Annual Review 2002

Centrica at a glance. Every day we touch the lives of millions of people

Employee inspects contents of pottery kiln

Centrica Business Services focuses on the needs of small and medium sized enterprises.

Business review 3/5

Centrica Business Services

Centrica Business Services has become the leading supplier of energy to the UK commercial sector during the year with 27% of the market (measured by share of supply points). This amounts to 51% of the gas market and 20% of the electricity market.

We set out to maintain our position in the gas market, keeping our focus on customer service and value, rather than aggressively acquiring market share. We completed the integration of Enron Direct, which we acquired at the end of 2000, and expanded the business with the acquisition of Electricity Direct. These acquisitions and better targeted organic growth have led to a 39% increase in average electricity consumption per customer.

Towards the end of the year we added to our range of services by launching a telecoms product under the One.Tel brand.

Key Centrica Business Services performance indicators
	2002	2001	Δ%
Customer supply points (period end) (000)
Gas	383	389	(1.6)
Electricity	516	337	53
Turnover (£m)	971	581	67
Operating profit (£m)	65	44	48

Centrica energy management group

Centrica energy management group (CEMG) controls our upstream operations: gas production and storage, electricity generation, large volume industrial and wholesale gas sales and energy procurement. Competitively priced supplies play a key part in ensuring the success of our customer focused businesses.

Gas production

Upstream gas profits fell in line with the reduction in wholesale prices. During the year, a number of transactions were concluded in line with our strategy of increasing gas equity ownership beyond the Morecambe fields. Centrica customers will benefit from an estimated 135 billion cubic feet (1.3 billion therms) of additional gas acquired. Production volumes represented 27% of our downstream demand in 2002.

Storage

In November, Centrica acquired the Rough gas storage facilities in the North Sea. During the period of Centrica’s ownership, turnover was £9 million with an operating profit of £1 million. The Secretary of State for Trade and Industry has to decide whether to clear the acquisition, refer it to the Competition Commission for further investigation or accept undertakings in lieu of a reference.

Industrial sales and wholesaling

Sales volumes were down by 8% against 2001, but profits rose due to better gross margins and a one-off profit on the termination of a European gas supply contract.

Electricity generation

Our interests in four power stations and in the entire output of Spalding power station when it comes onstream will give us a peak capacity of 2.6 gigawatts by the end of 2004. Production volumes in 2002 rose 160% to 7,662 gigawatt hours due partly to the acquisition of the Glanford Brigg power station. Our stations provided 22% of our annual downstream demand and 20% of peak requirements.

Accord Energy

Our Accord trading business continued to support our energy procurement strategy. The business broke even despite the highly volatile trading environment in 2002, including problems caused by the unplanned shutdown of the continental European interconnector and the highly publicised difficulties of other energy companies.

Δ% has been used to express ‘percentage change’
n/m has been used to represent ‘not meaningful’.

We now have interests in four power stations across the country.

Key CEMG performance indicators
	2002	2001	Δ%
Gas production and storage
Total production volumes (m/therms)	4,056	4,287	(5)
Turnover* (£m)	932	1,033	(10)
Operating profit (£m)	448	552	(19)
Industrial and wholesale
Operating profit (£m)	72	5	n/m
Accord
Operating profit (£m)	0	16	(100)
CEMG operating profit (£m)	520	573	(9)