Centrica reports 35 per cent fall in profits
The utility giant attributes the slump to warmer weather, which saw customers spending an average of £100 less on heating. The drop comes as the Big Six faces a comprehensive competition inquiry, and follows recent controversy over cuts in gas bills. As reported yesterday by Your Money, the Competition and Markets Authority (CMA) has found that the Big Six are overcharging long-term customers up to £234 annually.
The group made an average profit of £42 per household (a total of £439m), roughly £10 lower than last year. As a result, dividends will be cut to 13.5p per share, down from 17p last year. Centrica shares fell by 8 per cent following the announcement this morning.
Iain Conn, group CEO, said that Centrica would be moving to cut investments and costs as well; he also stated his intention to launch a strategic review of Centrica’s operations overall. Conn went on to predict that Centrica earnings would fall again in 2015. The results of the strategic review are expected to be released in July.
The results mean that British Gas remains the UK’s largest energy supplier, with a total of 14.8m customers; however, the firm lost customers last year, with 368,000 switching to a new supplier. British Gas is not the only member of the Big Six to suffer from customer migration in the last year; research conducted by Energy UK indicates that as many as 3.2m consumers have moved to a new supplier in the past 12 months. Customers moving to smaller suppliers accounted for 41 per cent of all switches.
“Despite diversification, Centrica has been hit on all fronts,” Keith Bowman, equity analyst at Hargreaves Lansdown said. “Lower consumption and falling energy prices have impacted on its British Gas supply business, whilst the drop in oil and gas prices is bad news for its expanded exploration division.”
“As a result, the dividend is being cut, investment expenditure reduced and a review of the company’s longer term strategy undertaken. For investors, the cut to the dividend payment is a major blow. The search for income yield is becoming ever harder, whilst the uncertainty raised as a result of the current competition investigation for both Centrica and its rivals further undermines confidence. Shareholders are, today, the clear losers.”
James Padmore, Head of Energy at comparethemarket.com, believes that “despite the political pressure to reduce energy bills, Centrica’s drop in profits may increase resistance to make large scale cuts in the cost of tariffs.”
“Now is certainly not the moment to settle for your existing energy package,” he continued. “There’s never been a better moment to shop around for a better deal. If everyone in the UK were to move to the best tariff for them, we estimate that the collective “energy dividend” for the country would be in the region of £4 billion.”