Ladies and gentlemen, welcome to Centrica's 2021 interim results Q&A call. My name is Hayley, and I will be the operator for your call this morning. If you would like to ask a question during the question answer session, you can do so by pressing star followed by one on your telephone keypad. I will now hand you over to Chris O'Shea, Group CEO. Please go ahead. Thanks, Hayley. Good morning, everyone. Thank you very much for joining us for the Q&A session for our 2021 interim results. I'm sure you've all seen the presentation and read the release. I thought we would just go straight into taking your questions. I'm joined here by our Group CFO, Kate Ringrose, and we've got our Chairman, Scott Wheway, available as well. With that, I'll ask Hayley to give us the first question. If you wish to ask a question, please press star, followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star, followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. To confirm, that's star, followed by one to ask a question. The first telephone question is the line of Mark Freshney of CS. Please go ahead. Hello. Good morning. Thank you for taking my questions. Firstly, regarding the EM&T business, Kate. The LNG profits are fairly low, as you acknowledged, after two or three good years, which is surprising given you've got more infrastructure now and given the dispersion in global gas prices. I was just curious as to why the performance in the LNG element. Is it de-risking in that business ahead of getting it for sale? Secondly, I guess this would also be for you, Kate, on the pension fund negotiations. Clearly hugely sensitive, and I'm sure you pushed the envelope by going and disclosing the GBP 1.5 billion market to market. When is it likely that we can expect a resolution? Is it something that comes June next year, or can we expect something before then? Thank you. Mark. Hi. Thank you very much for your questions. Let me start with the EM&T bit on LNG. A lot of this is actually a 2020 story as opposed to a 2021 story. You're quite right, there's more capacity. We've got the Cheniere contract. Remember, that kind of starts, as Chris talks about it, behind the eight ball. It's a negative price contract. Actually structurally coming into 2020, we were actually very well placed for what turned out to be a falling market in LNG. We set up kind of the structural dynamic over a couple of years coming into the year, and it so happened that we were very well placed for that change in price and structure in LNG and profited from that accordingly in 2020. What is happening in 2021 is more a dynamic of a non-repeat of what was a rather exceptional performance in energy as opposed to anything else. With regards to the pension negotiation, quite rightly, it is sensitive. As we've said, there's 15 months we have from the end of March to agree the negotiation settlement. I will say that we're working very constructively with the scheme trustee chairs and the trustees as a whole for those three schemes. We're making really good progress, but it is going to be something that could take another year. Clearly, I'm hoping that it won't. We'd all, both from a trustee perspective and from a company perspective, look forward to resolution on both the technical deficit and the payment profile that would accompany that. I'm not able to commit to exactly when that would happen. We're moving along as swiftly as we can. The next question is from the line of Ajay Patel of Goldman Sachs. Please go ahead. Good morning. I had a couple of questions, please. Could you just help me with the definition of the technical deficit? The reason, in terms of on a roll forward basis. The reason I ask the question is that we had a GBP 1.4 billion pension deficit back in 2018, and we're rolling that forward to now to GBP 1.5 billion by the end of June. There was quite considerable pension deficit payments this half. I just wondered how do they get incorporated into the calculation? Do they just get subtracted and then it's just discount rates that are explaining an increase and then they're offset by that number? I just want to make sure that my understanding of the calculation is right. The second piece is on the E&P side. It seems like you're making progress. What sort of options are you considering? What are the things that hold you back, in regards to the audience that you potentially could sell this to? What are you doing to maybe help with that? Any more color there would really help. Thank you. All right. Hi, Ajay. I think I'll take the first question and then pass on to Chris for the second question. Basically the dynamics with regards to the change in the pension valuation is effectively we value both the liabilities and the assets separately. Quite right, we have made some significant contributions into the pension. That was in large part due to the pension strains, which effectively increase the liability to increases and then take it off again, when you pay that down. That's the dynamic around that. The primary factor that changes that valuation is the movement in real yield rates. We've effectively kept all other assumptions entirely consistent with the technical valuation that was closed for the end of March 2018 period. Clearly, those assumptions, when it comes to membership behaviors, governance, et cetera, are all what's being reviewed at the moment now. It's just important to note that what I'm talking about really is based on those 28 assumptions. Broadly, you're right. When we pay money in, then all else being equal, the deficit should come down. I think the thing that you're probably missing just a little bit is with regards to the- Ajay, on E&P, we are committed to exiting this business, but we have to do it in the right way where the value and the decommissioning liabilities are dealt with appropriately. If you can bear with us, I'd far rather tell you what we've done than tell you our plan, because obviously there's a commercial lens to this. Okay. Thank you very much. The next question is from the line of Deepa Venkateswaran. Please go ahead. Thank you. I was going to ask a question about the restructuring of E&P, which I guess you're not going to answer. My question really is, you said that there's a CMD that you're outlining in November. What are the broad areas that you would seek to cover? Would you clarify the dividend policy by then? Also outline whether there are other non-core divisions like LNG, et cetera, that you might still consider selling in the future? Thank you. Deepa on that, we'll lay out our long-term strategy and the financial framework and financial structure at the Capital Markets Day. Similarly, in terms of the E&P question, I always think if you pre-announce disposals of disposal candidates, you often harm your ability to get the best price. I don't think there'll be too many surprises. We're clear the future for us is net zero, hence the reason that we'll get out producing hydrocarbons. Very difficult to invest in hydrocarbon production and have a future in net zero. In terms of other specific parts, what we'd rather be is to be judged on the work that we do to simplify the portfolio. As you can see, the disposal of Direct Energy, that's a huge disposal which is also on the balance sheet. You'll also notice we had a few smaller disposals. We sold a small gas line power station in Peterborough, sold the old British Gas headquarters. We sold our data management business portfolio to bring in GBP 50 million. We look at big things, we look at small things. Everything that we do is about simplifying the business, about reducing volatility in earnings, and it's about making sure that I'm progressing fast to net zero. That's the framework that we assess pretty much all of our decisions on. Thanks. Chris, the language was a bit unclear. What was the third priority? I couldn't quite hear that. Simplify, reduce volatility, and what was the last thing? Does it help us on helping our customers, our host countries on the path to net zero? Yeah. To decarbonizing energy system. That is the future for us, huge opportunity. Okay, great. Thank you. The next question is from the line of Dominic Nash of Barclays. Please go ahead. Good morning. Thanks for allowing me questions. I got two, please. The first one, could you just give us an amount what the accounting rules are for the revaluation of your E&P asset, the GBP 366 million uplift or the write back? Are you obliged to do the lower of value or book on this? Does that imply that the actual value of that asset is up GBP 366 million, if your assumptions are correct, or is it purely an accounting sort of irrelevance? The second question I've got is on power prices and gas prices. Obviously, they've roofed it in the last few months. What do you think the impact of what you're seeing are going to be on residential bills and on the retailers out there to sort of pass through this volatility without getting sort of financially distressed? The follow-on question from this is, carbon is obviously a part of the rise in this. Do you see any carbon intervention coming from the government, either on reducing the supply and demand imbalance, reducing the carbon tax supplement, or maybe even going down the continental route of carbon windfall recovery? Thank you. Hey, Dominic, on that second question. Let me take the second question first, and then Kate will talk to you about the E&P revaluation. I think probably reassure you that it is an almost irrelevant non-cash movement reflecting price changes. Do we expect any intervention on carbon? I think the government and the regulators are working really hard to figure out what the pathway is to net zero and what the best way is to get there. That will include things like carbon certificates, potentially carbon taxes, policies, et cetera. I wouldn't want to second guess that. They're quite busy with some other things. In terms of the volatility in gas and power prices and the impact, I think your question was about the impact on suppliers as well as individuals. We hedge based on our forecast demand and prices that. For other companies that hedge, your exposure is to get your volumetric forecast wrong. If you're overhedged but the market goes up, you're in a good place because you're selling your excess hedges into the market. If you're underhedged and the market goes down, you're in a good place. Where you can really have some pain is if you're overhedged into a falling market. Remember, that's what we saw last year when COVID hit in the B2B space primarily, because you're selling those volumes into a market that's falling, and if you're a big supplier, you're pushing that fall down. I think in terms of suppliers, we don't have full line of sight. We hedge and a number of other suppliers hedge. Those that don't hedge will be in a world of pain at the moment. Those that do hedge, I'm not saying it's pleasurable, but you hedge to take risk out, and the hedges that we got are in the money. Obviously, there's a danger that some smaller suppliers that may have hedges. If they've got hedges in the money, then the temptation, if you're struggling in other parts of the business, the temptation is to cash those hedges in, which is a little bit like burning the furniture to stay warm. Short-term, gives you some relief. Long-term, it's not the thing to do. I think the volatility in the market, the responsible suppliers manage that volatility as we do by hedging the book. As an upward-sloping curve means the prices go up, you're not really too worried about the in-day volatility in your supply. If you're unhedged, I can't imagine what it must be like to be an energy retailer over the past two months and not be hedged. It must be an incredibly stressful journey, and it would undoubtedly put a lot of pain in the finance. With that, I'll hand over to Kate about the question on E&P revaluation. Dominic, thank you very much for a good, gnarly accounting question. There's quite a lot of detail on this, note six on the RNS. Briefly, the way we deal with this, the recoverable amount is the higher of value in use and what we term as the fair value cost of disposal. This is assessed on a field-by-field basis. Basically, if the recoverable amount is deemed as higher than the book value and we previously impaired the fields, then we have to write it back. The process of assessing that is pretty mechanistic, and we've moved and we've been fairly consistent on this for the last few periods that we've reported to looking at third-party curves, looking at the P50 as reported within that set of third-party curves, and also looking at the liquid curves that we can see and assessing according to that. A big driver behind this write back is liquid curves that we have at the moment. As I say, it's a pretty mechanistic calculation, which is why you see large ups and downs. Last year it was mostly downs. Thank you. Sorry, can I just follow up quickly, Chris. Thank you both, by the way. Can I just follow up on the first part of my question is that, do you think we're going to see significantly higher retail bills coming through as well? Have you sort of quantified what the scope will be? I think our expectation of the price cap is set with observable forward market prices. I think we expect it to be up about GBP 10 a month. I think that's the number that's been tabled, at GBP 170 for the year or so. It's not insignificant, but that would be for the Ofgem will announce that, I think, August 2nd, and it affects 1st of October. There's roughly a GBP 10 a month on a dual fuel bill. Thank you. The next question is from the line of Chris Laybutt of Morgan Stanley. Please go ahead. Good morning, everyone. Thank you very much for taking my questions. First question just on operating profit seasonality. Actually, more like operating cash flow. Just wonder whether you can give a sense for first half versus second half skew in the current environment. You had a strong performance in the first half with your free cash flow across the group. Do you expect that to continue into second half? I guess any comments that you could make, that would be terrific. Second question. We've seen some policy documents released in the last couple of days by BEIS. Just wondering whether you can comment on a couple of policy changes that might be coming your way in retail. Firstly, just on the collective switch policies, and your views on those. Today it looks like there's a move to address ECO, and some of the market distortions that we're seeing. Some comments there would be terrific as well. Thank you. Thanks, Chris. Let me take the question on the policy docs. I'll touch on seasonality, and then Kate can correct any mistakes I make. Collective switch, we argue against that quite strongly. We don't believe that that's the right thing. Ultimately what a collective switch says is the government, the regulator wants to make decisions on behalf of consumers. I'm not sure that there's any basis on which to do that. We believe that you should have a competitive market. We believe in markets. A collective switch, I think, goes completely and utterly against that. I think you could argue that it's a bit insulting to consumers. That's not something that we think is not something we supported in the past. It's something that we would argue against. We don't see that as being necessary. I think if you look at the vast majority of retail energy suppliers in the U.K. making a loss, it is hard to see what the justification for a collective switch would be unless the regulator is looking to deepen the losses in the market. That would be a very, very odd position. You mentioned another policy. What was the other policy you wanted me to comment on? Sorry. It was the consultation on the ECO program to remove the distortion for small suppliers. Yeah. The bottom line of this case is to take it down from, I think currently 2,000 suppliers to step down to 150 in the proposal. Now to take it down to 1,000. What we argue for is competitive markets and a level playing field. Therefore, the fact that basically what this will do is require every supplier would encourage that because we think that it's right. There's no comment on in and of itself. However, if you've got a scheme, you have to apply it to everybody. We think that's very positive. There's also a consultation issued recently by Ofgem, I think, on the supplier licensing, even with a requirement to ring-fence customer deposits. We not only support that, but we have been encouraging that because give us a nice lead into the cash flow thing. Customers tend to pay, a lot of them pay by direct debit over the year. In the first half, when your profits are up, you're not recovering all the cash that you would otherwise recover because you're buying more commodity, because your customers more. During the summer months, you get more cash from them than you get into the winter. If you've got customers that paid for a product that you haven't delivered and you've spent that money, that's quite serious. We think it is absolutely right that anybody that takes a customer deposit regularly should be regulated like financial services companies are. We welcome that. On the cash flow, I would say that if anything, you would expect in our downstream business, the cash flow to be quite negatively impacted in the first half. Kate can talk about guidance. It's a nice attempt to get to give you guidance, Kate can talk about the seasonality. One thing I'm glad you picked incredibly strong free cash flow generation. One of the reasons is we've got a CFO who is laser-like focused on cash. You've got a CEO who is quite interested as well. Our Chairman is also quite interested. We are all focused on cash because you can't pay the bills with profit, you pay the bills with cash. We're quite disciplined on our investment criteria as well. We like to invest behind good ideas, but we're only going to invest where there is a good idea. I think one of the things misunderstood or underappreciated by people is the incredibly strong cash generative attributes of this business. With that, Kate can give you a view in terms of seasonality and cash flow. Sure. I think what Chris has talked to is correct. When you look at the dynamics of seasonality, you have cash more weighted to the front half than the back half. From an operating profit perspective, it differs by business unit. Energy is probably the most obvious one where we tend to have profits more weighted to the front than the back half. I think a couple of things that I'll just point to note when we look forward on cash, clearly as Chris has already mentioned. The dynamics in working capital and so far as they're impacted by COVID remain a dynamic of uncertainty. The other thing just to be aware of is in a period of high commodity prices, particularly in energy, that tends to consume more working capital. If you think about what that means is that you're paying for, or we're paying for the commodity and settling it for the months and months in arrears, and our customers take longer over the winter period for those on direct debits too. The other things as well, just to point out that have been positive is margin cash. Again, we tend to be net buyers in the market. That means in a rising commodity environment that cash has come back into us as margins whereas habitually over the last couple of years, where commodity prices have fallen, we've had margins placed with other counterparties. That's been a swing factor and it's very uncertain as to how that's going to manifest by the end of the year, given it's so commodity price dependent. The only other things that I'll just remind yourself is, we talked to pensions earlier. Pension settlements will come through as well at some point in time. We've still got a degree of interest to pay. Those are the other sort of key movements that will come through. All in all, I would expect a weighting more to the front than to the back for cash. Thanks very much. The next question is from the line of Jenny Ping of Citi. Please go ahead. Hi. Good morning. Three questions from me, please. Just following on from that cash flow question from Chris. I just wanted to know whether there are any lumpy one-offs or any funnies in the 1H cash flow that we shouldn't think about or think about taking out for the second half. Secondly, just in terms of the services business. Clearly this year's, the strike and COVID has had an impact. I was also hoping for some commentary around as you look forward into 2022 when the new FCA rules kick in terms of the ban on auto renewals, how you think that would likely to impact the churn of the business and the profitability and margin of the business. Thirdly, just going back onto Spirit. I wonder if, Chris, you can say whether you have thought about listing standalone Spirit rather than through a disposal process, whether there are any quirks in there which effectively stops you doing the standalone listing. Clearly, this is an option that some of the other utilities are thinking about with other parts of their business, I just wondered whether that's something that you've explored. Thank you. Morning, Jenny. Thanks very much. Let me take those questions in reverse order. I'll start with Spirit and touch on the FCA comment, and then Kate can talk about if there's any one-off lumpy things in the cash flow. On Spirit, there's no restriction to listing the business. I think it's highly unlikely we would do an IPO for Spirit. Don't hold your breath. On the FCA, on auto-renewal, our retention rate in services in the first half was 79.5%, and I'm quite disappointed at that. Normally it's north of 80. My drive on this, make sure that we have a service that customers want to buy. COVID has really impacted us first quarter of 2020, and COVID impacted again in the first half of this year, and obviously the industrial action impact. What I really focus on is to get the service in a place where not only retention goes up, but we can actually grow the customer numbers. I wouldn't want to be complacent and say any changes wouldn't have an impact, but I'd like it to be that the service is in a place where the customers are coming to us, and we keep the retention rate well. Don't anticipate any impact there. We do have work to do in terms of improving customer service. With that, I'll ask Kate to take the question on cash flow. Hi, Jenny. Honestly, nothing particularly major that really comes to mind. On tax, we got a couple of rebates, particularly with regards to Norway and Spirit. That's probably one thing. I've talked about the pension payment that we made, but then I'd also highlight that there's probably a couple of lumpy things to come. The key things that I would call out, the pensions that we've talked about as a potential, albeit unknown. There are other things like the renewable certificates that Chris has spoken to in terms of the supply contributions in August. That's another lumpy thing too. No, nothing in particular. Thank you. Sorry, if I may, just to follow up, Chris, on Spirit. Highly unlikely. Is that because there is the need to add additional cash into a separate business because of the decommissioning liability? Is that why? Just trying to understand why highly unlikely. Just on the FCA, when you talk about retention rates, and aiming to continue to have that high, presumably, the no price walking will hit margins as a result if you want to keep the retention rate high. Two questions. We tend not to do what you would call price walking. We do give customers sometimes introductory offers. We don't then auto-renew and walk them up in prices. That's not something that's part of our business model. We tend to find we're a little different in Europe because we also have our own essentially fulfillment. It's not just selling a policy. What we tend to find is you give people good service, they tend to stay. You don't give people good service and they tend to go somewhere different. The key thing for us is not really start off with incredibly low prices and walking customers up. It's about giving customers very good service. That's why the focus is on making sure the service is in the right place, the things that we can control so that customers happily pay for the service that they get. On Spirit, it's not about having to inject cash, because I don't think it's the best way to realize value from that business. Because you know the reserves to production life of that is shorter than the average E&P business. I think the best way to get value from assets like that are probably through private sales rather than to go out and list something. To me, if something's got lots of growth opportunities, lots of growth projects that are ongoing, then that's something that's traditionally quite easier to list, as you saw with, for example, Harbour Energy with Chrysaor backing into Premier. I don't think the Spirit has that same profile. The real thing is that an IPO is an awful lot of effort, and I don't think it's the best way to get the value. I don't think we need to go down that route. Okay. Thank you very much. The next question is from the line of Elchin Mammadov of Bloomberg Intelligence. Please go ahead. Thanks for taking my questions. My first one is on your customer losses. The number of active U.K. suppliers keeps declining, yet you keep shrinking your customer base. When do you expect to stabilize your customer numbers and potentially even grow it? That's question number one. The second one is on nuke. Dungeness B, it was announced that it would be shut seven years earlier than planned. Is this a one-off event or is it a more widespread issue? What does it mean for your plans to eventually sell your nuclear stake? The final question is on your energy services business. Some of your peers, notably ENGIE is divesting it. Do you still think it's a good business to be in and why? Thank you. Okay. Thanks, Elchin. Let me take the U.K. customer losses and energy services, and then Kate has responsibility for the nuclear business as she'll answer that one. Just at the back of your mind, if we could is, well, I think some of the plants are closing earlier than current expectations. The life has been extended quite a bit. If you look at when the expected closure dates were when they were originally constructed, I think they've gone on a bit longer than we had thought. For energy services, we think it's very good. Our own energy services business is very good. I suspect with ENGIE you're talking about the B2B energy services. I think this is something where, like many companies, you have to focus on what you're good at and get better at it and do more of it. We have good business there. In Centrica Business Solutions, we're not yet at the level of profitability. I think we've got a very strong business there that can get to break even and then move on to profitability. We don't have infinite patience with it, and we've got a lot of commercial focus to it in terms of how you go after your offers and how you manage your cost base. This is a business that we see real potential in. Others may not see the same potential in their business. If we got to a point where we thought this couldn't be a material profit contributor to the group, then we would stop the activity. There are no sacred cows in the company, but we see the possibility of this being a good business. On U.K. customer losses, we've been quite clear that the number of things that we need to do, we're making progress. One of them is we need to have a more flexible system and a better way of serving our customers, which is why we've launched a new Software as a Service platform, and we've now got 250,000 customers on that. We had 100,000 at the start of the year. We're testing and learning, and we're confident now we can do migration, taking customers directly onto the platform. We've migrated customers from our existing system, and we've migrated active supplier customers to Nabuh and Fidelity Energy. We're testing how we can do that more increasingly confident and get the read. We also need to have the cost to serve in the right place. The cost to serve has come down by 70% in this year, so first half 2021 versus full year 2020. You've got to bear in mind that within that, there is GBP 2 of dual running costs. The dual running costs are going to increase as we go forward, as we bring more customers onto the new system, and we still have cost of the legacy system. Again, we've got to balance the need for speed on this, but also with the need to do this very responsibly to give our customers a good experience. To get costs to serve in the right place, you need to give your customers better service. We see some really good indicators in that. I'll never be happy, and I can assure you, none of us will be happy. Kate won't be happy. Our chairman, Scott, won't be happy until we see customer numbers going in the right way. We have to be realistic. It doesn't just happen overnight. It's not something that we are waiting passively to see. We're actively working this, but they've got to be the right customers, and we've got to also see how the market shakes out as well. Although we've had a few supplier failures, we still have an awful lot of unprofitable suppliers in the market, and we'll see how that pans out going forward. Okay. Thanks a lot. That's very encouraging. Thank you. If I just pick up the question on nuclear, I mean, as you'll be aware, Dungeness hasn't run for a couple of years. It was a difficult decision that we made with our partners to close the station. Dungeness is quite a unique construct of a station. I think it took quite a long time to just come online in the first place, and there were other stations that started to build later and finished earlier. It's always been a little bit tricky, hence the decision to close it early. In terms of redeployment, there are a number of AGRs, as you'll be aware, in the fleet. The key thing that both the regulator and EDF monitor very closely is any issues with cracking. That's just something that remains under constant review. There's no update definitely on any of those dynamics there as yet. Sizewell is a completely different technology that is used while it's on outage at the moment, and that's been slightly extended. As per the remit, we expect that it will come back in August is the latest information that we have. In terms of what this means from a sale perspective, I think we've talked about how we're thinking about holding nuclear in the portfolio, and Chris has talked about this to some degree with regards to how we feel about the fit of nuclear and its carbon credentials. More broadly, if I look at the nuclear portfolio for us, there have been a number of uncertainties that we've been working through with EDF, both with regards to reliability of the fleet, also with regards to decommissioning agreements with BEIS. The latter has been resolved, which we view as very positive. As EDF and ourselves work towards a fleet that will be smaller over time as these stations reach their natural end of life. There's very key activity going on within the nuclear business to ensure that we manage the costs accordingly. Thanks a lot. Thank you. The next question is from the line of Bartek Kubicki at Societe Generale. Please go ahead. Good morning. I would like to discuss three issues, if you don't mind. Firstly, on Rough and the conversion to hydrogen storage. I think this is quite a CapEx-intensive program. I saw some numbers about GBP 2 billion or more. I wonder, what do you think your contribution to this could be in terms of amount of money potentially to be spent? I guess this could be one of the ways how you can spend your excess capital following the disposal of Direct Energy. Also on this, what kind of sort of regulations or subsidies are you already, if discussing with the government, whether something like regulations of this on the RAB basis would be something of interest? Consequently, if you get Rough regulations or Rough regulations and you get whatever, 2%, 3%, 4% return, if this is something which is of your interest as well. Maybe if you can elaborate on this one. Second one, a bit shorter on the legacy contract, are you actually considering selling it and closing it earlier? Also one of the possibilities to use your, in my opinion, excess capital you are having right now on your balance sheet. Thirdly, on heat pumps, where do you think this could sort of kickstart really, in terms of installations in the U.K.? Whether you think this could be a game changer for your services business as well and basically given your engineer fleet, whether you could be a clear winner here. Thank you very much. Okay. Thank you very much. Great questions. Actually the Rough question and the heat pumps question are linked and then Kate can talk about the legacy contract. I'll warn you in advance, we're obviously not going to talk about what we'd like to do commercially with contracts. Look, on Rough, the number I think that's been quoted is in a very, very, very high level estimate, non-engineering estimate, is about GBP 1.6 billion to convert Rough to a hydrogen storage facility. That's about GBP 300 million to basically pull all of the steel out of the holes in the ground and reinsert new steel, because these are old wells, so you need to have them running for quite some time. There's another GBP 300 million, GBP 400 million on what we call the top side. That's like the processing kit on top of the platform. Basically, the legs are fine, you need some new kit on top. There's about another GBP 700 million-GBP 800 million or so, which is about what's called cushion gas. You need something at the bottom of the reservoir. That's where you get the full amount of money now. The cushion gas could be methane. If the price of methane is GBP 0.80 per therm and it is just now, a lot more than it if the price is GBP 0.30 per therm. There's a huge amount of uncertainty there. I would just treat those numbers, they're very, very rough ballpark numbers. What we said to the government is, first and foremost, the U.K. has the ability to store 1% of its annual gas demand. Ignore hydrogen. 1% of annual gas demand. Germany can store 31%. What we said to the government is actually, if I was in government, I'd be quite worried about that because it puts you at the mercy. We don't have enough domestic gas to meet demand. It puts you at the mercy of supply shocks and you see prices, LNG doesn't come here, and you see prices moving as we do at the moment. Just first and foremost, security supply, it makes sense to have storage. Rough is a great storage facility, was a great storage facility. You say, actually, we think Rough could be hydrogen. We need to do some engineering work to test that hypothesis, but we're fairly confident it can be quite good. We talk to the government and say, well, what kind of support do you need? I don't think people are going to spend this amount of money on a merchant basis, on a speculative basis, into something that may or may not work. We talk about the two main areas you could have for this would be, as you say, a regulatory asset-based model or a cap and floor regime. They work in a relatively similar way, cap and floor, obviously, you can more downside, more upside. You've just got a bit more of a fairway. It's really down to, I think government to see what do they think they're comfortable with. The tricks on this, I think, is if we were to try and use existing frameworks rather than to try and propose something new, that's something that's a bit different maybe about us today than us in the past. Rather than have some deep intellectual exercise as what could work. If it's never worked before, it takes longer. If you can point to, and there are cap and floor regimes, and there are Rough regimes. We're just simply pointing to two possibilities to make it work. We haven't had any confirmation from government. It's really got to be down to them. When you get to what level of return. You mentioned 2%. I'd struggle to lend the government money at 2%, so I think that would be quite easy. I think the recent RIIO-2 or the latest RIIO-2 settlement was 4.7%, 4.8%. If you think the risk-free rate is 2%, and that's lower than our cost of capital just now. If it's truly risk-free, then maybe you consider it, because obviously your cost of capital is determined by your overall asset mix. All I would say is it has to be attractive for us. How much would we put in? I think the real question for us just now is, can we create value from an asset that we've got? The second order question is, how much do we want to invest in it? Do we want to invest all of it? Do we want to invest some of it? Do we want to have a project finance vehicle? Do we want to leverage it? I think there's loads more questions, but the first thing we've got to do to find out whether actually there is an investable option there. If there is, then we'll figure it out and I can assure you that I'm looking at Kate just now. It's not easy to get money out of Kate, so it has to be pretty good returns for us to invest in that. Really it's about taking an option. The question on heat pumps, and the reason I think there's a linkage is that the solution to the U.K.'s decarbonization issue has to include hydrogen and heat pumps. It cannot be pure electrification, and it will not and cannot be purely hydrogen. 85% of U.K.'s homes are attached to the gas infrastructure, gas network. We have a network which works really well. We need to spend some money to adapt it. Bear in mind that the U.K. ran on hydrogen up until the mid-1970s. Town gas was 55% hydrogen. We were a hydrogen economy before, and we can be a hydrogen economy again. There's about 6 million, 5.5 million, 6 million homes in the U.K. that cannot take hydrogen. They should have heat pumps. The heat pumps cost about three to four times as much to install and about 40% more expensive to run. There's a cost implication there. The solution's got to be both. For us, it's a great opportunity. Not heat pumps over hydrogen, but heat pumps and hydrogen. The installation of a heat pump is something that we're very well-placed to do. We do about 1,000 heat pumps a year. We're already doing it for trial and hybrid heat pump. We do it through social housing and proving hybrid heat pumps with our colleagues in the West Midlands. That's a heat pump with a very small gas boiler so that you can get some really hot water. You probably don't want it right now, but you might want it in the winter for a hot bath. We are doing that at the moment. We see huge opportunity. I'd like you to think, bear in mind, heat pumps are not new technology. France installed 400,000 a year. U.K. government said they want to get to 600,000 a year by 2026. That's a massive opportunity for us, but there will be an issue with customer acceptance, customer adoption. There's quite a bit of disruption in the home when you get one. We are in a great position, Centrica. The decarbonization of energy, the net zero transition is something that is a huge opportunity for us. It will be a combination. It has to be a combination of electricity and gas. Heat pumps and hydrogen, both of those present great opportunities for us. There are some nuances in terms of how you drive the change, but first, there are threats that are more opportunities. I'm quite excited about the future, and we continue to work with government and regulators to the point of what we think is the right thing for the customer. We have to see this through the customer's eyes, and we'll continue to push that. Increasingly, you'll see us more representing our customer's view. Rather than representing just company view, it's really what's good for the customer. That's why it's got to be both. With that, I'll let Kate tell you why we won't discuss what we're going to do with the gas asset contracts. I think Chris has set me up for a very short answer. Fundamentally, the gas asset book finishes in 2025. Not specific to the gas asset book, but we look at all of our contracts with our portfolios as to what is the right and the commercial thing to do and the gas assets. We have a follow-up question from the line of Mark Freshney of CS. Please go ahead. Hello. Thank you for taking my follow-up. Two follow-ups. Firstly, within the U.K. nuclear fleet, I agree the U.K. government's agreement to take the assets once they're defueled is a big positive because it cuts out the middleman and some of the risks of decommissioning and recovering cash from a government or a fund that hasn't got any money. Regarding the reactors, when they're defueling and once they've shut down, and we can see another two shutdowns, I think next year, the date's already on a Remit. Are those reactors going to carry operating cost? Will that weigh on the profitability of the U.K. nuclear fleet? Just secondly, within EM&T, I think there was a tacit acknowledgment from your predecessor, Kate, a year ago that Centrica was looking at divesting parts of EM&T, and particularly the LNG, and follow-up press speculation. Is that something that's feasible? Can you talk about whether that's still under consideration? Thank you. Mark, if I may, let me take maybe the EM&T question and then Kate can touch on the nuclear question. Any good business keeps its entire portfolio under review. What we've got in EM&T is a really good business, and I think probably what you're referring to was the LNG business. If we had a time again, we wouldn't have the Cheniere contract. Not a great contract. However, we've got a really good team managing LNG. It's a business I've been about for many, many years. I wouldn't claim to be an expert in it, but I understand it well, and I'm comfortable with it. I'm very comfortable with the portfolio that we've got in EM&T. Very comfortable with the team that we've got, and as Kate mentioned earlier earlier, although there's a reduction in profit, another we've disclosed separately, but the LNG was profitable in the first half of the year. We have got a really good team that start with a contract that is out of money, and they have to work very hard to get the contract in the money. Last year, they did an unbelievable job. This year, they did just an incredible job. I'm very comfortable with what we've got there. Again, our job is to create value for our shareholders. We don't have a for sale sign up above everything. If somebody serious wants to come talk about parts of our business, then we could well have a conversation. I worry more when nobody wants to talk about parts of our business because it means it's not desirable. I would love it if people were looking enviously at parts of our business. Not to say we would get rid of it, but that would be a sign of a high-quality business. Look, hopefully, that answers your question on that, and Kate can give you the lowdown on the nukes. No, it does. Thank you. Mark, just in terms of nuclear, you're quite right. Hunterston B at this point that are due to close in January, July of 2026, effectively. Hunterston B is on its final six-month production run. Hink B is on its second to final production run. I think your question is around look forward, really, in terms of how we think about nuclear. In the current year, we weren't able to really benefit from the power crisis because we're hedged, but also because of the outages and the timing of the outages earlier in the year means that hedges that were put in place needed to be bought back in order to make that good again. If I look forward into. You know the things that we'd be monitoring would be price and the price at which we're hedging also benefits from depreciation, as the Dungeness closure has been decided earlier on. The other thing, it was just to be aware of as well is just large operating costs. I think I saw this a little bit earlier, in the Q&A. EDF are leading on a cost strategy. We're very alert to the risks of cost stranding within the nuclear business. There is a program in place where we're seeking to. Okay. Thank you. The next question is from the line of Verity Mitchell of HSBC. Please go ahead. Hello. Morning, everyone. I just got a couple of questions, apologies if they've been answered already. One is just about retiring debt. You mentioned the statement that you're actively looking at that, obviously post the pension settlement. Do you see that as being NPV positive? Should we be thinking that that's something that's quite likely? I just wanted to come back to Software as a Service. I know there's been some comment about it already, I think my simple question is why are you not migrating more customers more quickly onto this? Is there a constraint? Should we expect a big acceleration of that, as with some of your competitors who are using these lower-cost platforms in the future, say, in the next 6-12 months? Thank you. Verity, thank you very much for the questions. On the migration, you could migrate incredibly quickly, but you have to be careful that you get it right. I prefer for us to test and learn, test this in cohort, find out where the pain points are, fix them before you aggressively migrate. I can't comment on what others have done, but I can comment on other things that I've done in previous companies. You tend to, with the system migrations, you act in haste, you can repent at leisure. You've got to make sure that you get it right. That's the most important thing. Now, it doesn't take a rocket scientist to figure out if you migrate at the rate of 150,000 in six months. This is a 10-plus year project. It's not a 10-year project. It would still be non-linear migration. The key thing really that we get it right. Maybe I'll hand over to Kate on the question of debt. The way I've always thought about debt retirement is never NPV positive. It's always NPV neutral. Now it can be earnings positive because effectively, if it's a private note, you have to have a make-whole payment. If it's a public note, you have to buy it on the market. Effectively you pay the net present value of the future delta between the current interest rate. Rarely will it ever be a net. For the net present value positive, you have to find arbitrage opportunity in the market. You suggested for the bond market. That's the way I would always think about it, but Kate is far better at this. We'll give you her view on that. Thanks, Chris. With regards to debt, we do have a significant amount of gross debt still outstanding, GBP 3, GBP 4 billion. Where we have debt that's falling due, then we're choosing not to refinance that. That's just economic way of doing it. The thing really that we're also just looking at is what are the potential make-whole costs that we'd need to outlay in terms of cash from a bond perspective. Everybody is looking for us to redeem these bonds at a discount, which is good, I guess from the perspective that our credit is holding. I think this is something that will be under review as the balance sheet efficiency would always be under review. I wouldn't look at it as being anything imminent. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Chris O'Shea for any closing comments. Super. Thanks very much, Hayley. Just to say, thanks very much everybody for taking the time to watch the presentation, to give us such good questions. Just to wrap up, lots of moving parts, but stable profits, stable earnings. In many ways, a tough first six months of the year. Some of the operational issues that we've seen first six months with the industrial action. You can see from some of the operational metrics we're seeing movement going in the right direction. It's far too early to declare victory. I am incredibly optimistic about the progress that we're making and about the opportunities that the net zero transition will afford to Centrica. We're incredibly well-placed to capitalize on this. There's a lot of work to do, but there is huge market opportunity there. We've got great people, and I think that they are starting to believe again. I'm sure that you all noticed our employee engagement was incredibly low level. Higher than it was last year and higher than it was the year before. If you think of all the change our people are going through, that is quite something. We're still not where we want to be, but things are starting to move in the right direction. Thanks very much. Really looking forward to seeing all of you at the Capital Markets Day that we'll have on November 17th, where we'll be able to lay out more clearly the future strategy and the financial framework of the group. Thanks again. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephones. Thank you for joining and have a pleasant day. Goodbye.