatility. But as part of your midterm guidance, you gave that GBP 250 million to GBP 350 million range. And I believe you said that applied in all market conditions. So do you expect 2024 to be already achieving that range? Or can you give us any indications there would be really helpful.

Let me touch on this Centrica Energy one. I think what we said is we expect that in more normalized market conditions. So the range is good across the piece. But to be clear, I mean, we saw elevated commodity prices in 2022 and very high volatility. You see the same -- and I think Cassim who is sitting here has the same view. If we saw those same circumstances through future year, we would expect to make GBP 1.4 billion or a bit more, we'd expect to make what we made in 2022. I think we've seen quite a substantial reduction in gas prices in the last 2 or 3 months. I think volatility is quite low just now. Storage across Europe looks like it's quite full. We have a rule roughly, if you exit the winter -- since the Russian invasion of Ukraine, if you exit the winter with 50% storage capacity being full, then you're probably okay for the following winter. If you exit it with less than 25%, you've probably got a problem based on what gas we can import into Europe. I think we're about 70% or something full at the moment. So unless we have an incredibly cold February and March, we think next winter looks okay. So we think that the prices will probably remain a bit depressed and we think volatility should remain low as well because there's an abundance of gas. So where -- we wouldn't want to give a profit forecast, but that is something that -- we've obviously gone through our budget setting cycle for this year, without disclosing too much, I'd be very disappointed if we weren't in that range. But we've really got to see how the market transpires. You could see parts of that business, and they're not all completely correlated. So you've got some compensation there in the LNG business, the gas and power trading and the renewable energy trading business. And the second one, Russell, bad debts, how are people going to pay us? When are they going to pay us, sorry?

Yes. So thanks for asking the question of bad debts, because there's a big movement through the year. So GBP 584 million was the provision in total across all of the businesses in the year, up from GBP 342 million. So that's a big move up. A lot of that we saw when we did the interims as well. Interesting, if you look at it as a percentage of revenue, that's gone from 2.6% for British Gas Energy up to 3.9% in the year. So there's multiple different factors there. You've got a challenging cost of living crisis, high bills. And of course, in the second half of the year for a lot of our customers, we didn't have the government support scheme help as well. So that also was a bit of a drag in the second half. But as you look into 2024, of course, bills are coming down naturally with the pricing environment. That should be a help. And as we sit today, we're hoping for our customers and for the business that we do see a bit of an improvement in the bad debt charge. But it's very early in 2024 to give anything more than that. But that's the general trends.

This is Ahmed from Jefferies. A few questions from my side. Firstly, first on Slide 17. So it seems like you're sort of migrating customers to a new platform. That's sort of going through very well. But when can we start to see the benefit of that in terms of cost per residential energy customer? Could this already start to come through in 2024? And then how should we think about that in the context of the margin? Then secondly, could you talk a little bit about how -- you talked about how gas prices and power prices have come down a lot and this will bring down the energy bill over time. But what does that mean for the underlying competitive dynamics, customer churn in the business? And then just finally, just taking the same thing to sort of the GBP 800 million medium-term guidance which you are obviously reaffirming today, but I'm just wondering whether the sort of the commodity price background, the volatility, are there any moving parts around it? Or is it the case that the sort of the guidance was actually quite conservatively structured in the first place? So some color there.

Let me have a go at that, and then Russell probably come in when I get my numbers wrong. So the guidance that we gave, I mean, remember, we've got a balanced portfolio and our guidance excludes infrastructure. So that's for the core retail and optimization businesses. And there'll be ups and downs, puts and takes in that. But we think the guidance still holds quite well. In terms of what would be the impact of lower gas and power prices on competitive dynamics and churn, I think everybody assumes that when prices come down, churn's going to go up, there'd be lots more price competition. I don't really think that's the case because, if you think about it, you have got more profit -- marginally more, but if you're on a margin of 2%, 2.4% in the number that [ off-channel levels ] -- if you've got a GBP 2,000 energy bill, you've got more profit to play and if you've got GBP 1,000 energy bill. So arguably, you get more prospect of price competition at the higher levels than you have at the lower levels. What we had over the last 3, 4 years was a complete illusion of competition. We had people that came into our market. They paid GBP 420 to get a license. They didn't have to demonstrate any financial resilience and they got a free bet. And if you had this very, very odd situation, which we did, which is that the market was effectively in Contango, showing higher prices out, but the curve shifted so that within the day prices were always quite low. And if you didn't hedge, you can make decent money and you could afford to have all this price competition, but then when actually the curve stops shifting out, and we start traveling along the curve, all of a sudden, as Warren Buffett said, when the tide goes out, you find out who's been swimming with no shorts on. And we found out 30 energy companies had no financial resilience at all. So we have seen a little bit of an increase in customer churn. And we've launched that fantastic product last week. If you're not on it, you should be, price promise, GBP 1,699 for the average U.K. home guaranteed to be lower than the upcoming price cap announcement. It's fixed for a year. No penalties if you transfer to another British Gas tariff. Catherine's sitting here. She can get you signed up people outside. But we did that because we saw in the market an opportunity. We got Cassim's team in the market, always looking to see how can we buy energy well. And they go out and see we've got an opportunity to buy a big chunk of gas and electricity. They're talking to Catherine's team every day, saying, do you think you can get a product there? And so there's multi-bidirectional conversation. That's what we're trying to do for our customers. But if you look at the investment we're making in customer service, I think actually, we will see probably less of the price competition that we saw in previous years, which is just this irresponsible people in the market. If we see that, again, Ofgem are completely failing in their job. What we will see is more competition for companies, how well do you buy energy. We buy energy very well. I think we've got probably the best energy procurement function in the entire market. That means that we should be able to provide our customers with better prices. But the big thing that customers are really looking for is the service. That's why we've invested quite substantial amount of money in service. You see that our average speed to answer is down a minute over a 2-year period despite customer contacts been up by more than 5 million, which is really quite a testament to the work that the team are doing to drive the operational improvements. The Trustpilot score is important. So it's gone to 4. We want to get that higher. Our customer service is not the best in the market. It's mid-table, maybe second quartile. We want to be #1 in the market. So we have got a long way to go in the customer service. If you get all of that right, then you'll find your cost per customer will be one of the leading costs for customers now. What we've seen is that with inflation -- what we don't [indiscernible] just now is inflation going through the general economy is what is the most competitive cost per customer. And we don't know that at the moment. Ofgem's recent decision to require every energy company that has got more than 50,000 customers to do the consolidated segmental statement, I mean that they've all got to disclose all of the information that we disclose. So we will be able to do proper benchmarking across different companies. And what we want to make sure is we want to be the best. Now it's going to take us some time to get there. We want to be the best in customer service. We want to be the best in cost per customer. We want to have a bigger market share. That means that we grow our profits, it means our customers will save more money. So the cost per customer is down. I think if you look just now, excluding the dual run costs, and we strip out bad debts because that moves up and down, and it can be quite substantially dependent on the economy. It's down from 97 in 2019 to 80 in 2023. Now what we wouldn't do is chase blindly across per customer number because that can then damage our customer service. I think that's what we were doing in the past. I think we were focused purely on cost. We're focused on margin. So what margin can we make from our customers? And there's many different parts of that. How well can Cassim buy the energy? How well can Catherine run energy business? How well can the commercial director grow the customer numbers so that you've got this brilliant thing of buying energy better, running the operations more efficiently, more customers coming in, spread your fixed cost base and then offer your customers discounts? We're focused more on the margin rather than just blindly reducing the cost numbers. So hopefully, that answers that question. I don't know, Russell, if I get any of the numbers wrong, if you could...

That's right. So in 2024, specifically, you should continue to see some investment in the dual running costs and in the customers. So that will continue for a bit longer. That's a spend that we're happy to do. I have to say underneath that, there's no shortage of cost discipline in this business. This is a margin game. So every day, we are trying to chase down efficiencies across the portfolio. So the trend here really is just investing and ensuring the longer-term growth of the business. And then you referenced the GBP 800 million guidance, the medium-term guidance of the group. I wouldn't say that was a conservative guidance, I would say it's appropriate guidance. But as Chris said, that's a number at more normal market situations that we guide to.

It's Dominic Nash from Barclays. So a couple of questions from me. The first one is that we are likely entering an election year, maybe end of this year, who knows. But this is the time when I suspect the energy policy will start to crystallize in the manifestos and in the labor party. So I'll be keen to hear your point of view on what you would like to see coming up in the debate with sort of the speed of the net zero targets, i.e., the gas boilers versus heat pumps, security of supply and the GB Energy and the GBP 28 billion, sort of the overall sort of your view on the current labor policies and where you think they should evolve to? The second question is coming back to retail. Can you just quickly remind me again on the latest on the market stabilization methodology and whether that's going to be impacting on your churn rate? And is that being extended? And finally, on your bad debts, [ peek my interest ]. Can we remind again what the level allowed is? And if there's a structural increase, how does it work for remuneration over the whole industry?

I'll leave the election one to the end because that's probably the most difficult one. Bad debts, I can't remember the exact amount, but I know we've got an extra GBP 16 per customer coming in for most of 2024, not all of it, I think, but ultimately just there's bit of a lag working through. So if everybody sees heightened bad debts in 2024, then you'd expect to recover some of that in 2025. But I don't know if you know the exact rate, Russell, but it moves about. In terms of -- sorry, the retail question, sorry? Oh, yes, sorry. I think the market stabilization charge ends end of March. It's not really an effect. I think at the moment, if you were taking customers who wouldn't be paying it because you -- I think because you've got this bit of like a certain price drop mechanism. So we don't think it will be extended. I think Ofgem have been quite clear it won't be extended. Applaud it for bringing it in, and I'm sure if we saw the same market conditions in the future that we consider bringing that in it, but we don't think that to be extended. We do think it's going to be needed. And look, on the election, what would we like to -- more than ever what we look for is stability. So stability in policy and no real surprises, and we look for partnership with whoever is the government of the day. There's always a lot of speculation, I think, about energy policy, but it probably doesn't help for us to add to any of that speculation. So we just want to have a constructive dialogue with the government of the day. We want to be able to make the case for our customers and then work with the government and the regulator to go on, but we definitely have an election by early January, the latest.

Can I just pin you down and say one area [indiscernible] which is like a nonanswer, but the debate over heat pumps versus gas boilers, for example, clearly impacts your business. What's your view on whether the heat pumps will be coming and gas boilers will be phased out?

So what I would -- you could look at this and say we have a boiler business and therefore heat pumps are a threat. Actually, we installed, I think, 5%, you get 5% of U.K. heat pump markets. We did about 3,300 last year. And the majority of them were in the social housing space or in the not able to pay market as we do through our eco obligation. The way I look at this business is we are the biggest installer in service of heating systems in the U.K. 85% of homes in the U.K. are on the gas grid and they use gas boilers. The majority of the rest of them are off like, my house is off the gas grid, but I've got a gas boiler, it's just an LPG boiler. We've always said that the pace of the energy transition is we will do well no matter what the pace is. So if the pace, if it really heats up, and everybody is installing a heat pump, we have the largest workforce in the U.K. on this. They are the best workforce, the most productive, they're the safest workforce. We've looked at the stats for that this week. I would expect us to grab a large part of that market. We have a new business unit under Dan who's sitting here and looking specifically that heat pumps, EV charge points, et cetera. So if that goes quick, I would expect that we would be in there. If it doesn't, we will continue to install and service boilers. The great unknown is whether hydrogen will actually be in the energy mix as we go forward. Sorry, it will definitely be in the energy mix. Will it just be as a store for electricity or will it be to heat people's homes, I don't know. We want what's best for our customers. And so if all of our customers are going to heat pumps work best, then we'll make sure all of our people can install and service heat pumps and that will be our business going forward. We actually think a mix of technologies are required. So I think that what should be there is a huge increase in heat pumps and a huge increase in hydrogen boilers. And then you'll get decarbonization, but we want what's right for our customers. There's a lot more heat than light in this debate if you'll excuse the pun. There's a lot of very, very entrenched views. So people will say, you can't use a heat pump in the north of Scotland because it's very cold and somebody will say, well, Scandinavia, they've all got heat pumps how do that work. They all have happened to have good burning stoves as well to get the boost of heat that's required. But we don't really get involved in that debate. We say, look, what level of insulation, what's the cost to run the thing, what's the cost to install the thing, is there a nuisance value, and then how do we work with that. What we have found is that the bit that people are massively underestimating is the attitude of consumers. Everybody is trying to figure out how to do this to consumers. And what we're trying to figure out is how to do this with consumers. And so we know, for example, we're not heating sales advisers go to house. We say, look, actually, we can do a heat pump, we can do a boiler, and we just tell them what we think is the right thing for them. A lot of people have put off by the fabric disruption that's required to install a heat pump. Obviously, we have to overcome that at some point. But there are too many people telling consumers what's good for them. So we'll work with the government today. We maintain good relations with the government and with the opposition. We feed into them what we think, they listen. Do they always act? Well, no, because lots of people are feeding in what they think. So I'm not worried about the pace of change at all, but we would -- I would expect us to -- we installed a 100,000 heating systems a year. We service 2.9 million customers, 2.8 million customers on contract. I would like us to be installing more than 100,000 heating systems. I'd like us to have millions more customers and contracts, and I'd like us to grow materially our on-demand business. So heat pumps or boilers, it really doesn't -- it doesn't matter to us, it just matters what's right for the customer.

Pavan Mahbubani from JPMorgan. Firstly, on LNG, you used to give -- you've given in the past on the Sabine Pass volumes that you were sold forward on average at a profit for the next couple of years. Can you remind us if that's still the case or what the latest position is? Any color on that, please? Secondly, on the services business, can you give a bit more detail on what drove the improvements year-on-year and on a -- in terms of underlying or growth in on-demand, what we should expect to see driving the further improvements in 2024? What I'm getting at is, are we past the low-hanging fruit? Or do you have strong visibility on what's going to drive the improvements this year and then into your medium-term guide? And my last question is how much of your net cash balance relates to customer advances or the prepayments in the British Gas Energy segment, please?

Pavan, if you were sitting next to Jana and you mentioned about the low-hanging fruit, you probably have your guts for gutters. So look, on services, it's been an immense job over the past couple of years to get -- there is more operational control in that business than I've seen in my time in Centrica and probably for quite a bit of time before that. And so it has been this systematic program of fixing things, which has meant that sometimes there are some things I'm naturally impatient, I want everything to happen yesterday. So I want us to have 50% market share yesterday. But you have to take your time to make sure you fix these things in order. So there's been really huge focus on that. And we've seen that continue into early part of 2024 across all the businesses, the operational improvements are there. What that's meant -- in the same way with the assets, we focused on fixing the business, as opposed we're liquidating assets and building up cash. We're focused on getting the operational foundation right so that we can grow. So this year should be a year of growth. Now how do you see the improvements coming through? A large part of that cost base is fixed, but not all of it. And even the labor force is semi-fixed. We've got some contractors to do some peak saving, but it's semi-fixed because -- and one of the debates we have is do you recruit ahead of demand or do you get the demand ahead of recruitment? And I think you probably have to recruit ahead of demand. But what that does is it introduces a risk, which is that you have a bit of a dip in your profit. So I don't think the growth in this business will necessarily be linear. But what we've done is to reestablish the fact that we're there when our customers need us. We're trialing something just now, which is what we call a customer promise. If you call us by 11:00 in the day, we'll be there same day. If you've got no heat or hot water, we'll be there same day. I think we're about -- we're achieving that about 90% of cases. And it gives you an idea of how we're running this business differently. In the past, we would have gone out and announced that without any idea how we could do it, and then customers would be upset. What we've done is we've actually -- we're trialing it ourselves over winter to see whether we can do it. Now we think we probably can. And I think if you think about how this business grows, so what happens is we see that we can do it, so we go to customers and see, we'll give you this in 90% of cases. And maybe what we do is we also demonstrate just how long you have to wait for a standard plumber if you don't have a contract. And we think if we do that and we satisfy our customers, then we'll attract more customers to our contract portfolio. We'll need to recruit more engineers, so we'll have more capacity that we can use for on demand. The more we get on demand, the more we recruit. And so you get this virtuous circle. So I think the growth is in on-demand and in the contract customers. I don't think there was low-hanging fruit, to be honest. I think it's been a real bit of heavy lifting. But I do think if you think about the fact we only supply 10% of U.K. homes and services. Now, we used to talk about having 55% market share, and we do. So I think you look at this, 8 million homes in the U.K. buying this contract product. So we've got about 40% -- just under 40% market share in terms of number of people that buy it, but a lot of them are people paying 250 through some other utility companies do not get very much cover or pay for a full fat product. So by value, we have just north of 50% of the market where people buy contract services. And for years, we told ourselves that was really good. And we couldn't figure out why with 55% of that market, we only installed about 8% of the U.K. boilers. When you break it down, we only service about 10% U.K. homes, we only really sell boilers to our own customers. It's all that obvious. When you flip it on your head and say to the team, how do you feel when you got 10% market share in a market that is completely and utterly fragmented? There is only one other national player, and we think we are far better than them. So the opportunities there are absolutely massive. And then your last point on LNG. We have sold forward some of the stuff. We have sold it forward at profit. I don't think we give that guidance anymore. I'm not sure, but I'm not -- I don't know exactly everything we've got in the results. Did we give any of that guidance? No. But just to report what we said before, we try and hedge 2 to 3 years out. So certainly, if you look at '24 and '25, a lot of that's hedged and part of 2026. We traded 260 cargoes last year. So solid performance on the physical side. When you add in financial cargoes, 326 was the number there. And the reason I'm saying that is the LNG business is not just supposed to be -- there's lots of other moving parts there that drives the profitability. You also asked about customer deposits. So at the end of the year, that was approximately GBP 1 billion held by us. You've got to see that in the realm though, that's effectively sort of accelerated payments for energy that we will provide in the future. We've also go up sort of money to owe to us by customers as well. So you have to look at that number in the context of the overall working capital position. So that's the number.

It's Harrison Williams at Morgan Stanley. 2 for me. Firstly, just on the Rough investment, potentially convert that to hydrogen. I mean this is something you've been talking about for a little while. And I realize it is a longer-term investment. But can you remind us of potential time line here to first hear about when that capital could be deployed? And then secondly, in terms of your flex or green investments that you're making in light of the recent power price move, can you talk about has the order of preference within kind of technologies or geographies shifted a little bit there? And recently, I mean, I know you've made some recent investments into Europe in some new geographies. Just interested on your commentary there.

Rough, probably from getting the right regulatory framework in place, we're probably, I would say, 3 to 4 years from having the thing up and running. Could do it quicker. But the concept that we've got is what we'll do is build a brand new platform, a brand new pipeline and probably to a great extent, a new terminal. So we bought land so that we've got the ability to do that. We just have to have the right framework. I would point out -- so we like owning 100% of this asset. We like having control of this asset. We don't feel the need to invest the full GBP 2 billion of our own money. So we'll have the option to do that, but we won't have the requirement. That is eminently fundable whether we look to bring in a joint venture partner to the infrastructure ownership or whether we look to bring in some project finance. And so when we talk about the GBP 2 billion, we don't automatically assume it's our own money. We want to make sure that we have far more investment opportunities than we have cash to invest. But it just will take a little bit of time to get the right framework. In terms of the green investments, when you say order of preference, you mean which countries we go into? Is that the question?

Yes, the countries and maybe, if anything, on technology as well, I know between peaking and...

We're technology agnostic. What we want is the right technology. We're looking at some innovative battery technology. We're looking at standard battery technology. We're looking at ammonia-fired power stations. We're looking at clean hydrogen, blue hydrogen. So although it sounds like there's a lot of stuff we're doing, we're quite focused on making sure that we get the right technology for the right place. We're building a battery in Belgium because we are already Belgium's biggest battery operator. So we -- sorry, optimize -- we optimize more batteries in the Belgian grid than anybody else. The team that writes our battery software is based in Antwerp. So we thought it would make sense for us to put our capital there if we want. We looked at some stuff in Scandinavia as well because a big part of Cassim's team is based in Denmark. So we know the Scandi power market incredibly well. What we're not looking to do is to just pick random countries. So we will invest in places that we already have a presence and a deep understanding. So I would look at the thing in Belgium as being -- we don't look at France or Germany and think, how do we get in there? We look and say we've got a really good position if we got the option to deploy our own capital. The U.K. is still a strong place for us to invest. Ireland is a strong place for us to invest. But it doesn't matter what country we're in, we're always measuring the risk that we're taking, and we're looking at the returns that we're getting. And if we get better risk-return balance in one country over another, and we feel that we can actually do business in that country, then we will do that. But I wouldn't want to get back to the point where we could power assets in 15 different countries. It just gives you a hassle that you just don't need. So we still imagine that to be quite concentrated. Over here and then here, and then to the phone lines.

It's Chris Moore from Carbon Tracker. I was interested in your comments before about heat pumps and hydrogen. I think you used to have a target for a 30% reduction -- sorry, 28% reduction of Scope 3 emissions by 2030 versus 2019. Can you just bring up to date on how you're getting on with that target, especially due to the volatility in markets we've seen in the last couple of years?

Yes. So the Scope 3 emissions really -- we still got the target. But in reality, it requires action that we're not in control of. I would compare it to our target to electrify our fleet. So I think I made a commitment a few years ago to say we wouldn't buy another internal combustion engine vehicle, we'd go all electric. We made the U.K.'s 2 largest orders for electric vans, which felt good at the time. We've now got a lot of electric vans that we can't deploy because our engineers don't have driveways and the rollout of a public charging network has been awfully slow. So we are committed to all of the targets that we've got. But our ability to deliver things like Scope 3 emission reductions are quite limited. And if you look at the moment, I think, on average, people that install heat pumps have been getting grants of up to GBP 10,000, which would give us a GBP 280 billion bill to convert the entire U.K. house install to heat pumps. I just don't think that's going to happen. This is one of the reasons that we have been pushing hydrogen as a heating source not because we don't own any of the gas infrastructure, but we think that's the best way to get the decarbonization of the heating system. But if you see a major slowdown, so if, for example, there's no support for heat pumps, they're not affordable, people don't want them, and there's no move to hydrogen heating homes, then I don't think there's any way that we'll be able to hit our Scope 3 emission reduction targets. We do see demand destruction low-single digits year-on-year, and that's not just because the prices are elevated, that's happened over the last 4 or 5 years. But that in and of itself will not be enough to get us to that target. But what we don't want to do is to walk away from target. We want to continue to press our case, to press our customers case to see what's needed in order to achieve the targets that were set. One here, and then we'll definitely get somebody -- we have somebody in the line.

Bartek Kubicki, SocGen. Maybe 2 topics to discuss. Firstly, your gas book in the context of what you said, lower volatility, lower prices and from 3 perspectives. If you look at your gas production and your hedging levels at the end of last year and then the end of the first half of last year, there's only a small increase of volumes hedged. So question is whether you were more cautious, more bullish or simply production will decrease significantly in '24 versus 23 in Spirit Energy? Secondly, also low volatility, low prices, low spreads. How do you think the gas storage business will play out with your fixed costs and low spreads, whether you can break even or it's not a good time to break even? And also on your gas book on LNG, if we look from a midterm perspective behind your hedging profile, there will probably a lot of LNG gas coming from Qatar. So question is whether you think LNG trading will be still profitable or for some time, simply will be too much gas on the market? And consequently, also on the LNG, I would like to ask you, what's your view on the difference between Henry Hub and European gas? Whether do you think it could converge more or the margins will remain excluding regasification transportation? And so that's the first thing. And second thing, if I may, on your...

That's a long question.

It was first topic. Sorry, first topic. And now the second topic on the business energy. Do you think those profits and those margins you've made are sustainable? And is there a case for margin improvement? Or there is no case for margins improvement and they will decrease to levels we saw years ago?

So, look on the -- taking the last bit first. I think the margins are healthy in there. Would you look to -- we've got to be careful that we -- we're always focused on how do we give customers what they want at a price that they're willing to pay. So I'd like to focus more on growing that business than necessarily on expanding the margins. Because if you expand the margins too much, do one or 2 things, you attract competitors into the market or you push your customers off and you go somewhere else. So we've got to be very careful that we don't get lazy and simply look for margin expansion. I think growth is the engine that will drive all of our businesses. Look, on the gas, there's a number of questions in there. So on the LNG midterm, do we think it will be profitable? We do, but who knows. The spread between Henry Hub and European gas prices, you've got to think that will stay quite wide or widen more if Biden's ban on future LNG exports from the U.S. because what you'll have is this captive U.S. market with, I don't know, what, 30 million tons or something that is exported from the U.S., just now they could go up to 60 million, 70 million, 80 million tons. If you decide not to, then you have this gas island, which were priced under Henry Hub and you'll have this kind of European network which will be priced off TPF and NDP. So there's some big ifs in there, but the way that it looks right now, you'd expect that you'll probably see a maintenance of that margin. I don't think they'll necessarily converge. How much LNG Qatar bring on? And you've got some -- you've also got to overlay. If you think about it yourself, you have the Qataris with all of this gas. If you think the speed of the energy transition is actually going quicker, you've got an incentive to get your gas out of the ground because you might have a stranded asset. If you think the speed of the energy transition is going slower, you've got an incentive to maintain price discipline. So like anything to do with the global energy market, it's multidimensional. It's like a kind of 10 dimensional chess game or something. And so you can't just look at 2 separate dimensions. I think that the Qataris will be making a judgment as to how quickly the pace of change is going. And I think if I was in their shoes, and I thought that electrification was not going to go as quickly, I wouldn't be trying to get my gas out of the ground as quickly as possible. If I thought it was all going to electrified by 2040, I wouldn't care about price, I would just be trying to flood the market with gas, a, to monetize the asset that I've got, but b, lower prices could discourage electrification. So there's so many things you got to look at. The gas storage business and it costs about GBP 100 million to operate the Rough field and facility. We're obviously always looking at ways to reduce that. But could you get to the point where the spreads are so low that it becomes not profitable? You could, but you've got to remember that you're not -- it's not just looking and saying what's the spread forecast over the next 18 months. Our team today -- I mean you changed your nominations, I think, 3 times in a single day. So our team today will be looking, we might be injecting in the morning, do nothing in the afternoon and withdrawing at night. And so when you've got these short-term spikes in volatility, when you've got the U.K.'s biggest gas storage facility. So we're the only energy company with a big store room. Now think about it, if in Catherine's business, we find we bought too much, it's a bit warm, what do we do with the gas? Everyone else has to sell it in the market, the [ forward ] market, we can put it into the store room. So this is the integrated nature of our business. It's the beauty, we can put it and we can sell it forward. But the worry is if you see spreads in the market being very flat over the next 10, 15, 20 years, you find it very difficult to make an investment case to put GBP 2 billion into redeveloping this asset, yet if you know you're going to have this volatility and the other question is, how do you value that option. That's why the conversations with the government takes quite some time because they'll look and say, well, you're making money from it, just invest yourself. And we see any rational investor will not invest in a long-term storage project. When you're having that conversation between 2 commercial enterprises, that's difficult when it's a commercial enterprise and the civil service, the order of difficulty increases substantially. So we continue to have, I think, very constructive conversations, but it just -- it takes time on this. I'd be surprised if -- with the Rough having been closed before, I'd be really surprised if we saw it get closed again because the public interest, and I told the team that runs it, almost every politician in the U.K. knows Rough is a gas. They have no idea what it is, but they know that it's a gas storage facility because there was a huge controversy over the closing. So I think if we got to that situation, we would -- that might speed up the regulatory process. And your last point on the hedging, Russell will be able to tell you in the volume. But remember, our production is declining. And so we have a ratable hedging strategy. We don't look and say the market looks really good, let's hedge all of this volume. I think it's 75% or I don't know if we changed that number over 24 or 30 or 36 months. And so we just put out 2.5% every month. We might -- we will look at that periodically and might make a change because we want to change the risk management, but we don't want the management of Spirit to be deciding whether the gas price looks good or not. We want them to focus on producing as efficiently as they can, and we use hedging to derisk. But you would naturally see those -- absolute volumes dropping off because year-on-year, you're losing between 7% and 10% of your production. But I don't know.

Yes. No, a real change in the philosophy on the Spirit hedging. So 443 million therms at the end for '24, 174p. You can see that on Page 32. But I think if you're thinking it was a change, the philosophy is broadly the same. And of course, we adjust it through time for various factors. Chris, there was another question about the margin improvement in retail.

Yes. No -- yes, I think I said at the start, we don't see that expect to grow. We've got, I think, a question -- do we have any questions online? It's funny, one of the best feedback we get is our results presentation is too long. So we kept it really short. The Q&A is going on [indiscernible] which is good. This is the good part, but I think -- I don't know who's got the online, but...

Yes. There's a question online coming from Harry Wyburd from BNB Paribas Exane.

Also conscious of time, so I'll keep these 2 questions very quick. So firstly, I wanted to ask you on your net finance costs. If I've done my math right, I think you had a very small net finance cost in the second half, but obviously, on a very high cash balance. So I wondered, at what point would you expect your finance cost line to become finance income? I guess, consensus has that other cost quite far out, and that could be quite material as an upside for consensus if you were earning a good rate on your GBP 2.7 billion of cash? And then the second one is on share buybacks. Should we expect there is a chance that you might once again renew or add to your share buyback program when we get to July this year, especially given how good your cash balance was at year-end? And on that, given we're ahead of an election and the political landscape might make capital returns a little bit more problematic after the election potentially. Do you see July as potentially one of the last chances to launch something big in terms of shareholder returns?

Thank you very much. Let me take the last question first and then sure Russell will tell you about the net finance cost. I never thought actually we had net finance income. I was asked by an investor in the U.S., I think last year on a roadshow, were we worried about the prospect of a labor government because of the prospect of windfall taxes. And I said, well, since 1982, the U.K. had 7 windfall taxes, 2 under the labor government and 5 under the conservative government. And so logically, if you want -- if you looked at a change of government and said, who should you be worried about, as a taxpayer, you should be worried about conservative government. And the reason I share that is because we're led by the data, and we're led by what actually happens rather than by people assuming that certain governments will do certain things. We have seen -- and everybody here probably has seen or heard of, there's been quite, what people call it, the charm offensive or something by labor towards business. And they've certainly been trying to engage and to emphasize that they are Pro business. The proof will be in the pudding as to whatever governments in power. So I don't think that you've got a chance in July and then you'll have no chance at all. I think if any government that says shareholders can get a return, it's hardly going to make this a welcome place for investment. And I think that what every party realizes is that we need foreign direct investment in the U.K. So I'm not sure that I would be that worried about it. That said, on share buybacks, look, I would say we're in the middle of a share buyback program just now, as I said earlier on, very, very important for us to demonstrate to shareholders that we understand that we manage their money, and we manage it to get a return. So obviously, give us time, let us get to the end of the current share buyback program, let us progress the very exciting investment opportunities we've got. And also bear in mind the point that Russell often makes both publicly and to me privately, which is we've got to maintain quite a bit of liquidity to deal with volatility in the market. Again, if you think, very early on, I mentioned when Scott became our Chair, we had very limited room for maneuver. I think in August 2022, we saw GBP 2 billion or GBP 3 billion go out in margin calls. Now that was a bit of a pain in the neck, but it didn't really cause us to have to think about which parts of the family silver we're going to have to sell. Other companies did, companies you would be very surprised at actually because we have trading relationships with a lot of them. And some of the phone calls we were getting actually would surprise you. But we took that in our stride because we made sure that we had the financial flexibility to be in control of our own destiny. So I would just bear all of that in mind when you look at our cash position. But I'm hopeful that we've got investment opportunities. But the key thing to take away is we are super focused on returns, and the returns compensating for the risks. If the returns -- if we don't have projects that give us the right returns, we will not invest that money. And Russell, when are we going to have interest income?

It depends on a number of factors, Chris. So yes, it's a good question. So at the end of the year, of course, we had GBP 6.1 billion worth of cash and GBP 3.4 billion worth of gross debt. The interest income, the average rate was 4.5%, but the interest cost on the debt is 8.38%. You've just got to remember, we've got a large debt stack and got a lot of relatively expensive bonds in there. And then, of course, you're right, as you get to the end of the year, the interest cost of GBP 286 million was just slightly above the interest income of GBP 267 million. So depending on how rates play out, you could see interest net as an income. The other thing to bear in mind, though, is that the debt stack, the bond repayments are 50% fixed, 50% floating. So it's not a direct read through as the cash comes up straight through to the -- straight through to that. But we'll keep an eye on it, but that's the moving parts.

Excellent. I don't see any hands -- any other hands up in the room. So just thank you very much for -- we do. Sorry, we've got one more. Sorry, I thought Martin had a question, I was getting very worried. Sorry, another question online. Thank you, Martin.

The next question comes from Deepa Venkateswaran from Bernstein.

I will take the last question. So I wanted to understand in terms of your new investments, you are planning investments in peakers and batteries. And I noted that you've done a small impairment as well. So in the current market with lower volatility, does that impact your view on the economics of the battery and flexible projects? Or are they rather driven by the volatility that comes from intermittent renewables and therefore, kind of unrelated to lower volatility in the power and gas markets?

Brilliant question. So look, I think that we've taken a long time to build a balanced portfolio. And you will get points where we have an abundance of wind and solar power. Prices are low, volatility is low, therefore, our flexible assets will make less profit. But our retail business makes more profit and our customers -- and the bad debt charge goes down because the costs go down and the customers don't have such demand on their cash. So we will have years where the assets don't do particularly well, but we would expect to do better in the portfolio. And I think you see that in -- if you look at the profit mix in '23 versus '22, the only thing I can guarantee you is the profit mix in '24 will be different than that we've seen. So we've got, I think, a lot of compensation in the portfolio. What I would say is that we invest in these things for the long term. I hate any form of impairment at all. But you -- in this business, you'll see impairments one year, you'll write them back the following year. So we invest in them in a long term. I think what you might see as we go forward is, and what we've got, for example, in Ireland for the peaker we're building its capacity market contract, and I think we will see more and more income for flexible generation storage assets coming from capacity markets because I think more and more will find -- and even for very large-scale thermal generation plants, more and more will find that these plants will be on standby. And therefore, unless you have very large capacity market payments, you simply will not keep these things on standby. What we also have to see and we'll see that, I think, with the new electricity system operator, is they have to change their merit order. So at the moment, it's easier for them to call one coal-fired power plant and ask them to go on than it is to call 10 gas-fired plants. So we have had some of our gas generation in the U.K. sitting idle when we've been burning coal. Now that cannot continue. So we have to get away from this old-fashioned pick up the phone from the control room, who do you call, do you call Greg, 10 other Greg's or do you call whoever it is that's running the coal plant at the moment they call the coal plant. So there's other -- I think there's other options there, but there will be, I think, volatile earnings there, but we look long term on this. And the way I think about it is our electricity markets cannot operate without backup thermal generation and without batteries, it's just not possible. The only way that these assets will not make a return is if we accept the fact that we'll have load shedding in the power markets, we'll be like South Africa. We'll have a few hours a day where maybe they the lights don't -- and I just don't think that's feasible for a country like the U.K., for a country like Ireland, country like Belgium. So yes, I think we'll see good years and bad years in the asset business. Any more online, Martin? No. So look, just to say thank you very much for coming. We look forward to seeing you all in July. See, the thing to take away is we are super focused on delivering. And we are confident and I think even more confident now in our ability to deliver the strategy that we laid out in July. And you'll see that more and more, if you see some of the tariff offerings that we've got, some of the service offerings that we've got, even some of the things you should all have your Team GB and ParalympicsGB, bottle some of the things that we're doing to promote the brand more. These are all things that we have not been doing over the past several years because we haven't been confident enough in the offering that we've got as we fix the operational issues. We now are far more confident in what we've got that we are not complacent. So hopefully, we'll see you in July with even better operational results and the financial results. Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.